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Sinking Funds Could Save Taxpayers Money

As Grand Rapids Public Schools Superintendent Teresa Weatherall Neal prepares to ask her board in November for another revenue source, she’ll be keeping an eye on pending legislation in Lansing proposing to expand the allowable uses of sinking funds.

Whatever lawmakers do by November, if anything, won’t reduce her district’s obvious needs, but she said the flexibility offered by a pending House bill now in committee would be welcome. She said the bill allowing the purchase of technology and safety improvements for schools should be an easy choice for legislators because it would save taxpayers money. 

“As far as how much I think we need or for how long, I don’t know yet because I’ve only begun to do my homework,” Weatherall Neal said of a possible millage request to voters next year. “I have a meeting coming up with the board, a retreat in the middle of November, and that’s one of the things we’ll talk about.

“I haven’t talked to them about it yet but I don’t think they’ll be surprised,” she added.  “I also want to make sure this is what the community wants me to do.”

A tour of the district’s Central High School – the oldest operating high school in the state – reveals a need for renovation and new technology; things that could be paid for at reduced cost to taxpayers using a sinking fund as opposed to a bond issue.  Aging bathrooms, crumbling plaster and water-damaged ceiling tiles are commonplace, not to mention old computers that consume precious class time just booting up.   

Those backing the legislation say the use of sinking funds especially for items with a short self-life like technology simply makes sense.GRPS Superintendent Teresa Weatherall Neal

What Are Sinking Funds?

Sinking funds are similar to a household savings account, as opposed to bond issues which are more like obtaining a loan from a bank, experts say.  They allow school districts to levy a property tax, the revenue from which is set aside for use as needed on things already specified as allowable uses by state law.  

The proposed legislation would shorten from 20 years to 10 years the duration those property taxes can be levied and reduce the maximum amount from 5 mills to 3 mills.  It also would add as allowable uses building improvements for security and technology purchases like computers.

The current law allows for technology infrastructure upgrades meaning wiring or stringing fiber optic cable in a building. Right now that leaves school districts paying for the tools students put their hands on to learn like actual computers out of the same pot of operational money that keeps the schoolhouse lights on.

Experts say if the pending legislation were approved, taxpayers would save between 10 percent and 12 percent on technology expenditures because they no longer would have to pay issuance fees and interest on property tax levies as they do now on money borrowed through bond issues.

“There is no hidden agenda here; we’re talking about using basic sound business principles,” said Chris Glass, director of legislative affairs for the West Michigan Talent Triangle, a consortium of the Kent, Ottawa and Muskegon county intermediate school districts.  “If we’re going to allow districts to go to voters and ask for money to fund technology and security then why don’t we let them do it in the most fiscally responsible manner possible?”

That’s especially in an age when technology is even more valuable as a learning tool than it was a mere decade ago. Weatherall Neal noted some assessments used to gauge the compliance of school districts with state and federal achievement standards require some technological savvy.

“So many children in the Grand Rapids Public Schools may not have access to some of the top technology that is out there and that puts them at a disadvantage,” Weatherall Neal said.  “Even some of the assessments out there require an understanding of technology so if you don’t have it you’re at a disadvantage right off the bat.”

“We can’t even imagine in five years what these kids will need in order to move around and compete.”

So what’s the holdup?

Michigan voters in 1994 approved Proposal A, which substituted statewide sales tax revenue for the majority of property tax revenues that had previously been used to fund schools in each community.  While that measure was also designed to reduce funding gaps between rich and poor districts, it did nothing to address school districts’ facility needs.

Replacing local operating millage requests with a state –funded system sparked a number of bond issue requests from school districts to address the pent up demand for new and updated facilities.  Given the number of new tax requests from schools for facilities, it also sparked opposition to efforts begun in 2001 to expand the use of sinking funds to pay for technology, transportation and school security, despite the savings to taxpayers.

During the height of the debate, Grandville Public Schools Superintendent Ron Caniff in Dec. 2008 wrote a letter to then state Sen. Wayne Kuipers, R-Holland, outlining a $3.75 million bond issue the district was considering taking to voters. In that letter Caniff noted the district’s bond firm calculated its taxpayers would save an estimated $625,000 if it could pay for the needed purchases with a sinking fund instead of through a bond.

“The point I was trying to make to the Legislature at that time was that the discussion was around how this is going to increase costs to taxpayers when nothing could be further from the truth,” Caniff said.  “It would have saved taxpayers money.”


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