Oklahoma public schools issued hundreds of millions of dollars in debt last year through a risky financing scheme that may be unconstitutional.
Over the past dozen years, more Oklahoma schools have issued lease revenue bonds as a way to raise money for school construction and equipment. But finance experts told lawmakers on Wednesday that the state constitution doesn’t allow it.
Lease revenue bonds are different than the more well-known general obligation bonds that are paid back with property taxes. But critics say that districts using lease revenue bonds are at greater risk, The Journal Record’s Dale Denwalt reports:
[Former Broken Arrow Public Schools superintendent Clarence] Oliver and other critics who spoke at the interim study said they understand why a district would choose an LRB; it offers a cushion to cash-strapped districts that need to make big purchases. The limits on GO bonds are too stringent, said Midwest City-Del City Superintendent Rick Cobb. “Smaller, poorer districts, they can barely bond for a bus, much less a building,” Cobb said. Mid-Del is building six classrooms at Parkview Elementary that are designed to withstand severe weather. Once finished this year, the wing will be able to protect 900 students. Cobb said his administration is putting together an eight-year lease revenue bond issue that will be unveiled in the spring. “With the vast amount of capital needs around the district, we wouldn’t be able to come close to meeting what we hope to do if we didn’t have the ability to do lease revenue,” he said. “We know we’re never going to be able to check everything off our needs list, but a lease revenue bond gets us closer to being able to do more at once.”
But if something goes wrong, the district would have to settle the debt using money that’s set aside for teacher pay and utility bills. Oklahoma schools have debt limits, and lease revenue bonds are structured in a way so schools can borrow more.
These bonds also let poor districts pay for construction that would otherwise be out of reach. There’s been no legal challenge against this type of creative financing.
Oklahoma County Finance Authority General Counsel J. Kelly Work told The Journal Record in January that the OCFA writes its agreements based on the promise of annual appropriations. “(Schools are) relying on the moral obligation that there’s going to be renewed funding each year in order to meet the debt obligation each year,” Work said. Oliver said he would support legislation to ensure the legality of LRBs, and guidance from the Legislature on the ways schools can avoid higher fees and interest compared to GO bonds.
Lawmakers hinted they might introduce a bill next year to make sure schools are can continue the practice, but with some restrictions.
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