This post was submitted by Jimmie Covington, veteran Memphis reporter with lengthy experience covering governmental, school and demographic issues. He is now a contributing writer with The Best Times, a monthly news magazine for active people 50 and older.
By Jimmie Covington
Although taxpayers in suburban cities will pay almost 30 percent of the cost of more than $50 million in county school bonds to be issued, the approach being taken is limiting the school districts in those cities to only about half of the overall 21 percent average daily attendance capital funding share the schools otherwise would receive.
At issue is about $6.2 million, which would be required to provide full ADA funding. The six suburban districts are receiving $5.9 million under a plan adopted by the County Commission in May 2014 just weeks before the suburban school districts officially went into effect on July 1, 2014.
If full average daily attendance capital bond funding were to be provided, the Lakeland district would receive only about a third of the money outlined in the 2014 plan (about $327,500 compared to $990,000) and Millington schools would receive essentially the same as provided in the plan, about $1.1 million.
However, the Bartlett, Collierville, Germantown and Arlington districts would receive significantly higher amounts than approved in the 2014 plan, calculations indicate. (The calculations are based on numbers presented in news stories that may have involved rounding so the actual figures may vary somewhat.)
Here are the 2014 plan numbers (which were tied to specific projects) followed by the calculated full ADA bond funding the four districts: Bartlett, $990,000 and $3.3 million; Collierville, $1 million and $3.1 million; Germantown, $975,000 and $2.3 million; Arlington, $850,000 and $1.9 million.
There would be no cut in the $46.2 million allocated to Shelby County schools in the $52.2 million schools capital improvements budget the commission adopted in May 2014.
Giving the suburban city districts their full ADA share plus the county system’s funding would require $58.4 million in bonds. Providing this amount is not subject to any further authorization vote from the County Commission.
In September 2014, commissioners followed an administration recommendation to authorize two years’ worth of bonds for both schools and general government when they approved issuance of $120 million in bonds. According to discussion at the meeting, about $110 million would go to schools over two years and $10 million would go to general government.
This means that more than enough bonds have already been approved to cover a full ADA share for the municipal districts.
How all this capital funding and less than full ADA funding came about is somewhat complicated. It all happened because the new suburban districts were just getting started. Other issues may arise but this initial ADA situation is a one-time thing that will not come up again.
Here is an effort to explain the situation: According to news reports, Shelby County Schools leaders wanted county commissioners to approve a schools capital budget in the spring of 2014 before the end of the fiscal year on June 30 because they believed if the budget were adopted then, the funds would not have to be split with the new suburban districts which would not officially come into existence until July 1, 2014. County government attorneys also said they believed no ADA split would be required if the budget were adopted before July 1. It was said that attorneys for the suburban districts believed there would have to be an ADA split.
The news media reported that to avoid a possible lawsuit a compromise was reached with a project or projects from each of the suburban districts being added to the budget.
It appears that none of the parties involved probably understood the situation fully at that time. Most school legal experts seem to agree that a County Commission doesn’t have any authority to vote directly on when and how much municipal school districts in the same county receive as their average daily attendance share of school bonds. State law controls that.
Back when there were just the Memphis and Shelby School districts, funds for the Memphis system’s average daily attendance share were never included in the county schools’ capital budgets approved by commissioners. The capital budget approved by the commission in May of last year was only for the county school system although it did include some allocations for schools in what would be the new municipal districts. (At the time of that budget adoption, the suburban districts were still a part of the county district.)
Despite what many parties were saying, the suburban districts had nothing to challenge at that point. They had not been denied any funds. That would only come with the sale of school bonds and maybe, as it turns out, with the approval by the commission last December of a commercial paper program through which the county administration will borrow the construction funds for the various school projects as they are needed and delay the sale of the bonds for about two years. County administration officials say that this approach is cheaper than moving ahead and selling the bonds. The bond proceeds are to be used to pay off the short-term debt that occurs with the commercial paper program.
A review shows that the state law on county school bonds is apparently the only state law or requirement that mentions the average daily attendance sharing requirement on school capital funding. The county trustee is clearly told to place the school bond proceeds in a separate account and is directed to divide the funds with any municipal or special school districts in the county based on the previous year’s average daily attendance in the school systems. Any municipal or special district that wishes to waive receiving the funds may do so.
There appears to be no mention of ADA sharing in connection with the county’s adopting a capital budget for the county’s school system. That being the case, adopting a county schools capital budget in May 2014 had no impact on the eligibility of the municipal districts to receive an average daily attendance share of capital funds.
During the past fiscal year (2015), which ended this past June 30, statements were made in various county meetings that no ADA split of the capital funds could be carried out since there was no previous year’s (fiscal 2014) ADA on which to base the split as called for in the law. A county attorney’s opinion may have been issued on the topic but if so, the specifics of the opinion were not reported in the media.
However, with the start of the 2016 fiscal year on July 1, there are now ADA ratios for the county and municipal school districts for the previous fiscal year. And at this point, no bonds have been sold and perhaps will not be for another year and a half or so.
However, county Mayor Mark Luttrell’s administration began drawing from the commercial paper program during the last fiscal year and began providing funding for the county district and some of the municipal district projects as the bills started coming in.
In response to a query to a county commissioner in early July about how much had been spent, a commission office staff member provided this information: “In response to your question, yes, county finance has paid out a total of $3,470,015 of the capital funds appropriated in May 2014. There are 14 separate projects that have had some payment made. Nine of the projects are for county schools projects with the other five in schools within the various municipalities. These amounts are what we have reimbursed and it is quite likely that more funds have been expended but we have no visibility of those expenditures until they submit documents to us for reimbursement.”
The $3,470,015 is apparently the only part of the $52.2 million spent before the start of the new fiscal year.
An email request to the Luttrell administration for a comment about the fact that the county trustee is required to distribute school bond funds based on the previous year’s ADA and asking whether the distribution would now apply to the $52.2 million capital budget approved in May 2014 drew this emailed response from Mike Swift, the county’s chief financial officer: “The commercial paper was issued in fiscal 2015. Issuing commercial paper is a sale of bonds under state law. Therefore commercial paper may be used to pay the $52.2 million approved in May 2014 and it will be paid to the Shelby County Schools without any ADA allocation to the municipal school districts.”
The comment was not accompanied by a legal opinion. It leaves several questions open. By using a commercial paper program can a county administration offset specific responsibilities given to the county trustee in a state law? Is there anything in the law that mandates that the municipal districts not receive full capital ADA funding in this situation or is this something in which the administration has flexibility but has decided it doesn’t want to provide full ADA funding to the districts?
In view of the fact that based on current property tax values, property owners in the municipalities combined will be paying almost 30 percent of the principal and interest cost of the bonds issued countywide whatever the outcome on the ADA funding, residents in the suburban municipalities may be interested in the answer to the second question.
Nearly 30 percent of the assessed value of property for tax purposes is located in the suburban municipalities. Pending actions of the county Board of Equalization on appeals, the exact percentage this year is 28.56.
(For both school bonds and school operations expenses, the county’s school taxes are collected countywide and then an equal amount of money is provided for each student in each district based on average daily attendance in the various school districts.)
An email request to county Trustee David Lenoir for a comment about the capital ADA situation and the duties given to the county trustee by the state law brought this response: “I appreciate your email. We consult with county finance and bond counsel. Wasn’t there only one school system in 2014?”
Despite millions of dollars being at stake, there has been no indication from suburban municipal school and government officials that they will seek any further review of the school capital funding situation. Is that a wise approach at this point given the facts that there is now a previous year’s ADA, no bonds have been sold and only a small part of the $52.2 million was disbursed before this past July 1?