Decatur’s Debt – Elementary schools could be collateral
City Schools of Decatur will use three of its elementary schools as collateral to borrow money to expand Decatur High and Renfroe Middle.
As part of the agreement, the school system is asking Decatur City Commission to give up the city’s interest in the elementaries. City Commissioners will vote on the request Tuesday.
Under the proposed financing agreement, CSD would transfer title for Clairemont, Glennwood and Oakhurst Elementary Schools to the Georgia Municipal Association. GMA would then sign a lease with the city school system. This lease agreement will be the basis for borrowing $17.5 million to pay CSD’s expansion. Once the school system repays the loans, ownership reverts back to the school system. If CSD defaults on its debt, it could lose ownership of the schools.
CSD is experiencing a surge in enrollment. The School Board tried to get City Commissioners allow voters to decide whether to issue $59 million in bonds to pay for expansion, but commissioners voted in August to defer it. The school system looked for alternatives.
The BOE decided to issue Certificates of Participation, a form of borrowing that involves a lease purchase agreement. Unlike a general obligation bond, no public vote is required to borrow money using Certificates of Participation.
It’s not clear if there will be any public input into the decision to use three of the city’s elementary schools to back loans for the school system.
In this case, the lease payments would be made to the Georgia Municipal Association, a nonprofit organization that provides services to member cities, like liability insurance.
The city currently holds an interest in the property, known as a reversionary clause.
When the city transferred property to the school system in 2011, it stipulated ownership would revert back to the city if CSD stopped using the properties as schools. Superintendent Phyllis Edwards explained after the Feb. 14 School Board meeting that the clause was intended to prevent the school system from selling that property after the city had transferred it.
Edwards told school board members during the Feb. 14 meeting that the reversionary clause could make it harder for the school system to borrow the money. CSD will get a better rate if it can show clear title to the elementary schools. The city’s reversionary clause could ultimately increase CSD’s borrowing costs.
“There is a reversionary clause, which becomes a problem for us as we try to sell those bonds,” Edwards told school board members.
Edwards said she discussed the issue with City Manager Peggy Merriss and convinced her to put it on the commission’s agenda.
“She said she did not expect there to be any objections,” Edwards said.
Terri Finister, the city’s bond attorney, sent a memo to Merriss saying there would be provisions in the financing agreement that keep the Georgia Municipal Association from selling the property. GMA would transfer title to a trustee, Regions Bank.
“Under the Lease, GMA, as named Lessor, and the Trustee (upon the assignment by GMA’s rights in the Lease to the Trustee) are expressly prohibited from selling the Property without the prior written consent of the School System and without first obtaining an opinion of bond counsel,” Finister wrote in a memo to Merriss. “In addition, the Lease becomes a part of the Trust Estate securing the COPS, and no disposition of the Property is permitted otherwise than in those situations permitted by the Lease (an event of non-appropriation or an event of default).
“The Lease specifically provides that the title to the Property will be subject to the Lease, the Indenture and the Deed to Secure Debt. The Lease further provides that upon the payment of the COPS, title to the Property will be conveyed by GMA to the School System.”
The issue of Decatur’s debt has been a topic of discussion lately. Former city commissioner John Ridley recently pointed out that the city of Decatur has borrowed $154.2 million since 2005, but said the city is in good financial health. Most of that debt, $90.7 million of it, did not require a public vote. The city also backs school debts.