‘No risk’ – Attorney talks Decatur school debt

Posted by Dan Whisenhunt February 20, 2014
The front steps of Decatur High School.

The front steps of Decatur High School.

The decision to use three of Decatur’s elementary schools as collateral to borrow money isn’t putting the system at any serious risk of losing property, the school board’s attorney says.

Under the proposed financing agreement, City Schools of Decatur 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 of Renfroe Middle and Decatur High.

The method the system is using to borrow the money is called Certificates of Participation, or COPs bonds. The city of Decatur used COPs bonds in 2005 to borrow $4 million to renovate city hall.

If CSD defaults on its debt, it could lose buildings. School Board Attorney Bob Wilson said these kinds of financing agreements are common and that the taxpayers should trust the school system to pay its bills.

“As long as we repay the funds, then there’s absolutely no risk,” Wilson said. “There’s nothing anyone else can do except give us clearance back on the property.”

City Commissioners on Tuesday reluctantly granted a limited waiver of the city’s reversionary interest in the schools. The reversionary clause was attached when the city transferred property to the school system. It says that if those schools were ever used for another purpose, ownership would revert back to the city.

The city has sought the opinion of an independent attorney to examine the deal.

Wilson said the city passed a limited exception that will only apply to this particular situation.

“There’s nothing that impedes our ability to use the property as we’ve always used them,” Wilson said. “It’s simply a piece of collateral.”

Wilson said the school system could not turn around and sell the schools out from under the city, either.

“If for some reason we did not carry through with this financing, then that exception is not in effect because you didn’t use it,” Wilson said.

The exception would only be in place for the term of the loan.

City Schools Finance Director Susan Hurst said the COPs money would be repaid out of the system’s general fund. There’s the possibility that it could be funded via sales tax later on, she said.

“It could be moved to (the Special Purpose Local Option Sales Tax) if it is part of the approved referendum the next go around,” she said.

So all of it sounds safe. As long as the school system pays its bills, it is in no danger of losing the schools. But things happen. The economy can take a nose dive and tax collections can drop. Never say never, right?

Wilson said anything could happen, but said Decatur Schools is a low-risk for investors. Most school systems would be, he said.

“If we didn’t have a certain amount of faith none of us will get married,” he said. “We’d never buy a house.”

About Dan Whisenhunt

Dan Whisenhunt is editor and publisher of Decaturish.com. https://www.linkedin.com/in/danwhisenhunt

View all posts by Dan Whisenhunt

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