Two committees voted to recommend that the Billings School District 2 board go after the full $12 million available through two federal programs.
The recommendations — made by the board’s Budget Committee and Planning and Development Committee at a special meeting Monday night — open the door for trustees to discuss the bonds at its meeting next week.
Both committees are made up of community members, district staff members and board trustees.
“This is a great opportunity for you to finance a project at lower costs,” said Bridget Ekstrom, vice president of D.A. Davidson & Co., a Bozeman-based financial-services company advising the district.
Rod Gottula, a member of the budgeting committee, said going after the money made good sense for the district. SD2 educates 10 percent of the children in Montana but receives considerably less than 10 percent of the education dollars from state taxes.
“This is a chance to get some of that money back from the state,” he said.
The state notified SD2 on March 23 that it was eligible to pursue the Qualified Schools Construction Bonds and the Qualified Zone Academy Bonds, as the funding is officially known. It was a surprise to district officials, who had applied to the state for the program last June.
By the end of March, the district was past the county deadline to put the bond on the May ballot with the three mill levies, so trustees waited for the outcome of the May vote before taking up the issue of the bonds.
The two bonds would run for 16 years and include $10 million from the Qualified Schools Construction Bonds program and $2 million from the Qualified Zone Academy Bonds program.
A bond is a form of borrowing that involves the school district selling, in this case, $12 million worth of bonds to a lending organization that the district then pays back with funds collected from the increased property tax.
Under the current agreement, the federal government would pay the interest on the borrowed $12 million, and the district would pay the principal, Ekstrom said.
The bond also allows for the district to invest some of the $12 million in what’s called a sinking fund, she said. That lets the district earn money that it can then pay toward its debt at the end of the 16 years. The state also kicks in additional funding to help pay down the debt.
Combined, the interest paid by the federal government, the state funding and the money earned through the sinking fund comes out to about $8.5 million. That means, of the $12 million borrowed, the district would be paying back about $3.5 million instead of the entire amount, Ekstrom said.
Still, some committee members were hesitant to recommend that the board move forward.
Just a month ago, voters approved two of three mill levies worth $1.9 million, one of which, a technology levy for the high schools, passed with a scant 10 votes after a petition forced a recount.
Bruce MacIntyre, a member of the budgeting committee and the Billings Chamber of Commerce’s liaison to the district, said pursuing a bond so quickly after winning the two mill levies in May could erode hard-earned voter trust.
“My heart tells me we should. My head says no,” he said. “We need to put some distance between us and the mill levies.”
Much of the meeting was spent discussing what projects should be undertaken.
The $12 million, by law, would have to be used on “shovel-ready” maintenance projects that improve the school district — and SD2 has plenty of those. The district has amassed $121 million in deferred maintenance over the past few decades.
Trustee Mary Jo Fox focused on the district’s looming budget crisis. Officials project a $4.5 million shortfall by 2012.
She argued that some of the $10 million from the Qualified Schools Construction Bond should be used for building a school on the Cottonwood site on the west side of the city.
A new school there would cut down on the district’s transportation costs and allow the board to close some of the older, more-expensive-to-operate schools elsewhere in the district.
“We can create flexibility for us in this district,” she said.
But members from the Budget Committee and Planning and Development Committee — along with Trustees Kathy Aragon and Connie Wardell — argued that the district needs a plan first, looking specifically at enrollment, demographics and population growth before it proposes building and closing schools.
Fox later proposed using a Build America Bond to build the new school, which also was shot down by the two committees.
At the meeting were three Lockwood residents, who joined Trustee Teresa Stroebe in asking the committees to consider taking some of the bond money to build a high school in Lockwood.
A high school in Lockwood would save SD2 more than $300,000 a year in transportation costs and reduce crowding at high schools in Billings, said Conrad Stroebe, Teresa Stroebe’s husband and a past trustee on the SD2 board.
“This is just one of those things that make sense,” he said.
In the end, the two committees simply agreed to recommend that the board go after all $12 million and then decide on which projects to spend the money.
To stay in the running, the board must decide by July 7 whether to place the bonds on the ballot. The vote would be held in September.