District 65 offices at the JEH Education Center.

District 65 taxpayers will pay $308,000 less than predicted to pay back the loan for building a new school in the 5th Ward.

Raphael Obafemi, chief financial officer for the Evanston/Skokie schools, said the competitively bid loan package received a low bid interest rate (including all associated fees) of 3.48%.

Back in March, Obafemi told the school board to expect 3.55%.

While .07% may not seem like much over a 20-year payback for a $40 million school, plus nearly $20 milllion in interest, Obafemi told a school board commitee on Monday that with interest rates trending up in recent weeks, “I think we did very well.”

Six companies bid on loaning the money, a number that Obafemi said “speaks to the good work that is happening here financially in the district.”

District officials say they can finance the 5th Ward school without raising taxes. Savings on bus transportation due to changed attendance boundaries are supposed to generate enough to pay the average annual debt service (principal plus interest) of about $3.2 million.

Besides a lower interest rate than predicted, District 65 will also be able to invest some of the borrowed money. A financial services manager hired by the district said that could net another $1.5 million.

The district is using a financing method called lease certificates. Under that system, any savings from a lower interest rate or from investing borrowed funds must be spent on the new school construction, rather than other budget items such as salaries.

Raphael Obafemi (at previous meeting).

In another effort to hold down costs, Obafemi said the district may acquire “things we can buy now,” such as furnishings for inside the school, before costs go up due to ongoing supply chain issues. Costs for such items, Obafemi explained, are likely to increase in January.

Preliminary planning is already under way for the new school, a long-desired project in the historically Black community, which saw its neighborhood school close decades ago as part of a desegregation plan that bused 5th Ward children to other parts of town.

Targeted opening is for the 2024-25 school year, along with the rest of the system’s redistricting plan.

Once the loan is paid off, the building becomes District 65 property in June 2042.

There is always a risk when financing a major project, but district leaders said the watchword here is caution.

Board member Donna Wang Su wondered about the possibility of cost overrruns.

“My home remodeling project went completely over budget,” she said, and wondered if that might apply here.

Superintendent Devon Horton said, “Some things are unpredictable, but we have a contingency.” Horton said the district has a “pretty healthy fund balance” which could be tapped if necessary.

The hope is, of course, that a step like that will not be necessary.

“We take a very conservative approach to investing,” Obafemi said. “At the end of the day, we are not gambling with our money.”

Jeff Hirsh joined the Evanston Now reporting team in 2020 after a 40-year award-winning career as a broadcast journalist in Cincinnati, Ohio.

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1 Comment

  1. Let’s be clear: funding this with the lease certificates is going to negatively impact the District’s operating budget and is going to cost more than if the District had followed the more fiscally responsible course of issuing bonds to fund the school.

    The claim is that declines in the transportation costs are going to cover the financing for construction. This is not a sure thing. Higher fuel and labor costs in the future may not offset the costs to the extent that it is projected.

    If the savings don’t materialize, money will have to come from the operating budget.

    In the District’s public presentations I have never seen their projections for any additional operational and ancillary costs associated with the school. We are going to be hiring a whole new level of administrators. Perhaps some teaching staff can be moved around, but this is going to increase operational costs. Are the transportation offsets going to be able to cover the financing and the new operational costs? We have never seen this question answered.

    The interest rate–while more favorable than expected–is nowhere near as advantageous had we issued bonds. By using lease certificates the board is paying more than they needed to in order to fund the school. There is also state money that could have gone towards construction had the district taken the bond approach. This is fiscally irresponsible and the Board should be held accountable. The operating budget would not have been impacted to the same way since the financing would have been tied to property taxes.

    The question emerges then: why did the Board take the less fiscally responsible route? Well the answer is both simple and troubling. The superintendent made a startling admission in a video shared by the district where he admits that he feared a referendum that would be needed to issue bonds & receive state assistance would likely fail. So the decision was made to go around the voters with this more costly financing scheme.

    If that is not a cynical disregard for the taxpayers, I don’t know what is. It also shows that the Board and administration fear that they are wildly out of step with the citizens of Evanston.

    https://youtu.be/20HiDO17g1o?t=1502

    Hopefully voters will recognize this irresponsibility and take action at next year’s elections.

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