Greenville Plan Coming to Pickens?
by Alex Saitta
July 12, 2005
The school board is talking about upgrading some of its older and more overcrowded schools. There are three questions the board has to answer:
1) Which schools will be renovated/ expanded/ built new?
2) What will that cost?
3) How will it be paid for?
There is disagreement on all three, but the one that has gotten the most attention in the press is the third question -- how will it be paid for?
Currently, the school board has little money in the bank and it is near its borrowing limit. In the state Constitution, it says a school board has the power to borrow up to 8% of the assessed value of all property in the school district. If the board wants to borrow more than the 8% limit, the additional borrowing must be approved by a referendum vote of the people.
The people put that limit in the constitution, so school boards won’t put the people in debt up to their eye balls, without their approval.
Surprisingly, school board discussions have not been about a referendum, but about the Greenville Plan. This borrowing plan was first used by the Greenville school board, hence its name. Under the plan, the school board creates a dummy company. This is done because the dummy company is not limited by the Constitution, so it could borrow an unlimited amount of money on behalf of the school board without voter approval.
The dummy company has no assets, hence no collateral for the loans it seeks, so the school board will have to “sell” the schools it plans to renovate to dummy company, so those schools can be pledged as collateral. No money is transacted in the “sale”, so the “sale” is a dummy transaction.
The dummy company borrows the money by issuing millions in bonds, and then renovates the schools. To insure the dummy company doesn’t do anything the school board doesn’t want it to, the board of the company is stacked with people the school board can trust, like current school district employees. Boards are supposed to be independent. This one won’t be, so it is a dummy board of directors.
To make the bond payments, the school board arranges a lease-purchase agreement with the dummy company. The students will use the refurbished schools and the school board will make lease payments to the dummy company. The payments will pass through the dummy company and come out the other side as bond payments to the lenders.
After the leases expire and the debt is paid off, ownership of the schools will revert to the school board. Hence the term, lease-purchase.
Although called “lease payments” they are truly bond payments in disguise, so it is safe to say they are dummy lease payments. Either way, the impact on school board finances will be similar to direct school board debt, and the taxpayer will be on the hook for all principle and interest payments.
If this isn’t a scheme, I don’t know what is.
Thus far the district office and the board have focused on whether the plan is legal or illegal. First, the courts have not ruled it is legal. If the plan is passed, it will be based on whether our attorney thinks it is legal. If the courts later rule the plan is illegal and the school board is forced to sum the debt of the school district and the dummy company, the board will be above the 8% Constitutional debt limit. Then school board will have to stop making the lease payments, in turn, the lenders will seize ownership of the schools and sue the dummy company, the school district and the school board.
Second, who cares if some judge believes the plan legally gets around the Constiution? Legal or illegal circumvention of the Consitution is not the issue in my book. Clearly the plan violates the intent of that clause in the Constitution and circumvents what our boss -- the people -- told the school board it had to do.
Think about it. If your boss told you do not borrow more than 8% of the value of the company without his signature, and you borrowed beyond that level, without his approval, you’d be terminated. And it wouldn’t matter, even if some lawyer had told you it was OK. You are supposed to listen to your boss. Not work to cut him out of a decision he insisted on approving.
Not only does this scheme cut the people out of the borrowing decision, but it will forever give the school board of Pickens County the ability to borrow an unlimited amount of money in your name.