Greenville Plan Coming Back

It seems the Greenville Plan may be rearing its head in our state again, this time in the Bamberg School District (southwest of Orangeburg). All citizens in our state need to be concerned about this circumvention of the state Constitutional debt limits given it will likely spread to other districts, and our state legislature needs to look into this.

In the state Constitution, it says a school district has the authority to borrow up to 8% of the assessed value of all property in the school district. If the district wants to borrow more than the 8% limit, the additional borrowing must be approved by a referendum vote of the people.

To get around the debt limit, school districts in Greenville, Pickens and others around the state early last decade adopted a financing scheme to get around these Constitutional limits. Dubbed the Greenville Plan, the school district first created a shell or dummy company. This was done because the dummy company was not limited by the Constitutional borrowing limits, so it could borrow an unlimited amount of money on behalf of the school board without voter approval.

The dummy company borrowed the money by issuing millions in bonds, and then renovated and built the new schools. To make the loan payments, the dummy company arranged a lease-purchase agreement with the school district. The students used the new schools and the district made the lease payments to the dummy company. The payments passed through the company and came out the other side as loan payments to the lenders. After the leases expire and the debt is paid off, ownership of the schools will revert to the school district. Hence the term, lease-purchase.

In Pickens County the Constitutional borrowing limit was about $35 million. Using this scheme, the school board of 2006 put county taxpayers in debt for $350 million. I voted against it. Today the county is struggling to pay the high debt millage to fund the bond payments.

In 2007 the state legislature outlawed this scheme, but now a similar plan seems to be moving forward in the Bamberg School District Two. According to an October 15 article in the Orangeburg Times and Democrat, the school district is up against its borrowing limit. In comes architects and bond lawyers, pitching to the Bamberg board a mutation of the Greenville Plan and the dummy company scheme.

The Denmark-Olar School Foundation (the dummy company) was created in September. It has applied for a $46 million loan in hopes of building a new school for the district. The foundation serves to hold the debt off the books of the district (technically getting around district around the Constitutional borrowing limit). The foundation would build and then lease the school to the district. The school district will make the annual lease payments to the foundation. Those payments would pass through the foundation and come out the other side as bond payments to the lenders. The district would fund the lease payments by reducing maintenance and operations costs in the general fund, according to the article.

One, the board clearly aims to borrow more than the 8% limit. Why aren't the trustees following the Constitution they swore to uphold and putting the borrowing plan to a voter referendum?

Two, what if the district cannot generate the savings from maintenance and operations one year to make the lease/ bond payments? The lease payments have to be paid. Will taxes then have to be raised? Will the school be lost to the lender?

Three, I thought this loophole was plugged in 2007? The legislature needs to look closely at this new scheme and the law (11-27-110 of the state code), and see if the law needs to be modified so school districts around the state don’t jump back on the excessive borrowing band wagon again like they did with the Greenville Plan years ago.

The Constitutional borrowing limits and referendum requirements have a purpose — to prohibit elected officials from putting the people in excessive debt without the approval of the voters.