Fifth Ward School Finances Don't Add Up

Dr. Horton's "Miraculous" Funding Model for the New Fifth Ward School

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For my uninformed readers, this story regards a new school in Evanston’s fifth ward, which due to segregation, is Evanston’s historically black neighborhood. Evanston remains one of the few places in America that still does 1970s era “Desegregation bussing.” As such, the school in this neighborhood were closed and the students are still bussed to other neighborhoods, even today.

I am in favor of building a new school, I believe having a walk-able community school for all families is a fundamental value of our community. If this came up for a referendum vote, I would vote and advocate in favor of the new school. Not all of Evanston agrees with me, a new school was on the referendum in 2012 and was rejected.

The new school was a highlight of Dr. Horton’s administration and something celebrated by the District in his going away / dedication ceremony yesterday. Dr. Horton laid a plaque which read;

This land is dedicated in honor and recognition of this community and its unwavering commitment to return a walkable neighborhood school to the Fifth Ward. Dr. Devon Horton, Superintendent. Every Child, Every Day, Whatever It Takes.

Again, I’m in favor of the new school and I believe the building is important to the city. However, if a school has to close because of financial distress or mismanagement, this project is a failure. Not only will they be making the fifth ward walkable at the expense of another ward (plus $40mm+) but we’ll be back to bussing kids again!

The Mortgage

If you live in Evanston, you may remember the 2017 referendum which won by over 60% but you may not remember the referendum for the new fifth ward school. This is because a referendum was never held - $38 million dollars for the new school was obtained via a lease certificate. Think about it like a mortgage with zero down, and interest-only payments for the first two years.

The math is essentially the same as a mortgage, and you can view my amortization calculator. My numbers differ slightly from the District’s because I don’t know the actual interest rate they obtained on the certificate but it should be around 5% according to the version of the lease certificate I have.

There are a few things to note with the lease certificate:

• There are no principal payments for the first two years.

• There are interest payments during this time. The District made has around $2 million in interest payments in calendar year 2022 and will do the same this year. I haven’t found anywhere this is discussed publicly except in a note in some board slides.

• The first principal payment will be next year on 12/1/2024.

• The District actually remits these payments twice a year 6/1 and 12/1 but the interest rate is calculated annually.

• Over the next 18 years, the interest payments alone will be around $24.5 million dollars.

Functionally, it’s a mortgage - the bank owns the property and the District leases it until the end of the mortgage, in which case the District becomes the owner.

Paying the Mortgage

So if we didn’t vote on this and there are no increase in tax levies, where does the money come from? The District tells us in the lease certificate;

The Project includes building and equipping a new K-8 school building in the Fifth Ward and improving the site thereof. The District expects the new school building to begin serving students in the 2024-2025 school year. The new school building will place most students within walking distance of a neighborhood school, resulting in significant transportation cost savings. The District estimates savings of approximately $3,250,000 in each fiscal year. The District currently intends to use the transportation savings to pay the Certificates.

The fundamental claim here is that the savings from not bussing fifth-ward students will solely pay for the certificate. So where does that $3.25m number come from? You can find the estimate in some slides that Raymond James presented to the Board on 3/14/2022.

It came out to a nice even $3 million dollars. I asked the District for comment twice on how they calculated this number (on June 1 and June 13) and they haven’t replied to my emails. Only six months earlier, in August 2021, Dr. Horton emailed parents with a number that was $2.3 million (a million dollars less!) You can read his email below;

What’s the true cost of bussing? Well, one way to look at it is by the vendors the District uses, which they list on their website. District uses BriteLift for Special Ed and McKinney-Vento (state reimbursed) and Positive Connections for other bussing, such as fifth ward students, magnet schools, etc. You can view my totals below;

Or you can look at the District’s annual transportation budgets and back out the cost of McKinney-Vento students (since you can track the receipt of state reimbursements):

Bussing Costs based on School Year (compared to CY above)

I don’t see how it adds up to $3,000,000. By the District’s own admission (the Raymond James slides above) at most half of the expenses from Positive Connections are related to fifth ward student bussing. The rest is English Learners, Hazard Routes, and Special Education, which will not change due to a new school. It certainly seems to me like the savings figure is closer to $2.1 to $2.3m. Recall that back in August 10, 2021, Dr. Horton himself cited a number that was $2.3 million;

The district could use the potential savings in transportation costs along with operating savings to pay back approximately $2.3 million annually in lease payments over the 20 years life of the lease certificate

I certainly get the impression that the true bussing cost is around $2.3 million and when they needed more funds it magically changed to $3.25 million. I don’t believe and have not seen any evidence to suggest the $3.25 million number is true.

It’s not clear to me where the extra million is going to come from. I asked the District for comment and they did not reply to my multiple emails.

No Referendum

Because a lease certificate was used, no referendum was held on the issue. This is striking to me because Illinois law 105 ILCS 5/10-22.36 lays out pretty stark guidelines for a referendum requirement on new construction.

(a) To build or purchase a building for school classroom or instructional purposes upon the approval of a majority of the voters upon the proposition at a referendum held for such purpose or in accordance with Section 17-2.11, 19-3.5, or 19-3.10. The board may initiate such referendum by resolution. The board shall certify the resolution and proposition to the proper election authority for submission in accordance with the general election law.

In fact, this has come up in other Districts, including Wheaton (District 200) where a parent sued the District in 2018 regarding the construction of a new preschool. The District relented and ended up holding a referendum, which passed and the preschool was built. Despite this, when Raymond James presented the District with the lease certificate option (they are selling) they cited the following;

Instead of a referendum, the option is to use another law, the Illinois Act (the Local Government Debt Reform Act) to lease the property. Frankly, this seems (1) anti-democratic since there is literally a law saying a referendum should be held and (2) like a financial loophole that Wall Street financiers (Raymond James, in this case) are selling to the District. This is a more expensive option than a referendum + bond¹ and a new revenue source for these firms.

It’s hard not to think that in the Board’s and Superintendent’s haste to get this equity win, we’re now in a more risky situation than if it had gone to a referendum². There are serious financial risks that put the entire project in danger;

• A single brick hasn’t been laid. The entire lease certificate assumes that the building is done by the 2024-2025 school year. Is this still feasible? If not, the District will be paying the mortgage and the busses at the same time, contrary to the certificate. What happens then?

• Can the new school be built for less than the total cost of the lease? If not, what happens next, where does that funding come from? Will we have to sell off a property or close another school?³

• Since voters were not included on the process and enrollment continues to plummet, I’ve written about how this is a political problem; a new school needs community support! One way to get that would’ve been a referendum.

The main folks involved have left; the previous Board President resigned in September 2021. Dr. Horton is on his way to DeKalb, Georgia after describing this funding model as “miraculous”. The District and the Board are all claiming wins from this project, which at the end of the day, seems like the purchase of a Wall Street financial product without taxpayer consent and backed by questionable financial estimates.

1. At least 3-4 basis points but more like 100 basis points according to one source.

2. People disagree with me on this but given the 2017 referendum won by *60 points* it is hard to imagine this referendum failing in our current political environment.

3. The new animal shelter alone is almost $7 million dollars, and that is a much smaller and less sophisticated building than a new school. Not to mention the LEED and environmental expectations that are on this project.