A Guide to School District Bonds in Illinois

 School districts can utilize various options to fund their expenditure. One of them is to issue bonds. Bonds are debt instruments where the school district borrowing is the issuer, and the entities lending the money are the buyers.

The structure of a school district bond is typically similar to other types of bonds. It includes a principal amount that the school is raising and an interest. The school will pay back the principal amount plus interest over time.

School districts can issue bonds to fund capital projects, meet working capital needs, or refinance prior debt. Capital projects are the primary use case for school district bonds. They include the construction of new school buildings as well as the repairing, reconstructing, altering, and equipping of existing buildings. Typically, bonds for financing capital projects are long-term (principal and interest payments are spread out over many years), unlike bonds for working capital. Such bonds are usually short-term as they are meant to cover temporary operating cash flow gaps.

In Illinois, there are several types of bonds a school district can issue. They include general obligation bonds (GOs), alternate revenue bonds, and working cash fund bonds. According to the School Code of the State of Illinois (the Code), a school district can issue a GO for any lawful project backed by the faith and credit of the district as well as the share of state taxes it receives. The Code, however, limits the amounts school districts can borrow for particular purposes.

Alternate bonds are also called double-barreled bonds. School districts can issue these under the Local Government Debt Reform Act and use any revenue source available as security for the bonds. However, the law requires them to prove that the pledged revenue is enough to cover 1.10-1.25 times the annual debt service costs for every year the bond remains outstanding.

Working cash fund bonds are specifically issued to establish or increase a school district’s working cash fund. They are backed by the share of taxes the school district receives and are also subject to limitations regarding how much a district can raise through them. Other types of bonds recognized by law in Illinois are limited bonds and debt certificates.

The procedure a school district must follow before issuing a bond varies, depending on several factors, including the type of bond and its intended use. For example, for working cash fund bonds and alternate revenue bonds, a school board must adopt a resolution declaring its intent to issue a bond and publicize this intent in a newspaper with general circulation in the district. The notice informs voters that the board will issue the bond unless it receives a petition signed by a certain number of voters within 30 days of publication. If it receives such a petition, it will subject the bond decision to a public referendum.

For GOs issued to pay teachers’ salaries or facility leasing fees, the bond issuance procedure is the same as above. However, GOs for acquiring new school sites, building new schools, or equipping and reconstructing existing schools can only be approved by voters in a public referendum. GOs for enhancing the life span and safety of facilities that house students through reconstruction are subject to the approval of regional and state superintendents. Voters do not decide on them.

Even after a school district has secured approval for its bond issuance, how it conducts the issuance can vary. Districts have different options for finding buyers and usually choose the lowest-cost option.

For example, a district can issue a bond through a negotiated sale where the district negotiates with a bond underwriter on the bond terms. After they agree, the underwriter buys the bond and markets it to investors. Alternatively, the district can market the bond through a competitive sale and accept bids from different banks before settling on one with a low-interest cost. Another issuance option is an outright direct sale to a bank, mutual fund, or pension fund.

A Deep Dive into US Public School Expenses

 Education is the doorway to a prosperous future. For that reason, public elementary schools and high schools across the United States must receive adequate funding. While state and local governments have raised allocations to public schools over the years, more is necessary to keep up with the rising costs of schools.

The United States spends hundreds of billions annually on public elementary and secondary education. According to the US Census Bureau, in the 2021-2022 academic year, the country spent $810 billion on public schools, an increase from $752.3 billion in 2019-2020 and $718.52 billion in 2018-2019. In 2021-2022, the average public school spent $14,347 per student, up from $13,187 in 2019-2020 and $12,559 in 2018-2019.

States with the highest student spending in 2020-2021 were New York with $26,571, Vermont with $23,586, and Connecticut with $22,769. Also, the District of Columbia spent $24,535.

States with the lowest spending per student were Idaho ($9,053), Utah ($9,095), and Arizona ($9,611). Northern states had some of the highest spending rates, while southern states had some of the lowest. Spending per student in Illinois in 2021-2022 was $18,316.

A breakdown of total school spending reveals that most of the money goes to current expenses. In 2021-2022, US schools spent $687.2 billion on current expenses. This was 84.8 percent of the total expenditure. It included staff salaries, employee benefits, supplies, tuition, and services. Purchased services included school transportation, janitorial work, and teacher training.

By contrast, in 2021-2022, schools spent only $82.53 billion on capital expenses and $24.85 billion on other expenses. Capital expenses were about 11 percent of total expenses and comprised spending on school buildings and property, such as renovations and alterations. Other expense items included debt repayments.

In 2021-2022, state governments contributed $367.13 billion to public schools, about 45 percent of total funding. Local governments were the second largest contributors at $357.53 billion (44 percent), while the federal government contributed only $85.31 billion, just over 10 percent.

Funding trends in 2021-2022 were similar to those from previous years. In 2019-2020, for example, state governments contributed 46.7 percent of total public school funds. Local governments contributed 45.6 percent, while the federal government added 7.7 percent.

Schools in some states receive much higher percentages from their state governments. For example, schools in Vermont and Hawaii obtained 90 percent of their funding from the states in 2019-2020. Schools that do not receive most of their funding from states acquire it from local governments. In 2019-2020, New Hampshire schools received 64 percent of their funding from local governments, and Missouri schools received 61 percent from local governments.

Overall, total funding to public schools has been rising since 2010. According to the National Center for Education Statistics, public school revenues in the 2010-2011 academic year, adjusted for inflation, amounted to $770 billion. By 2019-2020, those revenues had grown to $871 billion.

Federal, state, and local governments must work together to enhance funding to schools, many of which are yet to recover from COVID-19 disruptions. On top of that, traditionally underserved areas, where public school systems are strained, require more resources to ensure all students receive a quality education.