The Deerfield School District is considering keeping its portion of the tax rate a bit higher than needed in the coming year to help it build a long-term debt rainy day fund.
It would do that by sticking with last year’s tax rate of $11 per $1,000 of assessed value, on property tax bills to be mailed out in December, rather than dropping it to an estimated $10.50.
The latter would sufficiently cover payments the district must make on its debt in the coming year. But going with the higher rate would build a cushion that would help the district avoid potential tax rate spikes in future years, Michele Wiberg of PMA Securities, the district’s financial planning advisory company based in Milwaukee, told the School Board Sept. 9.
The excess funds could only be used for paying off debt, Wiberg said.
Wiberg presented options for debt management at the School Board’s Committee of the Whole meeting Sept. 9.
This was part of an ongoing conversation by district staff about long-term financial planning and finalizing the 2019-20 budget.
“You have this good financial position, you’re delivering the services of Deerfield School District, and as you’re doing that you’ve actually lowered the tax rate over time,” Wiberg said.
Wiberg told the board that keeping the tax rate the same as last year, at $11 per $1,000 instead of dropping it to $10.50, would build a cushion of funding for future years.
It would “establish the fund for a rainy day, a way to offset a mill rate in a future year,” Wiberg said.
“There’s so very little that you can control, and you can control this...It’s the one lever you can pull,” Wiberg said.
There is no formal vote at a Committee of the Whole meeting but five board members came out informally in favor of collecting more than the 2019 debt service: Board President Jim Haak, Treasurer Nathan Brown, Board member Autumn Knudtson, Board Clerk Shelley Mack and Board member Melissa Frame. Vice President Lisa Sigurslid and Board member Sandy Fischer weren’t present for the discussion.
“We don’t get any letters” when tax rates go down, but “we hear about it when it goes up...and the mill rate is something people are really focused on,” Frame said.
“Seems like a good idea,” Haak said. “I like the fact that it’s a known.”
The district currently owes about $7.6 million in debt. They are required to pay off about $1.1 million of that in 2019-20 and in the past, the district only collected for its debt the amount it owed, Wiberg said.
Or, the board could decide to levy $1.4 million instead of $1.1 million, collecting an extra $225,000 to be saved in the school district’s debt service fund for use in future years.
By collecting more than needed, the district could eliminate higher tax rates down the line, Wiberg said. Those funds could be used to supplement debt service taxes if the tax rate rises, and property values fall in coming years.
“You’re keeping it the same but you’re trying to control what the future levy looks like,” Superintendent Michelle Jensen said.
“If you find the mill rate swinging against you, you’ll have funds in that case levy less,” Wiberg said.
“I’m glad you let the mill rate actually drop to where it is. And the decision is whether you keep letting it drop or not,” she continued.
Jensen reflected back to when Deerfield residents were hit with high tax rates in 2008. “We went out to referendum, we thought we had a really good plan, and then all of a sudden the recession hit and it was ugly,” Jensen said.
This is a decision the School Board makes every year, Wiberg said. If they choose this for 2019-20, they could make a different choice in 2020-21.
The School Board will revisit the tax rates for debt service again at the October Committee of the Whole meeting, and at its Oct. 21 annual budget meeting.