Referendum 101: The long and winding road to Unit 5's financial crunch
Unit 5 is facing a deficit — a big one that has been growing for years. The district is deep into a public engagement process, gathering opinions on how to deal with the structural budget problem and building public awareness of a potential referendum to address the issue.
Such a referendum could be different from other, though not all, ballot initiatives for Unit 5 in recent decades. It could potentially address operating funds and not buildings. It could be permanent and not have a sunset tied to the end of bond payments. If there is a new referendum. That’s not yet clear.
Previous referenda passed to finance the construction of Normal Community High School and to convert the old high school into Kingsley Junior High. The new NCHS opened in 2003. Before that, voters approved tax money to build Normal Community West High School that opened in 1996, said retired superintendent Alan Chapman.
Then in February 2008, the school board and district went to voters and asked permission to raise taxes to issue $96.7 million in school building bonds. That was to pay for Evans Junior High, an addition to Sugar Creek Elementary, and two new elementary schools. Rolled into it were improvements to Carlock, Hudson, Towanda, Brigham, Fairview, Glenn, Oakdale, and Colene Hoose elementary schools. Voters said yes to the buildings — 59% to 41% against. They also raised the Education Fund rate to staff the new buildings, though by a narrower margin — 51% yes to 49% no.
There was an increase of 10 cents in the Education Fund tax rate. The rate change from "2.62% to 2.72% of taxable property, as equalized or assessed, brought the approximate extendable revenue from $45,244,801.17 to $46,971,701.98," according to language from the ballot that year.
Also from ballot language, the increase in the district's roughly $116 million annual budget caused by the taxes was 1.51%. One other way to frame it is the increase in the maximum tax rate was 3.82%.
Scott Lay was the head of the school board at the time. A one-time head of the McLean County Republican Party, Lay is nobody’s idea of a tax and spend kind of guy. He said recently that looking back, he still believes the case was strong for the three new buildings.
“That was fairly simple for me. It was at a time when we were growing at an annual rate of 3%-4%. It was an issue of capacity,” said Lay.
The improvements to other buildings were about equity. The new schools were on the east side and much of the school building stock dated to the 1940s and ‘50s, Lay said.
“I felt very strongly at the time and looking back I think it was the right decision. It turned out to be a good investment,” said Lay.
Rejected: Countywide sales tax
There’s one other referendum to consider during the run-up to the current crisis, but it’s not specific to Unit 5 and it does not affect the arc of how the district got to the present problem.
In March of 2014, McLean County voters considered a proposal to create a countywide 1-cent sales tax for schools. That would have been restricted solely to building construction and maintenance and would have generated about $16 million per year for all the schools in the county, not just Unit 5 buildings.
"Twenty percent of that money would come from outside the county — tourists, people traveling on the interstate and coming for events; 17% would come from the student body that spends money in Bloomington-Normal. So, 37% of the money from the sales tax would come from outside," said then-Unit 5 Superintendent Gary Niehaus in late 2013.
In return, Niehaus said at the time, it would have reduced property tax support for building bonds and interest in a tax source swap. Opponents sneered at it as an Astroturf tax, alleging a permanent revenue source might be used for wants instead of needs, since a sales tax would not expire as bonds do when paid off.
Voters throughout the several school districts in the county rejected the proposal.
OK, now back to the more significant 2008 referendum.
The $1.7 million in extra money generated by that tax hike each year was supposed to be enough to pay staff and run the schools.
“The Education Fund increase would have been to allow us to continue to operate in the black as opposed to deficit spending. And the 10 cents was the best estimate at the time of how much of an increase would be required to accomplish that,” said former Superintendent Alan Chapman, who participated in the run-up to the referendum though he had retired by the time it passed.
Niehaus, Chapman's successor, said after the passage in early 2008 that the main reason voters approved the building and operating referenda was the school district had a well-planned public information effort to tell voters why they needed the money and how the district would spend it.
"We have to make sure that when we talk about growth, we're giving them good numbers and when we're asking them about what we're wanting to build we give them good costs, and then I think we have to live within those. I think it can be problematic if we have a community that doesn't believe that,” said Niehaus.
Economic assumptions at the time included continued community growth in both the value of existing property and in the amount of new construction as well as in the number of students Unit 5 had to teach.
“I know from the entire history of our district that we have always been very conservative with any increase in taxes and our boards of education historically have avoided those at all costs until it became very necessary," said Chapman.
Chapman said he doesn’t recall significant push back from voters. Some voters always disagree with higher taxes. But Chapman said that opposition was not well organized.
Scott Lay said it was the "least they could ask for and still accomplish what they needed to do."
That amount was enough to put up new schools and rehab existing ones, but it did not fully cover the staff and operations costs for the three new schools. For that, the district was to rely on the continued increase in land values.
Chapman said in the run-up to balloting in 2008, staff did a lot of work tracking growth in the district, examining almost on a house-to-house basis how many homes were being built and what that meant for schools. At the time, it meant lots of growth.
“The discussion was how can we continue to maintain a balanced budget. With the continued growth it looked like it was going to become a problem. That led to the discussion about increasing the tax rate,” said Chapman.
Continued economic growth was so baked into planning assumptions there was even talk about building a third high school, though Chapman said the board decided the case wasn’t quite strong enough to bundle that into the 2008 package.
The perfect storm arrives
The assumptions were wrong.
“I'm not sure back then that there was anything on the horizon where it looks like, they knew that the valuations were going to slow down to the extent that they did,” said current Unit 5 Chief Financial Officer Marty Hickman.
Just after the referendum passed, the so-called housing bubble collapsed. The bubble was created by easy-to-get variable rate mortgages that encouraged a buy now-pay later mentality, and inadequate vetting of credit qualifications on a micro scale. A macro scale pressure came from the practice of financial institutions bundling mortgages together into huge packages of derivatives that were traded and sold as their own speculative financial instruments.
Thus came the Great Recession. New development in McLean County and within the Unit 5 boundaries slowed to a trickle. Increases in foreclosures and resales at lower prices caused total property values in the community to stagnate for several years.
“We had a bit of a perfect storm after that, where things did slow down in 2009,” said Hickman.
In 2015, Mitsubishi closed. State Farm embarked on a change in strategy that shuffled some higher-paying jobs to the western and southern U.S. State Farm employment in Bloomington-Normal stabilized at less than the historical high. Amid this, then-Gov. Bruce Rauner engaged in a lengthy budget standoff with lawmakers that hurt school finances. For years the state even "pro-rated" payments to districts, meaning there wasn’t enough revenue to match what lawmakers appropriated for schools and the state stiffed districts on the difference.
“So, we have been in budget-cutting and holding-the-line on budget mode since I have been with the district, which was back in 2011,” said Hickman.
As each item in this series of unfortunate events happened, school officials saw the problem getting worse. Unit 5 coped with short-term borrowing in advance of tax revenue and state payments. It’s called a working cash fund bond.
By late 2018, just five years after the failed sales tax referendum, then-Superintendent Mark Daniel defined it as a crisis. That was back when the structural deficit was about $5 million per year. By mid-2019 it was $6.5 million. It’s twice that now.
Daniel said back then a 10% cut in personnel to balance the budget was a bad idea.
"If I were to reduce the amount of money to balance the budget without working cash bonds, I would be reducing 120 teachers. That would be catastrophic," Daniel told WGLT in March 2019.
By August of that year, the board had decided not to go forward with a referendum because of what Daniel called "uncertainty in the community" and Daniel was still sounding the alarm.
"I'll tell you if we don't support (schools) it's not a good-case scenario. You can look at co-curriculars and programs within the school day, all those will be impacted. And that's not beneficial for a community, especially if you want a good quality educational program," said Daniel.
At the time, Daniel said he hoped the referendum process would begin, but the district needed to find a community person to lead the initiative. Daniel set his sights for mid-2020. Past that and Daniel said the need for a referendum would be critical.
"What public schools do for students is far beyond I think what the actual public understands. With that, there is a price tag. And either we continue to support those programs, or we have to eliminate those programs. It's that simple," Daniel said in August 2018.
By March 2019 the district was borrowing $16.5 million in issuing working cash fund bonds that Daniel said would only cover Education Fund cash flow for two years.
He said it was clear the state couldn’t make up the difference — and an estimated $20 million property tax increase (at the time) to take care of the deficit was not a great option either, he said.
"You might have to pay additional interest in the short term to make it to the long term. And in the 'long term' being that the community truly understands significant reduction in funds means significant reduction in staff. We're a people business," said Daniel.
Daniel said another option was to keep on with a short-term borrowing policy until bond debt expires in 2025 and 2026 and then ask voters to raise property taxes for operations to balance out the falling property taxes as the bond payments go away. Daniel said the next board would decide what to do.
As 2019 went on, Daniel’s position with the school board eroded. The pandemic came just as Daniel left and the board hired current Superintendent Kristen Weikle. Federal aid helped stave off Unit 5’s financial problems for a while, but they’re again urgent.
The district is engaging the public to get the word out just how dire the situation is and what the options are. That will conclude later this summer and the current school board will face the same decisions the one in 2018 and 2019 faced — though the financial hole is much deeper.
It’s never easy to pass a referendum.
Data from the Illinois Association of School Boards shows there were 971 building referenda for Illinois school districts between November of 1989 and 2004; 571 passed, or 58.8%. There were 367 building fund referenda between 2005-2021 and 195 passed, or 53%.
Unit 5’s challenge, though, is in the Education Fund and Illinois voters are more reluctant to pass permanent school tax hikes than they are to approve increases for buildings. School districts also have gone to voters less frequently in recent years.
IASB figures show 1,347 school tax rate increase requests of voters between 1989 and 2004; 471 passed, or 34.9%. There were 304 attempts at raising education fund rates between 2005 and 2021, and 117 passed, or 38.4%.
A third category the IASB keeps track of is ballot attempts to pass sales tax referenda for school building support. There have been 138 attempts statewide in that category since the mechanism became possible in 2008; 57 passed or 41.3%. Some counties tried multiple times before voters eventually agreed.
The law prevents school employees and school board members from running referendum campaigns. If the Unit 5 board makes a choice to ask voters for help, a citizens committee usually runs it, though school officials offer information.
“It’s a fine line. We were always expected to present the data. The way we did that was leaning to the case that if you believe all those facts, it is necessary that we follow this route. But we did have to be careful not to promote a yes vote or a no vote. We couldn’t specifically ask for that. It had to be citizens that did that,” said Chapman.
Lay said the district has used a citizens committee for every referendum he’s aware of going back four decades, adding a referendum campaign is about coalition-building and the committee can’t just have parents of current students.
“Also trying to get a cross section of taxpayers, empty nesters, and folks who don’t necessarily have students in the district. That citizens committee is the group responsible for organizing the campaign, and developing information to state the case for why the referendum is necessary,” he said.
And the inability of the district to find a person to spearhead that committee, former Superintendent Mark Daniel said at the time, was one reason Unit 5 did not go to referendum back in 2019.
A referendum campaign is like any other act of political persuasion. It costs money. Lay said he’s not sure what a campaign would cost today, but it could be $20,000 to $50,000 to fund advertising and direct mail. He said social media was not a prominent feature in the referenda 14 years ago, but would certainly be part of the costs today — costs funded by donations.
“From the community. There are also other groups, some of the employee union groups get involved, the laborers union, and various community-based groups also can participate and contribute,” said Lay.
Timing also is important and can be specific to the district involved. IASB data show districts schedule referenda at various times — during primaries, general elections, even during balloting for nonpartisan municipal contests when turnout tends to be low.
The 2008 referenda happened during a primary election in a presidential year. Then-Superintendent Gary Niehaus said that was a double-edged sword because it cut down on available campaign time.
"We were very concentrated and very quick to get to the issues and the information. The larger turnout, maybe that's better for the voters to know that a larger group of people have supported us on this, and from our vantage point it was scary but worth our effort to have the bigger primary behind us," he said.
That year also featured a lot of Democratic presidential candidates; then-Sen. Barack Obama was one of them. Niehaus acknowledged the large turnout also was younger, and a more Democratic one that can be helpful on an education tax issue.
That is not likely to be the case this time around. Most political analysts predict November balloting will favor Republicans, though how much is in dispute. And speaking generally, Republicans are harder to convince than Democrats of the need for more taxation.
Such a campaign also can take upwards of a year, though the last one did not. Once Unit 5 ends its community engagement phase on the financial situation of the district in August, the school board will have to decide whether or when to ask voters for help.