Harrisburg School District sitting on ‘severely high’ bond debt [The Patriot-News, Harrisburg, Pa.]

Nov. 22--Debt owed by the Harrisburg School District has not captured headlines as the city's incinerator debt fiasco has.

Yet the amount of money the district will pay on construction bonds will dwarf the city's debt and probably lead to higher real estate taxes, officials said.

Bond debt makes up a significant amount of the school district's annual budget, and it will continue to grow. This year, the district will pay just less than $15 million in bond debt payments, which account for 12 percent of its $124 million 2011-12 budget. In 2009, the district refinanced about $282 million it borrowed in the late 1990s to early 2000s to renovate almost all of the city's deteriorating schools. By the time the district pays off the borrowing in 2034, it will have paid $588 million on the debt.

"We're going to get to the point where [the district's] debt payments are going to be severely high, and that is going to have to be reflected in higher real estate taxes," said state Rep. Ron Buxton, D-Harrisburg. "The only thing that saves you is a refinancing, but what are they going to save because interest rates already are at historic lows?"

City officials are worried that tax increases likely needed to pay down Harrisburg's$317 million of incinerator debt will further cripple its population, as about 30 percent of Harrisburg residents are at or below the poverty level.

The school district's $282 million of refinanced debt makes the picture that much bleaker, they said.

Mayor Linda Thompson "is deeply concerned about this. It's an issue of growing concern," said Robert Philbin, her spokesman. "I am sure the mayor will get involved in it at a more appropriate time. That's next on the list. The list keeps getting longer."

The district's only options are some sort of debt restructuring or cuts in interest rates, said Jeff Bader, district business manger.

Interest rates are at historic lows, and the district has a remarkably low variable rate of 0.25 percent on some of its bonds.

All of the construction debt had to be refinanced two years ago to avoid paying an astronomical interest rate of up to 25 percent on bonds because of a bad credit rating that the district's bond insurance company received, Bader said.

The fixed interest rate on much of the borrowing is 5.25 percent.

"They backloaded this [borrowing]. It's like buying those mortgages where the debt is ballooning," Buxton said. "They went on this big building spree, and now we're at the point where three buildings are not being used."

The district closed three of the renovated schools -- Hamilton, Shimmel and Lincoln -- this year to save money, Buxton said. The district also laid off scores of teachers and other workers.

During the reconstruction, the district spent $55 million to renovate Harrisburg High School and the football field/stadium next to it.

A school could be built in the suburbs for that type of money, Buxton said.

The district's annual payments on the bond debt will increase incrementally during the next 10 years, but Bader contends the district might not have to increase real estate taxes to make the higher bond payments.

For example, the district's debt payments increased slightly, from $14.86 million last year to $14.88, million this year, and the school board did not increase real estate taxes.

But even bigger debt payments are on the way.

Next year, the district will pay $15.5 million in bond debt payments, and that will grow to $21.4 million in 2021, after which payments will begin to decrease. It could be tough to meet bond payments as they grow, but a combination of factors have to be considered, Bader said.

Other expenses, such as retirement and labor costs, continue to grow, and that adds to the financial morass.

"There are lots of things that go into district costs and revenues. As the board makes decisions going forward, it doesn't necessarily mean tax increases," Bader said.

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