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Long Island

School debt soars on Long Island

Ruth Smith, a Freeport teacher, joined thousands at

Ruth Smith, a Freeport teacher, joined thousands at Hofstra University to rally against statewide education cuts. Close to 2,500 parents, teachers, students and supporters of public schools rallied at Hofstra University. (March 24, 2011) Credit: Newsday/Danielle Finkelstein

Long Island's school districts are saddled with $3.7 billion in long-term debt, the price of years of borrowing for construction and improvements ranging from solar panels and upgraded ventilation systems to science labs, refurbished auditoriums and updated athletic fields.

While the state picks up part of the tab -- in some cases, the majority of it -- property owners, too, are on the hook for this fixed cost, which is plugged into district budgets already straining under dramatic cuts in state aid and the expense of government mandates.

School budgets that residents in most of the Island's 124 districts will be asked to approve Tuesday include principal and interest due annually on bonds -- indebtedness that over the past decade was encouraged by state policies.

Debt service on the Island's school district bonds last year totaled $468.9 million, up from $146.1 million in 1990, according to the state Department of Education.

 

Footing the bill

As with any IOU, the piper must be paid.

"The thing you have to consider is, what is the alternative?" said Wendell Chu, superintendent of the East Islip school district. "This type of debt that's being picked up is generally for capital projects that are not easy to include in regular budgets."

The annual debt service is a small piece of a school district's overall spending, which also includes state aid. Last year, debt service ate up 4.5 percent of total expenditures in the Island's districts -- up from 3.1 percent in 2000 and 3.8 percent in 1990.

In the 1990 fiscal year, Nassau and Suffolk school districts had a combined $542.6 million in outstanding bonds, according to data provided by the state comptroller's office. By 2010, those bonded debt obligations had grown to $3.7 billion. Adjusted for inflation, that's a 309 percent increase.

Consider Syosset as one example. When children were dismissed from Syosset's schools in the summer of 1990, paying off the district's long-term debt bonds would have taken about $7 from the pocket of every man, woman and child in the district. In 2010, the payoff was $1,389 per person. The district's bonded indebtedness grew in that time from $225,000 to $47.5 million.

Increased debt by itself doesn't necessarily mean that school districts are borrowing too much -- indeed, as Long Island became wealthier, it could afford more. Overall school spending grew from $3.89 billion in 1990 to $10.37 billion last year, a 60 percent increase after adjusting for inflation.

"Just to focus on increases in the amount of debt is just a partial view," said Kate Hackett, an analyst at Standard & Poor's. "You have to look at the growth in the economy. It's a very strong economy out in Long Island."

 

Outpacing inflation rate

Still, borrowing by many districts has outpaced inflation. The state's growing obligation to fund a portion of school construction and renovation over the past decade prompted changes in law this year that will bring to the fore the trade-off between construction and other costs, such as hiring teachers.

"New York State has done a number of things over the years to encourage school construction, and some projects were sorely needed and others may have been done because the state's reimbursement was so generous that it was hard to say no," said Morris Peters, spokesman for the state Division of Budget. "The problem with that is it drives up state expenses for school construction."

In the 1990-91 school year, New York paid school districts throughout the state $380 million for building aid. Twenty years later, that figure had risen to $2.49 billion, an increase of 295 percent in inflation-adjusted dollars. The amount of aid available for eligible projects is largely determined by a district's wealth, with the state paying a greater portion of poorer districts' costs.

 

The borrowing boom

Borrowing really took off in the new millennium, fueled by a confluence of factors that created fertile ground for debt. Part of it was simply cyclical need. Many Long Island schools were built in the 1950s and required renovation, or more classrooms were needed in growing districts. Enrollment increased during the 1990s and through 2005, driven by a number of factors, including offering full-day kindergarten in more districts and expanded curriculums. Falling interest rates in the 1990s and 2000s made borrowing cheaper, and rising wealth and property values made more money available.

Observers point to state policy changes that encouraged borrowing: a temporary state increase in building aid, imposition of a payment schedule that spread reimbursement over fixed time periods, and a grant program that prompted sale of more bonds.

Starting in 1998, the state temporarily increased building aid available to all school districts, prompting many to go out with bond referendums.

Chu said that state incentives spurred districts to make needed investments in their facilities.

"That incentive caused a lot of school districts to do those projects -- projects that they may have decided to put off for a later point in time or might have even enhanced projects to allow them to do better things," he said.

Then, in 2002 the state changed the way it reimbursed school districts so that it paid them over 15, 20 or 30 years, depending upon the type of project, which discouraged pay-as-you-go spending.

"Governor Pataki, when times were tougher, turned around immediately and stretched out the repayments over the life of the project," said John Bierwirth, superintendent of the Herricks school district. "In a relatively short period of time, the state was one moment encouraging construction and in the next moment encouraging people to go into debt."

Finally, a program called EXCEL encouraged districts sell more bonds, though that cost generally fell more on state taxpayers than individual districts. The borrowing bonanza prompted state lawmakers to change the system this year. The 2011-12 budget capped growth in school aid, including building aid. That means as more funds are approved for districts' capital projects, less money will be available for other things.

"This dynamic has existed for a long time -- of expense-based aid growing as a percentage of the total," Peters said. "Going forward, as we're constraining school-aid growth, that problem is going to essentially be compounded, and this will focus a little more attention on the issue."

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