A state-appointed board is expected to decide the fate of the cash-strapped Palmyra-Eagle Area School District in Wisconsin this week.
The district’s board filed a
The School District Boundary Appeal Board set up under the Wisconsin Department of Public Instruction will hold the latest in a series of public meetings on the request Thursday when it’s expected to cast a vote affirming or denying the request, according to DPI spokesman Chris Bucher. DPI doesn’t take a position on the request.
The decision stands to impact the district’s credit rating and how $13 million of bonds will be repaid. S&P Global Ratings cut the district’s rating to BBB from AA-minus and put it on CreditWatch with developing implications following the board’s dissolution vote — a rarity in the state — last summer.
“Management indicates it will exhaust operating cash by the end of fiscal 2020, according to its operating projections, without the additional revenue to balance the budget,” S&P analyst Andrew Truckenmiller said. “In our view, the district's changing circumstances are more likely to lead to a weakened capacity to make debt service payments.”
The district suffered a loss of 400 students in five years with enrollment now at 800 and levels are not expected to pick up anytime soon. District operating revenues are determined by a three-year rolling enrollment average, and so the quick drop led to a growing structural imbalance.
The district said it can’t cut any further to deal with its budget gaps and warned last year that general fund reserves are projected to decline to 7.2% in fiscal 2020 from 20.1% in fiscal 2019.
The district turned to voters last April to request an operating increase but it failed, leading to the dissolution vote.
The district’s latest projections submitted to the special board warn of a negative fund balance by the end of 2020-2021 school year. “With a projection of a negative fund balance at its end, we cannot begin the 2020-2021 school year,” the district warned.
The state board faces a Jan. 15 deadline to act to accept or deny the request although the decision is expected Thursday. If affirmed, the apportionment process begins with a special board of stakeholders set up to decide how to divide Palmyra-Eagle territory effective after fiscal 2020.
If the SDBAB’s affirms the dissolution, an apportionment board is established to assign specific assets and liabilities other than school buildings and sites constituting each district’s “proper proportion” as established under state statutes. The apportionment board is made up of all the involved school boards’ members or committees appointed by those school boards. The fate of current district employees must also be decided.
“A district’s proportion of assets and liabilities is based on its share of the dissolved district’s equalized property value that the SDBAB has assigned, as determined by the Department of Revenue, or under an alternative plan approved by a three-fourths vote of each school board concerned,” according to the DPI website.
Any individual “aggrieved by an order of the SDBAB” may appeal the order to a circuit court within 30 days after copies of the SDBAB dissolution orders are filed.
September 2020 debt payments would need to be made from calendar 2020 tax levy dollars as the dissolution process continues, according to a DPI presentation. The last district in Wisconsin that was dissolved was Ondossagon in 1990.
Levy collections and debt repayment has continued. How the district would manage its finances if ordered to continue operating is unclear.
“We could lower the rating if the dissolution is not granted and no additional revenue becomes available for operations, or if the structural imbalance widens further. We could raise the rating if the payment source for debt service regains the stability currently seen in the tax base supporting the bonds,” S&P wrote. “Revising the district's rating to stable, negative, or positive is contingent on further clarity regarding how bond payments will continue uninterrupted.”
If the district is divided, S&P said no weakening of the absorbing districts is expected as they would gain the tax base that currently services the debt. The district serves a population of 7,700 in southeastern Wisconsin about 40 miles from Milwaukee and 50 miles from Madison.
