It is called the installment purchase plan, and it is similar to a mortgage. A school district would form a nonprofit corporation that would borrow the money to build a school, and the taxpayers would buy the school from the panel over 25 years. The plan generally can keep taxes low, but it has a higher interest rate than a general bond referendum, according to The Herald of Rock Hill.
The installment plan allows a school district to circumvent the Constitution, which prohibits a school district from incurring debt greater than 8 percent of the assessed value of real property in the district.
The use of such mechanisms to circumvent the taxpayers is wrong, and the state legislature thinks so, too. For that reason, it passed a law prohibiting the use of installment purchase after Dec. 31.
William Herlong, a Greenville County school board member and an attorney with the Nelson Mullins Riley & Scarborough law firm, wrote in Learning by Design 2002 that "The constitutional debt limit does not apply because the nonprofit is an independent legal entity. The bondholders that will finance construction of our schools have no right of recourse against the school district if we default on the bonds, even though we would lose the right to use the facilities. As a practical matter, we can't default because we need these schools, and the bondholders know that."
Herlong also wrote: "The South Carolina attorney general's office and our Court of Common Pleas ... found the school district's plan legal. Moreover, Moody's Investor Services and Standard & Poor's -- two leading bond rating agencies -- raised our debt rating because the plan resulted in a manageable debt burden while addressing the district's long-term capital needs."
Despite of those statements, a lawsuit threatens a $70 million installment purchase plan in the Fort Mill School District. And the S.C. Supreme Court heard a case on Oct. 31 against the Colleton County school district alleging that this type of plan is unconstitutional, according to The Herald. The Greenwood County school district also has a $150 million purchase plan that is tied up in a lawsuit.
The 8 percent debt ratio was added to the Constitution to protect the taxpayers against overzealous school boards incurring too much debt without taxpayers' approval. Indeed, installment plans are taxation without representation.
Beaufort County voters (taxpayers) have been generous with the school district, approving a majority of the bond referendums, including approving a $43.7 million bond in May. Why didn't the district ask for the money to refinance debt and build a new school in May?
The board is moving along a path that will obligate the district to more debt. And board members want to do this on the advice of an interim superintendent, who suggested that they borrow about $184 million.
The board will earn a "c" for chutzpah if it continues along this path.
Board Vice Chairman Richard Tritschler said it succinctly recently: "This is a typical tax-and-spend attitude. Incomplete information was given to the board. The board is being manipulated."
