How school districts use ‘defeasance’ to pass referendums
Here’s the amount Fort Atkinson receives from property taxes: The school district could promise a $6.5 million increase for the next three years wouldn’t raise taxes because they’d already increased their levy by $7 million the year before to prepay an old construction loan.
It’s called defeasance, and it’s one of the only ways a school district can increase their spending limits without permission from voters or the state Legislature.
If the operating referendum is passed — which is what happened on April 2 — the district would go back to paying its normal debt payment in future years.
Defeasance is essentially prepaying debt to avoid interest.
Fort Atkinson’s district administrator Rob Abbott said after their operating referendums failed the prior two years, the school board decided to raise their levy to prepay debt.
“So, the idea of defeasance or prepaying debt is difficult for people to understand. But it definitely is a strategy that is a long-term benefit to the taxpayer,” said Abbott. “In our case, it equates to around $3.4 million in savings of interest over the term of those 20-year bonds.”
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