I’m hoping someone out there can help with this information requested by a reader:

In the late summer or autumn of 2006, the Daily Herald ran a very informative series of 3 articles on the subject of restructuring long-term debt, with a focus on local schools. The article mentioned how a school might do this to save money in the short term by lowering payments– for instance, they might take a 10 million-dollar debt originally financed over 10 years and stretch it out to 15 million over 20 years. The lenders for such debts, who will make more money in the long run, will give the borrower a bonus for agreeing to such a contract. District 211 participated in such a re-finance.

This matters a lot. This practice is actually illegal in about a dozen states (not ours) because basically, a debt is financed (on the taxpayers) at an agreed amount, and then this re-finance is NOT what taxpayers originally agreed to and actually costs MORE in the long run. Plus, the district may have entered this agreement under the worst possible terms, similar to going on an ARM when you buy a house.

I’m sending a link to this to Bill Lloyd, the school board member who actually communicates with his constituents.What the reader is saying is that apparently, District 211 re-negotiated the terms of one or more long-term debts to spread the payments out over more years. The voters agreed to the debt, but did not agree to the re-negotiated payment terms.

If I understand the question correctly, this would be like if you and your spouse agreed to take on a $200,000 mortgage on your house to be re-paid over 15 years. One day you find out that your spouse has re-negotiated the terms of the loan, turning it into a 30-year loan. The monthly payments will be lower but you’ll end up paying a lot more in the long run. The lender gave your spouse a bonus to do that (the lender will make more money from the 30 year loan than from the 15 year loan) which your spouse promptly spent on a new boat.

The questions are: When we approve a bond issue at the polls, do we also vote on the repayment terms? (Sorry for my ignorance.)

If we do vote on the repayment terms (such as approving a debt to be repaid over 10 years) and not just on the amount of the debt, it appears that our District 211 board, in Illinois but not in some other states, is legally allowed to re-structure the repayment terms later on, and that they did so.

Let’s get some clarity on what happened. Who can help? Email me or post a comment below.

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