In a previous post, I questioned how District 150 was able to transfer $6.3 million from a debt service fund to operations and maintenance. I posed this question directly to the district and received this answer today:

The applicable section of the School Code is: 105 ILCS 5/10-22.44 (Transfer of Interest) which states in pertinent part: “To transfer the interest earned from any moneys of the district in the respective fund of the district that is most in need of such interest income, as determined by the board. This section does not apply to any interest earned which has been earmarked or restricted… This Section does not apply to any interest earned on any funds for purposes of [Retirement], [Tort Immunity], [Fire Prevention], and [Capital Improvements]. Interest earned on these exempted funds shall be used only for the purposes authorized for the respective exempted funds from which the interest earnings were derived.”

I also asked how the district is earning interest on money that is supposed to be repaying the district’s debt. “In other words,” I asked, “I’m assuming the only way interest could be earned is because there is excess money sitting in the debt service fund – and apparently a lot of it to earn $6.3 million in interest! Why is there so much excess in that account? And why isn’t it and any interest it has earned going to pay off bonds instead of being transferred to operations and maintenance?” They responded:

Taxes levied to repay debt, generally, are received during the months of June through December of a given year with bond (and interest) payments being made in December (of the then current year) and the following June (of the year in which the taxes were collected). The nearly six month lag in time between the receipt of taxes and the disbursement of the same (for bond principal and interest payments) yields income it having been invested. It is this “investment income”, accumulated and compounded over a period of many years, that was transferred; in other words, the interest was not earned in one year on “…excess money sitting in the debt service fund – and apparently a lot of it to earn $6.3 million in interest!” The last recorded transfer, and then only partial transfer, of interest income occurred in 1997. The interest income was not earmarked or restricted for the purposes of paying bonded indebtedness.

This has been quite (ahem) educational for me. I never knew the district only paid bond debt twice a year while receiving tax income continuously. Nor did I know that they could invest that money in the meantime and rack up millions of dollars in interest income over the years. Nor did I know that said interest income could be used for anything.

Nor did I know that 105 ILCS 5/10-22.44 superseded this other part of the school code (105 ILCS 5/1E-80):

All moneys on deposit in the debt service fund shall be held in trust in the debt service fund for the benefit of the holders of the Bonds, shall be applied solely for the payment of the principal of and sinking fund installment, redemption premium, if any, and interest on the Bonds, and shall not be used for any other purpose.

See, this is why I’m not a lawyer. When I, a mere layman, read a statement like, “All moneys on deposit in the debt service fund…,” I think that means all moneys on deposit in the debt service fund. If I were a lawyer, though, I would know that it doesn’t really mean all moneys on deposit in the debt service fund. It means all moneys except interest earned on deposit in the debt service fund. I also thought that when two provisions of a code were inconsistent with each other that the more restrictive one applied. But that’s apparently not the case here.

The question I didn’t ask, but should have, was why they needed an extra $6.3 million in their operations and maintenance fund in the first place.