What IS a sinking fund, anyway?

It's a funny name for a source of funding that's very helpful to our schools.

Under Michigan law, a school may collect taxes for a "sinking fund" that can be used for major repairs and renovations (as well as other construction and for buying land). We first approved a tax for a sinking fund back in 2002, and since then Ann Arbor Public Schools has been using it to make important improvements in our community's school buildings. Even so, the funds have not kept up with the needs, and our school board has not wanted to pull money away from classrooms to fill the gap. This new proposal asks for a higher rate that will help AAPS catch up on deferred maintenance and anticipated building needs over the next 10 years.

What has it been used for?

AAPS school buildings are over 60 years old, on average. Just like old houses, older buildings sometimes need major upgrades. Over the past few years, the sinking fund has helped pay for some major infrastructure upgrades in our schools, such as:

  • New boilers and heating systems in many schools, replacing some very old and unreliable equipment. This both saved fuel and a huge amount of regular maintenance costs.
  • New roof systems for a number of schools, cutting maintenance costs in half and keeping roof leaks from dripping on our students (no joke!).
  • New paving and concrete work to make parking lots, driveways and sidewalks safe and to bring schools into compliance with the Americans with Disabilities Act (ADA).
  • New playgrounds at some elementary schools, with better and safer equipment.
  • Remediation of lead paint that was still exposed on the outside of some of our oldest buildings, removing even the remote danger that young people would be exposed to lead.

Why can't we use this to make classes smaller instead?

The sinking fund has allowed our schools to save general operating dollars for the classroom by paying for renovations out of this special fund. Without the sinking fund, we would have had to choose between deteriorating buildings or even less money for classrooms.

Unfortunately, state law is very strict about how sinking fund money is used. It is illegal for schools to use this money for anything other than renovations, construction and land. Our schools have to submit an audit report to the state every year to verify this. In fact, Ann Arbor cannot vote any new taxes on itself to pay for running the schools. Last year, the State Legislature passed a law (Public Act 319 of 2016) that allowed newly approved sinking funds to pay for school security improvements and technology hardware. However, it also reduced the maximum allowed millage level and cut in half the number of years before it would have to be put to the voters again.

How much will this millage cost my family?

The current sinking fund millage expires next year. Our school board is asking voters to approve a renewal of the millage at a higher rate - 2.5 mills rather than the current 1 mill, and to authorize this levy for ten years. (All local school taxes have to be renewed every so often in Michigan.)

Two and a half mills means $2.50 of tax for every $1,000 of "taxable value" of your property. Taxable value is about half of the market value, and sometimes less if you have lived in the same place for a while.

The median home value in AAPS is about $280,000 with a maximum taxable value of $140,000. So the median homeowner in AAPS would pay $350 per year for the sinking fund - about $6.70 per week. Half of all homeowners will pay even less than this.

Didn't we just pass a bond? How is this different?

We did pass a facilities bond recently, but that it fully committed to buying things like furniture, musical instruments, theater upgrades, playground equipment, and athletic facilities improvements. Almost three quarters of the sinking fund proceeds will be used for major building renovation and systems repair and replacement, items the bond cannot be used for.

But there is another advantage to a sinking fund: normally, most school construction and improvements are paid for with bonds, which is really borrowing money. We have to pay that money back with interest and fees, and have a special tax dedicated to paying off each bond. Because it's complicated, schools usually only use bonds for major projects every 10 to 20 years. That makes sense for new structures and additions, but not so much for things like roof replacement or heating system upgrades.

The sinking fund allows our schools to pay for these kind of smaller renovations as we go, without having to borrow money or pay interest. It also means that we're not letting our schools deteriorate for ten or fifteen years while we wait for a new bond project.

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