District 3 pursues bond plan despite legal challenge

Officials in Fox River Grove Elementary District 3 said this week they are pressing forward with plans to issue bonds for building renovations despite a legal challenge to a similar case in West Chicago.

District 3 officials plan to issue up to $1.25 million in working cash bonds to finance upgrades to the district's 45-year-old Algonquin Road School.

But a state appellate court recently ruled that when West Chicago elementary District 33 officials similarly issued working cash bonds to pay for building upgrades, they violated state law.

District 3 officials said they are aware of the West Chicago ruling but do not believe it applies to their situation.

"We're not concerned," Superintendent Tim Mahaffy said Tuesday. "The bonds (to be) issued are in compliance with that appellate court decision."

School districts typically issue working cash bonds to create a cash reserve that can cover daily expenses in the event of a short-term cash flow problem.

But districts can also transfer working cash to other funds to cover expenses normally paid for out of those funds, according to the Illinois State Board of Education.

State law, however, places certain restrictions on those transfers - and that's how District 33 got into hot water. The appellate court ruled that the West Chicago district improperly transferred working cash money to its operations and maintenance fund.

District 3's bond consultant said the district would not run afoul of the appeals court ruling because the district plans to transfer working cash funds first to the education fund - and then to operations and maintenance.

"They're complying with the law in that they're making the transfer to the education fund," said Lynda Given with Chapman and Cutler, the firm that also advises District 33. "As long as it's made to the education fund, it's perfectly fine."

Critics charge that because working cash bonds don't require a referendum, issuing the bonds is a way for school districts to circumvent voters.

When Hinsdale Township High School District 86 transferred working cash funds to the eduction fund and then to another fund for building projects, a District 86 board member said the practice was akin to "money laundering."

Closer to home, Cary Elementary School District 26 approved a policy this month that specifically bars the district from issuing bonds or raising tax rates without voter approval.

But District 3's bond counsel pointed out that voters had an opportunity to force a referendum on the bonds and said the recent ruling only addresses how working cash funds are transferred, not how they are issued or used.

"The complaint in the West Chicago litigation is not against the bonds at all," Given said. "To say they should go to referendum is really a question for the General Assembly."