Wisconsin schools raised $217M above tax caps for green projects

Under a law that Republicans might eliminate in the next budget, Wisconsin school districts raised more than $217 million in new taxes for energy-related projects since 2009 — all of it outside revenue caps and without going to referendum.

The new taxes require just a school board majority vote, and they've been a lifeline for districts laboring under tight spending limits and decreased revenue. Many have long put off new lights and HVAC systems in favor of salaries and curriculum.

"We didn't have the savings to borrow for what these projects would have cost," said Sue Sorenson, board president of the Green Lake School District. The district has exceeded its revenue limit by more than $5 million for projects such as a new boiler, chiller, lighting and roof repairs — but also on a kitchen remodel and new computers, according to board documents.

Republican Gov. Scott Walker and GOP senators have proposed eliminating the law in the next budget. Critics say it violates the spirit of fiscal restraint and accountability and that districts shouldn't be able to raise so much money without a referendum.

"That's the critical part: Voter approval," said State Treasurer Matt Adamczyk, a Republican who criticized the law recently in a letter to the Legislature.

But if the law is ended, districts would have to rely on their general funds or on approved referenda to exceed tax caps for more capital maintenance. And even that could become more difficult; GOP lawmakers are considering budget proposals that would make it harder for districts to hold or benefit from referenda.

RELATED DATABASE: See how much each district spent through the energy law

For now, school boards are rushing to approve projects while the energy efficiency exemption still exists — and some of the projects are large.

The Milwaukee School Board used the law for the first time in May to approve raising taxes by an additional $83 million over the next 20 years.

The work will address almost 30 of the district's most inefficient buildings.

How the law started

The energy efficiency law was passed as part of the 2009-'11 budget under former Gov. Jim Doyle and the Democrat-controlled Legislature. It was added by former Madison Rep. Spencer Black, said Charlie Schneider, head of facilities management at CESA 10, a state education agency. 

Schneider said he helped Black structure a law that would let districts raise money for a small-scale, energy-related purchase.

"The law wasn't intended for a $20 million or $40 million project," Schneider said. "It was meant to be used for a $180,000 boiler."

At first, districts could only levy and pay for projects within a single fiscal year. Germantown and South Milwaukee, for example, exceeded their revenue limits by a little more than $100,000 to pay for new lighting.

But changes added in the 2011-'13 budget under Walker — influenced by at least one energy company executive — required districts to enter into a "performance contract" with an energy company. Qualified companies were legally bound to guarantee a set amount of energy cost savings or pay the district back the difference if savings fell short.

Districts could also borrow for up to 20 years.

After that, the size and scope of energy projects skyrocketed.

Since 2009, 168 districts have used the law at least once to exceed revenue limits for energy-related construction projects or products, according to a Journal Sentinel analysis of state data.

The records show 35 districts used the exemption in 2009-'10 to spend $5 million in additional taxes. 

By 2013-'14, 53 districts used the exemption to spend an additional $21.7 million.

Last year, 120 districts levied $79.8 million in new taxes through the exemption.

The law requires districts to report the projects to the Department of Public Instruction and also the amounts they plan to raise under the exemption. Districts may ultimately spend less in taxes for the green projects than the total amount they authorized.

Some savvy districts are using the law to pursue long-term utilities savings and a healthier workplace with no discernible bump in taxes for local residents. 

The St. Francis School District in June approved exceeding revenue limits by $2.2 million for a new boiler, air-handling units, LED lighting and a new high school roof, said Jonathan Mitchell, director of finance and operations.

Mitchell said the timing is good because local property values are going down, which means St. Francis's state aid will go up. And that means taxes will stay the same despite the much-needed building upgrades, he said. Taxes would drop if the district didn't do the projects, however.

"This was intended to address some deferred maintenance projects without having a tax-levy impact," Mitchell said.

Performance contracts benefit large firms

The performance contract requirement seemed like a way to safeguard taxpayers, but it created a windfall for large energy service companies such as McKinstry, Nexus, Johnson Controls, Performance Services, Schneider Electric, Trane and Unesco. The amendment made it much harder for local or smaller companies to be the prime contractors.

In a nutshell, the energy companies could approach school districts, offer energy audits and then expect to get the first crack at a contract for any needs they identified. The companies would then come up with a plan to save money, execute and sub-contract all the work, and also measure the savings. What the company was making in overhead was often obscured.

Erin Green, educational consultant for Performance Services and the former finance director for Greendale's schools, said her company performs audits of district buildings for free, with no binding language to get the work.

 Ash Awad, chief market officer for McKinstry, said his company estimates beneficial upgrades for free. But the energy efficiency audit is costly because it requires on-site engineers and data loggers, Awad said. It would be pointless to conduct one if the district didn't intend to proceed with McKinstry for the work, he added.

Awad also said McKinstry has been working with state lawmakers to determine how to increase transparency for the exemption, rather than eliminating it.

Michael David, president of energy firm Nexus, said he actually helped craft the amendment to require districts to engage in performance contracting, back when he was a team leader of Johnson Controls solutions group. 

A current spokesman for Johnson Controls declined to answer any questions, including how many contracts the company has with districts.

One is MPS. Records show Johnson Controls has contracts for almost $19 million worth of work so far on district buildings. 

Transparency on spending

The Kenosha Unified School District has used the law to approve exceeding revenue limits by up to about $125 million through 2037 — a larger amount than any other district has authorized. The bulk of the projects was approved in the past 11 months.

But Kenosha's facilities manager, Patrick Finnemore, has earned praise from his peers for figuring out how to get energy companies to be more transparent.

Finnemore studied performance contracts around the country before electing to use the law. Kenosha paid for its own independent energy audit, then requested proposals from energy companies  — and fees — for items like new windows, lighting and boilers in all the district's aging schools.

"We know they're going to make money off of us, but we wanted to know how they would do that, and where, on every line item," Finnemore said.

Finnemore insisted that a different company calculate the savings on the completed work. He ordered a more robust evaluation in the first and third year post-construction, and a simpler, cheaper measurement in the other years.

"At least in our area, the projects are wildly popular," Finnemore said. "When we did the first phase of work on the nine elementary schools, we got people asking when we were going to come upgrade their schools. These are 1960s-era buildings that haven't had a lot of work done since then."

Kenosha reported $120,000 in utilities savings last year, up from the $36,747 in 2015-'16, according to DPI records.

There has never been clarity about how exactly to measure savings under the law, despite a 2-year-old DPI requirement for districts to report utilities savings.

Many districts simply report savings projections from the energy company, and not the actual savings generated by the new equipment.

In all, 15 districts reported the exact same amount for utility savings in 2015-2016 and 2016-2017, according to the Journal Sentinel's analysis of state data.

Misuse of the law

The new reporting requirement has led DPI to penalize some districts for pursuing projects under the exemption that were not related to energy or for not putting utilities savings toward the outstanding debt for the work.

The penalty involves the DPI adjusting a district's debt or spending authority.

The penalty was just $1 for Nicolet High School and about $3,400 for Hartford Union High School last year. But the state lowered Manawa's revenue limit by $381,000.

Other districts' decisions have so far just raised eyebrows.

The Kaukauna School District enrolls fewer than 4,000 students but approved raising up to about $55 million in new taxes for energy projects, in four separate school board votes since 2009.

The two most recent projects will cost $20.4 million and $25.1 million, respectively. They involve new lighting, heat systems and roofs — but also a new kitchen and food-service equipment. The district also replaced a tile floor at the elementary school and rubberized the playground surface through the energy exemption.

Bob Schafer, Kaukauna’s financial officer, defended those decisions.

“With a playground, you have to refurbish wood chips … now you don’t have to replace it every year,” Schafer said. “You used to have to wax (the tile) at least twice a year … now all you have to do is sweep.”

Reporter Kevin Crowe analyzed the data for this story.

Contact Erin Richards at (414) 224-2705 or erin.richards@jrn.com or @emrichards.