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Capital vs. Operational

CFAC 2-Minute Videos: Capital vs. Operational

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In Wisconsin, school district referendums raise money for two purposes: capital projects and operational expenses. The Hamilton School District Community Facilities Advisory Committee looked at the possibility of each type of referendum to address facility and financial needs in the district.

This 2-minute video describes both types of referendums and how they could be used in the Hamilton School District.

Referendums allow citizens to have direct say in a decision to increase taxes for particular projects or expenses. 

Capital referendums:

Referendums for capital projects are similar to homeowners asking for a loan for a mortgage. The money is typically used for construction of new buildings, additions and renovations or maintenance of existing ones. 

But instead of going to a bank to ask for a loan, school districts issue general obligation bonds on the open market and investors bid on them. The school district gets cash in the short term and agrees to pay back the principal and interest over a fixed period of time using property taxes.

The interest rate is based, in large degree, on the district’s bond rating. The higher the bond rating, the lower the interest rate to sell the bonds. Hamilton has one of the highest bond ratings among Wisconsin school districts and that has translated into lower interest rates for referendum projects.

Operational referendums:

The second type of referendum is for operational expenses. Citizens are asked to approve an increase in taxes above the state-imposed revenue limit. The funds generated from the additional taxes are used for things such as paying employee salaries, utilities, insurance and other items necessary to operate the school district.

There are two types of operational referendum questions in Wisconsin: a recurring question and a non-recurring question.

  • A recurring question allows districts to exceed the revenue cap permanently.
  • A non-recurring question limits the period of time a district can exceed the revenue cap and requires future approval from voters to continue.

Stay tuned for another 2-minute video next week.