Giving Compass' Take:

• Emily Richmond explains that when school districts fall into cycles of debt they have no choice but to levy taxes or cut services for students, hurting their communities. 

• How can funders help to prevent this type of situation? How is the financial health of your local school district? 

• Learn how debt is complicating L.A.'s teacher strikes. 

Whitmore Lake Road is a two-lane stretch of blacktop cutting through wide fields and dense woods. In the predawn hours, around a curve, the community’s high school, a modern brick and glass edifice, beams out of the darkness. For the small, unincorporated community of 6,000 just north of Ann Arbor, the 12-year old building is a crown jewel — one that’s all the more precious given how close it came to slipping away.

The public comes on weekends to swim in the competition-size pool, throw events in the recreation center and watch performances in the 700-seat theater. The school features geothermal heating and cooling, a high-tech computer lab and a two-story atrium.

In 2003, before the Great Recession, Whitmore Lake was like thousands of other school districts across the country. Its school buildings were outdated and overcrowded. The district relied on seven portable classrooms, and some teachers were assigned to teach in modified storage closets. But the district was also luckier than most: The community was expecting a large-scale housing development to be built across the road from the high school, bringing with it a potential enrollment bump and the extra state dollars that would follow the additional students. Voters approved nearly $48 million in bonds for remodeling and renovating existing facilities, adding the pool complex and construction of the new high school that would hold 100 more students than the previous building.

The housing development never came. The recession hit, and the local tax base fizzled. By 2014, the district had just $24,000 in the bank with a $600,000 payment coming due for salaries, benefits and day-to-day operating expenses recalls Superintendent Tom DeKeyser. According to administrators, it also still owed about $60 million for long-term bonds, and was relying on a state loan to help make the $3.6 million in payments that would be due that school year. The district was basically using a second credit card with a better interest rate to pay off another credit card’s debt.

“I can feel myself sweating just thinking about it,” DeKeyser said.

Plenty of school district officials across the country likely feel the same way. Nationally, school district debt has grown substantially, from nearly $323 billion in 2006 to $443 billion in 2016, according to U.S. Census data. In Michigan, school districts’ long-term debt is just over $13 billion, according to the state’s Treasury Department.

Taking on debt isn’t always bad.

Yet debt always involves some risk. Districts that can’t generate additional dollars through enrollment growth or local taxes can end up so deep in debt, they can’t climb out. And unlike an individual — who can default if their finances change — once a district has taken out a school bond, it must pay it back, even if the community falls on hard times. Districts can’t default, and declaring bankruptcy is rarely an option; nationally, only six have done so in the last 60 years.Instead, school officials have to find the dollars somewhere, either by extracting it from local taxpayers or taking away resources from kids.

Read the full article about debt cycles by Emily Richmond at The Hechinger Report.