CHICAGO -- The Milwaukee Public Schools system has put on hold plans for a $35 million note issue to fund building projects.

The schools now intend to include the projects under a proposed $474 million 10-year building plan involving general obligation bonds, according to Denise Callaway, director of the school system's public information office.

Callaway said the decision, made last month, is supposed to give the public a clearer picture of the schools' needs.

"We decided rather than use the $35 million in short-term borrowing, we would roll [the note projects] into the facilities plan," Callaway said. "Rather than confusing the public [with two issues], we though it was best to put it all in one package."

The decision was not influenced by minority participation goals inserted into the state law that permitted the note deal, she said.

The law, enacted in June after lobbying by the schools, allows the note issue to go through without voter approval. State Sen. Gary George, D-Milwaukee, added a provision recommending that the deal have a minority firm as financial adviser and that minority firms make up at least half its underwriting team.

George was "taken aback" by the district's decision not to proceed with the note issue, according to Walter C. Farrell Jr., the senator's senior policy adviser.

Farrell said the senator, who represents the largest contingency of black people in Wisconsin, will support similar minority participation requirements on the proposed $366 million bond issue that would partially finance the $474 million building plan.

The building plan "is a watershed event that will determine whether people of color will get a real piece of the pie," Farrell said.

The law allowing the $35 million note issue to proceed without voter approval also directed the school district to draft the building plan.

Though the law set special minority participation requirements on the $35 million note issue, it did not outline specific bonding-related requirements for the building plan.

However, the law requires the Milwaukee School Board to hire minority financial advisers for the building plan. In addition, at least half of the construction projects must be done by minority-owned businesses.

Thomas Hayes, Milwaukee's special deputy city attorney, said legislative changes would be needed to include specific minority participation requirements in the bond issue.

Under current Wisconsin law, the bonds would be sold competitively, Hayes said. He added that his office would recommend voluntarily minority participation on the bond issue because of concerns raised in a 1989 U.S. Supreme Court case, Richmond v. J.A. Croson Co.

The Supreme Court ruled that cities must prove they are remedying past discrimination before setting contracts aside for minorities.

Callaway said it was too early to tell if minority participation requirements would be included in the proposed $366 million bond issue. She said the school district has not discussed the idea with Sen. George's office.

The $474 million Facilities Master Plan, proposed by Schools Superintendent Howard Fuller last month, is expected to be approved by the schools' board of directors later this month, according to Karen Salzbrenner, spokeswoman for the Milwaukee Public Schools.

The plan calls for constructing 14 new schools, including one high school, and expanding 14 existing elementary schools. That includes the projects originally to be funded by notes: construction of two schools and repair work on existing facilities.

The school board must approve a resolution to place the $366 million bond issue on the ballot. If approved, the resolution will be sent to Milwaukee's Common Council to receive a rubber stamp of approval, according to Hayes.

Hayes said his office expects to work with the school district in drafting the language for the resolution.

Unlike other school districts in the state that draft their own budgets and levy their own taxes, the school board approves its budget but relies on Milwaukee to levy its taxes and issue its GO debt. The Common Council votes on school budgets and referendums, but cannot reject them.

The remainder of the building plan is expected to be financed with anticipated energy conservation grants from the federal government and proceeds from the tax levy, Salzbrenner said.

If the referendum is approved by a simple majority, the city is required to issue bonds and levy the property taxes to provide debt service, she said.

Salzbrenner said the referendum would probably be held next spring if the board approves the plan.

If the $366 million bond issue is not approved by the school board or voters, the school district has the option until 1995 of returning to the original plan of issuing $35 million of notes, Callaway said. She added that the deal must meet the minority participation requirements outlined in the law.

Meanwhile, Fuller has suggested that financial ties between the public school and city be broken in response to concerns expressed by some city officials that school projects, such as the current building plan, will raise city taxes and anger voters, Callaway said.

"Some city officials are concerned about our bonding on the city's levy. They're concerned about their levy going up and voters not knowing why. We say [the school district and the city should] sever the relationship," Callaway said. She added that Fuller has not drafted a formal proposal regarding his suggestion but has discussed the issue with city officials.

W. Martin Morics, the city's comptroller, said severing the financial ties would be "complicated" because the two entities share various administrative tasks.

"It's an odd system, but it has worked well," Morics noted.

Milwaukee has approximately $375 million of GO debt, including $29.5 million for the schools. The city carries a Aa GO rating from Moody's Investors Service and an AA-plus from Standard & Poor's Corp.

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