Ballot issue hits E. Grand cash flow
Grand County, CO Colorado
East Grand School District, having recently completed the wrenching process of cutting $1 million from its 2010-11 budget, faces another daunting financial challenge.
Because it relies heavily on revenue from in-county property taxes, the district is bracing for a cash-flow shortage pending the outcome of three tax measures on the November ballot.
Amendments 60 and 61 and Proposition 101 contain provisions that affect state and local government finances by decreasing taxes for households and businesses and restricting government borrowing, according to draft Blue Book information provided by the Colorado Legislative Council.
Amendment 61 would heavily restrict the ability of school districts, special districts and state, county and local governments to borrow money, so the state already has suspended its short-term interest-free loan program to school districts until after the election.
This has put East Grand in a potential cash flow crunch November through February, unless other funds are obtained to ride out months until the district receives its property-tax revenues.
“This is not a situation where the district has over-extended funds,” said East Grand Superintendent Nancy Karas, reiterating that the district has a balanced budget.
But in order to meet East Grand payroll, with 75 percent or more of the budget devoted to salary, a safety net is always needed in the months prior to property taxes paid in March.
That safety net usually would come from the state, which would step in with an interest-free loan.
State officials have determined that if Amendment 61 passes, the state loan program cannot continue, so the program was suspended pending the outcome of the election, according to Karas.
To help districts during the interim, the state released all of its state equalization money to districts up-front, money that districts normally get in payments throughout the year.
Like five other districts in Colorado that rely heavily on property taxes and get little equalization funding (including Gunnison, Eagle, Roaring Fork, South Routt and Hayden), East Grand’s State Equalization funds amount to 2.9 percent of its current projected revenue, while 97.1 percent comes primarily from property taxes.
That means East Grand could face an anticipated $2.67 million cash-flow shortage from November through March without the state loan program, which is poised to be eliminated if Amendment 61 is approved, Karas said.
In preparation for this possibility, the school district board has begun brainstorming ways to get through possible lean months.
Karas points out that state and local governments are required to have balanced budgets each year and are not deficit spending.
“That’s why the state cut $110 million or more just from the education budget,” Karas said. Deficit spending, she said, “is a federal issue.”
At a July 20 special meeting, the East Grand School board tossed around a few options available to the district to address the possible cash-flow problem, such as asking county commissioners to release an advance on property taxes. This was viewed as the district’s best option, and board members agreed to approach the county in an upcoming meeting.
Another option would be to ask voters in November to approve a $3 million bond to offset the cash flow shortfall, which only would be implemented if Amendment 61 were to pass.
The ability for school districts to propose a ballot question that depends on the results of Amendment 61 is made possible by recently adopted Senate Bill 10-205. If Colorado and East Grand voters approve both questions, a bond would serve the district’s cash flow and be fully repaid from the district’s general fund by June 30 of each year, Karas said. Taxpayers would be voting to pay the interest on the bond.
Another option is to create a trust fund into which money could be gifted, not loaned, to the district, which the district would replenish by June 30 each year.
If none of these funding scenarios are possible, the district’s last-case scenario would be to build district reserves through school closures, staff layoffs, salary reductions, temporary and permanent loss of staff and programs, Karas said.
In a draft analyses of what that “last-ditch effort” could look like, Karas outlined the impact of generating more than $2 million for budget reserves. A draft plan includes a 25 percent reduction in staff salaries, reduction in benefits, closure of Grand Lake Elementary School, elimination of all athletics in the middle school and high school and a reduction in staff. In addition, Schools district-wide would be forced to close from Nov. 4 to Jan. 24, with staff members laid off for three months as they draw unemployment. For the rest of the school year, the district may require a return to a five-day school week to fulfill teacher-student contact requirements.
“This is what keeps me up at night,” Karas said at the meeting. “How do you save $2 million from a budget that has already been cut?”
East Grand has cut $1 million from its 2010 to 2011 school-year budget.
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