East Grand School officials develop strategies to cope with possbile cash-flow woes
Grand County, CO Colorado
The East Grand School District has narrowed its options to replace a state “bridge” loan that has been suspended pending the outcome of Amendment 61 in the November election.
At the district’s Aug. 17 board meeting, members agreed that top priority would be to pose a bond question to voters on the November ballot.
Voters would decide whether the district should incur $3 million to $5 million in bond debt, paid back once property taxes are collected.
The bonds option would cost district taxpayers in the ballpark of $235,000.
If that question were to fail, the district would be forced to mortgage two properties it owns for a $3 million “loan” to help fill the cash-flow gap in October to December of this and following years. Called a “certificate of participation” this option requires the district to put up collateral. Superintendent Nancy Karas said the two buildings owned by the district free and clear are the Grand Lake Elementary School building and the district office. The “COP” option – which “looks like a bond but wouldn’t require a vote” – would cost the district about $235,000 out of its general fund, forcing the district to make more cuts from its annual budget, school officials said.
The two options boil down to a choice between taxpayers picking up the tab for an annual short-term bridge loan to the school, or the district facilitating a short-term loan with a hit to its general fund.
“I’m not sure how much the community can bear,” Karas said at the board meeting. “But I’m not sure the community can bear another hit to the (school) general fund either … Whose back is going to break first?”
Neither scenario would be necessary if Amendment 61 fails.
Since 1993, the state’s interest-free loan program has helped certain school districts that rely heavily on property-tax payments in the spring.
Districts such as East Grand are dependent on property taxes because of high levels of assessed property values. As much as 97 percent of the district budget comes from property taxes.
“A community with high assessed values has the opportunity to generate more funds, at a lower mill levy rate, therefore able to carry more of the expense so the state budget can support communities that have no assessment capacity,” Karas explained.
For this reason, the district gets little state school funding.
The timing of when those property taxes are paid creates a problem for the district in paying its $1 million per-month payroll and bills. So, knowing this was a problem for some districts, the state set up its interest-free loan program in the 1990s.
Amendment 61 on the ballot in November would forbid the state from issuing any long-term or short-term debt, so the short-term loan program that helped district’s like East Grand is in jeopardy. This has forced the district to search out a temporary loan.
Although it needs about $2.6 million each year to cover expenses – which it can pay back in March when property taxes are collected – the district may be looking at finding reserve funds to remedy this financial flaw for any future setbacks, whether Amendment 61 passes or not.
If none of the above options were to work – and only if none of them work – the district could be forced to close school doors for the months it is short on cash flow, a school break from October to December of 2010, according to district officials.
Recently, officials asked the county if an advance on property taxes could be made to fix the problem, but state law prevents the county from advancing taxpayer funds to anyone.
“It’s not something that districts can wait on and hope that 61 fails,” said Rudy Andras of RBC Capital Markets that manages the state interest-free loan program, saying that districts need to plan for the worst.
Statewide polling shows that the tax-slashing measures Amendment 60 and Proposition 101 may fail, but 61 has the “strongest support,” Andras said. The reason, he said, is the proposed Constitutional amendment is being associated with the bigger issue of the federal deficit.
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