Strapped School District 196 To Borrow $15M

The Rosemount-Apple Valley-Eagan school district will borrow $15 million in July, anticipatin cash shortfalls this summer due to delayed state aid payments and a property tax shift.

On Tuesday, the district’s board voted 5-0 to issue $15 million in aid anticipation certificates—for schools to borrow money to help with anticipated cash flow issues, and repaid with state aid—for six months.

“We’re entering into an era where we’ll need cash flow assistance,” district Director of Finance and Operations Jeff Solomon said. About 40 percent of Minnesota school districts borrowed for cash flow last year, said Joel Sutter, financial adviser with the Ehlers financial advisory firm.

Projections show the district will have a negative cash balance for 52 days this summer, between July 8 and Aug. 29, according to a district memo. The largest negative balance is projected to be $11.7 million on Aug. 12; the certificates will provide that money, as well as a cushion.

Without some type of borrowing, the district would have to take measures like holding back checks because cash wouldn’t be available, Solomon said. Board members also asked whether a potential government shutdown would affect cash flow; Solomon said during the 2005 shutdown the district received almost all its federal and state aids.

But the aid anticipation certificates will require initial fees and interest on the repayment, which will cost about $57,625, the memo says.

“This is a teacher,” board member Joel Albright said. “And we’re going to do it again and again and again until [state government officials] get their house in order," referring to resolving education funding issues.

The district could, however, earn some money on the certificates by investing the borrowed funds for the four months of the six-month loan period when the cash flow is positive again, Sutter said.

This is the first time the district has used the aid anticipation certificates in at least 20 years, if not more, Solomon said.

They’re “about as safe a form of borrowing as you can find,” Sutter said of the tax-exempt certificates, which probably will have an interest rate of about .5 percent.

Getting a $15 million line of credit for two months, which was another borrowing option, would result in a greater borrowing cost because of a higher interest rate, Sutter said.

For now, Ehlers will hold a competitive sale on the certificates, and bring the bids to the board in June.

Projections for the 2012 calendar year show the district will end June and July with a negative cash flow. The district plans to look at something called tax anticipation certificates in the future, Solomon said, which lets districts borrow based on the calendar year, anticipating the property taxes it will receive.

“This is the continual guessing game we’re in,” board member Kevin Sampers said.

Board members Rob Duchscher and Mike Roseen were not present for the vote.