District 113A OKs Loan Repayment to 210 Despite Disagreement over Amended Financial Plan

will secure another round of tax anticipation warrants next month following the successful repayment of a short-term loan Wednesday to .

During its monthly business meeting Tuesday night, the District 113A Board of Education unanimously approved two interfund loans to repay a $5.5 million loan—plus interest—to the high school.

In order to retire the debt, $250,000 was transferred from the the transportation fund to the educational fund and $700,000 was transferred from the operations and maintenance fund to the educational fund.

According to outgoing District 113A Treasurer Jay Tovian, who will be replaced next month by , the transfers act as loans to the educational fund, so resolutions were required by state law.

Once the district receives its second round of TAWs from District 210—$5 million expectd to be issued no later than July 8—money will be replenished to each fund, Tovian said.

Board members disagree over amended financial plan

In order to complete the sale of $5 million in TAWs to District 210 next month, District 113A was required to submit to the Illinois State Board of Education an amended financial plan, which it has been following since being certified in financial difficulty in December 2009.

According to District 113A Supt. Tim Ricker, the plan was updated to include information on cash flow projections that show the need for TAWs, as well as the plan to end short-term borrowing by 2013. 

"It's been hard to do but we are out of the process that got us into financial difficulty, which is the borrowing," Ricker said. 

Concerns were raised, however, by board member Al Malley who said approving changes would "tie the board's hands" to the plan without having final enrollment numbers or an approved 2011-2012 budget.

Board President Mike Aurelio agreed, saying that the current financial plan "has worked magnificently." He called the amended document "a new plan," citing several changes, including projections through fiscal year 2015 (the old plan contained projections through 2013).

"We're meeting and exceeding the financial plan," he said. "[A new plan] is not required at this point."

Ricker said all the new information was related to an updated cash flow analysis, information on TAW borrowing and how the district will eliminate the "mismatch," or need to borrow twice in one year. The plan will also be updated later this year when the 2012 budget is approved, he said.

Malley and Aurelio discussed the possibility of using current funds to hire teachers or support staff to address the large classroom sizes. Both expressed concerns that the amended financial plan would not allow the board to make any changes should enrollment or revenue projections fluctuate.

"Once you approve this plan, our hands are tied—it's done," Malley said. "It doesn't matter if enrollment goes up or stays the same."

Board member Kevin Doherty commented that the district's hands are tied by the current plan for borrowing and building reserves. "It's hard not to spend money when you have it," he said.

Malley said what he was proposing was not to deviate from the plan, but to "build the reserves slower."

According to Ricker, amended the plan was a requirement of Deb Vespa, division administrator for business services. The plan needed to indicate the repayment of the TAWs and the next borrowing, he said.

Addressing the concerns raised by Malley and Aurelio, both Ricker and Tovian cautioned the board about spending as the district continues to build its reserves. 

"Just because we have a fund surplus does not mean we can go out and spend money," Tovian said. "We're still borrowing. When we get rid of the borrowing, then we can go out and look at that."

The board voted separately on a motion to send the state only the fourth page of the plan, which included information on borrowing. The motion failed, with four voting no (board Vice President Dave Molitor, Secretary Cindy Kelly and board members Lisa Wright and Doherty) and three voting yes (Malley, Aurelio and board member Karen Siston).

The full amended plan was approved by a 4-3 vote. Malley, Aurelio and Siston again cast the dissenting votes.

The board also approved an amended 2010-2011 budget to reflect the repayment of the TAW borrowing from District 210, additional federal revenue and some offsetting expenditures. Both the amended budget and financial plan will be sent to the state this week, Ricker said.

Background

District 113A has been relying on short-term borrowing to pay its bills since depleting its cash reserves in June 2009. Late last year, however, the district was confronted for the first time to pay its bills in January.

On the advice of legal and financial advisers, Ricker and then board President Lisa Wright approached District 210 about a possible loan. Both boards , marking the first time that two Illinois school districts had completed an intergovernmental sale and purchase of TAWs.

Earlier this month, the District 210 Board of Education to purchase another $5 million in TAWs from District 113A, which again was unable to secure the loan through a bank, according to advisers from PMA Financial.

Under the agreement, the debt is scheduled to be retired by Jan. 31, 2012, with an interest rate of 2.23 percent, according to former District 210 Business Manager Joe Murphy.

According to the approved financial plan, District 113A will need to borrow an additional $2.5 million in February 2012. The final sale of $1.8 million in November 2012 is projected to be paid off by January 2013.

By that point, the district's fund balances and balanced budgets will eliminate the need for further borrowing, Ricker said.