Just two weeks after the failure of a $20 million working cash bond referendum, is moving forward with plans to secure another round of short-term borrowing to meet upcoming financial obligations.
The District 113A Board of Education voted 6-1 at their meeting Monday night to begin the process of securing tax anticipation warrants, which advisers said would be needed to meet July payroll. Board Member Janet Hughes cast the lone dissenting vote.
The board also voted 6-1 to approve an agreement with PMA Financial Network to provide advisement on securing the next round of TAWs. Hughes again cast the lone dissenting vote.
In a presentation to the board, PMA representative Don Weber said District 113A would need to secure about $6.1 million in TAWs against its 2011 property taxes. The issuance would need to be approved during the board's June meeting, he said.
Earlier this month, District 113A Superintendent Tim Ricker said the administration had been planning for another round of TAWs for a couple of months in the event of an unsuccessful referendum, which would have eliminated the need for short-term borrowing.
According to Weber, District 113A is on track to pay off its last round of TAWs—$5.5. million—by June 29. The warrants were issued by in January after District 113A was turned down by multiple financial institutions.
The latest treasurer's report indicates the district will have a fund balance of about $500,000 when the debt is retired, Weber said. The balance reflects the July 1 payroll, he said, but additional funds will be needed to meet the following payroll date July 15.
"You're going to be debt-free for a very short period of time," he said. "As of June 28, you're debt-free from TAWs. But come July 1, you're going to need more money to meet your payroll."
Weber outlined a timeline for the district in which PMA advisers would go out to the market "as soon as possible" and report back to the administration by mid-May. About 10 to 12 banks will be solicited to issue the TAWs, he said.
Though conversations have been initiated, Weber said there is no guarantee there will be an institution to lend money to District 113A by June due to its poor financial rating. However, PMA is prepared to once again solicit District 210, or seek investors in the private market.
When District 113A entered into the agreement with District 210 in January, District 210 Superintendent Sandra Doebert said there was no indication the investment would be ongoing but the board would consider each proposal on a case-by-case basis.
Based on current financial projections through June 2012, Weber said District 113A will likely need to issue further TAWs to meet financial obligations at the beginning of next year. The district would be advised to display the 2011 tax levy in October, adopt it in November and issue another round of warrants in December, he said.
"We're going to have the same problem this year that we experienced last year, and that is that there's going to be a need to pay off borrowed money with borrowed money. There doesn't seem to be any way out of that issue," Weber said."Even though you've made further reductions for next year, the cash flow that we have here through June of 2012 (will require the district to pay its debt with more TAWs)."
Weber said the financial position of District 113A has improved with its budget reductions, and it's possible cash flow could further improve with timely payments from the state. However, the district will need to issue two warrants in the next year because it "does not have the authority to issue enough at any one time."
"I don't want to say we're giving you the worst-case scenario, but we're giving you a realistic view of what we think is going to occur based on the economic conditions in which you're operating at this point in time," he said.
Board Vice President Kevin Doherty asked during the discussion what the consequences would be for tabling the vote and waiting for the newly-elected board members to take office May 2. The board agreed to move forward after both Weber and Ricker advised that they "set the wheels in motion" to allow adequate time for PMA to solicit banks.
Hughes voted against the agreement after suggesting District 113A seek out an adviser other than PMA Financial, which has been working with the district since 2003.
"I'm really concerned that your company has been working with our school district and here we are again talking about borrowing money and borrowing money to pay for borrowed money," she said.
Weber said PMA had forecast the financial issues currently facing the district five years ago, but the decision was made by the board " to continue to keep programs until the last dying breath of the school district."
"We have never voted," he said. "We can only advise you."
Board Members John Wood and Sue Murphy thanked Weber for his service and defended the decisions made by the board.
"It has always been our decision to do what we did," Wood said. "... We had money in the bank and we had a need to service our students, so we decided to do that."
Weber said PMA Financial will report back to the board in May with updated information on the next round of TAWs.