This fall, Colorado voters will be asked to approve Amendment 61, a citizens’ initiative to limit government borrowing. Supporters say it would force the state to be more fiscally responsible. But leaders in several school districts fear it would be disastrous to their financial stability, and they are already preparing for the worst.
The initiative—one of a trio assisted by anti-tax crusader Douglas Bruce—would restrict school districts’ ability to borrow and would require lowering taxes by an amount equal to what was borrowed after the debt is paid.
But the provision of Amendment 61 of immediate concern to districts is its prohibition against any borrowing by the state. With the possibility that the initiative could pass, the state suspended its interest-free school district loan program—which it borrows to fund—until after Election Day. That means some districts will soon be out of cash.
About one in five of Colorado’s 178 districts relies on the state loan program for the cash it needs each year to pay bills until property-tax revenue begins flowing in the spring.
Douglas County school board members say losing the loan option could mean dramatic changes for nearly 60,000 students in Colorado’s third-largest school district.
“We can’t start school until the tax revenues come in, so you’re probably looking at a school year that’s maybe … March to December,” board member Justin Williams said at a meeting last week. “Next year, we’re in serious jeopardy.”
Near Winter Park, East Grand school board members discussed the option of shutting down the district for several weeks if Amendment 61 is approved.
“We don’t have a choice,” said Superintendent Nancy Karas. “If we don’t have the money, we can’t open the doors.”
“We’re virtually asked to operate eight months before we receive any of our funding,” Ms. Karas said.
State Advances Come Up Short
Colorado districts once operated their budgets on a calendar year, putting the start of school closer to property-tax collection. The state loan program was created when districts switched to a fiscal year with a July 1 start at the behest of state lawmakers, said state Treasurer Cary Kennedy.
State leaders, while suspending the loan program, did agree to advance state education dollars to districts in need. Under Colorado’s School Finance Act, lawmakers set a minimum funding amount per student, pour local property taxes in first, and then make up any gaps with state aid.
Typically, those state dollars are distributed in even monthly amounts over the course of the year. For 2010-11, though, because of the suspension of the state loan program, districts will be able to get more of those dollars upfront. “They get more state aid in the fall and less in the spring, but they’ll get their property-tax revenues in the spring, so it will balance out,” Ms. Kennedy said.
“For most districts in the state, they can sufficiently meet their cash-flow needs,” she added. “We do have a few school districts … that have cash-flow concerns in the month of October.”
State aid makes up, on average, 62 percent of total school funding in Colorado. But six districts close to resort areas have such high property-tax bases that they receive little in state aid. So advancing that aid doesn’t help much.
East Grand, a district of 1,438 students, will be short $300,000 by Nov. 2, Ms. Karas said. Only 3 percent of its budget comes from the state.
In Gunnison, a 1,818-student district that includes Crested Butte, business manager Stephanie Juneau is working on securing a $1.5 million bank loan to get the district through Dec. 15. That’s the earliest the state loan program could be reinstated if Amendment 61 fails.
The district will be out of cash in late October or early November, Ms. Juneau said. “Our school district receives no equalization from the state; … we are 100 percent supported by our property taxes,” she said.
Questions of Fiscal Responsibility
The pro-61 website, cotaxreforms.com, doesn’t name its creators or identify contacts.
“Borrowing EVERY YEAR is like an indigent who pawns his watch at the end of every month until his welfare check comes in,” an unidentified person wrote in an e-mail response to a request for comment by Education News Colorado. Asked for identification, the response came back: “A volunteer from the campaign committee. Our identities are not important; public policies are more important than private personalities.”
Several district leaders denied the cash-flow issue is a sign of poor financial management.
Phil Onofrio, chief finance officer for the Eagle County school system, which includes Vail, said the district’s fund balance tops 20 percent.
“We’re considered relatively wealthy, but if you get very little on a monthly basis, you would have to store huge amounts of money to not have to borrow during the year,” he said. “We would need to have 85 percent or so of our annual budget in the bank at the beginning of every year.”
Of the Eagle County district’s $50 million budget, about $2 million comes from the state and the rest from local property taxes. “So that means 90 percent of our money comes in the last four months of the [fiscal] year,” Mr. Onofrio said.
The volunteer proponent, via e-mail, said school districts would need only “one transition year” of deferring some expenses until spring to adjust to doing without the state loan program.
However, Ms. Karas, in East Grand, said that’s unrealistic when school districts have seen historic funding cuts averaging 6.31 percent statewide for 2010-11. Similar cuts are expected for 2011-12.
“We cut $450 a student from last year to this year,” she said. “We’ve cut $1.6 million from our budget in the last two years; we’ve laid off 16 percent of our staff. … There’s no way to do that [deferring expenses until spring].”
Seeking Long-Term Solutions
While some districts are hustling to get dollars to make ends meet even before Nov. 2, more are focusing on preparing for the aftermath of an Amendment 61 victory.
Mr. Onofrio, in Eagle County, will ask his school board on Wednesday to authorize obtaining a $15 million tax-anticipation note to get the district through December. If 61 fails, the state will reinstate its loan program, and that money will pay off the note.
In case Amendment 61 passes, the Eagle district is preparing paperwork to immediately seek $20 million to $30 million in a certificate of participation, or COP, a financial instrument similar to a bond issue but one that doesn’t require voter approval.
Similarly, Douglas County school board members instructed district staff last week to prepare $73 million in a COP if 61 is approved. Because the amendment would prohibit the use of certificates of participation after Dec. 31, districts would have a small window during which to obtain them.
Both Mr. Onofrio and Diane Doney, Douglas County’s executive director of business services, said the COPs would provide the necessary cash flow if the state loan program is eliminated—but at a price. The annual repayments, both principal and interest, on a COP come out of a district’s operating budget.
“If 61 passes, and we have to go out and secure debt for cash flow, the cost to our taxpayers is going to be about $5 million a year to have something that was interest-free before,” Ms. Doney said, referring to the state’s interest-free loan program.
In Eagle County, “if we do a COP for this district for, say, $30 million over 30 years, the principal and interest payments are about $2 million a year, which will have to come out of our operating budget,” Mr. Onofrio said, “so we will have to reduce programs by that amount of money; … fewer teachers, less supplies, whatever we have to cut to make those payments has to come away from kids.”
In East Grand, board members last week agreed to ask voters on Nov. 2 to approve a tax increase for a bond issue for operating dollars. Bond money typically can be used only for construction or building, and not day-to-day expenses. But state lawmakers, citing Amendment 61, voted in May to allow an exception.
“It is a really tough decision to put that on the ballot when we know how the economy in Colorado is going right now,” Ms. Karas said.
Still, she said, board members wanted voters to have the option of a bond, paid directly by taxpayers instead of from the district’s operating budget, rather than a COP. If the bond fails, East Grand will seek a COP.
“We believe if our community can bear the cost, they will,” Ms. Karas said. “But we also understand that if they don’t feel they can bear the cost, we won’t take that personally.”
If the bond question fails and the district cannot secure a COP, “the third option, unfortunately, would be to close down the district,” she said.
Other districts and their boards are still mulling their choices. Both the Cherry Creek and Denver school districts have relied on the state interest-free loan program.
“Those are our operating funds until the property taxes are disbursed,” said Cherry Creek spokeswoman Tustin Amole.
David Suppes, the chief operating officer for the Denver public schools, said eliminating the state loan program “would create significant challenges with the district’s cash flow and our ability to fund ongoing operations.”
“We are looking closely at the potential impact on the district, as well as our options and strategies to address the funding difficulties that we’d face,” he said.
Jefferson County, the state’s largest school district, has not used the state loan program for several years because it has built up enough reserves to cover its cash needs, said chief finance officer Lorie Gillis.
But the district has been tapping those reserves because of recent funding cuts, she said, and, “because of the ongoing decline in funding, we may not be able to preserve that reserve level.”
“We haven’t ruled out any of the options that we’ve seen other districts have to take at this point,” Ms. Gillis said. “None of those things are off the table right now.”
Republished with permission from ednewscolorado.org. Copyright © 2010 Public Education & Business Coalition.