In a high school auditorium on Tuesday, Douglas County school board members agreed a proposed ballot amendment could mean dramatic change 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,” said board member Justin Williams. “Next year, we’re in serious jeopardy.”
Voters won’t decide on Amendment 61, a citizens’ initiative to limit government borrowing on the Nov. 2 ballot, for another ten weeks. But leaders in several school districts say they need to prepare now for its possible approval.
In a middle school near Winter Park on Tuesday, East Grand school board members discussed the option of shutting down the district for several weeks if 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.”
Cash flow is immediate concern
Amendment 61 – one of a trio of initiatives assisted by anti-tax crusader Douglas Bruce – would severely limit school districts’ ability to borrow and would require they lower taxes by an amount equal to what was borrowed after the debt is paid.
But the provision of 61 of immediate concern to districts is its prohibition against any borrowing by the state. That led the state to suspend its interest-free school district loan program – which it borrows to fund – until after Election Day. And that means some districts will soon be out of cash.
Why? Because school districts depend heavily on local property taxes, which don’t really start flowing until March. About one in five of Colorado’s 178 districts annually rely on the state loan program for the cash they need to pay bills until they begin to receive property tax revenue.
In East Grand, for example, “We’re virtually asked to operate eight months before we receive any of our funding,” Karas said.
Colorado school 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 “many, many years ago” when districts switched to a fiscal year with a July 1 start at the behest of state lawmakers, said State Treasurer Cary Kennedy.
State advances come up short for some
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 can get more of those dollars up-front.
“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,” Kennedy said, “and there isn’t a loan program in place that would be affected by Amendment 61.
“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. 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, 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, Juneau said: “Our school district receives no equalization from the state … we are 100 percent supported by our property taxes.”
Unnamed proponent alleges irresponsibility
A proponent for Amendment 61, who declined to be identified by name, said that “only about 20 percent of districts act so irresponsibly that they start the school year without having in hand the full revenue for their budget.”
The pro-61 website, cotaxreforms.com, doesn’t name its creators or identify contacts. But Natalie Menten, an unsuccessful 2008 candidate for state senator, has appeared in some media as the campaign coordinator for 61 and related measures 60 and 101. Check out her personal website here.
“Borrowing EVERY YEAR is like an indigent who pawns his watch at the end of every month until his welfare check comes in,” wrote the person in an emailed response to a request for comment by Education News Colorado.
Asked for identification, the response was “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 Eagle County Schools, 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 Eagle’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 year,” he said.
The volunteer proponent, via email, said school districts would need only “one transition year” of deferring some expenses until spring to adjust to doing without the state loan program.
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).”
District seek long-term solutions
While some districts are hustling to get dollars to make ends meet even before Nov. 2, more are focused on preparing for the aftermath of an Amendment 61 victory.
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 reinstates its loan program and that money will pay off the note.
If 61 passes, Eagle is preparing paperwork to immediately seek $20 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 on Tuesday 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 will have a small window during which to obtain them.
Both 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,” Doney said, referring to the state’s interest-free loan program.
In Eagle, “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,” 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.”
Jeffco, Denver, Cherry Creek weighing options
In East Grand, board members on Tuesday agreed to ask voters 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,” 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,” 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 added.
Other districts and their boards are still mulling their choices. Both Cherry Creek and Denver school districts have relied on the state interest-free loan program.
“We’re in the same boat as everyone else who uses it,” said Cherry Creek spokeswoman Tustin Amole. “Those are our operating funds until the property taxes are dispersed.”
David Suppes, chief operating officer for 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’s 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,” Gillis said. “None of those things are off the table right now.”
Nancy Mitchell can be reached at firstname.lastname@example.org.