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posted: 3/19/2013 5:04 PM

Gavin District 37 again borrows from Libertyville District 70 in unique arrangement

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The return on investment will be far from staggering, but a unique pact regarding a $500,000 short-term loan is expected to benefit two elementary school districts.

On April 2, Libertyville District 70 will transfer that amount electronically from its reserves to Ingleside-based Gavin Elementary District 37 as a loan against future property tax receipts, called tax anticipation warrants.

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The interest rate will be 0.7 percent -- a higher return than what District 70 would get in a money market, but a lower rate than Gavin would pay a bank.

"It's an advantage to both districts," said Kurt Valentin, District 70's assistant superintendent of finance and operations. Valentin said the district has been getting 0.1 percent interest on certificates of deposit.

This is second time the districts have gone this route. Last year, Gavin borrowed $300,000 from District 70 at the same rate.

"Last year, we paid $379 in interest. The reality is this year it might be about $600," said Mark Lindem, business manager at Gavin. The district has borrowed against future property tax receipts to cover general expenses the past four years.

Two years ago, Gavin borrowed $800,000 from a local bank in two separate loans at 3.35 percent interest. The lower rate will save Gavin about $3,400 in payments, Lindem said.

"There are all sorts of little things we're trying to do," to cut expenses, he added. Two grants were used this past December, for example, to install more energy efficient fluorescent lighting at the Gavin Central school gym at no cost to the district.

Gavin's budget of about $10 million balanced, but finances are expected to be tight before the first installment of property taxes is received in June.

"Technically, we would have no cash if we didn't do the (tax anticipation warrant) borrowing," Lindem said. "If you don't have the cash available, you have to bridge the gap and that's what we're doing." Principal and interest are due on June 30.

Gavin needed to borrow more this year because of increases in fuel prices for buses and employee benefits and a decrease in state funding. Next year, the district expects to lose about $200,000 in state and federal revenue, according to Lindem.

Valentin said the connection originally was made by William Blair & Company, a bond consultant that matches districts with surpluses with those that need funds.

District 70 has about $9.6 million in reserves, he added. Ample reserves have allowed the district the past several years to spend about $15 million on various building improvements, including air conditioning in schools.

"We have held the line ... and worked hard to make sure we have the money available to do what we need to do," Valentin said.

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