District 15 considers $20 million bond sale
With its savings projected to disappear within five years and the upcoming 2010-2011 budget showing an $8 million deficit, the financial picture at Palatine Township Elementary District 15 is bleak.
Now, officials are considering a measure some say will brighten the outlook.
The school board in March will likely vote on a proposal to sell between $20 million and $24 million in bonds, a move that doesn't require a referendum. If passed, about half the proceeds would go toward capital projects and the remainder would be used to establish a working cash fund.
"We still need to talk about budget reductions, but this puts us on a good path to financial stability," said Merilee McCracken, interim assistant superintendent for business and auxiliary services.
While the debt service levy will remain the same if the bonds are issued, it would drop without the bond sale and potentially lower tax bills. The district hasn't worked out exactly how much savings taxpayers would see without the bond issue.
The idea of using money for capital projects received positive feedback during a board discussion last week.
The district will likely move ahead with more than $2.6 million worth of building improvements including new carpeting throughout Stuart R. Paddock and Thomas Jefferson Schools. Officials decided to defer replacing the roofs at Plum Grove Junior High and Lincoln School by a year, saving about $1.2 million in the 2010-2011 budget.
However, some officials are skeptical about establishing a working cash fund with half the bond sale proceeds despite McCracken's recommendation.
As for advantages, the fund would be used establish a line of credit with a bank so the district could quickly borrow and repay loans in the event of short-term cash issues. Due to a delay in receiving property tax revenue from the county, the district experienced a shortage in cash flow last December and considered issuing tax anticipation warrants - and paying the related legal fees - to cover payroll and other bills.
The $12 million or so in the working cash fund would earn interest, although at a low rate. And the district could take advantage of the Build America Bonds initiative, in which the federal government, as part of the stimulus act, reimburses 35 percent of the interest on bonds used for capital improvements.
Board member Sue Quinn strongly opposes selling bonds to establish a working cash fund, saying it's essentially borrowing from the future at a 5 percent interest rate in order to put money in the bank now at an interest rate less than 1 percent. Quinn also warned that districts with cash on hand tend to spend it.
Board President Gerald Chapman welcomed the bond issue as a way to spend about $2.5 million annually on capital projects over five years without tapping into savings.
"We could borrow money that could ultimately lead us to getting ourselves, in the long run, into a better position debt-wise," Chapman said, referring to making use of the district's additional bonding capacity to avoid spending reserves.
Administrators said they're currently working on ways to reduce spending and will present a preliminary budget to the board in the next couple of months.