Gavin District 37 borrows money from a neighbor to the south
With its share of property taxes not due for another month, Gavin Elementary District 37 for the fourth consecutive year is borrowing money to cover expenses through the end of the school year.
What’s different this time is the lender.
Rather than from a bank, the $300,000 needed for Gavin to make it through is being provided by Libertyville Elementary District 70, in a unique arrangement reflective of financial times.
Suggested by a financial consultant that has worked with both districts, the District 70 board last week unanimously agreed to buy Gavin’s tax anticipation warrants as a creative way to invest money on a short-term basis.
“It’s kind of unusual in this area,” said Kurt Valentin, District 70’s assistant superintendent of finance and operations. The funds were wired Tuesday.
With a due date of June 29 and an interest charge of about $317, the arrangement is more of a cooperative effort than a money making venture. But the timing was right, Valentin said.
District 70 had maturing certificates of deposits that had been earning between 0.1 percent and 0.2 percent, Valentin said. Though by no means an investment juggernaut, lending the money to Gavin at 0.7 percent will provide a higher rate of return.
At the same time, Gavin will save money because the rate is lower than it would be borrowing from a bank, according to Mark Lindem, the district’s business manager. Bank loan rates to District 37 have been about 3 percent or so in recent years, he added.
“We’re going to use it to cover payroll come Monday,” Lindem said.
Gavin issued $1 million in tax anticipation warrants in 2008-09, $1.2 million in 2009-10, and $800,000 for 2010-11 school year. The amount needed to bridge the gap this year has been reduced because of spending cuts and other measures, such as a teacher contract freeze. Gavin’s budget is about $10 million.
“We’re doing OK, but somewhere in the next month and half or two months, we’re going to have a shortfall in cash,” Lindem said.
Valentin said William Blair & Company matched districts it knew were willing to loan money with those that needed to borrow.
Smaller districts with less taxable property or reserves on hand can be hit harder by delays in funding at the end of the school year. They sometimes sell tax anticipation warrants, which are backed by property taxes to be collected.
According to District 70, lending money by acquiring the tax anticipation warrants makes sense because of the lower interest rates available on other investments.