Board nixes borrowing

The Brainerd School District will not likely have to borrow money to make its payroll and other expenses this year, but cash flow is projected to become uncomfortably low by June, said Steve Lund, director of business services.

The school board Finance Committee met Tuesday and recommended board approval that the district not borrow funds right now on a short-term basis through the sale of general obligation aid anticipation certificates as was previously discussed. In the past, the district has borrowed about $4 million and often did not need to use the money. Instead it earned interest on the 13-month loans. Because it's a school board the panel was able to borrow money at a lower than normal rate and then invest it.

Lund told board members interest rates are not favorable for the district to borrow and then turn around and invest the funds. He provided a spreadsheet of the district's monthly disbursements which showed how the district's cash flow would drop from about $15 million in September to a low of about $2.09 million by July. The district has about a $70 million annual budget and federal guidelines recommend it to have a 5 percent cash reserve over its expenditures, or $4.35 million. In order to meet this criteria, the district would need to borrow about $2.26 million but it wouldn't need to be used until June or July.

Lund said if the district borrowed the funds now, it would cost an estimated $25,325, including .75 percent in interest, which equates to a loan rate of about 2.36 percent. Lund said if the district reinvested those funds on a short-term basis it would only earn about a 1.5 percent return.

Lund told board members that he would rather the district take a "wait-and-see" approach. If the district needs to borrow funds for cash flow next spring, he said he would just need a 60-day window in order to do that.

Lund said it demonstrates how important it is for the district to closely monitor its cash flow situation this year.

"It's at a point where it's not comfortable," said Lund. "I don't want to get to the point where we don't have cash on hand."

Lund said the district will inevitably have to borrow and use those funds for the 2010-11 school year so there isn't a cash flow shortage. This is because of Gov. Tim Pawlenty's $1.77 billion K-12 education funding shift in state aid payments this year as part of his plan to balance the state's budget.

In other committee action, board members recommended board approval of the first reading of the district's investment policy statement regarding its OPEB Trust. The Community Budget Committee had worked for more than two hours on fine-tuning the policy, said Lund.

The board learned that the new parking lot at Washington Educational Services Building is now finished. The lot was striped this week and employees and visitors may begin parking there on Thursday. While the initial design was for 55 parking spots, a slight change in the design resulted in about 60 total spots.

JODIE TWEED may be reached at jodie.tweed@brainerddispatch.com or 855-5858.