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Bemidji School Board to consider borrowing $3.5 million due to shift in state aid

The Bemidji School District recently notified the Minnesota Department of Education it anticipates borrowing $3.5 million for the fiscal year 2010-11.

The Bemidji School Board will meet at 7 p.m. Monday, Nov. 15, at the Bemidji High School Media Center to review an application to the Minnesota Tax & Aid Anticipation Borrowing program, or MNTAAB.

According to Chris Leinen, the district's business manager, the borrowing is in response to a shift in state aid, similar to last year when the district had to borrow $9 million.

Each month the district is given a certain amount of revenue from the state. In years previous to 2009-10, the district was given 90 percent of state aid in the current year and 10 percent in the following year, when the previous year's student enrollment numbers are finalized. This year the state changed its scheduled payments to 70 percent of funding in the current year and 30 percent in the following year.

With interest and borrowing fees, a $3.5 million loan could cost the district the equivalent of two fulltime teachers.

"That's one of the downsides to the problem at the state level," Leinen said. "We are going out to borrow when we otherwise wouldn't have to. And we're paying interest and borrowing fees that are not going into the classroom."

The school board will discuss entering into MNTAAB, a consortium of school districts that borrow on a group-basis to receive a lower overall cost.

"Basically we get together with other schools and issue short-term debt so we can borrow money," Leinen said. "It's like a bond, but it's not. The guarantee behind this debt is our ability to tax."

By taking out a loan through MNTAAB, districts anticipate they will have the authority to tax and receive the aid, with a guarantee they will pay the money back.

"I like the idea we have the guarantee and the l aw says we can do that," Leinen said. "But the fact of the matter is (the state) keeps shifting aid further and further. When are we going to get the money to pay it back? That's a little bit disconcerting."

Last year the school district borrowed $9 million after the state shifted payments in aid to schools. The district was given 77 percent in the current fiscal year and 10 percent the following year, a 13 percent decrease in total state aid. In addition, Leinen said, two other shifts took place, which required the district to borrow $9 million.

This year, while the district expects to borrow less money, the state aid is not enough to cover expenses in some months, requiring the district to take out a loan.

"Our toughest time is going to be in the spring because this is when all this revenue shifting will kick in," Leinen said.

Aside from receiving revenue on a regular basis from the state, the district also receives revenue in two lumps from local property taxes.

"What tends to happen is the state will look at this and give us a lower aid payment," Leinen said.

This could be a problem for the district if it has not accumulated enough cash flow to make up for what the state reduces.

"So, if the state decides it is going to shift tax revenue, I still have to pay expenses, but some of that revenue has gotten shifted out to later in the year," Leinen said.

According to Leinen, the state can now borrow money using three methods.

The first is by using shifts in state aid payments; the second is by taking next year's property taxes and claiming them in the current year; and the third, Leinen said, is by dipping into school districts' fund balances if they over a certain amount.

"We are not sure if we will fall into that this year," Leinen said, referring to the fund balance. "We won't find out until January. At that point in time, it would be too late to retroactively go through the borrowing process. It takes a while to put together the documentation to borrow $3.5 million."

A district's fund balance determines how cash flow is affected. A larger fund balance would enable the district to not have to borrow in difficult times.

At the end of last year, the district's fund balance was at about 2.5 percent of its expenditures.

"We expect that will go up, but we have not received the final numbers from our auditor," Leinen said. "Our policy says we should be between 8-10 percent of our expenditures."

Leinen said the state's borrowing methods are inefficient by not borrowing in one transaction.

"Instead, they shift through 500 different schools, many of which are going to have borrow," he said. "Think about the number of hours, time and transactions there are involved in borrowing in all those little pieces. It's hugely inefficient."

This seems ironic, Leinen added, considering districts are grouping together to get through a piece-meal process from the state.

The school board will have between Oct. 15 and Nov. 24 to take action to adopt a resolution to complete the Minnesota School District Credit Enhancement Program Application. The resolution will set a "not-to-exceed" interest rate and a maximum borrowing amount, which is sent directly to the district from a Bond Counsel.

On Jan. 13, 2011, no formal board action is necessary, but the board will need to provide signatures to approve the set interest rate.

On Sept. 1, 2011, the 2011 certificates will mature.

Leinen is concerned the district may be headed into a year where it may be a full year behind in state aid payments.

"How long before they actually pay it back?" Leinen asked, rhetorically. "When they do finally pay it back, are they going to call it new money when, in fact, it isn't? And the people who were there did not address the issue and now whoever is elected gets to deal with this."

Other agenda items

E The board will recommend a .06 Full Time Equivalent health teacher, .13 FTE German teacher, .13 FTE science teacher, .12 FTE art teacher and .06 FTE social studies teacher be added at BHS for the 2010-11 school year due to enrollment needs. The approximate cost to add these positions is $32,779.

E The board will vote on approval of a $3,000 donation from Potlatch Corporation and Norbord Minnesota to support Bemidji Middle School forestry courses.

E The board will vote on approval of direct District Transportation Coordinator Greg Liedl to evaluate the bus fleet and put together bus bids using the state bid website.

The Bemidji School District recently notified the Minnesota Department of Education it anticipates borrowing $3.5 million for the fiscal year 2010-11.

The Bemidji School Board will meet at 7 p.m. Monday, Nov. 15, at the Bemidji High School Media Center to review an application to the Minnesota Tax & Aid Anticipation Borrowing program, or MNTAAB.

According to Chris Leinen, the district's business manager, the borrowing is in response to a shift in state aid, similar to last year when the district had to borrow $9 million.

Each month the district is given a certain amount of revenue from the state. In years previous to 2009-10, the district was given 90 percent of state aid in the current year and 10 percent in the following year, when the previous year's student enrollment numbers are finalized. This year the state changed its scheduled payments to 70 percent of funding in the current year and 30 percent in the following year.

With interest and borrowing fees, a $3.5 million loan could cost the district the equivalent of two fulltime teachers.

"That's one of the downsides to the problem at the state level," Leinen said. "We are going out to borrow when we otherwise wouldn't have to. And we're paying interest and borrowing fees that are not going into the classroom."

The school board will discuss entering into MNTAAB, a consortium of school districts that borrow on a group-basis to receive a lower overall cost.

"Basically we get together with other schools and issue short-term debt so we can borrow money," Leinen said. "It's like a bond, but it's not. The guarantee behind this debt is our ability to tax."

By taking out a loan through MNTAAB, districts anticipate they will have the authority to tax and receive the aid, with a guarantee they will pay the money back.

"I like the idea we have the guarantee and the l aw says we can do that," Leinen said. "But the fact of the matter is (the state) keeps shifting aid further and further. When are we going to get the money to pay it back? That's a little bit disconcerting."

Last year the school district borrowed $9 million after the state shifted payments in aid to schools. The district was given 77 percent in the current fiscal year and 10 percent the following year, a 13 percent decrease in total state aid. In addition, Leinen said, two other shifts took place, which required the district to borrow $9 million.

This year, while the district expects to borrow less money, the state aid is not enough to cover expenses in some months, requiring the district to take out a loan.

"Our toughest time is going to be in the spring because this is when all this revenue shifting will kick in," Leinen said.

Aside from receiving revenue on a regular basis from the state, the district also receives revenue in two lumps from local property taxes.

"What tends to happen is the state will look at this and give us a lower aid payment," Leinen said.

This could be a problem for the district if it has not accumulated enough cash flow to make up for what the state reduces.

"So, if the state decides it is going to shift tax revenue, I still have to pay expenses, but some of that revenue has gotten shifted out to later in the year," Leinen said.

According to Leinen, the state can now borrow money using three methods.

The first is by using shifts in state aid payments; the second is by taking next year's property taxes and claiming them in the current year; and the third, Leinen said, is by dipping into school districts' fund balances if they over a certain amount.

"We are not sure if we will fall into that this year," Leinen said, referring to the fund balance. "We won't find out until January. At that point in time, it would be too late to retroactively go through the borrowing process. It takes a while to put together the documentation to borrow $3.5 million."

A district's fund balance determines how cash flow is affected. A larger fund balance would enable the district to not have to borrow in difficult times.

At the end of last year, the district's fund balance was at about 2.5 percent of its expenditures.

"We expect that will go up, but we have not received the final numbers from our auditor," Leinen said. "Our policy says we should be between 8-10 percent of our expenditures."

Leinen said the state's borrowing methods are inefficient by not borrowing in one transaction.

"Instead, they shift through 500 different schools, many of which are going to have borrow," he said. "Think about the number of hours, time and transactions there are involved in borrowing in all those little pieces. It's hugely inefficient."

This seems ironic, Leinen added, considering districts are grouping together to get through a piece-meal process from the state.

The school board will have between Oct. 15 and Nov. 24 to take action to adopt a resolution to complete the Minnesota School District Credit Enhancement Program Application. The resolution will set a "not-to-exceed" interest rate and a maximum borrowing amount, which is sent directly to the district from a Bond Counsel.

On Jan. 13, 2011, no formal board action is necessary, but the board will need to provide signatures to approve the set interest rate.

On Sept. 1, 2011, the 2011 certificates will mature.

Leinen is concerned the district may be headed into a year where it may be a full year behind in state aid payments.

"How long before they actually pay it back?" Leinen asked, rhetorically. "When they do finally pay it back, are they going to call it new money when, in fact, it isn't? And the people who were there did not address the issue and now whoever is elected gets to deal with this."

Other agenda items

- The board will recommend a .06 Full Time Equivalent health teacher, .13 FTE German teacher, .13 FTE science teacher, .12 FTE art teacher and .06 FTE social studies teacher be added at BHS for the 2010-11 school year due to enrollment needs. The approximate cost to add these positions is $32,779.

- The board will vote on approval of a $3,000 donation from Potlatch Corporation and Norbord Minnesota to support Bemidji Middle School forestry courses.

- The board will vote on approval of direct District Transportation Coordinator Greg Liedl to evaluate the bus fleet and put together bus bids using the state bid website.

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