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Willmar, Minn., School Board OKs $3.5M in borrowing for cash flow

WILLMAR -- The uncertainty of school funding during the state government shutdown is leading the Willmar School Board to consider borrowing $3.5 million this fall to maintain a positive cash flow during the school year.

Board members discussed the need to borrow at their meeting Monday afternoon. They adopted a resolution authorizing the district to participate in aid anticipation borrowing.

The situation for schools has changed several times in recent weeks, said Business and Finance Director Pam Harrington. At one point, schools were told they would receive full aid payments during the shutdown; at another time they were told to expect no payments. Under a court order, they are now scheduled to receive some aid payments but not all.

Public schools depend on the state for about three-quarters of their annual revenue. In recent years, the state has borrowed money from schools for its own cash flow needs. Depending on the year, schools have received 70 percent to 90 percent of their state aid in one fiscal year and the remainder in the following fiscal year.

The state's shift of payments into the following year has left many school districts with cash flow problems of their own. The aid anticipation borrowing helps them pay their bills throughout the year. They repay the money when state aid is received in the following year.

Willmar has been able to weather the shifts in recent years without borrowing because it had adequate cash reserves and the shifts were small enough to be manageable.

For the current fiscal year, the district has a general operating fund budget of about $42 million and a cash reserve of about $4 million.

However, with the uncertainties of the shutdown and the possibility that future shifts could be much larger, Harrington is recommending that they borrow money this year. The fee for borrowing $3.5 million is $11,500. The interest rate is expected to be less than 1 percent and will cost about $17,500 over the life of the bonds.

School districts usually work as a group to sell aid anticipation bonds at different times during the year. Schools will have to decide whether to join the fall group and how much to borrow by late July or early August. The bonds will be issued on Aug. 25.

Board member Nathan Streed asked if the district had enough cash to avoid borrowing this fall.

Harrington said the district's reserves would take it through October, and the $3.5 million to be borrowed would be used after that.

"We can invest it until we need it," she said.

It would be a risk for the district to wait until October to borrow without using the pool, she said, because the fees and interest could be less favorable.

If necessary, the district could borrow more aid anticipation money with a winter borrowing group, she said.

Harrington said she had recommended borrowing enough to get the district through February. Fees and interest would cost more, she said, and it's not clear yet that the district would need to borrow later in the year.

In other business, the board approved a catering agreement for the district's food service program to provide school lunches to Community Christian School in Willmar. The district will deliver and serve meals to the approximately 225 students at the school, as well as adults. The school will call in each morning with a meal count, and the food will be prepared at the kitchen at Willmar Senior High.

The board also closed the meeting to the public for Superintendent Jerry Kjergaard's annual evaluation. The board will provide a report on the evaluation at its Aug. 8 meeting. Human Resources Director Liz Fischer released a summary of the evaluations filled out by board members, which indicated that Kjergaard meets the board's expectations in all areas.

Linda Vanderwerf

I cover education issues for the West Central Tribune and have worked for the paper since 1995. I have worked in journalism since 1981.

Follow me on Twitter: @lindavanderwerf

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