The Burlington school district is asking the City Council for an interest-free loan of up to $4.8 million to make sure it can pay its bills during a 90-day period.
Confronted with the possibility that it will temporarily run out of cash — a common situation for school districts across the state, according to school board chair Patrick Halladay — the Burlington School Board's finance committee has been looking for a line of credit.
"This is nothing that would be considered atypical," Halladay said, adding that the cash flow situation doesn't stem from the district's deficit troubles. "The complication we have this time is this hasn’t been how things have been done in Burlington in the past."
Up until July 1, the city and the school district shared a pooled cash account. If the school district was running low on money and needed to send out paychecks or pay for other expenses, it could temporarily draw on city funds. They terminated that arrangement and separated their accounts at the request of the Agency of Education.
In early June, the school board asked the City Council for a loan of up to $2.6 million at a 0.5 percent interest rate. At the time, several councilors on the board of finance expressed misgivings about approving such a low interest rate. Before the council had a chance to vote on the request, both city and school officials found at that state law doesn't actually allow municipalities to charge schools interest on loans.
The school board contacted four banks about the possibility of getting a line of credit to cover their cash needs, and it will consider a bid from one of them at a meeting Tuesday. But the timeframe is tight — the district will likely need a cash infusion by the end of July, so it's asking the city for "back-up assistance," Halladay said.
In a memo to the Board of Finance, interim superintendent Stephanie Phillips and Halladay emphasize that the district's cash flow situation is not unusual. "As with all school districts in Vermont, the BSD experiences brief periods in which cash needs exceed cash on hand several times a year. This is due, in large part, to timing and the monthly expenses (payroll/benefits/accounts payable) of the District."
The district will receive tax revenue in September, according to Halladay, but in the meantime, it needs to make payroll and cover expenses. The $4.8 million figure is a high estimate of what the district would need to meet those obligations if the banks leave them hanging.
The memo continues: "Consequently, because this is our first time in this process and we are requesting a compressed schedule, banks have indicated they will need additional time to review our financial documents and conduct their necessary due diligence. This unavoidable delay is the reason we are meeting with you."
Halladay said the board was operating on a "compressed schedule" because it first had to disentangle its accounts from the city's. "The tight timeframe has to do with working through the separation of the finances. We’ve known about it, but we only have so much bandwidth."
The Board of Finance will review the request when it meets next Monday. Mayor Miro Weinberger said he'll support it — "We are comfortable that there is very low risk providing this service for up to 90 days."
Councilor Jane Knodell, who sits on that board, said she's inclined to vote to authorize the loan but first needs to be confident that the district is control of its finances. "I just need to understand how they are managing their finances on a day-to-day basis, " she said, pointing out that the district is making do without a finance manager as it searches for a replacement for David Larcombe, who resigned as of June 30.
Brad James, the education finance manager for the Agency of Education, confirmed that municipalities can loan money to their school districts for a maximum of 90 days, as long as they don't charge interest.