Schools seek creative financing in face of state ballot measure
September 8, 2010
ASPEN – Local schools could face a serious cash-flow problem if Colorado voters approve Amendment 61 in the November election, the board of education learned Tuesday night.
As a result, school officials are considering some creative financing to bridge the district’s annual cash-flow crunch. Currently, the district begins dipping into its reserves in fall, and ultimately taps into its $2 million line of credit, before its coffers are replenished by property tax payments in spring.
According to Terry Casey, managing director of RBC Capital Markets, which is working with school officials on the district’s own property tax increase ballot initiative, Amendment 61 would essentially end the district’s ability to use its line of credit.
“This problem is not unique to the Aspen schools; districts across the state are struggling with what to do,” Casey said in a conference call with the school board Tuesday. “So if this passes, you will be faced with a tough choice: What are you going to do about your future cash-flow needs?”
Casey’s answer was to consider certificates of participation, or COPs, as a “long-term solution to your short-term cash-flow situation.” COPs essentially use an asset, such as a building, to secure a long-term loan with an interest rate around 6 percent. As such, COPs would cost the district more than its current line of credit. But COPs would cost much less than short-term loans if Amendment 61 is approved, as the ballot measure essentially would require the district reduce taxes by the same amount as its short-term borrowing.
“This violates every principle of public financing, but it’s on the ballot and you need to be proactive and prepared,” Casey warned.
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So, while acquiring COPs would be moot if voters defeat Amendment 61, Casey said the school district needs to begin the process now to ensure the financing mechanism is in place if the ballot measure does pass.
“If this passes, the flood of deals in the market as people try to beat its effective date will be outrageous,” Casey said.
He added that, once Amendment 61 was formally adopted, the option of acquiring COPs would be gone, leaving a two-month window to finalize financing between Election Day and the end of the year. “So what we have to do is get the ball rolling.”
School board officials agreed, but were not wed to COPs as the only solution.
“We obviously have to get started right away, but I say we find every possible way to avoid having to do this,” said board member Fred Peirce. He alluded to an idea put forth by Casey that would create some type of private- or nonprofit-granting organization to fund the district’s annual cash-flow gap with a “gift” that recycles itself. “This is one realistic alternative.”
The board will consider this option and others at its Sept. 20 meeting, and will hear a detailed analysis of the cost of acquiring COPs at its Oct. 4 meeting.