If tax passes, schools still face gap

If you know you’ve got money coming next year, but you desperately need the money this year to avoid family hardships, what do you do? Well, many of us would take out a loan.

That’s what the Eugene and Bethel school districts are considering if voters on May 17 pass the city of Eugene’s proposed income tax measure, which would raise money to help pay teacher and other district employee salaries, thus allowing each district to lessen layoffs and school-day reductions.

Money from the tax, which would bring the Eugene district an estimated $12 million a year and the Bethel district about $4.8 million a year, would not begin flowing until May 2012, after Eugene residents paid their taxes in April. But Multnomah County’s experience with a similar tax a few years ago tells the city that only about half the annual money would be available in May 2012 — because of taxpayers who request extensions and file late — with the other half being available in October 2012, said Susan Fahey, the Eugene School District’s chief financial officer.

That means the Eugene district would be looking at receiving about $6 million next spring, and the Bethel district about $2.4 million.

If the school districts this spring and early summer craft budgets for the fiscal year starting July 1 that assume the new tax money will start flowing in 2012, they’ll have to find a way to fill the shortfall temporarily until the full amount of the tax money starts arriving.

The districts have at least two options for doing that: drawing from existing reserves; or taking out what are known as tax anticipation notes, or TANs, which are short-term loans in expectation of receiving the tax revenue.

Tax anticipation notes are sometimes used by cities and other local governments to borrow cash that they later pay back with tax revenue, although both the Eugene and Bethel districts say they have never used the debt instrument before.

“It will be a (school) board decision,” said Fahey, adding that interest and other costs of issuing a TAN would probably be equal to about 2 percent of the amount of the loan.

The Eugene district has an estimated $24 million shortfall between expected revenue (excluding the proposed city income tax) and the costs of continuing to operate the district in the coming fiscal year at its current level of services. To bridge that gap in part, the Eugene School Board voted on Feb. 2 to channel up to $5 million in reserves into the 2011-12 budget to cover ongoing costs. The district could further draw down reserves to pay for teachers and other personnel while waiting for the city tax money to start coming in, Fahey said.

The Eugene district currently has about $45 million in its various reserve funds, but Fahey estimates that only about $14.5 million of that would be available to use in lieu of the tax money coming next year, although another $8 million could be available if agreed upon by employee groups that co-manage insurance reserve funds, she said.

Other reserve funds, such as the debt service fund ($10.7 million) and the student body fund ($3 million), are off limits because of legal restrictions, Fahey said. So, the money would have to come from either about $5 million in reserves in the district’s general fund, or $5 million in reserves in the capital equipment fund, or another $4.5 million available in a few other funds.

Or, the district could look into issuing TANs.

The Bethel district has a little more than $1 million in reserves from three funds, so the district will probably have to pursue using TANs to fill the temporary cash gap if the tax passes, Superintendent Colt Gill said.

Colt said Bethel School Board members will likely cringe at the idea — “I don’t think they want to be going out for loans,” he said — but may have little choice given the limited amount of reserves available and the size of the district’s projected budget shortfall of between $4.5 million and $7 million.

As the income tax ballot measure reads, the school districts would be required to use the tax money “to reduce the number of days students are not in school and to reduce average class size.”

Part of the Eugene School Board’s budget-trimming vote on Feb. 2 was to lay off the equivalent of 84 full-time teaching positions. To accomplish that, the district last month sent out notices of anticipated layoff to 108 teachers. The cuts would increase the student-to-teacher staffing ratio by about four per school.

If city voters in May pass the income tax, the district would likely be able to go back and reduce the number of proposed layoffs.

A big wild card in the district’s budget is upcoming negotiations with employee unions. The board’s Feb. 2 plan hinges on unions agreeing to millions of dollars worth of concessions. Also up in the air is exactly how much the Legislature decides to allocate districts statewide, which won’t likely be resolved until early summer.