School district braces for tax initiatives

Posted 8/20/10

The Douglas County School District hopes for the best but is prepared for the worst at the November polls. On Aug. 17, the school board gave the …

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School district braces for tax initiatives


The Douglas County School District hopes for the best but is prepared for the worst at the November polls.

On Aug. 17, the school board gave the green light to its finance department to prepare for a $73 million issuance of certificates of participation in case voters approve Amendment 61.

If the taxpayer initiative passes on Nov. 2, the district will be poised to sign the debt issuance the following day, said Dan Gerken, Douglas County School District Board vice president. The certificates enable the district to keep the doors open at area schools, despite the fallout from Amendment 61, Gerken said.

“The state’s interest-free loan program is going to go away (if Amendment 61 passes),” Gerken said. “We will manage our cash flow with $60 million of that (certificate of participation), when our tax receipts don’t necessarily come to us at a convenient time to meet our expenditures.”

The Douglas County School District is among those districts in the state that each year takes advantage of Colorado’s interest-free loan program to meet operating expenses, said Diane Doney, the school district’s acting chief financial officer. The loan is intended to help school districts meet operating expenses at its fiscal year end as a matter of cash-flow management, Doney said.

In Douglas County, that loan is historically pulled by November, to keep schools running until the tax receipts bring in a new cash flow in the spring, she said. If voters approve Amendment 61, which limits government debt, the state’s loan program will be eliminated, and after Jan. 1, 2011, the school district will no longer be able to issue certificates of participation, she said.

Although the debt issuance will cost taxpayers about $5 million more than they would have paid for the state’s interest-free program, it will serve two purposes — to keep the schools open and keep DCSD in compliance with TABOR reserve requirements, Gerken said.

The Taxpayer Bill of Rights (TABOR) demands that the district keep three percent of its cash in emergency reserves, Doney said. Facing budget cuts that placed demands on its cash reserves, the district is entering its second year of meeting that TABOR requirement with a letter of credit for about $13 million. The letter of credit has never been drawn on, but passage of Amendment 61 — with its debt limitations — will render the letter of credit void and put the district in violation of the TABOR emergency reserve requirement, Doney said.

With issuance of $73 million in certificates of participation, the district will have $60 million in operating funds, and the balance will go toward meeting the TABOR requirement. The school board elected to move forward with certificates of participation as the best of three options presented by the finance department, Gerken said. The board faced the choice of a ballot question to ask voters for the money, to issue the certificates of participation through its DCSD Finance Corporation or to take no action and wait for the November election results. If voters decide against Amendment 61, the district will have no reason to issue the debt, Doney said. Issuance of the certificates, however, doesn’t solve the broader challenges of Amendment 61, Gerken said.

With its built-in debt limitations, the tax initiative makes it impossible to build new schools and puts the district at the mercy of the state, he said. The school board has taken an official stance opposing the three tax initiatives in November, Proposition 101 to reduce vehicle fees, Amendment 60 to lower property taxes and Amendment 61 to limit government debt.

If Amendment 61 is approved by voters, school districts statewide will face the same challenges as DCSD, and the state will be required by TABOR to fill in the shortfall. The expected result is that the state will be forced to dedicate 99 percent of its budget toward education, according to a study report issued by Douglas County. Should that be the case, the DCSD board fears the loss of local control in its decision-making powers, Gerken said.

“We are unequivocally against (the ballot proposals),” he said. “We would be in a position where it would be several years before we could even think about building another school in the county. These initiatives are Draconian because they don’t allow us to match our assets to our liabilities. It’s like telling someone you have to pay cash for a house. This country would be nowhere near as sophisticated an economy … if we couldn’t have a mortgage on a house or even a loan on a car. It would totally slow down an economy.”

The school board asked the finance department to prepare the certificates of participation and be prepared by October to present the board with optional cost rates. Doney’s department is poised to begin shopping the certificates on the bond market to find the best rate for the district.

“We would be remiss if we weren’t planning ahead to mitigate the potential impact if (Amendment 61) were to pass,” she said.


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