By: Brittany Flaherty Theis
We know that school districts throughout the nation are moving from the rapid (yet deliberate) triage decision-making necessitated by COVID-19 to future-oriented planning. This guidance document is the third in a series intended to help school boards and administrators work through the types of questions they should be asking as they prepare to close out school year 2019-2020 and start school year 2020-2021.
Cash Flow Estimates
The impacts of COVID-19 likely require revisions to cash flow estimates for both fiscal year 2019-2020 and fiscal year 2020-2021. Many school districts have experienced savings in electricity, supplies, and other previously estimated costs. On the other hand, there have been unplanned expenditures such as technology purchases needed for remote learning. Additionally, property tax receipts might be impacted by late payments, lower than usual collection rates, or county action to grant property tax relief. In Kane County, for example, the County Board adopted a resolution waiving the interest penalty on the first installment of property taxes for 30 days. The extent to which such resolutions affect each school district will depend upon the percentage of property taxes paid by mortgage escrows.
Therefore, this process should include consideration of, among other things:
- The timing and amount of property tax receipts, including any anticipated reduction in collection rates;
- Increases or decreases in expenditures in any fund or line item due to the closure or additional cleaning and sanitation of school buildings; and
- Increases or decreases in expenditures in any fund or line item due to contract amendments.
If review and revision of a school district’s cash flow estimates uncovers gaps in funds available to meet the financial needs of the district as they come due, the school district may need to consider the options below.
Section 10-22.33 authorizes interfund loans that must be repaid within 3 years. The interfund loans may be made from:
- the Operations & Maintenance Fund to the Educational Fund or Fire prevention and Safety Fund;
- the Educational Fund to the Operations & Maintenance Fund or Fire Prevention and Safety Fund;
- the Operations & Maintenance Fund or Educational Fund to the Transportation Fund; or
- the Transportation Fund to the Operations & Maintenance Fund, Educational Fund, or Fire Prevention and Safety Fund.
These interfund loans do not require a hearing.
By separate resolution, in anticipation of property taxes, CPPRT, or State funding, school districts that maintain a working cash fund are also authorized by Sections 20-4 and 20-5 of the School Code to loan money from the working cash fund to other funds. These loans are limited to 85 percent of the amount extended or to be received and must be repaid upon receipt of the property taxes, CPPRT, or State funding.
Section 17-2A of the School Code authorizes the following interfund transfers by board resolution:
- the Educational Fund to the Operations and Maintenance Fund or the Transportation Fund;
- the Operations and Maintenance Fund to the Educational Fund or the Transportation Fund;
- the Transportation Fund to the Educational Fund or the Operations and Maintenance Fund; or
- the Tort Immunity Fund to the Operations and Maintenance Fund.
Such transfers must be preceded by notice and a public hearing. Currently, after June 30, 2020, such transfer must be made solely for the purpose of meeting one-time, non-recurring expenses. Waiver of this provision has previously been extended but has not been as of this publication date.
Section 20-10 of the School Code authorizes working cash fund transfers, which are called abatements. By board resolution, a school district can abate working cash funds and transfer the money to the fund most in need so long as the district maintains an amount to the credit of the working cash fund of at least .05 percent of the current equalized assessed value of the taxable property in the district.
Additional transfers are authorized by the Illinois Administrative Code.
Tax Anticipation Warrants
Tax anticipation warrants are authorized by Section 17-16 of the School Code. They are issued in anticipation of taxes levied for a specific fund and are to be repaid from property taxes received for that same fund. Among other statutory restrictions and requirements, tax anticipation warrants are limited to 85% of the total amount of the tax levied for the fund. There is a closing at which executed tax anticipation warrants are exchanged for money from the purchaser(s). Interest begins to accrue from the date of the closing. Tax anticipation warrants may be issued on a taxable or tax-exempt basis. To the extent possible, any time moneys are available in the working cash fund they must be transferred to such other funds of the district to avoid the issuance of tax anticipation warrants.
Other Short-Term Borrowing Options
If the anticipated shortfalls cannot be addressed with interfund loans or interfund transfers, the school district should work with legal counsel, a financial advisor, or both, to determine whether tax anticipation warrants or other short-term borrowing options, such as lines of credit, are appropriate.
School districts should consult with their attorneys for more details regarding loans, transfers, and short-term borrowing options to ensure compliance with the School Code, which has specific requirements for each of the above options beyond the scope of this guidance document. Please contact Whitt Law Senior Attorney Brittany Flaherty Theis (firstname.lastname@example.org) for more information regarding this guidance document or the Planning for the Future Series.
This Series is made available for educational purposes only. It is not intended to provide specific legal advice to your individual circumstances or legal questions. You acknowledge that your reading of this document does not establish an attorney-client relationship between you and the author or Whitt Law LLC. This Series should not be used as a substitute for seeking competent legal advice from a licensed professional attorney in your state. Readers of this information should not act upon any information contained on this website without seeking professional counsel.