Cary District 26 trying to avoid state takeover

Monday, July 19, 2010

Just how severe is Cary Elementary School District 26's budget crisis?

It is so severe that district officials are trying to avoid the possibility the state could take over the district, compelling the district to follow a financial plan and potentially forcing the district to raise taxes.

In a case in Round Lake, the state created a panel that raised taxes for the average homeowner by $750 in one year, according to District 26 officials.

Another troubling sign is that District 26 is exploring the possibility it might have to take out second-year tax anticipation warrants during the upcoming school year.

Here's why that's cause for concern: The district would first have to max out its ability to take out short-term loans backed by the state funding it expects to receive this year. This is no small feat; districts can issue tax warrants for up to 85 percent of their operating expenses.

Then, the district would theoretically be able to take out additional tax warrants backed by the revenues it expected to receive during the following year.

That would be like taking out a payday loan that you expect to pay back with a check you will receive one year from now.

In the case of District 26, the picture is complicated by the fact that second-year tax warrants would probably carry substantially higher interest rates and are so rare that the district's bond consultant has only seen one other instance - in the Round Lake district that was taken over by the state.

"We can't find another district that's issued second-year TAWs," said Eric Anderson of BMO Capital Markets. "The interest rates would be three times or four times what you're paying today."

Earlier this year, District 26 became one of only 29 school districts in the state to be named to the Illinois State Board of Education's financial watch list, the worst designation a district can receive.

Of the state's 869 school districts, District 26 received the fifth lowest financial score, which takes into account a district's fund balances, cash on hand, debt and expenditures compared to revenue.

The district has already cut $6.6 million from its budget for the new school year, meaning its cash flow issues should be somewhat less severe than they were this year.

State takeovers are rare. The state has only had to appoint financial oversight panels for about five school districts during the past decade, according to the state board of education.

Only two districts are currently under the oversight of a school finance authority, a body that has the authority to levy additional taxes, according to the state board.

The state, which is dealing with a cash crisis of its own, does not appear to be close to initiating a takeover of District 26.

A spokeswoman for the state board said the district is doing the right things to maintain local control.

"Since the district is implementing corrective actions, the state will continue to monitor the situation," said Mary Fergus, spokeswoman for the state board of education. "If they do not implement the improvement measures and they continue to decline, they will be formally certified in financial difficulty."

Certifying a district is in financial difficulty is the first step to establishing state oversight.

Earlier this year, the school board laid off about 80 teachers and eliminated art, music and physical education. The board is now contemplating asking taxpayers to chip in by approving $15 million in working cash bonds, a measure that would cost the owner of a $300,000 home an additional $85 over the next five years, according to district estimates.

The board is set to vote Monday on whether to place a question on the November ballot.