By SHERRI KOLADE
DEARBORN — Dearborn Public Schools plans to open up a bank line of credit to avoid a $6 million projected cash-flow deficit by mid-September.
A 7-0 vote from board members at a July 9 board meeting authorized the district to open a line of credit for the 2012-13 fall school year.
The projected cash-flow deficit was caused by deteriorating financial conditions and expenses rising higher than state aid and revenues, along with a small fund balance available, DPS Supt. Brian Whiston said.
“We don’t get our first aid payment until October,” Whiston said in a phone interview. “Our fiscal year starts July 1. That is one cash flow problem and this (loan) allows us to deal with cash flow issues.”
There are multiple payments throughout the year, usually once per month starting in October; the payments stop in June, District Communications Coordinator David Mustonen said.
The district’s fund balance is currently at $5 million. The district plans to borrow up to $6 million from a bank that offers the lowest bid and the district will subsequently pay a lower interest rate.
Whiston said if the district had 10 to 15 percent of its fund balance – a $170 million annual budget — the district would not have to borrow anything.
The next step is for the state to approve the district’s line of credit. The paperwork was planned to be sent on July 16, Mustonen said.
“The state has 30 business days to review and let us know if we are approved,” Mustonen said. “We hope to have the line of credit (or loan) in place by late August early September. We will need the funds come mid to late September.”
The loans will be paid back as soon as the state payments resume in October. The district hopes to have the loan paid off by December.
Mustonen said the practice of school districts taking out loans is nothing new.
“Throughout the state many school districts have to do this although they try not to do it,” Mustonen said.
The last time the district took out a loan was two years ago, Mustonen said.
“It is a way to fill that gap in the summer between our payments from the state,” he said. “We may not need all of that at once but we need to make sure we have enough to cover. That is why it is done.”
(Sherri Kolade can be reached at [email protected])