By Stephen Floyd
The Silver Falls School District (SFSD) is applying for a $3.8 million bridge loan to avoid a $1.3 million cash shortfall in June and additional budget challenges forecast for the next school year.
During a special meeting Thursday of the SFSD Board, officials voted unanimously to pursue a tax anticipation note (TAN), which borrows against property taxes expected in November.
The loan must be paid in full Dec. 31, along with an estimated $92,476 in interest and $71,864 for the cost of issuing the loan.
The actual interest rate will not be known until the loan is issued in late May, Finance Director Kim Doud told the board. Based on current market trends, interest was estimated at roughly 4.15 percent.
Board members said they wish the TAN was not necessary but called it their most viable option to resolve the cash deficit in time to make June payroll.
“Saying ‘no’ to [the TAN] means people don’t get paid, can’t pay to get food on the table, puts us in a more dire situation, so it makes no sense to shoot this thing down,” said Board Member Josh Ort.
Board member Derrick Foxworth Jr. said it was important to remember the TAN was not a solution to the district’s budget challenges but “one critical piece to an overall strategy.”
Chair Jennifer Traeger said the district’s goal is to not need another TAN in the future, and that avoiding another loan will require deliberate financial planning. She said this may be difficult as the district looks at a potential $8.8 reduction in next year’s budget, but that making these cuts could help avoid another loan next year.
The board began discussing the possible need for a TAN Feb. 26 after being informed of a likely budget deficit.
During the April 8 board meeting, it was reported district is expected to be $4 million over-budget by the end of the current school year, and will be $1.3 million short of its financial obligations in June. The board has been advised to cut $1.2 million in expenses by the end of June and $8.8 million from the budget for next school year to help restore the district’s financial health.
It was also reported the district will experience a second cash deficit in October without any changes in spending, with this fall deficit also projected to be roughly $1.3 million.
Doud said Thursday the TAN could help cover this projected deficit if necessary, but that the goal is to spend as little of the loan as possible. She said the fall deficit would ideally be avoided by creating and sticking to a balanced budget.
Doud said the district is borrowing more than it needs so the unspent portion can be invested and the earned interest used to offset the cost of the TAN. She said, based on the accounts the district has access to, they could estimate a rate of 5.2 percent, potentially generating more than $100,000 toward loan expenses.
When discussing other budget solutions, the board talked about possibly forming a standing budget committee to review the budget regularly. Interim Superintendent Joe Morelock said the committee could be comprised of two or three board members who would meet monthly for an in-depth look at district finances.
Assistant Superintendent Dan Busch said, in order to do this, the board would need to rescind a current policy against standing committees. Busch said he has reached out to the Oregon School Boards Association for an example of policy allowing such committees and will return to the board with a recommendation during their April 22 meeting.
Morelock said the committee is intended to be a perpetual part of the board and would continue keeping an eye on finances beyond the current financial crisis. He said they hope to get the committee started as soon as possible and, if the board approves corresponding policy changes April 22, they could move forward with committee appointments that day.
Traeger said the district is fortunate to have Morelock’s financial and administrative expertise. She said, when Morelock became superintendent of the Newberg School District in 2018, this district had “a very similar financial profile” to SFSD and that Morelock brings a valuable perspective.
Traeger also thanked the employees’ unions for their work behind the scenes to help find a solution to the deficit. She said the district “would not be able to make this work” without the Silver Falls Education Association and the Oregon School Employees Association.
