Ganado school district juggles loans to cure shortfall

Nearing the end of a troubled fiscal year, the Ganado school district was dealt a surprise blow that could have endangered payroll and operations through the end of June.

Earlier this month, the state of Arizona announced that it was not going to release the last two payments to school districts statewide until after July 1 - a budget juggling tactic aimed at easing the state's huge deficit.

But Ganado may have found a way to keep paying its bills with a line of credit - a type of revolving loan - from Well Fargo Bank that would take the district through the remaining month of the current budget year.

The Apache County Board of Supervisors approved the plan during a meeting Tuesday and the Ganado school board is scheduled to discuss the plan during a special meeting today, May 21, at 6 p.m. at the district administration building.

"We need to start letting the county know," said Deborah Jackson-Dennison, district superintendent. "We are ready to put the plan into action right away."

Even if the school board were to turn down the plan, the district has another option to help fund the school's accounts through the remainder of the business year, which ends June 30. The state treasurer has also offered to loan the district the money it would need to make payroll and fund operations as needed for a low rate.

The district implemented severe budget cuts in January, cutting most sports programs and shuttering the new athletic center and stadium in the face of shrinking revenue projections from the state.

Though the district managed to keep the core of its operating budget intact and funded with the cuts, the state was still battling its own $3 billion shortfall.

On a per-capita basis, Arizona has the largest budget shortfall of any state in the country, according to the governor's office.

To make matters worse, its economy depends on unending growth because a disproportionate share of its tax revenues comes from new home construction. When the worldwide recession slowed everything down, states like Arizona suffered more than those with more diversified economies.

To at least give the illusion of a balanced budget, it decided to push some costs accrued in 2009 into 2010, including school spending.

"We didn't think they were going to keep our May payment," Jackson-Dennison said. "We had made those cuts in our plan back in January and saved enough to make it through the year."

But the final two payments - $745,000 due for the second half of May and $1.6 million for June - are essential to make payroll for teachers preparing to go on summer break.

The state's decision is an effort to smoke out money the school districts might be "hoarding," Jackson-Dennison said.

Most reservation districts have a stash of Federal Impact Aid funds - money given to all reservation school districts to compensate for the lack of property taxes on federal trust lands - to cover the final payments.

The state will release the May and June payments in July, and districts that used Impact Aid funds will replace them with the state money.

 However, Jackson-Dennison said Ganado has no such secret stash of cash to draw from. The district is still paying for its $15 million sports pavilion, a 15-year obligation that is paid from Impact Aid funds.

District leaders have discussed a revolving line-of-credit loan since January, but only as a backup plan, in case the budget cuts weren't sufficient. Talks of floating a bank loan resurfaced after the state announced its intention to delay the year's final payments of state school aid.

If it's approved, the Apache County treasurer's office would manage the loan. Chief Deputy Treasurer Sandra Klinchock would work with the bank on a daily basis, drawing down money that the district would need to operate. The district would determine the amounts every day.

On July 1, when the state is scheduled to release its final two payments, Klinchock would inform the bank and the loan would be repaid with the money released from the state.

"It would work just as if the district had received the money like they should have," Klinchock said.

Well, there would also be the loan fees and interest.

The Wells Fargo loan would charge the district 3.25 percent interest.

Should the school board decide against the line-of-credit loan, it could take the offer from the state treasurer, an identical loan plan. But instead of releasing all the school funds to the district in July, the state would hang onto the loan amount.

The state's loan offer includes an interest rate of about 1.5 percent.

In either case, Jackson-Dennison said the district should have little problem covering the finances in the coming month.

"Whatever plan they decide to go with, we're confident it's going to work out," Jackson-Dennison said.

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