Perham-Dent school district borrowed $3.5 million last year
William Shakespeare warned to never be a borrower or a lender.
But for the Perham-Dent Public School District, there's no choice.
District officials estimated that Independent School District 549 borrowed $3.5 million in "aid anticipation certificates" last year.
According to Superintendent Tamara Uselman, the school district borrows money because it lacks a fund balance to cash flow expenses.
The process, which is controlled by state statute, is critical for cash flow in Perham, according to Uselman and Business Manager Kristi Werner.
They explained that because the state of Minnesota guarantees that aid to schools will eventually come, the term used when school districts borrow is "aid anticipation certificates" and the process is governed by the school board.
Borrowing money by selling aid anticipation certificates has both positive and negative aspects, according to Werner and Uselman.
"Ideally, the school district would have a fund balance large enough and secure enough that it would not need to borrow money," according to a recent article by Werner and Uselman. "As anyone with a home or car loan knows, it costs money to borrow money. For example, it costs about $48,500 each year to issue aid anticipation certificates. This is money that can't be spent on teachers or books because it is spent on loan documents."
In addition, the school district pays interest on the money it has borrowed, though that expense can be counterbalanced if the district can invest borrowed money at a higher interest rate until the money must be pulled out and used to pay bills.
Borrowing at a lower interest rate requires the state's credit rating to be sound. Investors buy aid anticipation certificates because of the state guarantees that schools will eventually get their aid. If the state's credit rating drops, investors see more risk, and thus, the interest rate paid by the school increases.
The number of schools and the amount schools borrow as they are waiting for aid to be paid back will probably increase, Uselman and Werner said.
The state has instituted an aid shift, called a "70/30 shift." Meaning schools do not get 100 percent of the aid owed to them in the year it is owed. Instead, the state sends 70 percent of the aid one year and promises to send the missing 30 percent the next year. This becomes problematic, Perham officials say, because schools are always waiting for 30 percent of aid, due from the year before.