For at least two years the district has met payroll demands by tapping interest revenue on the $4.5 million that remains unused from the sale of $85 million in bonds passed by voters in 1990.
“For the last couple of years, as the state has deferred the general, unrestricted dollars and increased the deferrals every year, we basically run out of cash in the general fund in April, so we have been borrowing bonds,” said Wade Roach, chief financial officer of Sonoma County’s third-largest district.
When state payments come in, the bond fund is repaid, Roach said.
Roach and Denise Calvert, deputy superintendent of the county Office of Education, agreed that maneuver must stop if the district is to emerge from a financial quagmire that has landed it on a state watch list.
“It was legal,” Calvert said of the borrowing. “The bond money generated interest earnings, so they transferred the interest money to the general fund. It’s OK to do that, but the problem was it’s one-time money so the whole thing just snowballed on them.”
The borrowing has allowed the district to weather the temporary shortfalls caused by the state delaying scheduled payments — a strategy the state uses to deal with its own money woes.
District officials are scheduled to meet with IRS representatives to review the unused funds from the 1990 bond.
“The issue is we really need to spend bond funds,” Roach said. “The fact that there is a fiscal crisis doesn’t negate that there is an assurance that the board gave the public when they issued the bonds. Part of those assurances is that those funds would be used for capital projects in the district.”
“It’s horrible timing but got to be done,” he said.
The cash problem has squeezed the district from many fronts. Because of it’s negative financial rating, it cannot apply for a so-called bridge loan that many districts seek when the state regularly delays payments to districts throughout the state.
County Superintendent of Schools Steve Herrington warned the board this month that it must increase its reserve level to at least 3 percent of its budget because the county can’t guarantee loans to meet immediate cash needs.
“The 3 percent reserve is imperative for the district to remain solvent and avoid state receivership,” Herrington wrote.
“I basically put them on notice,” Herrington said. “We have to be able to stay solvent ourselves and (for) the other districts we support and I couldn’t have them bring us down as well. I couldn’t let them drop below 3 percent.”