DENVER — A bill proposing major changes in the state treasurer’s interest-free loan program for school districts got final Senate approval Friday.
House Bill 1274, from Broomfield Republican Rep. Shawn Mitchell and Westminster Republican Sen. Ken Arnold, is the last pending measure in a package of proposed laws introduced this year in the wake of the St. Vrain Valley School District ’s financial woes.
HB1274 contains provisions worked out by the sponsors, state Treasurer Mike Coffman and the chief financial officers of several school districts . The goal is to reduce the state’s potential exposure if districts fail to repay loans by the end of the fiscal year in which they borrow money, and to avoid tying up hundreds of millions of dollars in general-fund money the state needs for services and programs.
The Legislature created the interest-free program in the 1990s after changing school district fiscal years to coincide with the state’s July 1-June 30 fiscal year. The primary goal of the program was to help districts bridge the gap between the months when their primary income is from state aid and months when they receive local property tax collections.
Over the past six years, 54 school districts have participated in the interest-free loan program, with the totals loaned by the treasurer ranging from $354.8 million in fiscal 1997-98 to $220.7 million in fiscal 2000-01. Through early February, districts had borrowed more than $298 million during the current 2002-03 fiscal year.
Coffman called for changing the program, however, after learning that St. Vrain administrators had been using the program to cover increasingly severe cash-flow problems — and after the treasurer and local school officials ascertained that St. Vrain would be unable to repay all its 2002-03 loans by the end of June.
HB1274, which got a unanimous vote of Senate support Friday, would essentially require school districts participating in the program make advance projections of how much money they need.
The state treasurer would sell “ school district tax and revenue anticipation notes” based on the pooled projections and backed by participating districts ’ property tax revenues.
Money from the note sales would be deposited in a segregated account and made available for loans to the participating districts to borrow. No interest would be charged for loans from that account because the costs of interest on the notes would be partly offset by the treasurer’s investments.
However, under HB1274, a school district that defaults on a loan would be charged interest equivalent to what the treasurer has to pay on other state-issued notes.
Interest also would be charged to a district that fails to use the full allotment of the money it had projected.
Any district that didn’t plan to participate but still found itself in an emergency cash-flow shortage would have to pay interest because its loans would have to come out of the state’s tax-supported general fund, rather than the new notes account.
HB1274 now returns to the House for consideration of amendments the Senate made to the version the House approved on April 4.