Mehlville may tap reserve fund to ease Prop P cash-flow woes

By SCOTT MILLER

Staff Reporter

Mehlville School District officials are proposing to dip into a reserve fund to cover cash-flow problems associated with the now $86.7 million Proposition P districtwide building improvement program.

During a meeting of the Mehlville R-9 School District Public Facilities Authority last week, Assistant Superintendent for Finance Randy Charles said $2 million may be stripped from a $4 million reserve fund to cover cash-flow problems. In turn, the district would replace the cash with a surety bond guaranteeing the money will be repaid.

To fund Proposition P, bond-like certificates totaling $83.73 million were sold in two issues — $36.9 million in 2001 and $46.83 million in 2002.

District officials also want to restructure some of the bond-like certificates to “backload” the debt, thus freeing up money now.

By refunding some of those certificates of participation ahead of schedule, lower interest rates are anticipated. The district may only refund them once.

Depending on market conditions, the certificates could be refunded Wednesday — after the Call’s press time.

When the district issued the certificates in 2001 and 2002, 10 percent of the proceeds from each sale were placed into a reserve fund to be used to make the final payment when the certificates are retired.

Speaking to authority members Oct. 27, Charles said, “That reserve fund would have been used to make most of, well, probably more than, the final year’s payments.

“Now because we’re taking $2 million out of that reserve fund, we have to restructure that final year of maturity, that (2)021 maturity because we don’t have $4 million sitting in the reserve fund anymore to make that final year payment. So we’re refunding the (2)021 maturity as part of this … That’s the one maturity we’re actually paying off faster. That’s the exception to the rest of the rules here. So that’s how the $2 million in the reserve fund works.

“The second piece in restructuring the debt,” the assistant superintendent continued, “the (certificate) maturities through 2010-2011 are not callable, so the only way we can get at the ’05-’06 (revenue) is to issue new certificates, take the proceeds of those certificates and escrow that amount and use that to make the payments on the existing ’05-’06 (certificates) … But then the new certificates we issue have a different payback schedule. They’re backloaded. We don’t pay as much the next few years, but we pay more later. So that frees up the cash flow for the district …

“The final piece in the middle, the maturities for ’14, ’15, ’16 and ’17, those are being refunded purely for the sake of saving. The interest rates are such now that we can actually save money by refunding those …,” Charles said.

On Nov. 7, 2000, district voters approved Proposition P, a nearly $68.4 million bond issue funded by a 49-cent tax-rate increase.

However, the Board of Education in September 2003 adopted a revised budget for the Proposition P districtwide building improvement program totaling more than $86.7 million.

Charles recommended Oct. 14 that the Board of Education increase the Proposition P budget to nearly $89 million.

Of the 49-cent voter-approved tax-rate increase, 41.6 cents is being used to retire bond-like certificates of participation, while 7.4 cents is going into the district’s capital fund and being used for Proposition P-related projects.

Current projections indicate the 7.4 cents will generate roughly $31 million more through 2022 than is needed to retire the certificates.

To date, the district has spent $66,333,162 of the certificate proceeds. District capital funds available through June 30, 2009, total $18,091,182. However, through Oct. 8, the district had spent $12,543,358 of district capital funds and currently is in the hole to the tune of $2,202,400.

The cash-flow problem, Charles told the authority, is that bills are preceding revenue.

“… The cash-flow issue, very simply stated — the 49-cent levy that our voters passed will produce more than enough money to cover our expenditures through 2009,” Charles said. “Some of our roofing projects won’t be completed until 2009. However, because we finished some of our larger projects early on — the high schools, Bernard Middle School and so on — the expenditures are coming in earlier than the revenue during the same period of time. So it produces a cash-flow issue for us.”

While some larger projects were completed earlier than others, costs also may have exceeded original expectations.

Bernard Middle School, for example, was estimated at $12.1 million under the original facilities master plan in 2000, but current projections for the entire project estimate the total cost at closer to $18.4 million.

Besides refunding some certificates and using funds from the certificate reserve, Charles said delaying some roofing repair projects would free up cash.

“… We believe that some of the roofing projects will be and should be delayed somewhat. We don’t want all of our roofs to be fixed at the same time because we don’t want them all to fail at the same time 20 years from now,” he said.

Some of the roofs that were scheduled to be repaired next summer and in 2006, “will be pushed out a little farther,” Charles said. “So that will ease some of our cash-flow issues ..”

He also noted, “… We will still have the need to utilize the Advance Funding Program and tax-anticipation notes each fall for short-term cash-flow issues.”

For the current school year, the district has issued tax anticipation notes totaling $8.15 million to meet operating expenses, particularly salaries. The school district last year issued tax anticipation notes totaling $11.75 million.

Members of the facilities authority are Board of Education President Cindy Christopher, Larry Weiss and Frank Ziegler.

Charles refused to be interviewed for this story and Lorenzo Boyd, a financial consultant at A.G. Edwards & Sons Inc. who has worked with Charles on restructuring the Prop P debt, had not returned messages from the Call by press time.