Cash flow borrowing for Ohio K-12 schools

Many school districts in Ohio have improved their available cash positions during the past several years as a result of a recovering economy. In many cases, assessed valuations have returned to pre-great recession levels or above, tax collection rates have returned to higher levels, school district income taxes have recovered with the return of more jobs and higher income levels, and state support generally increased during this time as well. School districts also worked hard to make expenditure adjustments that are still beneficial today.

However, in Ohio most school districts are still under the restrictions of House Bill 920 and the result of levy cycles. The result places many school districts in a cycle of obtaining higher available cash balances in years following a levy approval and then spending down balances which can be inevitable as revenue is held essentially level and expenditures steadily increase. In addition to this natural cycle, there could be other influences causing temporary cash flow concerns. Unexpected delays in tax settlements from the county auditor, large taxpayer delinquencies, reduction in state support, unexpected expenditures during a low cash position period in the fiscal year, and more recently potential delays of tax collections as a result of COVID-19.

To provide tax relief from the results of COVID-19, Governor DeWine signed Amended Substitute House Bill 197 on March 27, 2020 extending the deadline to file and pay the state income tax without interest or penalty. The extension moved the filing and payment deadlines due from April 15, 2020 through June 15, 2020 to July 15, 2020. This extension includes school district income taxes. There has also been reported requests from county auditors to extend property tax deadlines. This could cause the August 2020 final settlement to be delayed which could also affect the amount received from any tax settlement advances requested.

As a result of potential effects of COVID-19, school districts will be evaluating the potential of revenue decline and timing delays not only on a fiscal year-end available cash position, but also on a monthly cash flow basis as normal cycles could change during the fiscal year. School districts have very little flexibility in timing expenditures but should evaluate those options. Although debt may be viewed as a last recourse in these situations, school districts can use the authority granted to issue short-term anticipation securities. This allows school districts to borrow a limited amount against certain future property tax revenues, and in some cases other revenue. Repayment is required within a specified timeframe. School districts can think of it as a cash flow management tool addressing low or negative cash positions for a short period of time.

Short-term cash flow borrowing is not the only solution for school districts in uncertain revenue cycles, however, it is an option that can provide temporary relief until a longer-term solution is determined. School districts should contact their legal and financial advisory team to obtain further information and insight on this option.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.