Faced with a cash-flow hole of $1 million and growing, Feather River College is taking the unprecedented step of asking the county for an advance on its tax revenues.
At a special meeting of the Feather River College board of trustees Thursday, Sept. 2, college president Dr. Ron Taylor said he has looked into the legality of going to the county for financial assistance. According to Taylor, under the California Education Code and the state constitution, the district “can ask the county treasurer for an advance of funds against anticipated taxes in order to meet cash flow needs.”
Because the state hasnot passed a budget in a timely manner, FRC is struggling to make up the shortfall.
According to Chief Financial Officer Jim Scoubes, the state apportionment the college receives is $500,000 per month. The state has already missed two payments, leaving FRC short $1 million in cash.
Taylor said the college could make it through September; after that, he’s concerned about meeting payroll and other basic expenses.
Further, he’s heard the state may not pass a budget until the election in November or, worse, that Governor Schwarzenegger won’t sign off on the budget unless it meets his requirements — no budget would be passed until he leaves office in January.
The college is also looking into loans from local and regional banks. It is drawing on its line of credit from Umpqua Bank for the first time. It arranged the credit line to help with cash flow during construction of its new library building.
The college has just about run through its Tax Revenue and Anticipation Notes loan. The TRANs has allowed 52 community college districts to borrow more than $2 billion in short-term financing through the program since 2005.
By the end of September, however, FRC will have depleted its $1.9 million in TRANs funds, as well as any cash on hand.
There is also a “legal interaction” between the TRANs loan and the county money that FRC is requesting. Scoubes explained the TRANs agreement mandates that the college will not borrow any other money from the county.
The money requested of the county, therefore, is termed a “transfer of funds” in the FRC resolution. Whether Plumas County Counsel Craig Settlemire or TRANs bondholders see it as a “transfer” or a “loan” remains to be seen.
“Technically (the agreement) says we can’t borrow any other funds from the county. That’s our obstacle. We’re working on how we can do that,” said Scoubes.
Further complicating things is the upfront money needed to keep construction moving on the new Learning Resource Center.
While the state reimburses FRC from a fund not tied to the budget process, it requires proof the college has already paid a bill before it pays the college.
Scoubes said he had hoped to finish the LRC project with the Umpqua line of credit. Now, the concern is that Scoubes would have no money to write that check, which will mean he won’t get reimbursed.
In turn, that would mean he’d have to “bring the project to a screeching halt” until the college once again had cash.
He’s drawn on the Umpqua line of credit for the past two months to keep the project going.
This is the first time he’s used the line, and it’s going fast, because he hasn’t received any of that reimbursement money yet.
Taylor called the special board meeting because he wanted to get the issue in front of the county Board of Supervisors at one of its September meetings, before FRC runs out of cash by the end of the month.
Board member Leah West asked if, given “the crummy economy,” the “supervisors were on board” with this request.
Taylor said he wanted FRC’s board to meet and pass the resolution before talking to the supervisors.
The resolution originally set a not-to-exceed amount of$4,015,538 during the 2010 – 11 fiscal year. The board amended the amount to $4,970,903 before passing the resolution unanimously,
The district normally receives its first county tax apportionment in December. The second apportionment comes in April after the second round of taxes comes in.
As board president Bill Elliott saw it, the college is “just taking our money early.”
Taylor said, while the resolution states a maximum amount the college wants to “transfer” from the county, it would take the money on an “as needed” basis. “We want to maximize options,” he said.
FRC is looking for both its December and April allotments now. Taylor also suggested the increase in the funds requested — up from $4,015,538 to $4,970,903. According to the state’s education code, the district can borrow up to 85 percent of anticipated tax revenues, and the $4.9 million still adheres to that measure.
Taylor ended the meeting on an apocalyptic note, “Frankly, if you look at the worst case scenario, literally? We don’t know when the state budget’s going to be done. And, yes we’re due property taxes in December, but by January we’re operating $2.6 million in the red if we’re operating at all. And that simply mounts if there’s a serious problem.”
West requested a further look at budget priorities, “At a future meeting, I’d like to see — where are we taking steps to cut spending ... we’re hiring. We keep hiring. I’d like to see ... what’s been done, what’s going to be done, to cut some spending.”
Director John Sheehan asked even tougher questions. “If nothing happens by December, a whole scenario of things will have to take place ... what happens if there’s no money? Every business at some point has to face that.”
“People don’t get paid,” added Elliott.
Taylor, who clearly has been forced to think along the same lines, said “We’re starting to look, with our lawyers and banks and so on, in this next few days, if we were to use a voucher system, would that work, and how would it work?”
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