State budget cuts and low tax revenues are leading nearly one in five school systems in Alabama to borrow money just to make monthly payroll.
Two districts -- Coosa and Sumter counties -- face financial intervention from the state. At least three other districts already are borrowing on a line of credit to pay workers, and at least 20 more face having to do so in the next month or so, said Craig Pouncey, assistant state superintendent of financial and administrative services.
Pouncey, who was in back-to-back meetings Monday, did not have the list of school systems with him and could not say whether any Birmingham-area systems are among those borrowing or preparing to borrow money.
"The current positions of these systems isn't because of mismanagement of funds," Pouncey said. "It's because of a lack of tax revenue and cuts because of proration."
The state education budget is in its second year of proration -- across-the-board budget cuts -- and could suffer an additional cut before the fiscal year ends Sept. 30. Pouncey said the state's financial condition could dictate that proration continue into the 2011 school year.
"If there was another declaration of proration, it would be a huge burden on these school systems," Pouncey said. "This is a sign of our economic times, and there are several school systems that could find themselves in this position."
Both Sumter and Coosa county schools have wiped out their reserves, cut personnel and expenses and still are struggling, even with bare-bones budgets, Pouncey said.
Sumter County needs about $900,000 to get out of the red, while Coosa is in the red by $350,000 but needs an additional $600,000 to $700,000 to make it through the rest of the fiscal year, Pouncey said.
Coosa County schools tried to extend a revolving line of credit recently but the system was denied. A state intervention would mean the Alabama Department of Education could receive a line of credit on the system's behalf.
Sumter is in a slightly better position because the school system owns vacant surplus property it can sell.
None untouched
No system has been left untouched by proration. Systems across the state -- including the usually immune Mountain Brook -- have made adjustments, including offering early retirement to employees, laying off employees, cutting departmental expenses and cutting extracurricular activities.
Birmingham city schools will consider declaring a reduction in force this afternoon, which would allow layoffs among its tenured employees. The system has a $20 million line of credit with Regions Bank, which Chief Financial Officer Arthur Watts said helps during these economic times.
Mountain Brook in April secured a $3 million line of credit with BBVA Compass Bank as a precaution.
The state hasn't had to take over a school system since 2002, when it intervened in Dale County schools, Pouncey said. Jefferson County and Bessemer city schools were under state takeover at the beginning of the decade.
Since state Superintendent Joe Morton has been at the helm, no district has been taken over. That's in part because of the school Fiscal Accountability Act of 2007, which requires that school systems report to the state their financial positions. It also requires that school systems have a reserve fund equal to one month's operating expenses in case of emergencies.
Nearly half of the state's 132 school systems lack the required amount in their reserves.
"With the Fiscal Accountability Act, we recognize earlier now when districts have issues," Pouncey said. "We work closely with those systems before it comes to the point of intervention."
In the case of Coosa and Sumter counties, the state Department of Education long ago partnered with the districts to help them overcome their financial burdens. Both systems have requested intervention, Pouncey said.
Marie Leach Alabama Schools Borrow Money to Make Payroll [Internet]. The Birmingham News July 13, 2007 available from http://blog.al.com/spotnews/2010/07/alabama_schools_borrow_money_t.html
