Amid months of financial uncertainty, the Iowa City Community School District has delayed its pursuit of a multimillion-dollar loan because banks are leery of the lack of audits and its improved cash flow.
The district said improved revenues and reduced spending have eased short-term cash flow concerns during a school board meeting on April 28, and that it won’t take out a $25 million loan in May.
Banks are currently unwilling to lend due to the district’s improving finances and missing fiscal audits.
Though the district’s annual audits are still two years behind, Susanne Gerlach of PFM Financial Advisors is “confident” it will have enough cash on hand to secure a loan when the audits are complete.
The Iowa City Community School District is facing financial woes after district leaders failed to track spending and revenue for almost three years. The board of directors began uncovering the financial shortfalls in January, retroactively approving a $10 million interfund loan.
In February, the board of directors voted to trim $7.5 million from the district’s annual budget, a plan that includes staff reductions, cuts to administrative pay and general operations.
Gerlach said ICCSD’s 2024 fiscal audit will be completed by June 30, and the 2025 fiscal audit is expected to be finished no later than Dec. 31, which should help them secure a future loan.
“Seeking a lender with a fiscal year 2024 audit in hand will go a long way toward eliminating uncertainty,” Gerlach said. “Having another audit done is a big deal. That was the comments we got from lenders.”
Gerlach recommends that the district repay the $10 million loan after July 1, two months ahead of the Sept. 1 deadline, leaving the district with $21.4 million, or 35 days of cash, and enough money to make payroll in July before receiving state aid in September.
The ICCSD is at risk of needing a $10 million loan by Sept. 1, and without it, the district may resort to an interfund loan to meet its monthly cash flow needs.
“This is a ticking time bomb,” Gerlach said. “SAVE does not have the cash without an interfund loan.”
The Secure an Advanced Vision for Education (SAVE) is a capital account funded by statewide sales taxes based on enrollment. The district’s SAVE money is leveraged through 2039 to fund a facility master plan, approved by the board in June 2025.
The district will explore other capital project funds or voter-approved general obligation bonds to fund large projects in the future.
ICCSD’s incoming chief financial officer, Pat Moore, begins her tenure on Wednesday, May 13, and will be tasked with handling all past and future loans.
The district’s interim CFO, Kim Michael-Lee, will stay with the district through June.
The school board will decide how to repay the $10 million interfund loan at the next meeting on May 12.
Iowa City schools see improved cash flow
Gerlach, in April, recommended a $25 million anticipatory warrant to bridge the district’s cash flow deficit as a “worst-case scenario.”
She said the district has made “tremendous progress” since to reduce spending.
The ICCSD’s revenues are anticipated to be $4.6 million higher and expenditures $2 million lower than previously forecasted.
In March, the district borrowed a $3 million anticipatory warrant, a loan uniquely issued to school districts.
Since February, buildings have “tightened” spending, reducing projected expenditures from $3.8 million to $2 million.
“Thank everyone at the building level for what they are doing,” said board director Jayne Finch. “Their actions and their tightening is making a difference here. I know it has been very difficult for them.”
Gerlach will address the board again in June about the district’s capital funds since the Physical Plant and Equipment Levy (PPEL), funded by property taxes, has a borrowing capacity of $45 to $65 million.
Gerlach said PPEL will have to serve as the district’s “mini bank.”
Jessica Rish is an entertainment, dining and education reporter for the Iowa City Press-Citizen. She can be reached at JRish@press-citizen.com or on X, formerly known as Twitter, at @rishjessica_
This article originally appeared on Iowa City Press-Citizen: Banks deny ICCSD’s $25M loan due to missing audits, improved revenue
Reporting by Jessica Rish, Iowa City Press-Citizen / Iowa City Press-Citizen
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