Financial Update

Pontiac schools may lose millions in grants

Saturday, April 4, 2009
By DIANA DILLABER MURRAYOf The Oakland Press

If the Pontiac school district doesn’t get a new influx of cash soon, summer school may be canceled and millions in Title 1 grant funds might have to be forfeited.

The district’s pursuit of an $18 million loan against summer property taxes has so far been futile.

And much of the federal stimulus package funds that school officials and teachers’ union leaders were hoping would give the district a financial boost may not get as far as school coffers, reported Don Dietz, who is assisting and eventually will replace Felix Chow, interim deputy superintendent for finance.

Assistant Superintendent Linda Paramore called for a special board session for Thursday afternoon to update trustees on the district’s financial status. She and other top officials may go to the state to appeal for help.

“It is absolutely important for this board and the community to realize the critical situation we are in, and it is our responsibility to keep the board up to date on where we are,” Paramore said.

Dietz said the U.S. Senate Fiscal Agency had indicated Pontiac schools would get a total of $27 million to $28 million in federal stimulus dollars. That includes $5.8 million in Title 1 grants that must be used for programs that help at-risk children; $2.7 million earmarked for special education; and $17.3 million in stabilization funds. However, the stabilization funds for which there would be more flexibility in spending may not come in the way everyone expected.

“From what we are hearing, the state will take what they need first,” Dietz said.

The state will likely use it to help offset a cut that was projected in state aid, he said. And because tax revenue has significantly dwindled, it is possible the state may need more to fill the hole. Whatever is left after the state takes what it needs for state school aid, the district will have to apply for in September.

Paramore said funding for summer school is paid out of Title 1 funds that help children at risk of failing. If the district doesn’t have the cash flow to fund the program by the middle of May, “we won’t have it (summer school) because we will have to close the doors.

“Although we are going to go to the state and ask for assistance and help,” everyone has to be clear that everything possible has to be done at the local level, she said.Dietz said, “Two or three years ago, you would have had many potential lenders for such a note.

“We live in a different time and place and the scrutiny over the loans is 20 times what it used to be,” Dietz said, creating a situation that could lead to what he called “a perfect storm.”

“What has happened is the state finances are getting weaker and weaker and weaker. Given the unpredictable factors ... schools are in, the district should use caution in estimating its allocation in the stimulus package,” Dietz said.

Even if the district gets the entire $5.8 million in Title 1 grants and $2.7 million in special education funding, “it will not help the cash flow,” Dietz said.

There are very stringent rules that must be followed. In order to get the millions, the district must spend the money up front first, then get reimbursed with the grant money.

“In a certain sense, this will have a negative impact on your cash flow,” Dietz told the board.

“It all boils down to securing the tax anticipation note ... it will give you some breathing room to pay the bills and spend the dollars and get reimbursed,” Dietz said.

Trustee Robert Bass noted, “it is possible we may not be able to capture much of that because we have to expend it first.”

Chow and Dietz are projecting a near $12 million deficit by June 30. But to assure potential lenders that they will get their loan paid back with interest, the board has signed a resolution guaranteeing all property tax payments from Pontiac and Auburn Hills residents and businesses will go into what Dietz called a “lock box” until enough has been collected to pay off the loan with interest.Chow described a lock box as a special escrow account held by a third party so that no funds could be taken out until November when the revenue would be used to pay off the loan.

Vice President Gill Garrett said he does not believe that the state and federal government will allow the educational system to shut down. He pointed to the steps the board and administration have been taking to address the problem, such as closing half the district’s schools.

Trustee Christopher Northcross said he is hopeful the state will accelerate payments of stimulus funds to the district to help the cash flow situation.

With the cash flow loan being the No. 1 priority, the second major issue affecting the district’s ability to eliminate its deficit and stabilize finances is declining enrollment. He said the Michigan Municipal Education Association’s projects for a decline in enrollment of hundreds more students in the fall.

Trustees agreed with Bass and Garrett that the district needs to “blitz” the community with information about the new programs offered and the improvements planned in order to keep students and bring more back.

Contact staff writer Diana Dillaber Murray at (248) 745-4638 or diana.dillaber@oakpress.com.