At the Monroe County Board of Education meeting this last Tuesday, the Board was asked to approve another tax anticipation note (TAN) with a local bank. Superintendent Dr. Mike Hickman explained why the TAN loan is necessary. “We haven’t gotten our tax dollars in. That money comes later in the year. To make it through December, we have to borrow money to make our payroll.”
Chris Johnson, Monroe County School Director of Financial Services, reached out to five local banks for interest rate quotes. Three responded with interest quotes ranging from 1.49 to 1.9 percent. The lowest bid was from Persons Bank with a quote of 1.49. This quote is significantly lower than the 3.25 rate Persons offered last year, as well as the 2.09 rate the school system accepted from United Bank in 2019. Persons will charge a $350 fee, but Johnson says even accounting for that, the bid would wind up being several thousand dollars less than the second lowest offer by United Bank.
The loan will run through Dec. 21, but Johnson stressed the sooner it’s paid off, the better. “We usually pay it off several weeks in advance and that cuts our interest payment significantly. Every day before December 31st is less interest.”
Because it’s unclear exactly what day the school system will be able to pay it off, Johnson says there’s really no way to calculate what the exact amount of interest. Last year the loan cost the school board and, more specifically, taxpayers around $25,000.
Board member Greg Head asked Johnson if he sees the TAN going away anytime in the foreseeable future. Johnson responded no. “Not until we get our fund balance built up. It needs to substantially increase. Payroll’s going up and expenses are going up.” Johnson says it isn’t uncommon for school boards to have to take out a TAN. “In my previous position as a state auditor, I would say more than half the school systems I audited routinely had a TAN.”
Once the funds are collected from Persons, the school system will invest the money in their Local Government Investment Pool (LGIP) in Atlanta. In past years, the money earned from the LGIP has almost made up for the funds lost from bank interest. In 2019, though, that wasn’t the case. Johnson said he hasn’t looked at the LGIP yields for this year but stressed the school system should consider itself lucky if it breaks even.
The resolution to approve the issuance of a $5.5-million tax anticipation note with Persons Bank passed unanimously.