A local bank will extend a $3 million line of credit to a Madison County School System still awaiting its main source of revenue.
The county board of education (BOE) approved a tax anticipation note (TAN) last Tuesday that will allow the school system to borrow up to $3 million from Merchants and Farmer’s Bank at a 1.94 interest rate.
Since the county sent tax notices out late, the school system hasn’t been able to collect property tax revenue yet and is running out of money.
Though the system shows reserves in its budget, it’s only “paper reserves” — or dollar figure that is based on anticipated tax collections —and doesn’t reflect what’s actually in the bank.
Madison County superintendent Mitch McGhee said the system has already spent what it had in the bank to delay borrowing money.
“We have been spending the money in the bank all along without collecting taxes,” McGhee said. “Our reserves are gone.”
In fact, the system has just $500,000 left in the bank and doesn’t have enough cash to meet payroll requirements at the end of the month.
The TAN will allow the system to borrow the money and pay it off as tax collections begin rolling in. The school system will only pay interest on what it borrows.
Though the school system can take as much as $3 million, school leaders hope to borrow less than that.
“Louise (Watson) at the tax office said we could get a pretty good check at the very beginning of March, and if that happens, we won’t have to borrow very much at all,” McGhee said.
Assistant superintendent Bonnie Knight said the school system hopes to borrow no more than $2.6 million.
School leaders hope to pay the TAN off in two months.