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Using emergency loans to pay off other loans; some Michigan school districts are doing it

The recession has made it harder for local governments and school districts to balance their budgets. This summer the governor signed a newlaw creating a board that will help those hardest hit cope with short term cash flow problems.

Earlier this month the emergency financial managers of both Muskegon Heights Public Schoolsand Highland Park schools got emergency loans to pay off other state loans. MHPS borrowed $7.65 million while Highland Park schools borrowed $4.4 million.

“It’s not a handout; it’s a loan in order to help get people on their feet, in order to make the changes that are necessary going forward,” said Caleb Buhs, a spokesman for Michigan’s Department of Treasury. The school districts have 30 years to pay the state back.

“It’s necessary sometimes to get a short term infusion of cash in order to help the cash flow and make some restructuring in order to reach long term financial goals,” Buhs said. He points out school districts and municipalities have to submit a long term plan when applying for the loans.

However, if the district or municipality fails to repay the loan, it does not prevent them from getting another loan in the future.

Meanwhile Benton Harbor Area Schoolswants an emergency loan to cover September’s payroll. It’s asking the state for $6.75 million.

The board has a total of $50 million to loan to school districts over the next seven years. After that the amount decreases substantially.

The board has another $35 million for local governments. So far, no cities or townships have asked to tap into that fund.

There is a limit on how much an individual district of municipality can receive. And a single municipality cannot take out more than five emergency loans in any 10-year period.

Lindsey Smith is a Peabody Award-winning journalist currently leading the station's Amplify Team. She previously served as Michigan Public's Morning News Editor, Investigative Reporter and West Michigan Reporter.
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