Aug. 24--A shifting of dates at the Erie School District has helped it achieve a financial landmark as it opens for classes Monday.
The amount of a short-term bridge loan the district takes out each fiscal year is at its lowest in decades: $12 million.
The district sliced the size of the loan, which hit a record $35 million in 2010-11, by mailing its real estate tax bills six months earlier in 2012-13.
Since then, residents have had the option of paying the bills by Sept. 30, and getting a 3 percent discount, rather than waiting until the final deadline of April 30.
The change initially confused many property owners, particularly those who use escrow accounts to pay real estate taxes. But those concerns have subsided, officials said, and the change has allowed the district to get the majority of its annual real estate tax revenue up front as it shifts its tax cycle from a calendar year to a fiscal year.
The receipt of the early tax revenue has shrunk the bridge loans, known as tax revenue anticipation notes, which has saved the financially struggling Erie School District hundreds of thousands of dollars in interest payments.
"When we first had the idea, we thought it would be a lot more traumatic than it was," Erie schools Superintendent Jay Badams said of changing the tax cycle. "It is one of those occasions where what we predicted actually occurred."
The district will pay $120,000 in interest on the TRAN of $12 million this fiscal year, which started July 1. That is a record low for the district, whose TRAN-related interest payments peaked at $862,099 in 2010-11, with the $35 million TRAN, according to available records.
"It is working very well," said Rick D'Andrea, the district's business manager. "We got over the initial problem with the escrow."
The shifting of the tax cycle came in the first years of the administration of Badams, who inherited a $26 million deficit when he started as head of the 12,000-student district in June 2010. The district eliminated a $2.4 million deficit for 2014-15 by cutting 14 positions and making changes to health care.
The district since the 1990s has discussed altering its tax cycle to lessen the need for TRANs. The reliance on the loans started more than 30 years ago, when the district switched from a January-December fiscal year to a July-June fiscal year.
The change gave the district a one-time advance in real estate taxes. But it also created a financial misalignment unique in Pennsylvania to the Erie School District.
The city of Erie continued to collect the district's real estate taxes in January, though the district's fiscal year started six months earlier, on July 1. The discrepancy required the district to take out a TRAN to pay its bills between July 1 and January.
Under the system the district adopted in 2012-13, residents still have until April 30 to pay their real estate taxes without penalty. And they still get a 2 percent discount if they pay by Feb. 28.
However, residents get a 3 percent discount, a percentage point above what had been the highest rate, if they pay their real estate taxes by Sept. 30.
Most taxpayers have opted to pay by Sept. 30, D'Andrea said. He said the district in fiscal 2012-13 received 52 percent of its real estate tax revenue for that fiscal year in September and October 2012.
That figure, D'Andrea said, increased in 2013-14 to 65 percent, or about $24.4 million of the $37.7 million the district budgeted for real estate tax revenue that fiscal year. The district's overall budget is about $150 million.
The initial concerns with the switch, D'Andrea said, largely centered on how it would affect escrow accounts.
Many residents who, for the first time, paid real estate taxes by Sept. 30, saw the early payments deplete their escrow accounts. That led mortgage companies to require added payments to replenish the accounts, creating a situation in which many residents "essentially paid their taxes twice in one year," D'Andrea said.
Badams said he and D'Andrea fielded hundreds of phone calls from taxpayers and worked with mortgage companies to eliminate a financial shock whenever possible.
Complaints about the effects on escrow accounts have largely gone away as many residents have gotten into the routine of paying by Sept. 30, and getting the 3 percent discount, school officials and others said.
The 3 percent discount meant the program "came with an economic incentive," said Erie lawyer David Holland, whose practice specializes in real estate.
The Erie School Board, which approved the optional early payments in 2012, next is to decide whether to mandate a switch.
D'Andrea said one proposal would make real estate taxes due without penalty no later than Nov. 30, with a 2 percent discount for those who pay by Sept. 30. The district would eliminate the 3 percent discount.
Such hard deadlines would give the district nearly all of its real estate tax revenue early in the fiscal year, which would further reduce the need for large TRANs. Badams said he expects the School Board to consider the hard deadlines for the 2015-16 fiscal year.
"The TRAN is going very well," School Board President John Harkins said. "There seems to be a willingness to go further with it."
ED PALATTELLA can be reached at 870-1813 or by e-mail. Follow him on Twitter at twitter.com/ETNpalattella.
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