More Clout, More Cash

When E.F. Hutton talks, school districts show big interest

Schools across the country are crying poor more loudly than ever. Last week the Yonkers, N.Y., school district threatened to reopen its schools three weeks late in January unless the city council comes up with an additional $12 million. Schools in San Jose, Calif., are open, but the district declared bankruptcy in September, and is $1.7 million in debt. In Lincoln County, Ore., 16 schools closed for almost two weeks this fall until voters approved an increase in property taxes. So what is a school board to do?

Listen to E.F. Hutton perhaps. Pennsylvania school districts have enlisted the services of the big broker and other investment consultants to help them boost the value of their tax revenues, which might otherwise languish in non-interest-bearing checking accounts or small savings accounts that today typically earn only 5 1/4% interest. Since March 1982, a number of districts have been pooling their tax receipts and investing the resulting millions of dollars in the Pennsylvania School District Liquid Asset Fund. The fund buys U.S. and state government securities, Treasury notes and bonds for example, earning interest of about 10%. Result: this year the school fund raised $15.5 million in interest for its member districts. Voters are happy because the earnings keep property tax increases down. Nor are the school revenues tied up for long periods of time: districts can write checks on the fund. Says Linford Moyer, executive director of the Pennsylvania Association of School Business Officials: "The fund's advantage is that we have broadened the possibilities of return on investments without jeopardizing safety."

Although many school managers across the country routinely invest their tax dollars, Pennsylvania districts have consolidated their revenues in order to negotiate top interest rates. Some states, Virginia among them, do not allow school districts to make their own investment decisions, but the idea of a pool is beginning to catch on. Michigan and Illinois are working with E.F. Hutton to set up an investment fund early in 1984. Comments James Betchkal, associate director of the Washington-based National School Boards Association, which is helping to organize the plan: "A lot of school districts are money poor, but very few are short of ready cash. We're finding that even if you have that cash for 24 hours, you can do something with it." Illinois already runs an investment pool for its local governmental agencies, including 200 school districts. "School treasurers often are able to earn enough in interest to pay the salaries of one or more teachers," says Burnell Heinecke, special assistant to the Illinois state treasurer.

Pennsylvania would agree. Since 1982 its fund has grown from seven of its 501 school districts, with pooled assets of $2 millon, to 140 districts, with $115 million invested as of this fall. The big winners from the pooling of funds are the smaller districts. Notes Norman Weinheimer, executive director of the Michigan School Board Association: "You don't get much interest from a $15,000 investment by itself, but pooled it draws higher interest."

One such small district is Waynesboro, Pa. By investing $2.6 million of this year's $12.6 million budget in the fund, Waynesboro School District Business Manager Wallace Jones expects to increase interest earnings by 20%, to $200,000, which may be used to buy equipment, such as computers, and reduce property taxes. Says Jones: "Anything you can do to lessen the burden on the taxpayer is very important."