Credit crunch hits local schools, governments

North Coast governments, schools and other public agencies are feeling the pinch of the nation's credit crisis as they search for loans to fund operations and make capital improvements.

Although President Bush on Friday signed into law the controversial $700 billion credit bailout bill, it was unclear when relief might filter down to local agencies.

Sonoma County has been forced to postpone issuance of $110 million in tax revenue anticipation notes -- used to finance ongoing operations -- because of lack of money normally available at low interest rates in the national credit markets.

"We are in the same situation as the state; we can't sell short-term notes because either the companies we normally borrow from are consolidated, or out of business or sitting on cash in case they need it," said Rod Dole, Sonoma County auditor/controller.

If the county is forced to borrow from the county treasury the $110 million it needs to operate over the next 13 months, it could cost an extra $1 million, Dole said.

"That would be a million we had counted on in interest earnings on the general fund and a million that isn't available for county services," Dole said.

Dole said he will report the dismal outlook on obtaining a favorable interest rate to county supervisors Tuesday and will propose opening negotiations with a bank or retirement system to lend the money.

In normal economic times, the county receives bids from five or six firms that lend money based on anticipated tax revenues at an interest rate of about 1.6 percent. If the county is forced to borrow from the treasury of the general fund, it would pay a 3 percent interest rate.

"Normally, we would pick the lowest of competitive bids, and the process would take 15 minutes," Dole said. "Right now, the market is frozen and there are no buyers out there for our notes."

Officials at Santa Rosa Junior College say the institution isn't facing any immediate cash-flow shortage now that the state budget has been signed.

However, Doug Roberts, vice president of business, said a watchful eye is being kept on whether the state of California will get locked out of the borrowing market and what that will mean for schools.

"If the financial institutions are unable to lend to large borrowers like the state of California, how are we going to get through this cash-flow situation?" Roberts said.

"Nobody has ever said or contemplated, what if there is not money to be borrowed?" he said. "We aren't worried, but it's just something that we haven't had to be watchful of in the past, but it's certainly going to be on our radar now."

Mendocino County government issued its tax anticipation note in July, so it wasn't facing the same problem as its southern counterparts. But officials were postponing payment of certain bills for the rest of the month until property taxes roll in.

Shari Schapmire, Mendocino County treasurer/tax collector, said the cash crunch means asking school districts and other agencies to delay such things as vacation payouts for employees. Payroll and vendors won't be affected, she said.

"So far we're fine, but anything that can be held off for about three weeks would be helpful," Schapmire said.

Fort Bragg Unified School District officials, however, said they will delay going out with a $7.3 million bond for building improvements.

Superintendent Donald Armstrong said bond brokers have encountered waning interest in the notes, effectively placing on hold plans to renovate portions of Fort Bragg High School.

Voters in June approved a $16 million bond issue for ongoing construction.

"We've been monitoring the market every couple of days," Armstrong said. "Since the credit crisis, the institutional buyers aren't out there. We're hoping some stabilization occurs."

Meanwhile, Petaluma city schools are again turning to low-interest revenue anticipation notes to maintain cash flow between the significant revenue periods in November and April.

The district's strong bond rating and significant cash reserves allow it to issue notes in a stingy market, said Steve Bolman, deputy superintendent.

"We get very good rates on that," he said. "That is for cash-flow purposes."

Staff Writers Paul Payne and Kerry Benefield contributed to this report. You can reach Staff Writer Bleys Rose at 521-5431 or bleys.rose@pressdemocrat.com.