Elmbrook School District will borrow from the city of Brookfield again this year, allowing the district to cover its short-term budget needs while each governmental entity skirts unfavorable market conditions.
The arrangement allows Elmbrook to borrow money as needed, and at a lower interest rate than those afforded by other options, said Keith Brightman, district assistant superintendent for finance and operations. At the same time, the deal will pay Brookfield more interest than it currently can get through other investments.
"This year, just like last year, is an unprecedented rate environment," Brightman said.
The loan is made possible by a seldom-used statutory ability that allows lending between governmental units. Elmbrook and Brookfield made the same move last year.
School Board member Tom Gehl acknowledged that the loan is unusual, but said it benefits all involved parties.
"There's a lot of questions about this, and legitimately so," Gehl said. "But I think it's one that works both figuratively and financially well for the city and the district."
"And for the taxpayer," added board member Glen Allgaier.
Many school districts use short-term borrowing to cover operating expenses until mid-January, when property tax revenue arrives. Elmbrook will borrow $13.9 million from Brookfield at a 0.58 percent interest rate from November through January. The total interest cost will be just less than $15,000, saving Elmbrook about $7,300 compared to other borrowing options, Brightman said.
"It's not huge dollars," Brightman said, "but the city makes a positive spread of about $4,500 off of the deal, over what they would be earning (on investments)."
Robert Scott, Brookfield director of finance, said the city is earning about 0.33 percent interest in the state's Local Government Investment Pool. Scott said he's surprised the market hasn't recovered since Brookfield lent to Elmbrook last November.
"A year ago at this time, I probably would have said this isn't something we would be doing annually," Scott said.
The loan will work like a line of credit, though the city is actually buying a security issued by the school district. Brightman said he expects Elmbrook will draw from Brookfield five or six times between Nov. 2 and mid-January.
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