Interfund borrowing for school foundation account.

12LSO-0204.L2

 

 

                                                         

FISCAL NOTE

 

This bill deletes the 6% interest rate currently charged to the School Foundation Program for borrowing money from the Common School Permanent Land Fund to cover cash flow needs. 

 

In FY2012 the School Foundation Program borrowed $155,000,000 for seven months at an interest rate of 6% and paid $4,175,000 in interest to the Common School Permanent Land Fund which flows into the Common School Permanent Land Income Account, which flows back into the School Foundation Account. Therefore this bill eliminates both the cost to the School Foundation Program and the interest revenue to the Common School Permanent Land Fund.

 

Although the potential for lost opportunity cost exists whenever funds must be kept liquid in short term investments for loaning purposes rather than being able to be invested in longer term securities, the potential for lost opportunity costs is much greater when funds are loaned at a zero percent interest rate because the fund would lose not only yield, but also the potential for higher total return.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepared by:   Alex Kean, LSO Phone: 777-7881

(Information provided by: Sharon Garland, Treasurer’s Office Phone: 777-7475)