federal bailout, Olmsted Falls school district bailout, Cleveland school district bailout

School District to Bailout: We Want In

December 03, 2008 04:28 PM
by Anne Szustek
A financially struggling suburban Cleveland school district has joined the queue of companies and local governments asking for funds from the $700 billion TARP.

Olmsted Falls Asks for Bailout Money

Todd Hoadley, the superintendent of the Olmsted Falls, Ohio, school district, has applied for $100 million in federal funds from the Troubled Assets Relief Program (TARP) Capital Purchase Program, better known as the $700 billion U.S. government bailout program, on the grounds that if cities and car manufacturers can ask for a cut of the money originally meant for struggling financial institutions, so can the cash-crunched school system.

“I feel a moral obligation to our taxpayers to make this attempt. This is a legitimate request,” Hoadley was quoted as saying by the Associated Press. “I’ll be frankly disappointed if something positive doesn’t come out of this.”

So far, the Federal Reserve Bank of Cleveland has rejected the request outright. Hoadley remains undeterred nonetheless, and is working to get other school districts in dire financial straits to join his cause, as well as applying for help from Ohio Democrats Rep. Dennis Kucinich and Sen. Sherrod Brown.
Funding for construction projects would take up half of the proposed $100 million. The remaining $50 million would go toward unfunded federal mandates, special education and measures to fulfill No Child Left Behind regulations.

“The federal funding is supposed to be an economic stimulus package. We’re in the middle of one construction program and designing a second. ... We would love to obtain some funding to put tradesmen to work to stimulate our economy and solve overcrowding in our district,” said Hoadley, who maintains that the construction projects would generate hundreds of jobs, according to The (Cleveland) Plain Dealer.

The district is wrestling with heavy overcrowding in light of its steep increases in enrollment—29 percent over the last decade—as well as an estimated $2.6 million deficit by June 2010, $8.7 million deficit in fiscal year 2011 and nearly doubling by 2012 to $15.8 million. Last month voters rejected two tax hikes that would have gone toward Olmsted Falls schools: a $500,000 school income tax levy and a $4.9 million property tax.

Background: States, cities, automakers want TARP to cover them

Facing budget shortfalls, some states have gone to Washington for help, according to The Washington Post. The National Governors Association sent a letter to Congress “asking for immediate action to aid states.” The Center on Budget Policy and Priorities last week released a report saying that “states are facing ‘a great fiscal crisis’ and their revenue projections are only weakening,” said findingDulcinea, citing a McClatchy report from mid-November. Only nine states—Indiana, Texas, Wyoming, Alaska, North Dakota, Nebraska, South Dakota, West Virginia and Montana—aren’t facing budget shortfalls in the next two years, the report said.

Cities are also struggling: Philadelphia, Atlanta and Phoenix have reportedly asked for a share of the federal bailout bill, or TARP, as have the Big Three automakers. While shifting the focus of the TARP from buying up its namesake troubled mortgage assets, Paulson has remained resolute that the money goes towards financial institutions.

The first $250 billion was guaranteed under the original bailout bill. The next $100 billion was requested by President George W. Bush. The Treasury is putting a large chunk of that $100 billion toward the purchase of $40 billion of preferred stock of flailing insurer AIG.

The Treasury Department has allocated $250 billion of the $700 billion of the bailout to buy up shares of troubled banks. Half of that $250 billion, called the Capital Purchase Program, has been taken up by eight major U.S. banks. Forty-four other banks are queuing up for another $47 billion of that money. And possibly hundreds of smaller banks will be seeking the remaining $78 billion.

As for the remaining $350 billion in the $700 billion TARP, Paulson announced Nov. 12 that it will now go toward freeing up the consumer credit market.

Related Topic: Suburban Milwaukee School District Buys into Toxic Debt

Olmsted Falls is hardly the only U.S. school district that’s struggling financially.

Some two years ago, the public schools of Whitefish Bay, Wis., an affluent suburb of Milwaukee, pondered how to keep the district’s teachers’ retirement plan in the black. That school system and four others in the area spent $35 million and borrowed an additional $165 million from Irish bank Depfa to buy up synthetic collateralized debt obligations ( synthetic CDOs).

These debt packages turned out to have toxic debt, however and the money the Whitefish Bay School District put up is now going toward covering that debt rather than into the district’s coffers.

Most Recent Beyond The Headlines