PFM tells Iowa City schools board cash flow improved; recommends delaying insurance repayment and using internal loan to cover SAVE payment

Susanne Gerlach, a municipal advisor from PFM, told the Iowa City Community School District Board of Directors on April 28 that updated reconciliations and higher-than-expected receipts have narrowed the district's near-term cash shortfall and created a path that could avoid large external borrowing this fiscal year.

Gerlach said staff completed more detailed reconciliations and that PFM's April 1 'worst-case' projection had shifted after new information. "There is a solution on the table where there would be no warrants needed by June 30th," she said, describing a net positive variance in FY'26 performance that increased confidence in the general fund cash balance.

The immediate deadline is a June 1 principal-and-interest payment tied to SAVE. Gerlach presented two options: Option 1 would fund a $7.32 million interfund loan from the general fund to SAVE to meet the June payment and delay repaying a separate insurance interfund loan until after June 30. Option 2 would repay the insurance loan before June 30, which PFM said would lower the district's cash cushion and likely require seeking a smaller anticipatory warrant of roughly $5'$10 million (PFM's working scenario used $7 million as an illustrative midpoint).

Gerlach said Option 1 produces a higher June 30 cash balance (projected at about $21.36 million under the scenario she labeled Option 1, roughly 35 days cash on hand), and recommended the board direct staff to prepare the interfund loan resolution for consideration. "Time is working in our favor," she said, noting an expected FY'24 draft audit and progress on reconciliations as reasons lenders had been more cautious earlier in April.

Chief Operating Officer Curt Pratt and other staff provided detail about the revenue/expenditure variances behind the positive adjustment, citing later-than-expected federal and state categorical payments, an income surtax payment and improved grant receipts that together produced several large monthly variances. Curt Pratt said $637,000 in additional categorical revenue arrived in January and a roughly $1.8 million income surtax payment arrived in February, among other receipts.

Board members pressed PFM and staff for specifics: which revenue items were one-time versus ongoing, whether the ESC property-sale proceeds had been counted (Pratt said property sale proceeds would show up under miscellaneous income and can increase spending authority), and what the audit timeline looked like. Interim CFO Kim Michael-Lee said the FY'24 draft report should be available by May 15 and FY'25 field work was planned for August.

On the particulars of the SAVE interfund loan, Gerlach said she was comfortable the district could internally fund the SAVE payment by mid-to-late May and recommended preparing a resolution authorizing that internal transfer, but noted the board must decide how aggressively it wants to repay other interfund obligations before June 30. "If you choose the option to repay the insurance interfund loan before June 30, you'll likely need a smaller warrant," she said; "if you hold repayment until after June 30, you preserve a stronger June 30 cash position."

Gerlach said she would return May 12 with updated cash-flow scenarios, including three versions of FY'26 and a revised FY'27 outlook to support a board decision. The board did not vote on an interfund loan or issue warrants at the April 28 meeting but asked staff to draft and be prepared to consider the interfund loan resolution on May 12.

What happens next: PFM will provide a revised packet and three cash-flow scenarios at the May 12 meeting; staff said the board will be asked on May 12 whether to authorize the general-fund-to-SAVE interfund loan to cover the June 1 payment or to move forward with an alternative borrowing plan.