DALLAS -- Stifel, Nicolaus & Co. last week completed a $16 million cash management program for 40 Oklahoma school districts amid federal investigations of similar financing arrangements in the past.
The financing was a small fraction of the amounts for the cash management programs from 1990 to 1992 that are being investigated by the Internal Revenue Service and the Securities and Exchange Commission.
For example, the $524 million program in 1990 involved 270 school districts, 14 vocational-technical institutes, and three counties.
"This is obviously a much smaller issue than it has been in past years," said Jim Fried, a senior vice president for Stifel. "But for those 40 districts that were able to meet the guidelines and participate, it will be an important advantage over using more expensive non-payable warrants ..."
Under the current program, Stifel placed tax-exempt tax anticipation notes with institutional investors to help school districts cover temporary cash shortfalls. The program was similar to past ones except that it was unrated and was smaller than the ones that have drawn demands for arbitrage rebate from the IRS.
The IRS has maintained that in the past some districts exaggerated budget deficits, and the agency has demanded millions of dollars in arbitrage rebates from several school districts. It continues to investigate other districts.
The investigations curtailed the number of participants this year and led to more stringent review standards by a state oversight agency and investors, industry sources said.
"A lot of the previous participants did not take part this year," said Oklahoma bond adviser Jim Joseph. "They were either scared off by the IRS inquiry or were told by their elected bodies not to take part. Some may have felt it was not worth the trouble or time it took them to do it."
Among those not participating this year are the Oklahoma City and Tulsa school districts, which are paying large arbitrage rebates.
Other factors also reduced participation. About 65 districts applied to participate, but about 25 were refused in the credit review or by the Commission on School and County Funds Management, which oversees the program, officials said.
This year, the commission applied a more stringent test on budget deficit calculations because historical figures on the agencies were available for the first time, Joseph said. Almost 10 applicants were rejected. In addition, the institutional investors that purchased the notes rejected some of the districts' requests. Because the deal was unrated, the districts were reviewed on a case-by-case basis.
"We are not going to make any comment about any individual school district," a Stifel spokesman said. "But a general characterization is that school districts failed to be included for one of two reasons -- either because of conflicts with IRS regulations or on the basis of credit review."
Some industry sources have questioned whether any district needs to borrow money through the program because state aid is paid 11 times a year. Joseph has said that the districts collect property taxes only two times a year and as a result can face shortages at times.
