A Michigan Department of Treasury Security Report, received by the Department's Local Audit & Finance Division on August 20, 2018, reveals a $1,360,000 State Aid Note loan was issued by the Grand Traverse Academy. The documents, a Security Report and the accompanying legal opinion, were acquired from the Treasury by a Freedom of Information Act request.
Underwritten by PNC Bank, the new loan has a lower interest rate, dropping from 4.75% in 2017 to 3.42% in the current loan.
However, the new loan again requires a State Aid intercept, a strict provision that diverts $65,000 dollars a month (plus interest) between October 2018-July 2019 and transmits it directly to bondholders for debt-service payments — funding that cannot later be redirected to any other budget line item.
In addition, the new loan has a $734,338 balloon payment due at the end of the term on August 20, 2019.
In 2017, the Grand Traverse Academy board refinanced $2.3 million in short-term debt it owed to Traverse City State Bank with an agreement that included a stunning provision requiring the interception of nearly $895,000 of school aid funds away from the Grand Traverse Academy during the 2017/2018 school year.
The $2.3 million debt to Traverse City State Bank was not a “decade-old debt”, as the Record-Eagle continues to insist, most recently in a September 18, 2018 piece titled “GTA refinances balloon payment”.
It is instead another brick in the wall—part of the Grand Traverse Academy's ten-year cycle of short-term borrowing, and retiring debt with subsequent borrowing.
Beginning with the fiscal year ending June 30, 2009, the Grand Traverse Academy's former manager, convicted felon and current resident of Duluth FPC, Steven Ingersoll, began to borrow massive sums through state aid note loans on behalf of the school, spurred by the impact his embezzlement was beginning to have on the Academy's throttled cash flow.
Ingersoll established a pernicious pattern the board remains locked into today: an addictive reliance on balloon payments, refinancing and new notes every year.
For example, the Academy had two short-term notes payable at the end of the fiscal year ending June 30, 2009 totaling $3.2 million dollars.
At the end of June 2009, there was still $2,000,000 yet to be paid.
By the end of the fiscal year ending June 30, 2011, the Academy had two short-term notes totaling $5,587,294 (with a $5,537,219 principal and $50,076 accrued interest).
Starting in May of 2011, the State of Michigan began taking payments for a $2.0 million State Aid Anticipation Note with the Michigan Finance Authority directly out of state aid payments prior to distributing the remaining funds through Lake Superior State University and Wells Fargo.
Although the Academy paid off a remaining $600,000 balance to the Traverse City State Bank and $3,400,000 due to charter school finance company Robert W. Baird & Co., the Academy borrowed an additional $6,400,000 in State Aid Anticipation Notes during the year from the Michigan Finance Authority, leaving the Academy with an ending balance of $5,537,218 at June 30, 2011 — nearly identical to the amount it owed at the beginning of that year.
In the fiscal year ending June 30, 2012, the Academy began the year with a short-term debt balance of $5,537,218. The Academy paid off two remaining notes from the previous fiscal year with a new short-term note for $4,600,000 million in August 2011.
The balance at the end of June 30, 2012 was $4,208,719.
Between 2007 and 2014, the Grand Traverse Academy's board of directors enabled and covered up Steven Ingersoll's siphoning of millions from the Traverse City charter school, hastening its descent into a nearly untenable financial position.
But this dire financial situation did not sneak up on the Grand Traverse Academy's board of directors, it was created by their actions.
It was further exacerbated by the board's decision in 2014 not to seek recovery of millions of dollars looted from Ingersoll, instead writing it off to “bad debt”.
It's like the guy who goes to his bank and says he just wants to borrow enough money to get out of debt.
Instead of a pattern of subsequent borrowing to pay off the previous year's obligations, the school should have been building cash reserves instead of relying on larger and larger loans.
In its September 19, 2018 story, the Record-Eagle quoted Steve Peacock, who manages the Grand Traverse Academy's finances as part Rehmann, putting a positive spin on the spinning debt cycle.
“It's just a continued process in payoff of the obligations the school borrowed several years ago,” Peacock said. “It's been our intention all along to get this paid as quickly as we could. Working with the Michigan Finance Authority has been very helpful for the academy in getting this accomplished.”
Wonder what he'll say next year after the third re-fi?
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