City officials made a financial move Tuesday night that they said will greatly help the Troy Board of Education without the city having to allocate any money from the city budget.

The council unanimously approved to guarantee annual payments on a $2 million line of credit to the Troy Board of Education from Regions Bank.

Rush Rice, financial adviser for the city, said that the city is not actually guaranteeing the $2 million itself, but the annual payments and interests on that line of credit.

“This is a standby guarantee of line of credit that Regions Bank has offered them,” Rice said. “The city will have about $150,000 added to its debt burden – this will be a footnote in financials and even then not until 2021.”

The decision comes after the Troy Board of Education budgeted in October for a shortfall of $365,000 in the current fiscal year. The board also used a short-term line of credit for the month of October in the last fiscal year.

Rice said there will be a three year draw period and a 15-year period of repayment.

“This allows the school to have a line of credit at a very low interest rate,” Rice said.

The board of education itself has little borrowing power, Rice explained, but by getting the city’s guarantee has access to much better deals.

“The practical reality is that the school board has nowhere near the credit name as the city,” Rice said. “Very few school systems do, if any. The only other choice they would have is to go into an absolutely junk market at a very high interest rate. There’s nothing that says the City has to do this, but it’s probably the only way the system can get this done.

Mayor Jason Reeves said this move will give the board time to get into a better financial situation moving forward.

“This gets them an opportunity to get back on track,” Reeves said. “This provides a bridge to get to that point through these next three years, to possibly see some positive increases on things not related to enrollment, such as educational property taxes and things of that nature. When the board came to us with this, we were thinking ‘How can the city help without having a negative impact?’ With this, I think we have a path forward.”

Rice said the school system got into a bad financial situation and needs to take this opportunity to get on more stable ground financially.

“They get whip-sawed and had to refinance twice to kick the principal payments down the road,” Rice said. “Now that isn’t an option and they’ve also been hit with declining enrollment. This is not a situation unique to Troy City Schools. This is fairly common. Most of Alabama’s school systems are struggling.”

Rice said an opportunity will present itself in this three-year span for the board to restructure its debt and provide itself “breathing room.”

“The entire indebtedness has to be restructured so that big chunks are not going to become due like this,” Rice said. “We’ve got to get the schools into a process of retiring debt.”

Reeves said a report by the Business Education Alliance of Alabama expected later this year should also help provide insight that will direct the school system to find more sure footing.

The important thing, Reeves said, is that the move comes at no impact to the city and great relief for the school board.

Rice said the board’s first plan for a line of credit could have potentially harmed the city’s debt rating.

“We jumped in and restructured the whole thing,” Rice said. “This has a long way to go before it ever has any affect on the City of Troy. What we’re doing won’t affect the city’s debt rating at all, even in the worst case.”