A common practice for government entities, particularly schools, is to issue short-term (promissory) notes to cover daily expenditures until revenues are received from tax collection, lottery funds, and other sources. School boards approve the note issuances, with repayments of principal and interest typically met within a few months. The goal is to fully cover all expenses until revenues are distributed from the state. However, revenues distributed fluctuate due to changes in collection expectations, and schools may not be able to cover their expenditures in the current period. This leads to a dilemma—whether or not to issue more short-term notes to cover the deficit. Short-term debt may be preferred over long-term debt when the entity does not want to devote resources to pay interest over an extended period of time. In many cases, the interest rate is lower than long-term debt, because the loan is considered less risky with the shorter payback period. This shorter payback period is also beneficial with amortization expenses; short-term debt typically does not amortize, unlike long-term debt. Based on this information, compose a paper that addresses the following:
- What would you do if you found your school in this situation?
- Would you issue more debt? Explain.
- Are there alternatives? Explain.
- What are some positives and negatives to the promissory note practice?
- Please explain at least two positives and at Least two negatives.
You will be assessed on:
- your explanation of what you would do
- your explanation of whether or not you would issue more debt
- your explanation of whether or not there are alternatives
- your explanation of (at least) two positives and two negatives to the promissory note practice
- organization and style of the essay (including APA formatting)
Compose your paper using Microsoft Word or a Word compatible word processor (LibreOffice, Google Docs, etc.). Your paper must be 2 to 3 pages in length using 12 point, Times New Roman font, and include an introduction, body, and conclusion. You must also cite sources using APA format.
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