The Winnipeg School Division paid hundreds of thousands of dollars in interest last year on money it has borrowed to maintain its schools.

The city's largest school division paid $520,500 interest in 2012 on loans it has secured from banks and credit unions to pay for capital projects that are not funded by the Manitoba government.

Rita Hildahl, who chairs the board of trustees, told CBC News the division routinely takes out loans to finance projects on its own, such as basic maintenance and technology upgrades.

"I'm always worried about the money that we spend. We want to be fiscally prudent," Hildahl told CBC News on Monday.

"We want to be careful, but we also have a lot of unfunded projects that need to be done."

The amount of interest paid last year is a new high for the division, which usually pays between $120,000 and $400,000 in annual interest on unfunded projects.

Hildahl said the interest is paid down in part from the school division's reserve fund.

However, that reserve is running low: it should account for about one to four per cent of the division's budget, but it's currently at around 1.5 per cent.

The provincial government does fund some capital projects, such as renovations and new buildings, through its Public Schools Finance Board.

Property tax hike a possibility

The high interest payments come as public schools across the province grapple with a provincial funding increase of $27.2 million, or just 2.3 per cent.

Winnipeg School Division trustee Mike Babinsky said the insufficient funding is pushing school divisions into the red.

"We can't go and borrow the world, because we are going to leave debts," he said.

"The more and more you borrow, after a while, people think it's OK — let's borrow some more!" he added.

Babinsky warned that the Winnipeg School Division is considering a property tax increase at around eight per cent this year, similar to the 7.8 per cent increase that was approved last year.

Hildahl said the division has a number of options on the table, but she stressed that officials are doing what their best to keep taxes low for ratepayers.

The Winnipeg School Division did not raise taxes between 2006 and 2011.

With files from the CBC's Leslie McLaren