Notes from TESD Finance Committee Meeting – Do we borrow $18 million or $24 million to pay for District capital projects?

I attended the first 2015 meeting of the TE School District’s Finance Committee this week that focused primarily on the preliminary 2015-16 budget.  According to the District’s capital sources and uses report, there is a projected capital need of $24 million over the next five years.  The Finance Committee discussed options to fund these planned facilities projects … either to borrow $18 million or $24 million. Citing the District’s stellar credit rating and the historically low-interest rates, the committee members supported this borrowing approach to help pay for the new construction and needed renovations to existing buildings. However, because TESD currently has a $32 million fund balance, some in attendance at the meeting questioned adding debt in this way.

Another topic that received some discussion from audience members was Dr. Gusick’s proposal to add a couple of new director positions in the District. Gusick explained that Robin McDonnell, Director of Assessment and Instructional Technology for the District, will be retiring in June and thinks that the job requirements are such that they now require two people, a Director of Technology and a Director of Assessment. I don’t know that anyone would question Gusick about the need for the positions, but may question the suggested salaries — $160k/yr. for each position.

Ray Clarke also attended the Finance Committee meeting. Following the meeting, he emailed comments to the school board and sent me a copy for Community Matters.  Below is an excerpt from those remarks:

First, I would like to thank you for the presentations at last night’s Finance Committee meeting proposing to restructure the Administration team and to make a $18 to $24 million bond issue.  We are at the stage in the budget process where many worthy proposals are on the table.  Dr Gusick’s idea for qualified Directors of Technology and of Assessment is one of them, but the compensation gives pause: salaries of $160,000, plus 30% PSERS, plus $20,000 healthcare, plus ……?  Unfortunately, accepting all of them – even with the maximum 3.7% tax increase – leaves the District with an unsustainable deficit approaching $2 million.

This makes it all the more important for you to critically examine the one discretionary spending item that defies understanding – raising $18 million that the District does not need, and will cost taxpayers over $28 million to repay.  Further, you propose to eliminate the annual $300,000 savings from last Fall’s bond re-financing rather than giving taxpayers some offset to the otherwise continual expense increases.

The proposed financing is driven by a capital plan for the four years from 2015/16 to 2018/19 that calls for spending $30.7 million, while only $6.9 million will remain in the Capital Project Fund at the beginning of the year.  The assumption is that the $24 million gap has to be filled by 75% bond funding because “that’s the way we have always done it”.  However, we have not always had a General Fund Balance of $32 million earning negligible interest.

Instead of contriving financial schemes to defer interest on the new borrowing beyond the $300,000 of lost savings (and increase total borrowing costs), I believe that it is your fiduciary duty to present and analyze other options that show some fiscal restraint.

For example, a transfer of $16 million from the General Fund to the Capital Fund would take the District through 2017/18 and even through 2018/19 – if just $2 million of capital spending was deferred.  At that point the 2014 bonds are repaid and there is leeway for bond financing without a premium for a convoluted structure that defers interest and principal repayments.  You avoid the three quarter of a million dollar annual expense (loaded on future generations) for the unneeded 4% bond money sitting under the District mattress.  And there is still $16 million in the General Fund for contingencies that you can not tax for (contrary to the $10 million “committed” to PSERS, which you can and do raise taxes for).  There is already over $5 million “committed” to Capital Projects.

In the last five years, TESD taxes have risen at twice the rate of inflation and this is forecast to continue in the preliminary Budget.  Radnor is finding a way to limit next year’s tax increase to the State Index 1.9%.  There is great risk to the value proposition that brought many of us to Tredyffrin.  As taxes rise relative to our neighbors, the more likely that existing communities and new ones like Wayne Glen will be unaffordable to those without families, the more children will enter the school system and the worse your problem will get.

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  1. It’s the same scenario every 5 years. The continued borrowing (& spending) by the school board will insure that the taxes levied by the school district will be raised to the maximum allowable limits of Act 1 for at least the next 5 years. When will Tredyffrin & Easttown taxpayers finally wake to this reality?

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    Brad Reply:

    What? The reality that they are living in a top ranked school district which constantly increases the value of their property. I’m sure people would be more than willing to take their place if they find it so unbearable.

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  2. Thanks Ray. And Pattye too for attending the finance committee meeting and for this snazzy new site.

    I attended the first Finance Committee meeting too. It was my first ever. I attended Public Information committee meetings in the past and was very disappointed to learn that the new President has a different vision and will convene the committee on an as needed basis only. I e-mailed Scott Dorsey, to thank him for following through on his promise to create one, dusted myself off and turned my attention to finance. I’m glad I did.

    I’m going to need time to absorb the information and ramp up but here are a few of my impressions. When explaining to Ray about the $18M loan, I too was confused when Virgnia Lastner, Committee Chair, said the fund balance could not be considered because it is used to consider healthcare and PSSer’s pay outs. We have raised taxes for that year after year and the fund sits there untouched. I understand that $10M was moved to the capital account or the general fund would have a $42M balance. So is this how the Capital account gets funded?, every now and then they transfer $10M to it, and then take out loans for $18M, because interest rates are low, and we have a good credit rating because we’ve increased taxes 35% over the last 10 years which is how we really pay for everything, because that’s the way we’ve always done it?

    Since I’m new, I’m going to start at the very beginning, a very good place to start. The agenda packet is 70 pages in total. The TESD check register starts on page 34 of the 70 page packet and lists checks written from 12/1/14 to 12/31/14. They are listed by transaction amount, highest to lowest so check numbers are jumbled. The bus co. Krapf and sons was paid $547,078.84 in Dec. The Delta-T Group (outsourcing) was issued a check for $111,206.31 in Dec. (I expect to see this number continue to rise), Dell Marketing was in the top 5, as was US Food Service. Coming in at #6 was the Educational Records Bureau at $48,260.00. If this is the only payout to them then thanks to Dr. Waters. I asked him in an ISC meeting how much we pay to this testing service for testing that is not mandatory like the Keystone exams or the PSSA’s and he said the cost was $60,000. Other entrys that caught my eye were the two payouts to DALY + JABOOT ARCHITECTS, INC. Check number 100938 for $34,317.26 and check number 101043 for $16,279.04. That’s close to $51,000 to the architect firm for the month of December!

    I then turned my attention to Capital Sources to see what we’re doing with the loan money and to check and see what work the Architect does for a $51,000 monthly paycheck. In 2015-2016, it looks like we’re projecting to spend $1,588,500, and then $1,588,500 again in 2016-2017 for a maintenance storage buiding for a total cost of $3,177,000. There is a $7,240,0500, (the total Projected cost numbers are cut off on the agenda, page 52 for Capital Sources), so I’m adding the two zero’s onto the 05, for line item number 4 under USES which states, Architect, District Costs and Contingencies. I have no comment on these numbers yet, because I have no frame of reference yet.

    In closing, I think that financial decisions of this magnitude should warrant more than a 1 hour discussion, 1 night a month for only 4 months. 4 hours is not enough time for the School Board to listen to what the community wants for the operations of the TE schools. This is a 120M dollar budget funded mostly by tax payers. Committee Chair, Virginia Lastner was the only Board Member to ask a minimal number of questions to employees about proposed costs in the 1 hour time frame.

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    Shining Light Reply:

    I posted the above comment in January of 2015.

    “They are listed by transaction amount, highest to lowest so check numbers are jumbled.”

    When looking at a check register arranged by amount from highest to lowest, the check numbers are jumbled making it impossible to understand sequencing. Statements from banks are very clear on this. Checks are listed in numerical order. Gaps are identified.

    Now it’s been made harder by a switch to reporting the check register by pay period in alphabetical order. I have noticed over the years that when citizens or teachers express an opinion, especially ones that run counter to the Administration, their response is to do it more.

    This serves more than one purpose. It says:

    We don’t care what you think.
    If you keep talking about it we’ll do it more.
    We won’t be held accountable.

    So was this Art’s decision? Did he consult with Rich and all the “Supt.’s men?” Did the Board know they switched it, and made it even more confusing. Do they care?

    Pattye, I disagree when you say:

    I don’t think that the public needs to know the purpose behind every check but …

    If the public wants to know the purpose behind every single check, the public should have easy and swift access to the information. The checks should be listed in numerical order.

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    Pattye Reply:

    Oh, its not that I don’t think that the public has the ‘right’ to know the purpose behind every check — I was just trying to make it ‘easier’ on the administrators. Just thinking that if the Board dictated policy on a certain threshold of expenditures, the public would at least have a sense of exactly where the ‘big checks’ were going each month and why.

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  3. Do I understand that there is a 32 megabuck surplus and we’re still facing tax increases??

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    Pattye Reply:

    Yes, TE’s fund balance is $32 million — one of the largest fund balances in the state, if not the largest.

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  4. Just looking at a few school district in our area…

    Lower Merion has10 schools and 8,000 public school students, a $235 million annual budget, $270 million in indebtedness and a $51.5 million fund balance

    Downingtown Area School District has 12,000 students in 16 schools. Their 2014-15 budget is $201,335,000, with indebtedness of $175 million, and a fund balance of $48 million.

    West Chester Area School District has 16 schools and 12,000 students, a
    $219.2 million budget, and total indebtedness of $259 million.
    Their fund balance is $24 million.

    Radnor, with 3,658 public school students, has 5 schools. Its 2014-15 budget is $86 million, with total indebtedness of $97 million. They have a $19.7 million fund balance.

    Upper Merion has 4,000 students and 6 schools. Their 2014-15 budget is $85 million, their indebtedness is $59 million, and their fund balance is about $14 million.

    Unionville-Chadds Ford School District has about 4,000 students in six schools and a 2014-15 budget of $77 million. They have a fund balance of $6.7 million.( I could not find a complete budget on their website, so don’t know their total debt.)

    By comparison, TESD, with 6,600 students in 8 schools, has a 2014-15 budget of $120 million, total indebtedness of $56 million, and a fund balance of $31.6 million plus a capital reserve of $11.6 million. Low debt. Relatively low spending per student. Most of our fund balance is allocated to pay future PSERS obligations that exceed the District’s taxing authority for years to come. Districts with low reserves will have few options beside making cuts.

    I believe the District’s financial stability and the maintenance of educational quality are the basis for our community’s attractiveness. They protect property values. Meanwhile per student spending is among the lowest and T/E’s debt lower than other area school districts.

    I don’t like to pay higher property taxes. Who does? But I see the increases as investments, not dollars down the drain.

    The question I have for the proposed capital spending driving the bond debt proposals is the same as for all District spending: is it necessary and are taxpayers getting value for it? How can we know? We are left to depend on school board members to be our fiscal watchdogs. And residents who do their homework and ask the right questions.

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    Ray Clarke Reply:

    It’s always good to have benchmarks, but there is a danger that they are used to justify a migration towards an increasing mean (see teacher salary matrix comparisons). TE’s spending is proposed to continue unabated while Districts like Downingtown repay large chunks of debt and save interest costs. Competitors like Radnor and others hold the line on tax increases and manage expenses to that revenue. The closer that TE’s millage gets to Radnor’s, the less our competitive advantage and the greater the threat to our property values.

    And to be quite clear, future PSERS obligations do not “exceed the District’s taxing authority for years to come”. The PSERS expense – which the District has built into the expense base and can, and has been, raising taxes for – will level off in a couple of years, albeit at a rate around 30%. That $10+ million “committed” in the Fund Balance is derived simply as a plug, and in any event is barely one year of the net expense.

    I hope that there is more discussion here, at Committee meetings, Budget Workshops and directly with Board members. It is important that the Board gets a good sense of the perspective of all its constituents and voters before rushing to incur a $28 million liability by borrowing $18 million that it does not need.

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  5. My husband & I recently sold our home in TE and moved to another, much less expensive in TE for several reasons. However two did influence the decision and that was the amount of school taxes that we paid and the seeming constant increase in these taxes.

    And although our home sold quickly it did not sell for the amount that we hoped.

    I’d also like to note that we came from Ohio where every renewal or increase was voted on by the voters of that school district. It made for interesting voting days.

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  6. When talking to citizens, tax payers and parents at parties, meetings and school functions, I am met with blank stares when people tell me they have no idea what I am talking about when the subject of PSERS is mentioned so I’m going to start at the very beginning. I have found when folks don’t know what you’re talking about, they turn you off and stop listening.

    PSERS: The Public School Retirement System is facing $35B in pension debt. The numbers vary from district to district but school districts will be responsible for paying half of the total cost each year. The state employee retirement system is facing a $15B pension debt.

    Without structural changes to how PSERS and SERS accounting operates and how the state funds the pension systems, both are in danger of becoming insolvent over the long-term, regardless of how strong their investment returns might be, said Rick Dreyfuss, a retired actuary who studies pension issues for the Manhattan Institute, a conservative think tank.

    Most of the debate over pensions in Pennsylvania has focused on giving reduced benefit structures to future employees, but that doesn’t address the far-more-serious problem of the current debt in the system, Dreyfuss warned.

    Three credit rating agencies have downgraded Pennsylvania within the past year, largely because of the state’s underfunded pension plans and the state government’s Act 10 rules that continue to shortchange the pension plans year-after-year.

    Gov.-elect Tom Wolf, who takes office next week, said during the campaign he would favor borrowing heavily to help the state meet its pension obligations to current workers and retirees.

    Wolf is likely to find some support among Republican lawmakers for that approach, if he decides to push for it, but so-called “pension obligation bonds” have a questionable track record of success.

    “As a pension fund seeking to generate returns above cash, we do take a certain amount of risk and when risk doesn’t pay off, returns will suffer,” Grossman said.

    *T/E Parent,

    I go to school meetings, committee meetings and PTO meetings. I don’t recall talking to anyone with your views or in depth knowledge about school issues. I would enjoy talking to a fellow parent about these topics. Please feel free to get my e-mail from Pattye, and if you give permission to release yours, I would like to e-mail you to discuss these important topics facing our community. Thanks.

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