Act 1

T/E School District’s $1.3 Million Accounting Error/Act 1 Violation discussion continues – Taxpayers facing large tax increase with less than 30 days until School Board’s final vote!

In addition to other residents, I attended the T/E School Board Finance Committee meeting last night. The meeting lasted nearly three hours but we stayed; hopeful for resolution on the District’s $1.3 million Act 1 accounting error and its impact on the proposed 6% tax increase. Sadly, the evening ended no closer to a solution than when it began.

With less than 30 days before the Board must take a vote on the final budget, much of the meeting was spent discussing budget strategies to reduce the District’s spending and increase revenue. Possible budget strategies ranged from increasing student parking and activity fees to delaying the new reading program.  All the discussion about cost-cutting measures was a bit like getting the cart before the horse since the large “elephant in the room” was the $1.3 million accounting error and its impact on the current budget process and the proposed tax increase.

Residents who had attended the finance committee meeting in April (including myself) expected answers from the auditor. School board member Tina Whitlow had asked Art McDonnell, the District’s business manager to have the auditor attend last night’s meeting but (according to McDonnell) he was not available. Actually the absence of the auditor was no surprise; as his responses to taxpayer questions would probably not have bolstered the business manager’s position on the District’s serious accounting mistake.

The most disturbing part of the meeting was the response by Todd Kantorczyk, the finance committee chair, to residents Doug Anestad and Mike Heaberg regarding the District’s erroneous accounting of $1.3 million Special Ed invoices to the Pennsylvania State Board of Education.

Both Doug and Mike cited the “Manual of Accounting and Financial Reporting for Pennsylvania Local Educational Agencies (LEAs)”, Principle 9 – Measurement Focus and Basis of Accounting in the Basic Financial Statements (pg. 15), which states, in part that “Revenues should be recognized in the accounting period in which they become available and measurable. Expenditures should be recognized in the accounting period in which the fund liability is incurred …” (Clearly, this means that the $1.3 million Special Ed invoices need to be accurately reported in the year in which the expenses occurred.)

Kantorczyk dismissed the state’s accounting practices as referenced by Doug and Mike, as if to suggest that somehow the T/E School District was exempt from these regulations!  A remarkable moment – he remained unmoved by the follow-up comments questioning the Board’s actual taxing authority, possible Act 1 violation, the prospect of legal action and pleas to “just do the right thing”.

The evening ended with a discussion by Board members about the proposed tax increase which; to be clear, is still 6%.  Certain Board members stated that they needed counsel by the District solicitor Ken Roos, regarding the accounting error and possible legal ramifications, before finalizing their thoughts on the proposed budget. Finance committee member Kate Murphy was particularly thoughtful; sharing her concerns and need for further information. Likewise, Heather Ward, also a member of the finance committee, shared those concerns.

Resident Neal Colligan attended the meeting and offers his notes on the Board members ideas regarding the final tax increase:

  • Todd Kantorczyk indicated that he was comfortable with the District’s taxing authority at 6% but did not want to see the entire amount imposed in one year; he did not offer another number but seemed inclined to a tax increase short of 5%.

  • Michelle Burger wanted to sleep on the discussion points but was quick to point out that “she heard what the community said in their comments”.

  • Kate Murphy acknowledged that there’s “too much noise” surrounding the Special Education Exception. She can only, at this point support a 2.32% tax increase (Act 1 allowance and the Special Exception for PSERS cost increases).  In the sanest approach of the evening (my opinion); she related that if she can’t explain it to the constituents she meets at the Acme; she’s not voting for it.

  • Heather Ward echoed those thoughts and again asked for a meeting with the District’s auditor (that Tina Whitlow requested a month ago). She seemed willing to possibly accept a 3.91% tax increase…maybe (this would be the full taxing authority of the District IF they had submitted correct Special Education spending amounts to the Department of Education).

  • Tina Whitlow again raised questions of the District’s taxing authority particularly related to the Special Education Exception and again mentioned in her comments a 3.91% possible tax increase.

  • Roberta Hotinski is in favor of a 4.72% tax increase; this number would include the 3.91% mentioned above AND .81% increase derived from a calculation of what Last Year’s Special Education exception would have been if the numbers submitted to the State were correct.

  • Scott Dorsey, ever the Board Member balancing the fairness of a tax increase vs. the needs of the schools, favors an increase of 3.91%…his position has not changed in some time.

  • Ed Sweeney leans towards the 2.3-2.5% tax increase range. He did point out that the Budget process is in dire need of change as only now, with a month to go, are we “getting into the brass tacks”.  He also mentioned that a Board needs to trust the numbers it is given when considering a budget … it is clear he has doubts.

  • Kyle Boyer was the last to weigh in … his support level is around the 3.91% range but may be convinced to go a little higher. He mentioned that he keeps a District tax increase chart on his phone and that in 2008 the District raised taxes at the highest level in the last 15 years … and he’d like to stay below that 4.3% figure.

The Top Answer to tax increase percentage was 3.91%.  At this level; the potential Final Budget would have an imbalance of a $2.662 MM of deficit that will need to be filled by Fund Balance Commitment.  No Budget Strategies have been offered that could fill that imbalance.  Board Members left the “hard analysis” behind and expressed their “feel” for the correct tax increase. The normal Budget process which could have looked delved into the need for a 5.5% spending increase OR at why the District habitually under-states revenues and over-states expenses in the Budget process has been hijacked by the Accounting Timing Error fiasco.  On this point, Ed Sweeney is clearly correct.  With a month to go … it’s going to be a bumpy ride.

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St. Davids Golf Club, Burned-out Light Bulbs & TE School District Finances!

I attended last night’ Board of Supervisors meeting and my friend, Ray Clarke attended the T/E School District’s Finance Meeting.  Following my update on the supervisors meeting, please read Ray’s comments.

The agenda for last night’s supervisors meeting went quickly and there was no ‘new matters’ from board members.  I was prepared for ‘new matters’ from citizens with two topics.  Based on the supervisors meeting of October 3, I asked Supervisor Olson (Bob Lamina and EJ Richter were absent) if St. Davids Golf Club had been contacted.  Olson deferred to Mimi Gleason who said yes, the club was contacted and said it was a positive conversation.  I asked about the timeline for response from the club re the sidewalks and her response was that there was no time limit.  In other words, I said the issue remains ‘open ended’ to which she responded yes.  Bottom line, it may have taken us 21 months to get to this point in time with St. Davids Golf Club, but apparently nothing is going to move forward anytime soon, in the way of enforcement, etc..  Was the only way to receive an update (status) on the sidewalks at St. Davids was to ask the same question at every Board of Supervisors meeting? I guess that is correct.

Second citizen matter from me last night was the burned out light bulb situation in the township.  Although I have focused on Chesterbrook and Duportail on Community Matters, I have noticed other area lights out (Old Eagle School Rd. as an example).  My questions produced some interesting facts:

  1. The township (residents) pays PECO per light post, regardless if there are electrical issues or if the lights are working or not.
  2. The township has a yearly maintenance contract with Lenni Electrical to change light bulbs.  Some have suggested that perhaps the township was trying to save money and maybe wasn’t calling the company for maintenance as a way to avoid service call expenses.  Well, I discovered that the township (residents) pays a flat fee regardless of how many (or how few) times they come out to change the light bulbs!
  3. The pink ribbons are placed by township staff to indicate to Lenni Electrical where light bulbs need replacement.  I noticed driving to the township building that there are pink ribbons on street lights that have working light bulbs and questioned why weren’t the ribbons removed when the light bulbs were changed?  Obvious, I would think.  According to Steve Burgo, township engineer, they know that this is a problem and are working with the contractor to get them to remove the pink ribbons.

Mimi cited ongoing electrical problems on Chesterbrook Boulevard as the cause for the non-working light bulbs. I suggested that the electrical problem with some of the Chesterbrook lights has existed for 27+ years.  The response from Mimi Gleason, was that they were working with PECO and that State Rep Warren Kampf had been called for assistance.

After leaving the township building, I decided to do a more scientific study of counting the burned-out light bulbs on Chesterbrook and Duportail Rds.  I drove down one side of Chesterbrook Blvd. to Valley Forge Road, turned around and drove back, counting as many of the burned-out light bulbs as I could find.  This 2-mile (or less) stretch of roads doesn’t have 19 burned-out light bulbs, there are 37 non-working street lights.

Am I the only one who has a problem with this? We are all taxpayers and our money is paying PECO for these lights and our money is paying Lenni Electrical change the light bulbs.  Where’s the accountability on this issue? I remain hopeful that at least one of our supervisors will take up the cause of township light bulbs.

Moving on to last night’s TE School District Finance Committee meeting.  While I was busy sorting through the burned-out light bulb situation, Ray Clarke was at the Finance Committee meeting.  He offers the following comments with his own editorial remarks.  As always, I am appreciative that Ray not only attends the school board meetings, but takes the time to detail his thoughts for Community Matters.  Thanks Ray!

The TESD Finance Committee meeting turned up a few points of interest on Monday night.

  1. The district’s 2010/11 financials got a nice boost from the decision to self-insure healthcare benefits coupled with better than projected claims experience. That turned out to be a $1.3 million favorable variance, which in turn generated a $0.9 million surplus for the year. So our Fund Balance, combined with an additional $0.5 million which under previous accounting rules was separate (I think), is (6/30/2011) now up to a munificent $31 million. (Note, I came in slightly late to this discussion, and there was no handout on this, so my numbers may not be precise)
  2. Also on the plus side, the Committee discussed what to do with the restoration of Corbett’s proposed cut to the state reimbursement of 50% of social security taxes, worth $1.3 million this year, which came in after TE’s 2011/12 budget was passed. The administration proposed ~$200K for postponed text-book buys and ~$300K mostly for technology spending. This generated a lot of debate, essentially asking the question: what is going to be the impact of, say, $60,000 for piloting applications for iPads, versus the current technology environment. To my mind this is the tip of a much bigger iceberg: how will we use technology spending to improve the analytic or creative skills of our students? If we need a pilot to answer that question, fine, but should we spend $60,000 for a pilot? It was agreed that this would be subject for future Board discussion.
  3. Important upcoming dates: November 3rd for the Tax Study Group’s presentation of the pros and cons of and EIT, and November 14thfor a special School Board meeting to consider notification of the intent to request a referendum on the April 24th ballot. Some important things (from my perspective) to bear in mind here:The official financial projection model is being modified to remove the assumption of a Act 1 index 1.7% property tax increase for 2012/13, so the base case is not both a property and an income tax. The base case gap for 2012/13 is currently $5.5 million. (It’s not clear that the model has been updated yet for the actual healthcare cost and fund balance outcomes.)
    1. The TSG’s approach is to present the features of an EIT independent of the alternatives; the Board (and potentially voters) will have to decide the merits of those pros and cons relative to its own assessment of the pros and cons of alternatives like cutting educational programs, raising property taxes or – for a few years – using some of that Fund Balance.
    2. Unknown actions of the townships, which would be entitled to claim up to 50% of the revenues from a voter-approved residential EIT, loom large. How highly would the BOS weigh education versus the township’s own needs?
    3. Of course, totally moot unless the School Board votes to ask the question, and the voters approve it, since there is no sign that the townships are mulling and EIT of their own.
    4. Of course, the Republican candidates for the School Board have already decided the EIT question for themselves without waiting for the TSG analysis. Presumably they are part of the minority in TE that a) does not pay the tax already, and b) has an income greater than 40% of the assessed value of their house, so would rather see any gap (after using some of that fund balance) made up from cuts in the education program or property tax increases.

On the TEEA contract: the district is required by the state to begin negotiations for the next contract in January. The way this all gets going is for the union to send a letter to the district at that time.

How creative can the parties be? Is there a way to trade-off much lower healthcare premiums/benefits (that encourage personal accountability) for maybe allowing step increases, keeping the total compensation cost within at the very least the increase modeled in the district’s current projection?

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