I was unable to attend the Finance Committee meeting as it was the monthly Board Meeting for DuPortail House, www.duportailhouse.com and as the Board Secretary it would create a problem if I did not attend.
All I can say is that I am really lucky to have my friend Ray Clarke! Not only does Ray attend school district meetings, he stays up late so that he can provide detailed meeting notes for Community Matters. When Ray sent his notes he cautioned that the information contained a lot of ‘numbers’ and the subject matter is complicated. As Ray explains, two topics that received the most attention last night was the insurance and bond options. I don’t know about you, but I have always found the subject of bonds, a complicated and often misunderstood issue. Maybe through dialogue on Community Matters, we can delve in to the subject matter and get a better understanding.
The majority of last night’s Finance Committee was devoted to two presentations by Board advisors: on self-funding the health insurance plan and on bond issuance options. These were sufficiently persuasive that the Board was comfortable in agreeing to include the assumptions in a preliminary budget to form the basis of discussion at next Monday’s Budget Workshop. This budget will also include the strategies discussed at the February meeting and the 2.9% Act 1 maximum tax increase. The cost savings (including #12, see below) total $4 million ($2 million “one time”), the tax increase would raise $2.4 million, leaving a $2.8 million deficit to be funded from fund balance or further expense reductions. (Note that the cost savings mentioned at the meeting was $3.7 million – maybe not including #12?).
That fully half of the savings are “one time” shows how important it is to consider a longer term perspective, and Committee Chair Mahoney has been consistent in asking for this to be done. Those one time reductions will come back in 2011/12 and be compounded by the next round of contracted compensation increases.
Below are key features of the financial strategies, which seem to me to be quite complex and with many assumptions and consequences not fully spelled out. If your eyes glaze over, sorry! – but take heed of the important role of the Facilities Committee – as discussed here on Community Matters and spelled out below!
The $300,000 health insurance savings depend on the actual claims experience being less than the premiums proposed by Blue Cross. The district is relying on estimates provided by the consultants, who stand to get a fee if the plan goes through. The basis for the estimates was not convincing, and depends entirely on the trajectory of per person claims costs, which increased 23% (excluding large cases now closed) for the latest available 12 months. Since there seems to be no understanding of why claims increased so much (it’s not single/family mix, for example – just “an increase in claims of $40,000 to $60,000” – why?), how are we to gauge the future costs? The assumed savings is entirely speculative: could be more, could be less, or negative. Do we in fact know more about the health of our insured population than Blue Cross? Maybe we do. It seems that most other school districts in the region are also considering a move to self insurance. Smart schools or convincing consultants?
The bond strategies discussed were also interesting and perhaps with ramifications that deserve more discussion. There is one straightforward opportunity – to refinance one bond issue at a lower rate, which would save $40,000 a year over each of 13 years, or $170,000, $100,000, $100,000 if front-loaded to the next three years. Secondly, we were told that the market would be very receptive to a new $20 million issue, which could be issued at historically low interest rates. Even so, those interest costs would total $700,000 a year for the next ten years (this was not emphasized).
So, why issue the bonds? That brings us back to the Facilities Committee. We were told that there is a three year capital budget in the Infrastructure Plan of $14 million, essentially to maintain the status quo. There was mention of another $1.5 million a year of routine capital – bringing the three year total to $18.5 million – almost all the new bond issue. Doubtless the Facilities Committee has discussed the Plan, but I did not find it on a quick look on the TESD web site. Perhaps the details of the capital needs and any opportunities to offset them with capital sales could be provided in Friday’s meeting.
(Note that having bond proceeds floating around could help capitalize the risk of self-insuring the medical plan).
Budget strategy #12 lists a saving of $300,000, based apparently on not expensing certain items of capital expenditure. I don’t understand enough to know if there are any old bond proceeds left to fund this, or if the new issue is required. Just as interest rates to borrow are low, so interest rates on our fund balances are even lower. And, there are accounting rules that let you capitalize interest during construction. How could capital needs be funded without a bond issue? All in all there seems to me to be an opportunity for a clear exposition to taxpayers of the actual P&L impact of all the maneuverings – a chance for the Administration to show its worth?
So, on to the Facilities Committee and next week’s workshop. It’s noteworthy that current year expenses will have to be cut by $1.5 million versus budget to balance expected revenues. I don’t know how that will roll forward into 2010/11 – hopefully the workshop materials will have a detailed line item comparison of 2009/10 actual forecast with the 2010/11 preliminary budget (and with out years, too), including all the strategies discussed so far. Then it will be time to take a look at all those other strategies #15 – 60 – and other ideas that all stakeholders might bring to the table.