School District Budget Surplus

T/E School District goes from a $1.5 Million Deficit to having a $4 Million Surplus Four Months Later – A $5.5 Million Discrepancy! How is this Possible Mr. Business Manager?

How is it possible that in June, the TESD Business Manager claimed a projected deficit of $1.5 million for the 2018-19 year and then based on that, the taxpayers received a 3.91% tax increase for 2019-20?  Then fast forward less than four months later and this same Business Manager tells the school board at the Finance Committee meeting this week that not only did the District not have a deficit for the 2018-19 year but instead it magically had a $4 million surplus — A $5.5 Million discrepancy! How is this possible?

In the T/E School District, residents have faced annual tax increases for the last fifteen years.   If you recall, in mid-December 2018, the District first presented the 2019-20 budget with a proposed 6.1% tax increase and that 6.1% increase hung over taxpayers heads for six months! Finally in June the proposed tax increase was lowered and the school board approved a 3.91% increase. And with the 3.91% tax increase, our school district received a special distinction … we had the second highest tax increase in the Philly region!

Do you fully understand what happened?  To recap … from December 2018 to June 2019, taxpayers were faced with a 6.1% tax increase. In June 2019, taxpayers ended up with 3.91% tax increase due to a projected deficit of $1.5 million. Now four months later, the taxpayers are told that the District didn’t end up with a deficit after all. Nope, actually the 2018-19 year ended with a $4 million surplus. Again, I ask why is there a $5.5 million discrepancy and and why did taxpayers receive a 3.91% tax increase?

I don’t know about you, but as a taxpayer I find the “fuzzy math” approach wholly unacceptable! And let’s not forget, the Business Manager received a new 5-year contract starting July 1, 2019 with a base salary of $210K plus annual raises and bonuses.  Oh, and he is also the responsible party for the $1.2 million accounting error from the year before; which to date remains unresolved (although the Board voted to have the Business Manager make the correction months ago).  As a top-notch school district, don’t the taxpayers of T/E School District deserve better?

Although I did not attend the Finance Committee meeting, I watched the video (the District does not tape Finance Committee meetings but fortunately residents now do!) Neal Colligan did attend the meeting and provides the following commentary.

It appears to me that taxpayers should have received ZERO tax increase. And somehow the District’s update of $4 million “found money” and the $5.5 million discrepancy was not worthy of making it on to the Financial Committee agenda. School board, where is your outrage?

From Neal Colligan —

The Finance Committee meeting started with a quick review of minutes and a presentation of year-to-date financials.  The committee received an update on Special Education costs.  Seemed to be on track but this report was not posted in the Agenda so I can’t comment on the details (for fairness, the report should make the Agenda for future meetings).

The next section of the meeting was the most eye-opening.  Couched under the item Capital Planning- the Board was informed that their 2018-19 projected deficit (last year) of $1.5 MM is now a $4 MM SURPLUS. 

It was difficult to follow the Business Manager’s explanation of the changes (and I watched the video twice – thanks Doug Anestad and BUILD T/E).  Seems to be greater revenues of $1.6 MM-increased interest earned, State revenue increase, transportation subsidy received and increased State funding for Special Ed ($500,000).  On the expense side another $1.6 MM in savings in non-instructional items under the categories of supplies and repairs and a savings in Special Education purchased services of $760,000.  I know this doesn’t add up to a $5.5 MM swing but the details were not complete and not included on the Agenda items.

The discussion was centered on “what to do with this new-found surplus” but certain Board members (Murphy and Sweeney particularly) seemed surprised (as was the audience) at the BIG swing from deficit to surplus in the just completed (June 20, 2019) fiscal year.  Mr. Sweeney correctly noted that this knowledge in real-time would have certainly influenced his vote on the last tax increase (3.91%).

Some of the discussion on what to do with this money and “below-the-line/above-the-line” differences, transfers to other funds (Capital), and the relation of the surplus to authorized spending was a bit painful to watch … but I’m speaking as an accountant so I know these are easier concepts for me.  This decision will be tabled for another meeting but, IMHO, the Board needs to quickly become familiar with the process here as it relates to what they can do with their surplus after the year is completed.  They can be forgiven as they are not “financial” people but they’ll have to get up to speed fast on the rules.  Not a single Board member (although Sweeney touched on this) considered the taxpayer in this discussion (i.e.: could surplus be used to offset future tax increases).

The final part of the meeting briefly touched on the Committee’s goals going forward.  Mr. Sweeney had suggested changes to the budget process as well as additional detail be required from the Administration to help the Committee understand the District finances.  This was also tabled for a future meeting.  Mr. Dorsey supported the discussion of changes in the Board/Finance Committee process and the importance of this initiative.  Comments from the audience included: getting real-time financial numbers from the Administration; on-going busing issues and suggesting a format for review of Budget variances over a longer historical time frame.

Thank you Neal! Here’s a link to the Finance Committee video.

Make sure to watch the video to the end for the resident comments.  Sadly, some District parents are still experiencing transportation issues – young children sitting on the buses for a long time, including on school grounds. Parents continue to ask the District for a tracking app (for buses) which “may” happen at the December Finance Committee meeting.

The “kick the can” mentality is allowed to continue with no sense of urgency. Where is the accountability and demand to fix the busing problems … right, the Transportation Director reports to the Business Manager. Why is it that so many issues in this school district lead directly the Business Manager (and then sadly, HE is allowed to prioritize).

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TE School District has Multi-Million Dollar Budget Surplus … Again!

There was more to the June 17th  TE School Board meeting than the Board’s approval to cut the hours of aides and paraprofessionals.  With a 7-2 vote, the Board passed the District’s 2013-14 school year budget – Anne Crowley and Rich Brake dissented.

For another year, the District ended the year with a budget surplus – a year ago, it was a $3.9 million surplus and this year the surplus is higher, possibly as much as $5 million.  School board member Betsy Fadem defended the surplus, explaining that much of the surplus was due to one-time money situations.  Fadem’s logic may have been more convincing if it were not for the nearly $4 million surplus from the year before.

I understand that budgetary changes occur during the school year but the $8-9 million surplus of the last couple of years doesn’t balance well for me given recent Board decisions like the cutting hours of employees to avoid paying health insurance or the proposal to charge Valley Forge Elementary School neighbors a fee to use the tennis courts. How is that property-owning nonprofit organizations in our community are targets for District revenue or that taxpayers see an increase in their tax bill yet the school district has a yearly budget surplus of multi-millions?  This isn’t a few hundred thousand dollars in surplus, it’s millions!

My guess is that the teachers are paying very close attention to the District’s $8-9 million budget surplus that has occurred since  the signing of their last contract.  The TEEA contract is up June 2014, which means that contract negotiations are just around the corner.

Neal Colligan addressed the recently passed TESD budget in the latest issue of the Main Line Suburban.  Here’s his letter to the editor:

To the Editor:

Lost in last Monday night’s report on an emotional Tredyffrin/Easttown School Board Meeting was the economic news of the evening. This related to a summary of this year’s projected results and the adoption of budget for the 2013-14 school year.

As was announced the prior week at the board’s Finance Committee meeting, the district should see operating results this fiscal year that will show a surplus of $4 million to $5 million. Fiscal year 2011-12 (last year) ended with the district in a surplus position of $3.9 million. This is total surplus for the district of $8 million to $9 million in two years. It’s important to remember that the district imposed the maximum tax increases allowed in the Commonwealth (without voter referendum) in each of the last two years. These two tax increases totaled about $6.5 million in new revenue for the district. We were told that this was what was needed to educate our children in the next school year. The budgets adopted for those two fiscal years were each estimated to produce multi-million dollar deficits; even with the tax increases imposed. The reality is that there was enough revenue in each of these years to effectively operate our public schools without any tax increase. Looked at another way, our tax increases only ended up funding surpluses. This is a disturbing, and now repeating, pattern.

This year’s budget also included a tax increase. The presentation of the budget detailed, again, multi-million dollar deficits even with the now-adopted tax increase. This budget, as in the last two years, passed the board but not without dissenting votes. As it turns out, these dissenters in prior years were right voting against tax increases as they were not “needed” to educate our students. The old adage comes to mind: fool me once, shame on you; fool me twice, shame on me; fool me three times…? Let’s all hope this is not the case.

You may be asking the next logical question, what happens to these surpluses? They are accumulated in the district’s Fund Balance. This accumulation account is designated for many things; past untaken vacation days; stabilization of self-funded health insurance costs and a PSERS stabilization balance. Up until last year, the PSERS balance was the largest designated balance in Fund Balance. But it has never been used to protect the taxpayer from the increased expense of PSERS (the biggest demon the School Board uses to justify tax increases). Rather, the largest withdrawal from Fund Balance was taken last year and used to fund the Facilities operation. $10.4 million was moved from the PSERS stabilization designation and moved to a new Capital Fund. Unusual? You decide.

As with any operating entity in the public sector funded by our tax dollars, citizen diligence and attention is warranted. So let’s see what happens to this year’s projections of multi-million dollar deficits. We all hope it doesn’t play out that way but as a careful watcher of recent financial results; I’m not too concerned. The District has been widely wrong in its doom-and-gloom budgets in the recent past. Plus, they now have another funding increase in the form of your increased tax dollars. Will it be needed to educate our children or to create another surplus for the District? We’ll be watching…like a Hawk!

Neal Colligan
Wayne, PA

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T/E School District: Surplus $3.9 Million in 2011/12

Ray Clarke attended T/E School District Finance Committee on Monday night and provided his notes for Community Matters readers.  After reading his notes, I spoke with Ray for clarification as I could not quite believe what I was reading.  The 2011/12 actual expenses of the T/E School District were $5.5 million less than the District forecasted in June 2012. The District revenues were also less than the June 2012 forecast.   Factor in the reduced expenses and reduced revenues and the District has a surplus of $3.9 million in 2011/12.  Wow!

How could it be that the District financial forecast was off by nearly $4 million!  We knew that the change in the medical insurance would be a cost savings but it is surprising that the surplus was so significant. The District has added the $3.9 Million to the General Fund Balance.

Ray’s Finance Committee Notes:

Monday’s Finance Committee meeting was most notable for a review of the full year 2011/12 finances in conjunction with a presentation of the draft audit.  It turns out that a number of things broke in favor of the district.

The table below compares the forecast for the full year 2011/12 when 2012/13 budget was approved in June with the actual outcome and with the 2012/13 budget (figures in $ million, rounded)

                                    11/12 Forecast          11/12 Actual       12/13 Budget

Revenues                     106.4                            105.6                109.2

Expenditures                107.2                            101.7                110.3

Budget Imbalance         (0.8)                            3.9                    (1.1)

So, expenses for the year to June 2012 turned out to be $5.5 million less than forecast in June 2012. (And about that amount less than budget).

Administration provided detail of the major drivers of the saving versus budget:

  • Lower Healthcare benefits:      $1.8 million
  • Fewer teachers:                           $0.4
  • Lower tuition reimbursement: $0.3
  • Less natural gas usage:              $0.4
  • Transportation savings:             $0.3
  •  “Breakage”                            $0.8
  • Other salary savings:                  $0.3

         Total                                          $4.3

“Breakage” is cost saving due to unexpected retirements, resignations, etc.; replacements are likely lower cost and there can be interim cost savings.

Clearly the final benefits accounting takes a while, but it seems quite likely that the 2012/13 budget and associated tax increase might have been predicated to at least some extent on an artificially high baseline.  As Neal Colligan pointed out to me, there needs to be strict oversight to ensure that the current year expenses do not inflate by a whopping $8.6 million to the budgeted $110.3 million.

The $3.9 million surplus goes into the now ~$25 million general fund balance, with the $1.8 million benefits saving planned to be committed to medical plan rate stabilization and the remainder to the ever-open PSERS rate stabilization fund.  On that score, it was announced that there’s a new GASB requirement that in 2015 districts  must recognize on their balance sheet their share of the $27 billion unfunded PSERS liability.  (Perhaps someone can work this out for TE, based, say, on TE’s % of teachers and a 50% share of the liability?).  [Note also that in the year to June 2012 PSERS returned 3.4% compared to the 7.5% built into the system’s accounting used to calculate that $27 billion].

And this continues on to the 2013/14 budget, which will be rolled out at the next Finance Committee meeting on December 10th.  It looks like we need to step up efforts to ensure that votes for tax increases are based on realistic projections.

On other matters, the Board continues with plans to harass tax-exempt non-profits.  An outside attorney is being used to review and identify property owners that will be sent a letter and questionnaire to confirm tax exempt property use in the light of changes in the state law.  This letter and questionnaire will be discussed at the January Finance Committee.  The Committee has already determined that the a large percentage of the total are parcels owned by government entities (like the district itself) and for rights of way.  Also, the district is planning to extend for six years the transportation agreement with Krapf; as presented, the terms looked reasonable.

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