Burning The Candle At Three Ends
By Alex Saitta
February 21, 2016
From 2010 to early 2014 the district administration and school board lived by the following principles:
1) Do not spend more money than the revenue coming in.
2) Better yet, budget to spend less than anticipated revenue. By setting aside some revenue (called a budget contingency), if an unexpected expense popped up during the year we had extra revenue to cover it. If no or just a few expenses popped up, that extra revenue would result in an annual surplus and it went into savings.
3) Build savings where we could because we knew the extra cash would come in handy when the next recession hit.
With the 2011, 2012, 2013 and 2014 general fund budgets, all were in balance or surplus, and we built up savings to about $3 million or so during that stretch. I and others on the board went through the budget crisis of 2008 to 2011. It was difficult because revenue had fallen, and the district had no savings going in. The administration/ board had to make some tough budget decisions. From that, we learned, it was a good idea to build some savings during the economic upswing so when the next recession hits, weíll have a cushion to help soften the blow when revenue dips.
When Ben Trotter resigned in early 2014, that approach and those three principles that guided us during that period slowly started to go by the way-side as the board moved to the fiscal left. Spending was stepped up and the administration/ board in a 3 to 2 vote dug into savings the first meeting when Trotter was gone.
A couple of months later all the contingency or extra revenue in the 2013-14 budget was purposely spent. The attitude was the money is there, letís spend it. That passed in another a 3 to 2 vote with Jimmy Gillespie and me voting against.
I remember the budget proposed in early 2014 (the 2014-15 budget), it spent all the revenue. There was no contingency or extra revenue set aside. That was the first time that was done in years. Gillespie and I held out. Although they didnít need our votes, the majority made a concession so revenue was $105.3 million and they budgeted to only spend $104.8 million or a $500,000 contingency.
When 2015 started we had a new board and a relatively new district administration. I now see financial candle being burned at two and possibly a third end here.
General Fund Budget:
The budget the district uses to fund day to day expenses like salaries, classroom supplies, medical insurance, gasoline, and grass cutting is called the general fund. That fund has a budget of annual revenue and expenditures called the general fund budget.
In the spring of 2015, the 2015-16 budget was passed and spent more than the revenue coming in for the first time in 10 years. That marked a significant change for the worse.
We all agreed to make-up the two missed teacher pay raises. The plan was to add one extra pay raise this year and the other in two or three years as revenue grew further. At the last minute, the board voted to give the teachers both extra pay raises this year, but didnít have the revenue to do it all in one year.
As a result the general fund budget is spending $500,000 more than the revenue coming in. The budget draws down savings to plug the gap. Think about those three principles, this budget broke all of them. Revenue growth is the highest it has been in years, rising by $4.6 million. They just spent $5.1 million more, yielding a $500,000 hole in the general fund budget.
Capital Maintenance Budget:
Buildings are run day to day by heating them, cleaning them or repairing. That is paid for out of the general fund budget. Capital purchases or replacements like replacing a roof or an HVAC or repaving a parking lot is paid for out of the capital maintenance budget. For example, to fix a cracked window is paid for out of the general fund budget. To replace all the windows in a school would be paid for out of the capital maintenance budget.
Last year the facilities committee passed a 5-year capital maintenance plan for $24.9 million or about $5 million a year. The budget for 2015-16 or the first year had $4.65 million in spending and was funded with refinancing savings ($3.25 million), a building sale ($300,000) and savings from previous projects that ran under budget ($1.1 million). Balanced.
This year the administration presented a 5-year play with a cost of $37 million (a 50% increase in one year), blowing a big hole in that budget.
Building Program Account:
The Building Program when it was first presented in June 2005 was $158 million. It was increased in size 9 times to $178, $197, $315, $336, $354, $364, $374, $378 and finally ended at $387 million. Seven new schools were built, and another 20 were renovated, and 800,000 sqf were added. Everyone had enough and all that was done was beyond everyoneís expectations.
Right now the district is spending $14 million more on bond payments, $3 million more to run, clean and repair day to day the extra buildings and square footage, plus the capital maintenance plan has added about $5 million a year. Thatís $22 million in extra building costs since the building plan.
No sooner when I thought that 800 pound building-program gorilla was swallowed and digested, the new administration and board got the bug to do more renovation and construction. It asked an architect and paid them $50,000 to do a facilities study on six buildings ó Ben Hagood Elementary, Operations Department Building, District Office, BJ Skelton Building, Old Pickens Middle and Northside. The construction costs ranged from $15 to $22 million.
That was rejected by the public and Plan B was proposed with $6 million in renovation/ new construction for two administration buildings.
The building program account has no money in it. Any new renovations or construction would throw that account into deficit too.
The general fund, capital maintenance fund, and it looks like the building fund are all in deficit. Letís see what develops the next month, but this new trend of overspending and doing it in three accounts is a concern as the district seems to be burning the candle at three ends here.