What’s Changed?

I served on the school board 12 years. After being defeated in November of last year, I was asked, “Alex what did you change, anything?” It is rare any board member can ever say he accomplished anything on this own; it takes a majority of trustees. One thing does stand out, though.

When I ran for the school board it was all about education regardless of the cost. In response I ran on the idea it is about education AND the money to pay for it all. With the “help” of the Great Recession and the slower revenue growth that followed, a change or two at the district office and the financial principles I brought to the table, during that 12 years, education in Pickens County was about education and the money to pay for it all.

Unfortunately, today, the board has gone back to it bad habits. Even with revenue rising by its largest amount in years (even before the tax hikes), the school board has raised property tax rates 3 times in a row, recently for debt service, a few months before for its general fund budget and for debt at the end of last year.

When I got on the school board, the board increased the tax rate for operations 5 of the prior 6 years. Even though the economy had faltered in the 2001-02 period, revenue to the school district did not decrease because the board just raised tax rates each year. When the economy improved and new money came in, no matter how much, it was all spent. There was little discussion or desire to save money, hence there was no savings. There was no setting of priorities and the cost of this item or that service wasn’t seriously considered. The money was always there for education and if it wasn’t it was assumed taxes would be raised.

When I was young I met a multi-millionaire and he had an influence on me. He said, “Making millions is not to very difficult; keeping it is the challenge. Most become a millionaire on the spending side, by controlling spending.”

Being educated in finance I learned the basic principles and lived by them on Wall Street, in my personal life and brought them to the table when I was elected in 2004. I made a million by the time I was 30 and retired before I was 40, living by these five financial principles.

Third, save for a rainy day. In good economic times put money aside (save it) so when the next recession hits you won’t have to cut spending as much and will be able to better weather a decline in revenue.

Fourth, raise tax rates as a last resort. That is, if revenue falls, first cut the waste or excess to free up funds to cover a deficit. If you want to spend more than is coming in, rank your current expenditures from most important to least important. Then cut the bottom 1% and use those savings to buy that extra items you want.

Economic growth, income growth and job creation has its roots in rising consumer spending and business investment. Higher tax rates weakens spending and investment, hence slowing economic growth and job creation. The aim isn’t to just educate students, but also have job opportunities waiting for them in our county when they graduate.

I remember the first budget meetings when I first got on the board. Revenue was growing at a good clip and the district administration presented a list of 30 plus new items it wanted to spend money on. I noticed a few things and pointed them out.

First, revenue was up like $5 million or 6%, but their “wish list” totaled something like $7 million. That’s how they’d pressure the board into raising tax rates each year, saying the additional needs were greater than new revenue.

Second, while the total cost of all the new items was identified, the cost of each item was not. I said, you are asking us to evaluate each item and approve them, but there is no estimate of their individual cost?

Third, I said, it looks like you are short a few million. Obviously, you can’t have all this new stuff, so which of these new items are most important? That is, which are your needs and which are your wants? There was no ranking of priorities.

The administration’s response was they couldn’t identify which items were most important — they are all important to someone they said. I replied that is why we have managers like you, to make those decisions from a system wide point of view.

I then asked, with revenue growing so much, are you putting any aside for savings? No, was their answer. Again, when recessions hit, the knee-jerk response was to raise tax rates, so they didn’t see the need for savings.

I urged the board to fund the top $4 million new items, so spending will grow a healthy 5%, we’d put $1 million aside for savings (the district had no savings) and if you want to fund the other $3 million, you’ll have to cut $3 million of waste/ excess in your existing $80 million budget. Then reallocate those savings to the rest of the lower priorities on your new items list. A lot of whining and belly-aching followed. Simply put they lacked the skillset to evaluate their existing budget and dynamically manage a budget. They never did that before.

Fourth, I asked who created these 30+ new priorities? It was solely the administration. Board members had no input, so the people had zero input into the direction of the district.

One administrator later described me like a meteor that came in from outer space. Up to that point, the board members just went along with whatever the administration put in front of them.

When you spend other people’s money on things you will use yourself (the position of the administration), you will always want more regardless of the cost. That is human nature; you are not paying for the things you are getting. It is the responsibility of the board to draw the line somewhere, and that gives the administration some self-discipline that they innately don’t have on their own.

In Oct 2010 the district was borrowing money to meet payroll. It was facing a $2.75 million deficit for the upcoming fiscal year. If it was a private company, it would have been facing insolvency. It was that bad. Ben Trotter and Jimmy Gillespie were elected in Nov 2010. I was made the chairman, and for the first time I was part of the majority of the board and had an opportunity to directly impart some of these Finance 101 principles.

Outside school advocates wanted to raise tax rates on taxpayers who were losing their jobs and on businesses that were reeling from cratering sales. The administration sensing the board would not raise taxes, wanted to plug the deficit by borrowing (tax anticipation notes). Ben, Jimmy and I drew the line with no deficit spending and no tax hikes. We supported doing what everyone else in the county was doing, balancing the budget by reducing spending. In turn the administration proposed cutting more teaching positions. Judy Edwards (a former teacher) opposed that and the cuts were made in non-classroom areas and that became the new board majority — Trotter, Saitta, Edwards and Gillespie.

In the end, we implemented those five financial principles, cutting spending down to the lower revenue level, making cuts in non-classroom areas, not raising taxes and now borrowing more money.

Over the next three years as revenue grew we added classroom teachers and lowered class sizes. The percentage of the spending making it to the classroom reached 60% -- the highest it was the 12 years I was on the board. (Today by the way it is back down to only 54%.) We did not raise tax rates and we always budgeted to spend less than was coming in. So expected revenue might be $100 million, we’d budget to spend $99.5 million and would have $500,000 left over if some unforeseen expenditure cropped up during the year. Once that extra revenue was gone, they couldn’t spent any more. If we didn’t spend it, that extra revenue was saved.

By that time the administration had a new finance director, Clark Webb. He is conservative and used the word “No” with the principals and department heads, he frowned on borrowing to plug deficits and aimed at building savings anticipating a recession at some point.

Due to the Great Recession and all the heart-ache it caused, a conservative finance director and a board that was following financial principles and railed against over-spending (me), managers began to underspend their budgets. Back to our example… when expected revenue was $100 million and the board would budget to spend $99.5 million. At the end of the year we started to see the district would only spend $98 or $98.5 million. So what wasn’t budgeted to be spent by the board or not spent during the year by the district, it went into savings. That’s how we built some savings.

During the next two years Dr. Merck proposed all sorts of new spending beit extra technology, STEM programs, new construction and renovation, extra pay raises for all. It was a 5-year plan of new spending they ended up doing in about two years. Hence, Dr. Merck proposed or supported 3 or 4 different tax increases — for operations, debt, sales tax, in the two years he was superintendent and I was on the board. Swords was right there with him. Dr. Merck rarely spoke at board meetings, but the best I could tell his strength was creating lists of projects, initiatives and items to spend money on.

Bowers turned out to be a disappointment for conservatives who adhere to basic financial principles. Bowers became the deciding vote in the new left of center board majority (Cooper, Swords, Edwards and Bowers) and began to propose and agree to all sorts of new spending.

For instance, he was the driver behind the 2015-16 budget that spent $1.2 million more than was coming in. That was the first time we had budgeted to spend more money than was coming in since 2006. His plan was to plug the gap with savings. I remember talking to him at lunch at Carolina Fine Foods, saying if you are going to agree to all their new spending initiatives, ask them to reduce this waste or that excess and I gave him a list. He didn’t push for any of that, and agreed to all their new spending and more.

This is from an email I sent to Bowers at the time, “For the first time since I can remember, you allowed and approved a budget where they spent more than the revenue coming in. And you are continuing to allow them to spend more than their annual revenue beit with the AP pay, and nearly with another pay raise for the Superintendent last night.”

Another example. The previous year the facilities committee passed a 5-year budget for $24.8 under committee chairman Henry Wilson. The next year, Bowers was chairman of that committee, and he and Dr. Merck boosted the budget to a whopping $37 million. Just in one year. They are funding much of it with additional borrowing, hence the two increases in debt services millage.

They funded this burst of spending with new revenue, eliminating 35 classroom teaching positions, closing schools, spending savings and now the board has raised taxes three times in a row.

This new administration and board leadership has pushed aside the basic financial principles we instilled into the budget process. Principles that would have kept the district financially fit in good economic times and bad. Just like the board of 2010 set an example and helped shift the financial culture in the district to the right and got more education out of every dollar, this board through its example, I’m afraid will move it back to the left.

They’ve been able to get away with this because revenue is rising at the highest rate in 10 years. However, at some point the growth will slow or stop and their lack of fiscal discipline will catch up to Dr. Merck, Swords, Bowers and the rest that are just going along.