Column: District 518 considers $1 million tax breakWORTHINGTON — The board of Independent School District 518 faces a pleasant situation. At the end of the last fiscal year — June 30, 2010 — the general fund had a $1.7 million larger fund balance than projected, and a total $2.5 million increase.
By: Linden Olson, District 518, Worthington Daily Globe
WORTHINGTON — The board of Independent School District 518 faces a pleasant situation. At the end of the last fiscal year — June 30, 2010 — the general fund had a $1.7 million larger fund balance than projected, and a total $2.5 million increase. What is the financial role of the school board? How did the fund balance get so large? And, what should the board do about it?
One of the primary functions of all public school boards is to prepare, monitor and modify (when necessary) an annual budget for district operations. The preparation of the annual budget for a fiscal year that runs from July 1 to June 30 involves not only the board but input from administrators as well.
The budgeting process begins in the fall with the board adopting a budget development calendar that lists a timeline and the steps in the budget development process with final approval at the regular board meeting in June. The board begins with a look at how the previous year’s budget compared to actual. When there are large differences between budget and actual, the board and management must determine the reason(s) and determine if the differences are a one-time abnormality or a trend that will continue.
With the previous year’s information as background, the board makes some assumptions for the administration to prepare a preliminary budget. The main assumptions that must be made are 1) the state per pupil funding level; 2) the school enrollment; and 3) the estimated percentage increase in expense costs.
With the state providing about 79 percent of the general fund revenues ($7,000 per pupil), any change in per pupil aid has a huge impact on district revenues. For example, a $500 change in per pupil aid means about $1,500,000 to the Worthington area district. Large changes in student numbers affect both revenue (state aid) and expenses (more staff), but an increasing enrollment is generally beneficial to a district while declining enrollments usually cause major budget adjustments.
The Worthington district has accommodated more students by increasing direct instruction staff without increasing administrative staff. Salaries and benefits make up about 84 percent of general fund expenses, and these costs can be closely estimated because nearly all employees are under contract. Utility costs are much harder to estimate because of variable weather and rapidly fluctuating energy costs.
What did this mean for the ISD 518 school district for the fiscal year ending June 30, 2010?
District expenditures were 7.9 percent below budget, while revenues were 2.4 percent above budget. This resulted in a larger-than-budgeted general fund balance increase at the end of the fiscal year. Some of the reasons for the higher general fund balance were 1) larger than anticipated federal stimulus dollars; 2) greater pupil enrollment; 3) lower operating costs, some due to changes made to lower ongoing utility costs by improvements made under the energy-reducing performance bonding projects completed throughout the year; and 4) because of excellent cost control by principals and other district staff.
The board will be voting on a resolution at its next meeting Tuesday on whether to make a one-time reduction in the local property tax levy of $1 million for taxes payable in 2011. If passed, the reduction would have no effect on the amount of state aid for the district because the reductions proposed would affect only local levies that have no ties to state aid.
One option is because the general fund balance is above the projection the board made when the local levy was passed in 2006, district taxpayers should get a one-time, $1 million tax break. Another option is because of the looming $6.2 billion state budget deficit and the unknown effect it will have on public education funding in the coming years, the district should continue to maintain a larger general fund balance. A larger balance would serve as a good financial cushion for maintaining the programming necessary to provide an outstanding education for ISD 518 students should the state cut public education funding.
Whatever decision the board makes on this resolution, it remains committed to making the most effective use of funds to provide the educational programs along with opportunities and experiences to its students to help them become productive contributing citizens.
Linden Olson is a District 518 Board of Education member.