When Gov. Scott Walker signed the 2017-19 biennial budget last month, the School District of Rhinelander learned it would receive an unexpected bonus, half a million dollars more in state aid for each of the next two years.
Because the district was well on its to finalizing its budget for the 2017-18 school year, the influx of revenue and some additional savings on various items from the previous school year left district leaders in an unfamiliar position, having to decide what to do with a growing general fund balance.
While the final budget is still being finalized ahead of the district's annual meeting Oct. 23, the unexpected positive financial news prompted a special meeting of the board of education Monday night.
"Anything that is brought up tonight, if it needs further board approval, will go through regular channels," said board president Ron Counter said. "It was felt that the whole board needed to hear this prior to it being parceled out."
District superintendent Kelli Jacobi said the finalization of the state budget filled in a missing piece of the district's budget.
"The state funding formula problem was not addressed, it has not been solved, but we did see an increase in funding," Jacobi said. "It's per-pupil aid and it is approximately half a million dollars this year and half a million dollars next year. That is money that we have not budgeted for. As we discussed previously, we weren't sure if this money was going to come through. There were some strings attached to it, it could have disappeared at any time."
Once it became clear that the additional funding was going to be included in the biennial budget, Jacobi said she and Marta Kwiatkowski, director of business services, started looking at the state of the district's finances.
"This made it significant enough that we needed to bring some information, it was time to share," Jacobi said. "It was difficult on timing, when do we do this, but it was the right time. I am so proud of the work that has been done by the board, by the administrators, by all of our staff, that we are able to come to discuss our finances and have a very positive conversation about them."
Jacobi said the main purpose of the discussion was for Kwiatkowski to present all of the pieces of the budget puzzle and have the board discuss options for the revenue.
"You know, when we're talking budget and finances, there are a lot of pieces that if we're fitting them together well, we're going to come up with something that works well for not only the school district, but our community," Jacobi said.
Kwiatkowski clarified that the increase in state funds is not a cumulative increase, and is more like a bonus than an increase to the base amount of funding.
"But it is money two years in a row, which we haven't seen in a long time," she said.
"They are not making any promises beyond 2018-19," Jacobi clarified, when asked what will happen in the next budget cycle.
Counter pointed out that district administrators had not included the "bonus" money the state came up with when they started crafting the 2017-18 budget.
"They kept it conservative, they only took the money they directly had available," Counter said. "We should give them some kudos because of that. There were a lot of school districts, including one to the north of us, that allocated it as if it were already there."
Given the district's overall financial situation, Jacobi said it would have been unwise "to spend money that we're not sure we're going to have."
Kwiatkowski took the board back to when she started with the district in 2006 and the fund balance was under $4 million.
"You were not in a healthy financial position at all, just because you were relying heavily on property taxes," she said. "And at that time, you had to short-term borrow to make sure that the bills got paid. You made some great decisions over the years, and it really goes back to the classroom teachers, they're being fiscally responsible, they are not spending the money, so we were able to increase our fund balance by almost $4 million this year."
Kwiatkowski said the district is saving $466,360 in purchased services it allocated for but didn't use. There is also $490,161 in energy exemptions from last year that have been allocated to be spent in 2017-18 for salary increases.
Salary and benefits was the second biggest savings at $918,099, primarily due to the insurance costs dropping by 5 percent. Kwiatkowski attributed this to employees taking better care of themselves and claims being much lower last year.
Special education transfers amounted to just over $310,000 in the increase of the general fund balance.
"It's a great problem to have, you worked really hard to have a fund balance of $19,517,052," Kwiatkowski said.
She also provided the board members with a copy of the board's own fund balance policy that requires the general fund balance be maintained at a level equal to the taxes receivable at June 30 of each year plus 10 percent of the budgeted general fund operating expenditures at fiscal year-end to avoid short-term borrowing.
"Anything over 21-percent you can use for deferred maintenance, remodeling and additions, capital improvements, things like that," she said.
Looking at the current fund balance minus expenses, it is at 65 percent, she said.
"It's not the same number every year because it is based on your tax receivables," Kwiatkowski noted. "You tax receivables goes up every single year because the state is paying less."
Because the fund balance is so large, Kwiatkowski said she and Jacobi have talked about what projects could be done to spend this down somewhat. The post-employment retirement benefit fund is presently at a little over $5 million, with a liability of $16 million.
"We feel that funding five to 10 percent is not really going to get us anywhere. When we first opened the trust in 2007, at that time you were putting in a million to $500,000 aside, and I think it is time to revisit this post employment retirement trust," Kwiatkowski said. "We need to put some money in there to make sure that some day, some point that the fund is fully funded."
Kwiatkowski recommended that between $500,000 and $1 million from the general fund balance be transferred to the post-retirement trust to help close the gap between its balance and the unfunded liability.
She also said some of the money could be used to add classrooms to either of the elementary school buildings. Following a facility study conducted in 2014 it was determined that more space is needed, she added, noting that Crescent is the most overcrowded.
"At Crescent, the recommendation was 150-200 square feet per student," Kwiatkowski said. "We have turned closets into instructional spaces, there really is no (additional) space in the building. And as you will remember, in 2010, we had additional classrooms on the referendum, but for a long time we couldn't pass it, and we kept cutting and those classrooms were cut out. It is time to think about putting in the two classrooms."
Later in the meeting, Jacobi said when the last addition was made to Crescent, space was allowed for two additional classrooms for a time for when the money to build them could be secured.
She said it is believed that the $1.2 million estimate for that project is a little on the high side, with $1 million being a more achievable budget for the work.
"We also feel that we can set aside $3 million for future referendum reduction, so next year when we go to referendum, we would be asking for $1 million less for the three years to help with the tax burden," Kwiatkowski said.
If all of the expenditures are made, the fund balance would be reduced to between $13,817,052 and $13,317,052, well above the board policy mandated minimum of $11,590,694.
"This is exciting. We haven't been in this position to talk about - and I can't call it an excess of funds - but we're in a better place than we have been and a part of our recommendation is that it is important that the taxpayers benefit from this, too," Jacobi said. "When I did the referendum community meetings not so long ago, I talked about the state funding, that it's being reduced by half a million a year, just so they knew up front that we weren't going to be asking for $500,000 each year. The way state funding is going, next year it will be even higher. We still need the community support, we're still going to need referendum, but to go in and say that because of all of these things, we're able to ask for less.
"I think the taxpayers should benefit from this," she insisted.
Counter again thanked the administration for "keeping our toes to the fire" on making tough fiscal decisions.
"Looking at where we were six years ago - to the point where we were going to decimate the school district - this is unbelievable," Counter said. "This is the best news probably since they changed the entire format in 1993."
Board member Mary Peterson said the last time the board decided to not spend money was 1993, and that decision ended up hurting the district ever since as it set the district's levy limit at a lower rate.
"I just don't want us to do something that sounds like it's a really nice thing and we have to turn around and put our tail between our legs and say we should not have done it," Peterson said. "If we kept that $3 million that you are suggesting we use to reduce the future referendum, is there other things that we could do with that money that would definitely be cheaper to do it now then it would be five, six years down the road?"
As far as maintenance projects, Kwiatkowski said the district finally has a schedule for routine maintenance.
"Now we have roof maintenance that we stick to, and we were able to do it since the referendum and we're in pretty good shape," Kwiatkowski said. "There is nothing that is outstanding that we're just putting off. Obviously, we could be doing a whole bunch of things at once, but that is unrealistic; we don't have that much money. But based on priority, and the shape the roofs are in, roofs are probably the most expensive projects that you have, we're taking care of them as needed."
It was also pointed out that spending decisions made now would not impact state funding as it did in 1993.
"Because we're not asking for any action tonight, we could definitely look at district-wide, are there those types of things. These are all just ideas, we're not saying it has to be $1 million," Jacobi said. "Maybe it is half a million less in each year of the referendum and we're putting money aside for other projects, which we can do some research and put together and bring it to another meeting."
Board member Duane Frey said it would be a good idea to show the taxpayers that the board has been fiscally responsible and provide some relief on the next referendum.
"That goes a long way no matter what that number ends up to be," he said.
When it comes to looking at funding some special projects, board vice-president Judy Conlin said having a year-to-year maintenance budget that the board can plan on is important. She said her only concern would be to spend too much on special projects only to have the budget change a couple years down the road.
One board member suggested creating a wish list of small projects that could be funded on a "one and done" basis might be a better way to handle special projects and the excess money in the general fund.
Counter said Jacobi and Kwiatkowski have done a good job with the list they assembled. The additional classrooms at Crescent are definitely needed, and the post-employment benefits shortfall is something that also needs to be addressed sooner rather than later.
Due to the changes the legislature made to how referendums are held, the district would have to hold one in November 2018, Jacobi said, as that is the only way it could hold another one if the first were to be turned down by the voters.
Jacobi also said there should be enough of a cushion in the fund balance where the district should be able to avoid massive layoffs unless the referendum were to fail.
"If there were no change in school funding, and we don't get extra per pupil, we would be able to survive until the next referendum where we could make a change," she said.
Conlin said that the taxpayers will have to understand that while the district may be able to use the fund balance to reduce the amount of the next referendum, there will still have to be one because the fund balance will not absorb the whole amount.
She said the board has time to decide how it wants to proceed and that a final announcement would be made after a final decision is made.
For now, the board is just discussing its options.
Tuesday morning, Kwiatkowski said the board will probably be ready to make a final decision in November on how to proceed.
Jamie Taylor may be reached via email at email@example.com.
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