Image result for financeI know this article is long, but I ask that you please indulge me.

I have the opportunity to visit with students when they get their school permit.  It is one of my favorite parts of the job.  Should a student make poor choices in the conditions of that permit, sometimes the school has to render a decision to remove it.  Thus one of the primary purposes for me in the conversation is so I can sleep better at night.  I often lie awake pondering, “Were you fair? Were you equitable? What could you have done to have had a better outcome?”  I open that conversation with, “This conversation is so I know…. you know…. I know…. you know the rules of the school permit.”

My conversation today is not unlike that conversation.  I’m struggling to sleep at night as I seek to lead our board through establishing next year’s budget. My loss of sleep is not about the budget or the process used or even the solutions presented, but rather that of the public reaction. Many people tell me it will be fine…I most want it to be fine for the board.  They, the past and the current board, were/are in such a tough spot. They have and continue to serve you well. There is no “happy” path out.

I appreciate the potential frustration and emotion tied to this message. Know that if we had a better solution we would do it. So like the conversations with students this, in part, is to know that I have done my best to let everyone know what’s going on…one more time.

The work leading up to next year’s budget feels like it has been going on for a very long, long time.  Over recent months, we have worked to be very transparent about the financial position of the district.  As you know, the district initiated what’s called anticipatory warrants or loans to cash flow through January.  We borrowed $300,000 with a term to end on June 30, 2020.  We have already begun to pay that warrant back.

Additionally, we have been doing what is called inter-fund loaning.  This means we are using monies from one fund such as PPEL to cash flow the general fund.  These funds must be returned to the appropriate fund with interest. It obviously limits our ability to use those funds at the level with which we would like to in order to accomplish our mission.

Neither of these actions are long-term solutions. 

In attempting to read reactions you may have had or are having I’ll dig into three points.  Please as always feel free to visit with me.

So you say, “How in the world did we get here?”

The dynamics of school financing are interesting to say the least.  Over recent years, two legislative factors in particular impacted West Burlington’s financial planning system.  One was the change in the open enrollment payment timeline and the other was the placement of a cap on general fund reserves.

Over 50% of our students are open enrolled into the district.  As I have said in previous writings this is a good thing for all students.  For the longest time open enrollment payments were receipted on a quarterly basis. In about 2016 they began being paid on a semester basis.  Right at a third of our general fund revenues come from open enrollment. This change has made it very challenging to cash flow without an appropriate reserve level.

As stated, the other challenge derived from the implementation of a cap on the general fund reserves in 2010. I support the cap as we are not banks and the funds we receive should be spent on the education of our students. That said though, the reaction of cash reserve cap implementation was to bring them down either through one-time purchases and/or tax rate reductions or maintenance. This in-turn gave a false sense of deflated operational need which in-turn promoted keeping excessively low taxing rates.

If tax rate reduction was the method of choice, the key to successfully maneuvering those reductions or maintenance was knowing where the sweet spot was and reacting appropriately quickly to the need to adjust the rate and/or to make reduction adjustments to district programming for students due the absence of the reserves.

West Burlington chose the tax reduction method and in the midst of it I’d say a perfect storm ensued.  The sweet spot was most likely following FY16 (2015-2016). This followed with an error in the FY18 CAR (Certified Annual Report) which obscured accurate information during FY19 (2018-2019).  It was all further complicated by turnover in key knowledge positions. Before it even could have been figured out at the board level the FY20 (2019-2020) budget had to be approved.

Clarity to what had happened was not found until this fall and winter. As I have told everyone repeatedly, “The sky is not falling.”  We know the problem and we simply have to chart a course and then execute the defined course of action.

So you say, “How in the world did we plan our way out of this?”

First we sought voices of people more knowledgable than us to give us perspective and advice. We have talked with numerous such individuals including people from the Department of Education, from the Iowa School Board Association, from ISFIS (Iowa School Finance Information Services) and from Piper Jaffray, now Piper Sandler, a recognized school bonding firm.

Everyone in the information gathering stage was very clear…we were not the first district to find ourselves in this position.  It happens for various reasons and the issue compounds very quickly. At its core it is a cash flow issue, not an over-expenditure issue.  We also clearly heard the concept that you cannot make enough cuts to solve the problem without devastating the quality of education you provide to students.

We consolidated the advice and with the help, particularly of Travis Squires, of Piper Sandler, we crafted several plan options for the board to think about. Mr. Squires presented these options to the board at the January Work Session.

The goal of each option was that over a designated period of time the district would build a reserve that was near 15% of our general fund expenditures or about $1.6 million. This keeps us below the 20% cap yet allows us to cash flow without warrants and inter-fund loans. This year we are targeting to end the year with about $300,000 of reserve.  I complement our staff on supporting the mid-cycle restrictions that have been placed on spending to help work towards that reserve.

All of the options also respectfully included the district’s maintenance or reduction in district costs in the general fund with minimal impact on students.  With several factors still outstanding we are driving for about $200,000 of recurring reductions to the general fund. It may be greater, but there are still some moving parts to the puzzle.

And you say, “So what is the projected increase in our tax rate?”

The least aggressive option presented which proposed a six to seven year work out plan, proposed an increase of about $1.50 per thousand for six to seven years and then to drop back down to about $15.00 per thousand.  If you remember my comments about the dynamics of school financing, this option had the greatest risk for something out of our control to become a significant factor in our resolution of the issue.

The most aggressive plan sought to resolve the issue in one year with an increase of over $5.00 to almost $20.00 per thousand for one year and then a decline to near $15.00 per thousand for the 3rd year.  This was considered too aggressive for our community.

The third plan was obviously the more moderate of the three plans. It spans 4 years.  The first two years will increase the tax rate about $3.19 for an approximate total tax rate of $17.72 and in the 3rd year, if all things stay stable, the tax rate would drop to about $16.25 and then level out in the 4th year at about $15.00 per thousand.

Tax increase conversations and decisions are always difficult and often emotional.  If the walls of my house could talk, it would be a grand story.  One of the tough parts of this job is to set aside the “uck” of it all and lead us through it.

Not unlike what I have said about the process of adopting a calendar.  It will never be possible to make everyone happy; yet as long as the process used to arrive at the decision was a valid process you have done your best.  I believe and want to assure you that I, as the superintendent, and the board have done our best to come up with the most viable solution to a very challenging situation.

Ultimately the board must make the decision about the tax rate as set through the budget certification process.  The budget will be presented to the board for consideration at the March 16th Regular Board Meeting. A public hearing will be scheduled for April 6th with it being approved at a special meeting directly following the hearing.

I thank you for reading this to the end and I encourage anyone to visit me about this topic.

Lisa Beames