Thursday, November 20, 2014

Audit revelations and fiscal stress

A recent state audit of our school district’s finances was fairly critical of the district’s budgeting practices. The audit cited the district for exhausting our fund balance in recent years to balance our school budgets. This is not news to those who have followed or participated in our budget development process during the past few years. The board and I have been quite open about the district’s financial situation, especially with regard to fund balance.

To put the audit findings in context, it is important to note that our district has been among those hardest hit by the one-two punch leveled by the state in recent years. Public school districts have two primary sources of revenue: state aid and property taxes. Watervliet, like most other small city schools, has historically relied on state aid for the majority of its revenue. The state, however, has failed to provide equitable and sufficient funding for education for small urban school districts.

In fact, just days ago the state Supreme Court ruled in favor of a group called New Yorkers for Students Educational Rights (NYSER) and its right to proceed with litigation filed earlier this year against the state, Governor Andrew Cuomo and other government officials. The lawsuit seeks to compel the state to follow through on its constitutional responsibility ensuring all New York schools have sufficient funding to meet the educational needs of students.

Another major factor in our district’s fiscal struggles is the Gap Elimination Adjustment (GEA), which was implemented by the state five years ago to address its budget woes. Under the GEA, a portion of the state’s funding shortfall is divided among every school district in New York based on a formula, and state aid is then reduced to each district accordingly. As a result of the GEA, our district has lost approximately $4 million in promised aid and has faced significant budget gaps each year since the legislation was introduced. Add to that the state’s property tax levy cap imposed four years ago, which limits school districts’ abilities to raise local revenue to help offset state aid reductions.

As a result of these challenges, we had little choice but to spend down the fund balance to safeguard our academic programs and prevent significant increases in school property tax. Let’s not forget either that since taking office, Governor Cuomo has repeatedly urged school districts to use fund balance to offset losses in state aid. The irony is that now the state comptroller is taking us to task for doing just that. You might call it a textbook Catch 22 situation.

As recommended in the audit, the Board, school business manager and I are currently developing a fund balance policy that we anticipate will be adopted prior to the end of this year and that will help us establish a sufficient threshold of fund balance to maintain and provide appropriate cash flow to reduce dependence on short-term borrowing.

The report also indicated that the district did not “properly monitor” capital project finances dating back to 2006, which allowed for cost overruns. It is important to note that this occurred in an earlier phase of the district’s construction project—not the most recently completed project (Phase IV).

The cost overrun referred to in the report is linked to an early phase of the building project during which asbestos that had not been detected initially was uncovered after building renovations were well underway. District officials at the time had no other choice but to pay for abatement because it presented a health and safety risk. This type of unforeseen situation does tend to occur in older buildings that are undergoing renovations and is typically a costly fix.

We subsequently established internal controls to better keep track of capital fund expenditures and ensure costs did not exceed authorized amounts.

The audit contained a total of six recommendations to the Board of Education for managing finances going forward. Some of the recommendations have already been implemented as noted in the district’s corrective action plan, which was developed in response to the auditor’s findings.

For example, the audit recommended that the Board of Education develop “structurally balanced budgets for the general fund that include realistic estimates for revenues and expenditures.”

Steps implemented in fiscal year 2014 have allowed the district to better align recurring costs and revenues and we have since been able to erase 80 percent of the district’s deficit. We will also continue to seek ways to cut costs, such as our shared service agreement with the city for trash removal and our summer school partnership with the Cohoes City School District that allowed us to provide academic support for at-risk students during the summer.

Thanksgiving wishes

On another note, as Thanksgiving nears, I want to wish everyone a relaxing and blissful day shared among family and friends. I am thankful (and proud) every day to work in a district with such dedicated, hard-working teachers and staff, talented and enthusiastic students and a supportive community. Happy Thanksgiving!

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