Budgeting For Results Comm - April 14, 2008

[Guest sullinss]

Proceedings of the Budgeting For Results Committee

School District No. 2, Yellowstone County

High School District No. 2, Yellowstone County

Billings, Montana

 

April 14, 2008

Call to Order

 

The Budgeting For Results Committee of School District No. 2, Yellowstone County and High School District No. 2, Yellowstone County, Montana met at Lincoln Center, 415 North 30th Street, Billings, Montana, on Monday, April 14, 2008. Chair Katharin Kelker called the meeting to order at 5:15 p.m. and led those assembled in the Pledge of Allegiance. Committee members present were: Katharin Kelker, Shanna Henry, Peter Grass, Joan Sleeth, Joel Guthals, Mary Jo Fox, and Dan Farmer. Absent were members Don Stanaway, Kari Altenburg, and Curt Prchal. Also present was CFO Thomas Harper, Skyview English teacher Rod Gottula, District Clerk Leo Hudetz, Trustee Peter Gesuale, Exec. Director of Facilities Rich Whitney, D.A. Davidson & Co., VP Bridget Ekstrom, and Jerry Hansen from the community.

 

Communication From the Public

 

No one wished to address the Committee at this time.

 

Consent Agenda

 

Joel Guthals moved to recommend Board approval of the Consent Agenda item as follows:

1. Minutes of March 10, 2008

Dan Farmer seconded the motion. The motion carried unanimously.

 

Bond Issue Process

 

Chair Kelker stated our District has an estimated $85M of deferred building maintenance. This Committee is trying to determine what we as a debt-free District could do to finance some of these projects, what kind of a time-line could be implemented, and how it would affect our obligations. The Board and Administration is developing a long-term facilities plan. They are considering renovating a couple elementary schools to the standard of the Orchard School facilities, and possibly building a new elementary school.

 

Bridget Ekstrom, Vice President, Public Finance, with D.A. Davidson & Co. in Bozeman, was invited to present information regarding marketplace trends that influence bond issue ratings. Bridget has served as a Financial Advisor for over 16 years to Montana schools and other governmental issuers, including the $10M of A1 rated Billings Elementary bonds sold in 2004. They work with schools to collect information for the rating process and help with things that make the bond issue marketable to the underwriter to secure the best interest rate possible.

 

Montana has a competitive sale process whereby in selling the bond the district cannot go directly to specific companies to set the interest rate. Instead, they go through a competitive sale process where a prospectus with all credit information is sent to a list of potential bidders. On a specific date bids are received on the bond issue, and whoever bids the lowest interest rate is awarded the sale.

 

A good credit rating helps secure a lower interest rate on bonds. Rating agencies examine past audits and trends and capital improvement plans. Rating agencies like to see districts implement policy regarding maintaining/improving reserve levels. The ending fund balance as a percent of expenditures should be in the range of 8-10%. Our District currently has an A1 rating.

 

Thomas reported that our elementary and high school reserves are about 5%. We are working on a formal policy regarding fund balances, and best practices, etc., based on recommendations from the Government Finance Officers Association (GFOA).

 

Bridget said having policies in place is important and may help mitigate concerns about reserve levels by the rating agencies. We will most likely maintain our A1 rating. The trend is for purchasers to look at the underlying credit rating rather than the rating of the insurers. Interest rates on bonds have been between 4-5% since year 2002.

 

By State law every school district has a debt limitation based primarily on ANB enrollment. Our District has an estimated debt capacity of $144M in the Elementary District and $163M in the High School District. The current estimated State share of a bond payment for reimbursement would be 45.72%, or $1.5M in year one in our Elementary District; and, 38.68%, or $1M in year one in our High School District. This is based on an example of a 10-year $35M elementary bond; whereby, because the estimated bond payment is higher than the District entitlement, the State would only pay us 45.72% of the entitlement (cap). We should not tell voters that 45.72% of the bond will be paid by the State. The same scenario holds true based on the example provided of a 10-year $40M high school bond. Schools maximize their State aid when the debt service number is the same as the entitlement number.

 

We can approve one large bond and phase in smaller series on shorter terms, so we’re not issuing the total amount of the bond in one year. It’s a challenge to educate the taxpayers in a way they understand and trust that we are not putting it all on the tax roles in one year. It’s beneficial to take advantage of shorter term bonds due to rising construction costs. We need to educate voters on what we expect and when we expect to issue the bonds. When we issue bonds we state we expect to expend 85% of those bond proceeds within three years. If we don’t meet this expectation, our interest earnings on the bond proceeds would be rebateable back to the IRS since they don’t want us to earn money on interest earnings from these bonds. The elementary bond issue of 2004 ending this year should reduce taxes on a $100K home by approximately $5 per month. Estimated mill levy impacts on proposed general obligation bonds were presented as a point of information. If we hold a bond election with the November general election, it would take two years to get it on the tax roles; therefore, many districts are having their bond election in August to enable earlier implementation.

 

Approval of 403(b) Plan Document

 

Leo Hudetz reported last summer the IRS issued new regulations covering 403(b) Deferred Compensation plans. This plan is similar to 401(k) plans in the private sector. Public schools cannot offer 401(k) plans. Currently the District offers employees the opportunity to utilize this arrangement that defers taxes on compensation and builds a retirement fund for employees. The District does not now, nor does it intend to, contribute to these individual plans with District funds.

 

The new IRS regulations require that public schools have more of a fiduciary responsibility over these plans. The IRS requires these regulations be fully implemented by January 1, 2009. The District will need to establish a plan document and decide on a number of issues including participation, loans from the plan, portability, and number of vendors and use of third party administrators.

 

An ad hoc 403(b) committee was formed in December, 2007 and has approved a plan document based on IRS model language. It has been reviewed by Gallagher Benefit Services and their attorneys which found the language to be in compliance with IRS guidelines.

 

Some highlights of the 403(b) Plan Document are as follows:

• All employees are eligible

• Roth contributions allowable

• Loans allowable

• Hardship withdrawals allowable

• Rollovers from other plans allowable

• Transfers from non-approved vendors allowable

• Permissive service credit transfers allowable

• Third party administrator fees paid by participants

 

The ad hoc committee is asking the Budgeting For Results Committee to review the plan and forward it to the Board for approval. The plan will be sent out for bid to vendors who wish to be a provider on the plan. It will come back to the BFR Committee with recommendations. Bids are organized into four different scenarios: 1) one provider model with fees; 2) single provider with open architecture (offer multiple companies within plan); 3) third-party administrators with 6-10 providers and fees; and 4) third-party administrators with all 60 providers and fees. The intent is to provide better planning for employees. An employee meeting has been held for plan review and input. There is no payroll tax savings to the District; this is purely an employee benefit. There is an administrative cost to the District. Approximately 400 employees are currently enrolled in a 403(b) plan. If they wish to continue participation they must be under the new plan. All employees are eligible with no restrictions. If we hire a third party administrator, the participants will split the costs. This plan is not subject to ERISA, but the IRS may move toward it in the future.

 

Joel Guthals moved to recommend the Board approve the 403(b) Plan Document which is set forth on page 26 within and thereafter in our packet. Mary Jo Fox seconded the motion. The motion carried unanimously.

 

Award Bid for Eagle Cliffs Elementary – Roof Repairs 2008

 

Wind damage at Eagle Cliffs Elementary requires repair for edging and fasteners on the roof. This job would add many years of useful service to the roof, and it is required to prevent the roof membrane from blowing off. A bid was let for the above project and opened on April 10, 2008. Bid results are as follows:

 

Contractor Bid Total

Empire Heating and Cooling $57,956 $57,956

Bradford Roofing $59,900 $59,900

 

Facility Services recommends the project be awarded to Empire Heating and Cooling to be funded from the Elementary Building Reserve Fund 161.

 

Mary Jo Fox moved to recommend the Board award the bid for Eagle Cliffs Elementary School roof repairs for 2008 project to Empire Heating and Cooling based on their lowest bid of $57,956. Joan Sleeth seconded the motion. The motion carried unanimously.

 

Budgeting For Results – Budget Forecast Update

 

Thomas reported our shortfall in the Elementary District FY2009 is about $3.4M and about $2.8 in the High School District. This assumes Facilities and other costs previously funded from Indirects are moved back into the General Fund, passage of the mill levy, vacancy savings, a 3% salary Increase, 2% health insurance increase, 3% general liability insurance increase, and 5% for repairs and maintenance supplies. After implementing proposed budget solutions a $900K shortfall in the High School District remains.

 

Bills Paid – March, 2008

 

Shanna Henry moved to recommend the Board approve the bills paid for March, 2008. Mary Jo Fox seconded the motion.

 

Thomas reported the PCard is a major success allowing us to see transactions immediately for better internal control and monitoring. We also initiated the PaySchools and MealTime on-line programs which eliminate a lot of cash handling at the school level.

 

The motion carried unanimously.

 

Financial Reports – March, 2008 (Unaudited)

 

The Committee reviewed the unaudited Financial Reports for March, 2008. Thomas reported there is nothing significant to report; we are on track from a budget standpoint. He does not foresee a need for a budget amendment. There may be a potential problem with costs of elementary retirements estimated to be $1M. Last year contract language was equalized for all bargaining units regarding severance pay which will add to our compensated absence liability. Our investments through Yellowstone County are currently reporting a year-to-date yield of 4.53%.

 

Health Insurance – Financial Statements – February, 2008

 

The Committee reviewed the Health Insurance Financials for February, 2008. The fund balance is $4,253,661.43. Joel asked if the Insurance Committee has examined any alternatives for health insurance. Thomas believes it’s appropriate to have the Insurance Committee report to us at a future meeting. Rod reported the Insurance Committee has looked at several options in the past and our self funded plan has been the best option. It is exceptional in today’s market that we will only require a 2% increase in premiums next year.

 

Adjournment

 

There being no further business, the meeting was adjourned at 7:38 p.m.

 

 

 

 

Katharin Kelker, Chair

 

 

 

 

Sherrill Sullins, Recorder