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Business Committee-Jan. 09, 2006


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Proceedings of the Business Committee

School District No. 2, Yellowstone County

High School District No. 2, Yellowstone County

Billings, Montana

 

January 09, 2006

 

Call to Order

 

The Business Committee meeting of School District No. 2, Yellowstone County and High School District No. 2, Yellowstone County, Montana was held at Lincoln Center, 415 North 30th Street, Billings, Montana, on Monday, January 09, 2006. Acting Chair Katharin Kelker called the meeting to order at 5:30 p.m. and led those assembled in the Pledge of Allegiance. Committee members present were Katharin Kelker, Joel Guthals, Jerry Hansen, Shanna Henry, Peter Grass, Curt Prchal, Joan Sleeth, Randy Durr, and Kari Altenburg. Chair K. Dale Getz joined the meeting at 5:35 p.m. Also in attendance were Business Manager Thomas Harper, Technology Director Karen Palmer, and Bridget Ekstrom of D. A. Davidson & Co.

 

Communication From the Public

 

No one wished to address the Committee at this time.

 

Consent Agenda

 

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

1. Minutes of December 12, 2005

Shanna Henry seconded the motion. The motion carried unanimously.

 

Impact of Reserves on Bond Rating

 

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. D.A. Davidson & Co. serves as financial advisor to governmental entities in issuing bonds. 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.

 

Most states have a negotiated bond issue process. 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.

 

Interest rates are critical on longer term loans. One thing that helps secure a lower interest rate on bonds is a good credit rating. Our A-1 rating is the best in the State for school districts. Billings Elementary General Fund revenues have increased 9.11% over the last five years while expenditures have increased 7.1% over the same period. That leaves a fund balance (revenues minus expenditures) increase of 2.27%. The primary benchmark used by rating agencies is fund balance as a percent of expenditures. Over the past five years the Elementary District has been in the favorable range of 7.71% - 9.34%. The High School General Fund revenues have increased 24.3% while expenditures have increased 15.7%. The fund balance has increased 10.85% over this same period. The fund balance as a percent of expenditures for the High School District ranges from 3.56% - 5.54%. Moody’s rating would recommend those ranges be in the 5% - 8% range for better reserve levels. 5% of last year’s expenditures would be $1,472,652 which is an increase of $342,000 over the 2004/05 year numbers as a benchmark target figure.

 

Our A-1 bond rating is by Moody’s only. A bond issue over $15M would usually seek two ratings, using Standard & Poor’s for the second one. Standard & Poor’s suggest 10 ways to improve or maintain a municipal credit rating as follows:

 

 

1. Establish or enhance rainy day/budget stabilization reserves.

2. Establish regular economic and revenue reviews to identify potential budget problems early.

3. Prioritize spending plans and establish contingency plans for operating budgets as a fallback financial strategy.

4. Have a formalized capital improvement plan in order to assess future infrastructure requirements.

5. Establish a debt affordability model to evaluate your future debt profile.

6. Develop a pay-as-you-go financing strategy as part of your operating and capital budget.

7. Consider the affordability of actions or plans before they become part of your budget by analyzing revenue and spending as part of a multi-year financial plan.

8. Long-term planning for all liabilities of a government, including pension obligations and contingent liabilities would be optimal and would allow for comprehensive assessment of future budgetary risks.

9. Establish and maintain effective management systems.

10. Have a well-defined and coordinated economic development strategy.

 

The last levy for the 2004 Elementary $10M bond issue is the 2007-2008 year. If we run another election in March, 2008, for another elementary bond issue, we would sell bonds in June, 2008 and it would go on the tax roles for the 2008-2009 year.

 

The State Reimbursement Program started in 1991 whereby the State has a pool of money for school districts that have a mill value per student less than the State-wide average. Because we have a mill value less than the State-wide average, we would get some reimbursement for our debt service. The State has increasingly added to the pool of money available. The last session the pool was $10.4M, and the last biennium the pool was $8.2M and $8.4M. Last year the pool of money was only sufficient to provide 81% of the eligible payments; this is due to more districts using that pool. The State is trying to do a better job of increasing this pool of money. Each district has a maximum entitlement based on their number of students: elementary is $300 per K-6 student; middle school is $370 per 7-8 grade student; and, high school is $450 per 9-12 grade student. If debt service is over the maximum entitlement, they will base our payment on the lesser of the two numbers.

 

FY2005-06 the Elementary District is receiving 44% of the maximum entitlement because we are at 81% of the pro-rata number. Next year the State is hoping to be at 100% of our eligible payment. FY2005-06 the High School District is receiving 39% of the maximum entitlement. Debt Service is our principal and interest payments on bond issues. To figure what we are getting in State Aid, you divide the District mill value per ANB by the State-wide mill value to get the District’s share of bond payment percentage. If the District’s mill value exceeds the statewide mill value, the District share is 100%. The State share of the bond payment is 100% less the District share. The State share times the maximum District entitlement times the Pro-rata percent gives you the estimated annual State advance for the bond payments.

 

A potential increase in our reserve levels in the High School General Fund of $300K-$350K yields potentially, at current interest rates, about $18M (assuming 25 basis points difference) in interest savings over 20 years (approx. $90K/year).

 

A review of our Annual Financial Statement by Moody’s elicited the following comments from their analyst:

1. Prefer a breakout of Elementary and High School financials in the report.

2. Should have a General Fund Balance policy, practice or target in the 5-8% range.

3. Why has the Elementary General Fund Balance declined since 2003?

4. We need a plan to increase the General Fund balances and should develop difference scenarios regarding funding and circumstances that affect operating results and develop action plans.

 

A review of our Annual Financial Statement by Standard & Poor’s Rating Agency was similar but added we should have a floor on the reserve level; budget for teacher salaries and colas, health care, and benefits, etc.

 

Under an estimated mill levy impact analysis statement, a $51M bond issue for a 10-year term would be 33.30 mills which would be an annual tax of $156.25 on a $200K home. A $51M bond issue for a 20-year term would be 19.66 mills which would be an annual tax of $92.25 on a $200K home. For this same 10-year bond the interest rate would be 4.75% whereas the 20-year bond interest rate would be 5.25% (an increase of $18.6M in interest costs).

 

The 2005 Legislature changed thresholds for bond elections. For a bond election held at a general election, at a mail ballot election, or at a special election that is held in conjunction with a regular or primary election, the outcome will be determined based on a simple majority of votes cast. For a bond election held at the time of the regular school (trustee) election or a special election, HB 574 maintained the current requirement to include voter turnout as a factor. Passage of bond elections under these conditions requires: a) a majority of votes cast if voter turnout is at least 40%; b) 60% of votes cast if voter turnout is more than 30% and less than 40%; and c) the election fails if voter turnout is 30% or less.

 

Jerry Hansen would like to see the annual report address the items listed in the Standard & Poor’s article and breakout the elementary and high school financials. He endorses Board adoption of policy to rebuild our declining reserves.

 

Application for Business Committee Membership

 

An application for Business Committee membership has been received from community member Tim Cranston.

 

Shanna Henry moved to recommend Board approval of Tim Cranston as a community member to the Business Committee. Randy Durr seconded the motion. The motion carried unanimously.

 

Awarding of RFP R-135-L-205 for Wide Area Networks, Telephones and Internet Service

 

District contracts for Wide Area Network, Internet and Telephone Service expire on June 30, 2006. In keeping with Federal E-rate program requirements, the District issued a Request for Proposal on November 22, 2005. Usage of network and Internet bandwidth has increased more than five fold over the past three years, and the use of network based grading, attendance, library circulation and curriculum continue to increase. The new contracts expand T1 data contracts to Fiber Optic service, and expiring 10Mbps Internet service contracts to upgrade to 20Mbps. We should benefit from increased performance on databases such as Zangle and Bi-Tech along with increased access to academic and curricular tools such as video conferencing and improved speed and availability. There will be an annual savings and the improved network will allow centralization of building file servers resulting in less hardware, software licensing, management and energy costs. This service would be in place by July 1, 2006. Karen recommends awarding the contracts to the following vendors:

 

Wide Area Network: Bresnan Communications Est. Annual cost $210,000.00

Telephone Service: OneEighty Communications “ $168,790.20

Internet Service: Transaria “ $ 38,376.00

 

Long Distance: (no award) Spring Long Distance “ $ 6,912.72

Less estimated E-rate at 50% leaves a District commitment of: $212,039.46

Estimated annual savings over current year: $ (27,169.01)

 

Non-Recurring (one-time installation) Charges by Bresnan Comm. $300,000.00

Less estimated E-rate at 50% leaves a District commitment of: $150,000.00

 

Karen suggests using an INTERCAP loan for two years to meet the non-recurring charges.

 

Katharin Kelker moved to recommend Board approval of the recommendations from Karen Palmer for our Internet Service, Telephone Service, Wide Area Network and Long Distance Service. Jerry Hansen seconded the motion. The motion carried unanimously.

 

 

 

 

 

Bills Paid – December 2005

 

Joel Guthals moved to recommend Board approval of the Bills Paid report for December, 2005. Katharin Kelker seconded the motion. Jerry asked Thomas to provide a list showing where all of the computers went that were purchased by the warehouse. The motion carried unanimously.

 

Financial Reports – December, 2005 (Unaudited)

 

The Committee reviewed the unaudited financial reports for December, 2005. Thomas said we are seeing a 28% increase in utilities in elementary and a 9% increase in high school utilities as of October. Joel reported the Energy Innovation Committee met twice in December and decided there was a need to immediately address conservation of energy. They forwarded recommendations to decrease energy usage to the Superintendent to circulate. The recommendations could potentially save $100-150K in energy bills. It goes to the Board for approval next week.

 

Progress Update on IFAS 7i, Procurement Cards, & Reimbursements

 

Thomas reported the IFAS 7i web version should go on line in February. We are ready to begin the procurement card process but are delayed by a job reclassification. The Business Office will be publishing a quarterly newsletter which is also posted on the website. Results-based budget process updates will be posted to a separate website.

 

Update on Results-Based Budget Process

 

The Outcomes-Based Budget Committee has 16 members from various stakeholder groups and they will hold their first meeting on February 1, 2006.

 

Montana Unified School Trust Annual Report 2004/05 Yr

 

The Montana Unified School Trust Annual Report was presented for information only.

 

General Comments/Announcements

 

The next Business Committee meeting will be Monday, February 6, 2006.

 

Adjournment

 

There being no further business the meeting was adjourned at 7:36 p.m.

 

 

 

 

K. Dale Getz, Chair

 

 

 

 

Sherrill Sullins, Recorder

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