BFR Committee Mtg - January 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

 

January 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, January 14, 2008. Chair Katharin Kelker called the meeting to order at 5:17 p.m. and led those assembled in the Pledge of Allegiance. Committee members present were: Katharin Kelker, Shanna Henry, Peter Grass, Dan Farmer, Joan Sleeth, Joel Guthals, Mary Jo Fox, and Curt Prchal. Absent were members Kari Altenburg and Don Stanaway. Duane Smith has resigned from the Committee due to other obligations. Also present was CFO Thomas Harper, Executive Director of Facility Services Rich Whitney, Skyview English teacher Rod Gottula, Superintendent Jack Copps, Jerry Hansen from the community, Trustee Kathleen Aragon, and Laura Tode of the Gazette.

 

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 10, 2007

2. Addition of Activities Construction ECA Account at Lincoln

Dan Farmer seconded the motion. The motion carried unanimously.

 

Budgeting For Results

 

At the January 21 Board meeting Chair Kelker will forward the Budgeting For Results Committee recommendation regarding the need to run a mill levy based on financial information presented. Maintenance issues will be addressed at a Joint Committee meeting on January 28. Katharin asked for additional input from Committee members regarding the budget and mill levy.

 

Curt Prchal joined the meeting at 5:22 p.m.

 

Thomas stated an elementary mill levy would not increase taxes for the individual home owner. They will actually see a decrease in taxes with the end of the elementary bond. The last mill levy was overwhelmingly supported by the public. A mail ballot election on May 6, 2008 requires 70 days advance notice of our intent to hold an election.

 

Chair Kelker reviewed a letter received from Lance Melton, Executive Director of the Montana School Board Association which noted since the State funds only 63% of our general fund budgets, a 24% increase in state funding over 4 years represents only 17.6% of adopted general fund budgets. The average increase of 4.4% is only 1% over the average inflation rate of 3.5%.

 

Peter Grass joined the meeting at 5:33 p.m.

 

Superintendent Copps was asked to report on what we would lose in the elementary district in terms of service and programs if we don’t run a mill levy. Even with the passage of a levy, we will have a $1M budget shortfall. This is based on the two major budget assumptions of a 9% insurance increase and a 3% cost of living salary adjustment. Some items being considered to cover the $1M shortfall are: 1) reduce elementary teachers by 10-14 FTE; 2) combination classes where possible; and 3) close Rimrock and move most Kindergartners back to home schools. Closure of Rimrock would eliminate operating costs (library, principal, staff, etc.) and maintenance costs (heating problem solution $400,000, and roof repairs $200K).

 

Article 10 of the Constitution says the legislature shall provide for quality schools; however, the State is giving us a 1.7% revenue increase which means District employees will see less than 1.2% cost of living increase.

 

Jack clarified that the 10-14 FTE teacher reduction would be taken care of through retirements rather than lay-offs. If there is no levy, or if the levy does not pass, the shortfall would be close to $2M in the elementary general fund budget and the reduction of FTE would double or include other adjustments. At this point we may have to enact the “sister school” concept in addition to other reconfigurations at some schools for efficiency.

 

Mary Jo Fox joined the meeting at 5:45 p.m.

 

Thomas clarified the FY2009 budget incorporated the move of $200K elementary costs back into the Elementary General Fund from Federal Indirects. Federal funds have also taken cuts and Indirects’ carryover funds are gone.

 

It was questioned if any new programs were added to the budget with the last mill levy that might supersede whatever we had in the past since new initiatives can eat away at General Fund dollars. Jack explained the Dual Credit initiative does not cost additional dollars. The Native American Achievement process is using last year’s resources as well as this year’s resources. We are only using Native American Achievement money that was specifically designated for that purpose from the State. We are also seeking federal assistance for that program. Thomas said we have $400k of Kindergarten one-time-only money left; and, money from last year’s mill levy is used to fund present operating costs. Thomas said the opening of Beartooth Elementary was funded by utilizing money saved from the previous year’s budget, one-time-only money, Building Reserve, and some Deferred Weatherization & Maintenance money.

 

The impact on the middle schools was questioned. Jack said middle school money has been used all along to subsidize K-6 operations since they generate $19M revenue, but only use $14M. All opportunities will be considered to generate savings.

 

Joel Guthals moved that this Committee shall recommend to the School Board to run a mill levy election in the Elementary District for a 5.71 mill increase for $870,672. Mary Jo Fox seconded the motion. Dan pointed out that we need to be mindful of how we present the information to voters regarding the levy. The motion carried unanimously.

 

Jack noted that the City and County pay for cost of living increases through taxes, but they don’t require a vote – only school districts require a vote. 80% of our budget is driven by permissive mills or by the State, leaving a 20% obligation to the voters to insure salaries remain competitive. If the levy does not pass, we will be making significant cutbacks. The average increase at AA schools in negotiations for next year exceeds 3%. It will be a challenge to raise salaries at the lower end of the salary scale to retain non-certified employees.

 

Deferred Maintenance-Discussion & Recommendation on Bond or Building Reserve Levy

 

Thomas reviewed our legal debt margin FY2008. Using the statewide average taxable valuation per student multiplied by the average number of students belonging in a particular district multiplied by 45% allows us to legally bond the amount of $139,736,107 in the elementary district and $153,124,503 in the high school district. D. A. Davidson & Co. has calculated an estimated mill levy impact analysis for 20-year bonds at approximately a 5% interest rate to be:

Elementary High School

Principal Amount of Bonds $41,400,000 $32,375,000

Tot. Interest Over Life of Bonds $24,560,000 $19,585,000

Est. Annual Bond Payment $3,298,000 $2,598,000

LESS: Est. Annual State Aid for Debt Service $1,478,104 $1,002,666

EQUALS: Est. Net Annual Debt Service $1,819,896 $1,595,334

DIVIDED BY: FY2007/08 Mill Value $147,828.459 $188,762.499

EQUALS: Est. Number of Mills Required 12.31 8.45

 

We are currently paying almost 10 mills on the elementary bond which expires in 2008. The advantage of bonds over a building reserve levy is the State portion returned to us. The optimal State share of payment would be a bond of about 10 years; however, 85% must be spent in 3 years which creates a potential problem for multiple projects. Bonds can be staggered, but it creates a risk with interest rates and project costs.

 

Discussion was held on the need for the community to agree upon the level of investment they want to make in schools, and the value of doing deferred maintenance on 100 year old school buildings vs. new construction. Bonds would address a major portion of deferred maintenance and then projects would need to be prioritized.

 

Rich estimates there is approximately $85M of deferred maintenance projects using the minimum criteria of warm, dry, safe, and accessible. Energy savings is an incidental result of these projects. Discussion was held if it was necessary to have only projects that last as long as the length of the bond, or if the bonds should be staggered. We need a financial plan and a facilities plan hand-in-hand with a vision toward the future.

 

Joel believes if we proceed with a massive bond issue we should have a line item listed for maintenance of facilities which may entail cutting programs. He would like to add the criteria of “efficiency of energy and maintenance.” It was suggested the list of projects on the deferred maintenance list be analyzed to see if they are still current or applicable. Katharin stated the criterion of “educationally sound” is not included in the $85M list of projects. We should ask the question if we’ve reached the point where putting money into a building, even though it makes it safer or warm and dry, may not be worth it if the educational value of the building is decreasing faster than we can improve it.

 

Jerry Hansen addressed the Committee saying he is not convinced a $40M bond issue is large enough; and, he believes a 20-year term for a bond is too long.

 

Joel Guthals moved that this Committee finds the deferred maintenance facing Billings Public Schools is in the neighborhood of a minimum of $85M and because of the massive expenditure that is involved in solving the deferred maintenance program, this Committee recommends to the School Board that this should be addressed through bonds rather than building reserve levies; and, we further recommend the School Board consider issuing bonds staggered over a period of years. Mary Jo Fox seconded the motion. The motion carried unanimously.

 

Joel Guthals moved that this Committee recommend to the School Board that the following criteria shall be considered with respect to the deferred maintenance projects that we put in the bonds: safe, warm, dry, accessible, efficient, and educationally functional. Curt Prchal seconded the motion. The motion carried unanimously.

 

Bills Paid – December, 2007 (summary sheet)

 

Peter Grass moved to recommend Board approval of the bills paid for December, 2007. Mary Jo Fox seconded the motion. The motion carried unanimously.

 

Financial Reports – December, 2007 (Unaudited)

 

The Committee reviewed the unaudited Financial Reports for December, 2007. There were no questions or concerns.

 

Health Insurance – Financials – November, 2007

 

The Committee reviewed the Health Insurance Financials for November, 2007. The fund balance is $3.8M. Joel asked if his request to investigate programs available through MTSBA had been done. Thomas stated it had been referred to Dan Martin, the administrative liaison on the Health Insurance Committee. A future agenda item may be a joint meeting with the Health Insurance Committee.

 

Adjournment

 

There being no further business, the meeting was adjourned at 7:35 p.m.

 

 

 

 

Katharin Kelker, Chair

 

 

 

 

Sherrill Sullins, Recorder