District Prepares to End Year with $862K Deficit

The Octorara Area School District Board of Directors held their monthly Work Session Meeting, and Facilities Committee Meeting, on April 13, 2015. Eight Board Members were in attendance at the Work Session; Hank Oleyniczak was absent. Dr Tom Newcome, Superintendent, was also absent.

During the Work Session, the Board was presented the Agenda Items to be voted on at the Regular Meeting on April 20th.

Budget Presentation

Jeff Curtis, Business Manager, provided the Board with his projections for the 2014-15 Actual Expenses and Revenues.

District Prepares to End Year with $862K Deficit

The 2014-15 Budget expected revenues to be $47.7 Million. The current projected actual Revenue is $47.5 Million, or a shortfall of $175,299. Federal Revenues are the major cause, and is expected to be short by $143,979.

Expenses for 2014-15 were budgeted to be $49.2 Million. The current projected actual Expenses look to be coming in at $48.3 Million, for the end of the year, having the District expected to come under Budget by $819,391. The greatest saving came from Debt Service, in the amount of $382,153, thanks to the bond refinancing.

Another large savings (among others) came from Salaries, caused by (1) an unusual number of professional employees on unpaid leave, (2) retired employees being replaced by lower paid employees, and (3) new Administrators.

The difference between this year’s expected Revenues and Expenses creates a projected Deficit of $862,049.

Regular readers may remember, back in December, I reported the final audited numbers showed the 2013-14 School Year ending with a Deficit of $123,681. Deficit Spending has increased almost eight-fold in one year.

Those following these budgets know that over the last decade or more, the District has typically included Fund Money in Budgets to “balance,” while still taking large tax increases.

The reality of what was happening is the District was over-budgeting in a way that there only looked to be a need for Fund Balance to be used, and to justify massive tax increases. The tactic caused healthy Surpluses year after year.

However, over the last couple years, the District has kept taxes (in Chester County) flat without addressing the issue of spending and over-building the campus. The net result, in my opinion based on all the numbers I have seen, is there will be a continuation of large Deficits for years to come, even with the District taking the Act 1 tax increases.

Dan Carsley’s prediction more than a year ago, that the District is on a trajectory of going into a negative Fund Balance, is being proved correct. The District is on the path to going broke.

Facilities Committee

The Facilities Committee was provided with an estimate to repair the Tennis Courts. The proposal is at $33,250 for repairs that could last up to four years, but would come with no guarantee. Mr Curtis is getting bids for a full renovation, which could last as long as 25 years, and the item will become part of his 10 Year Capital Plan.

Mr Curtis is also collecting numbers on refinishing the High School Gym floor, which the current estimate is $18,500 with painted lines. Refinishing is a regular maintenance item that is typically done in-house, annually. However, the painted lines have started to come up. The District will be seeking information and estimates on refinishing with stained lines, which are believed to have a longer life expectancy.

The Committee was provided with information on black top repairs, filling in cracks and potholes. This is an annual maintenance item, to be paid out of the General Fund.

The District is also investigating the cost to build a 45,000 ft electrified fence, to enclose 12 acres of land, for the purpose of allowing the AG Program to raise beef cattle (on a part-time basis). The project has not yet been completely investigated, and still needs Board approval.

District Files for Fact-Finding

Lisa Bowman, Board President, read the following statement into the record:

Recently, the Octorara Area School District filed for fact finding with the Pennsylvania Labor Relations Board. This decision was made after approximately 15 months of negotiating with the Octorara Area Education Association. Fact finding is a process where the parties offer evidence to a neutral third party in the hopes they can resolve the impasse of negotiations. It is important to note, this process is non-binding on the parties, but gives the opportunity for a third party to review the issues and facts and make suggestions for a settlement between the parties. Over the years this process has led to settlements or at least the means for settlement after it has been completed.

This decision was not done in haste. The parties have meet over the last 15 months exchanging proposals and ideas in the hopes of settling the issues, to the point that we were able to agree to some items. Unfortunately, we are at a point where the parties cannot move any further. The Committee is hopeful this process will lead to a settlement sooner than later.

9 thoughts on “District Prepares to End Year with $862K Deficit

  1. The District is on the path to going broke.By the same token so are the taxpayers.This school is a money pit of epic proportion.

  2. Is there money set aside for retroactive pay raises in the event the teachers receive such compensation when the contract is finally resolved?

    • That really depends on how you want to look at the Budget. Having a $862K Deficit is with the District still under Budget by $819K. So, the “within the budget” answer is probably a bit different than the “within reality” answer.

    • This is what everyone must keep in mind.

      The 2015-16 Budget included $1.5 Million of Reserve Fund to balance and keep taxes (in Chester County) flat.

      This year, Plan-Con made a catch-up payment to the District for Bond Reimbursements, adding $360,000 to the 2014-2015 Revenue.

      Also, the District’s Bond Refinancing lowered Debt Service payments by $382,154.

      If it wasn’t for those two positive items, neither of which were guaranteed, our Deficit would be $1.6 Million, higher than what was budgeted, but with the District still being under Budget by $437,238.

      I know I haven’t directly answered your question, Mr Jones. However, I hope I am illustrating how messy this all really is.

      At this last meeting, It was stated that the tax increase in the 2015-16 Proposed Final Budget will raise a little over $700,000 in Revenue.

      So, let’s start doing the math…

      The District will have $1.7 Million of Fund Balance Appropriation in the 2015-16 Budget.

      We immediately start the year in hole by around $160K because the tax increase does not even cover the previous year’s Deficit.

      The 2015-16 Budget increases spending by $1.5 Million from the previous year’s Budget, making it $50.7 Million.

      There is a (slim) possibility of the Governor’s budget passing… that will add $1 Million in Revenue, not in the budget.

      If all the stars align, and we receive 100% of expected Revenue plus the Governor’s $1 Million, and we optimistically keep spending under budget at around $50.2 Million, that means we will still have a Deficit of $290K ending 2015-16. Those are the optimistic numbers.

      The realistic number, without the Governor’s Education spending, which don’t hold your breath, we can expect 2015-16 to end with a Deficit of $1.2 Million.

      We are now in a hole so deep that even if we limit future budget increases to future Act 1 tax increase limits, we will never dig ourselves out, and we will be at negative Fund Balance in a few short years.

      If the serious issues of cost are not tackled, we will need to have a property tax rate of 42.82 Mills by the end of the decade in order to balance… that equates to $6,852 in just school taxes on a property assessed at $160K.

      • Thank you Mr. Alexander. Do all of the Directors agree with your assumptions? If so, what actions are being discussed? If not, why?
        It does make me a bit nervous that you have written so completely on your ideas and positions, but have still not answered my initial question. I understand the politics behind avoiding the question, but I also know that the teachers and their advisors know the answer to my question so it does surprise me that you will not answer it. Thanks again for the thoughts you have shared.

      • My assumptions are based on a report Dan Carsley gave the Finance Committee in early 2014. Since that time, I have been the only Director to bring it up in meetings, and several months ago, there was a rather vigorous disagreement caused at a Committee Meeting when several members no longer wanted to be reminded of it, and were unwilling to accept it as plausible.

        Getting long range budgetary issues to become part of current budget discussions has been an uphill battle. That has changed a bit since Jeff Curtis became Business Manager. However, there are Board Members who I believe will not accept how direr our financial position is until either the Administration frames it in those terms or collapse actually happens.

        The math for all this is pretty straightforward. The District held taxes flat for two years, while allowing the Budget to grow at a rate greater than inflation. That is the cause of last year’s and this year’s Deficits. If the budget continues to grow at a rate consistent with the recent past (between 3-3.5%), and the District is limited to the Act 1 tax increases without exemptions, the Deficits will continue growing year after year.

        Add to this things like upgrading the Track to a competition approved condition, and any other nonessential spending that may crop up because someone may decide we “need” it, and we go broke even faster. As an example, there were Board Members who voted for the Armed Security Officer last year knowing it was being paid for with Reserve Funds, but really thinking that it was just on paper, not believing we were actually going to be paying for it with Reserve Funds because they didn’t accept Deficits were coming.

        We are reaching the breaking point of more than a decade of bad financial decisions and planning but, despite the harsh reality of the numbers, there seems an unwillingness to accept the truth.

        At this point, the only thing that has the ability to slow the impending doom, and buy the District some time, is the Governor’s Budget. Even then, it just slows things down, and we will still have Deficits.

        My prediction of needing to have a property tax rate of 42.82 Mills by the end of the decade in order to balance assumes the Budget continues to grow at current rates, and a zero Fund Balance. Maybe the realization of a $862K Deficit this year will change the way some think going forward but, as a Board, we are not yet collectively thinking that far ahead, and there has been resistance to that kind of planning.

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