The Octorara Area School District Board of Directors held their monthly Work Session Meeting on Monday, April 11, 2016. Prior were the Policy and Facilities Committee meetings. All nine Board Members were in attendance.
As you may be aware, Pennsylvania’s budget impasse has come to an end… at least for now. The General Assembly passed a spending bill that became law when Gov. Wolf refused to sign it. This will provide over $200,000 in additional revenue to Octorara for the current 2015-2016 school year.
We now need to hold our breath for the 2016-2017 school year budget. Based on what has been submitted by Gov. Wolf, Octorara may receive over $500,000 in additional state revenue above 2014-2015 numbers. Nonetheless, it is not much to become excited about. Almost the entire amount gets gobbled up by increases to the Pennsylvania Public School Employees’ Retirement System.
Dr. Newcome provided a “Discussion Guide” for the meeting on the topic of budget cuts. Only certain items from the original Potential Reduction List were included: (1) Items with general agreement, (2) Items that were discussed but need follow-up, and (3) other “blue” items. Blue highlighted items, from the original list, were labeled as those that “may” affect programs.
Agreed Upon — $151,000
- Administration Office Cuts — $30,000
- Reduce Building Budgets — $60,000
- Substitute Teacher Reductions — $50,000
- Assistant Principle/Athletic Director Reorganization — $11,000
Need Follow-up — $90,000
- Reduce Traffic Control/Security — $25,000
- Eliminate Library as a Unified Arts Class — $65,000
Other “BLUE” Items — $396,800
- Do not replace Grade 7-8 Health/PE Position — $107,000
- Reduce Athletic Coaching Staff — $10,8000
- Replace 50% of Grade 7-8 Spanish Position — $79,000
- Do Not Replace First Retirement K-4 — $100,000
- Do Not Replace Second Retirement K-4 — $100,000
The total of items on the discussion guide was $637,800. However, savings from not replacing retiring teachers is contingent on teachers actually retiring and when. It was noted this list was not a recommendation of cuts, and the other items from the original Potential Reduction List are up for discussion. The Discussion Guide was only an attempt to prioritize the “blue” items.
Lisa Bowman expressed support for all items on the Discussion Guide with the exception of not replacing the second K-4 retirement. She also seemed to indicate she would support reducing the tax increase to only 2,5 percent, noting there needs to be a combination of cuts and a tax increase.
Sam Ganow also agreed with the support of listed items. with the exception of the second retirement. However, he would prefer to limit cuts to the original goal of $420,000.
Brian Norris limited comments to a leaning opposition to consolidating the traffic control and armed security positions, and for support for not replacing the Grade 7-8 Health/PE position.
I supported each of the cuts with the exception of both retiring K-4 teacher positions. I argued alternatives should be considered first. It should be noted here, we can debate if this or that has a positive impact, but only teachers can teach. We may agree that an enhanced student experience has merit, but only teachers can teach. Technology, when used properly, may be a great tool for learning, but only teachers can teach.
Capital Funding & Debt Service
Jeff Curtis provided information on Octroara’s Debt Service during the Facilities Committee Meeting. Over the past several years, the District has benefited from low-interest rates, which has allowed Octorara to refinance portions of debt. The savings was applied to our debt service as credits, but those credits are going away.
The credit this year (2015-2016) is around $700,000. The credit next year (2016-2017) reduces to roughly $350,000. The loss of these credits are fully realized in 2017-2018, and will need to be paid out of revenue.
Our next opportunity to refinance debt are bonds that do not have call dates until 2019. The current interest rates on those bonds are 4.41 percent (Series A) and 4.34 percent (Series B). Mr. Curtis states that to be beneficial, the interest rate at the time of refinancing needs to be a reduction of 3 percentage points. So, we will ideally need to see interest rates at around 1.4 percent.
Mr. Curtis explained our bond rates are tied to the 10 Year Treasury. Yesterday, the yield was 1.73 percent. If we could refinance today, we would probably save but we can’t. Moreover, the probability of the 10 Year Treasury continuing to be this low is unlikely.
Historic 10 Year Treasury Yields
- April 10, 2015 — 1.96%
- April 11, 2014 — 2.63%
- April 11, 2013 — 1.82%
- April 11, 2012 — 2.05%
- April 11, 2011 — 3.59%
- April 12, 2010 — 3.84%
- April 11, 2005 — 4.45%
- April 11, 2000 — 5.89%
- April 11, 1995 — 7.09%
- April 11, 1990 — 8.63%
What does this mean? We cannot bank on continued slow economic growth and potential recessions to keep interest rates on the 10 Year Treasury low. In fact, we will all be in a world of hurt if interest rates continue to remain at these historic lows. We should expect the benefits of refinancing debt has come to an end.
Now think about this. We had a credit from refinancing debt in 2014-2015 and still had a deficit. This school year, we have the potential to maybe (hopefully) break even, but without the credits, we would be staring down the barrel of a $700,000 deficit. Moreover, budgets will continue to grow.
The cuts we are discussing are cuts in future spending. They are not cuts to the current actual budget. As these credits go away, we have to pay for their loss and also pay for spending increases. So… thoughts? …comments? …ideas?