Facing a barrage of criticism from Harford County Executive David Craig over their handling of the budget, the School Board on Monday fired back, defending their actions as a necessary response to the rising cost of doing business, unfunded mandates, and shrinking revenues.
The criticism from Craig, who is also a gubernatorial candidate for 2014, coincided with a backlash from parents this summer over the Board’s budget-driven cuts to bus transportation services, and the implementation of pay-to-play and student activity fees in the upcoming school year.
In a statement Monday, Board President Nancy Reynolds acknowledged the burden on parents, but said the budget moves were necessary to balance the budget with available funding.
Mind the Gap
In a presentation he called “Budgeting 101”, HCPS Chief of Administration Joe Licata said that the school system, like other Maryland public school systems, is fiscally dependent on funding provided by local, state and federal government.
For the fiscal year 2014, Licata said that the School Board had a $21 million gap between revenues and expenditures, driven by a $6 million revenue drop, mainly in state aid, and a $15 million increase in planned expenditures.
The costs of doing business and mandates underlie expenditures, Licata said. The expenditure increase in fiscal year 2014 also included raises for employees, later scrapped to help balance the budget.
State aid was down compared to last year, mainly due to a relative increase in the county’s wealth compared to the other 23 Maryland jurisdictions, said Jim Jewell, HCPS assistant superintendent for business services. In such cases, the state funding formula cuts aid to the local school system, assuming that county government will use local tax revenues to make up the loss, he said.
County funding did increase slightly this year, but not enough to offset the loss in state aid, and far from the $21 million requested by the Board to close their budget gap.
As a result, the Board made “drastic” cuts, such as cutting 85 teaching positions, Licata said, in addition to cutting back on bus service and adding the new pay-to-play fees. Overall, the school system’s $424.7 million operating budget for the fiscal year 2014 was $5.3 million less than last year, Licata said.
Responding to prior statements by Craig that the school system had added 550 positions since he became county executive, while the student population had declined, Jewell said that from fiscal year 2005 to 2014, a total of 434.8 positions had been added, many of which were required by law.
Of the total, Jewell said that 184.9 were inclusion helpers for special education students; and 131.2 were teachers and counselors, mainly for special education.
Jewell said that since 2011, 227.3 positions had been eliminated because of increased costs and not enough revenue, later noting that the county executive had requested and received $3.9 million in funding back from the school system in one prior year, and $500,000 in another.
Licata said that enrollment declined by 354 students last year, but the distribution of the losses among 54 schools didn’t allow for teaching positions to necessarily be saved as a result. The enrollment loss also contributed to the decline in state aid, he said.
Craig’s most recent critique came in a letter to Board President Reynolds, read into the record by a spokesman at the Monday meeting.
Craig’s letter questioned the school system’s need for an overall $25 million “fund balance”, including what he said was an unassigned fund balance of $13 million. The fund balance is an accumulated excess of revenues over budgeted expenses at a particular point in time.
Craig’s letter was greeted with applause by parents at the meeting. However, Board Member Jim Thornton warned the public: “It’s important… to understand that this is a side of the story,” he said. “…We hopefully will not leave here with the misimpression that this school board had in excess $25 million to use to offset the shortfall of the $21 million that we requested from the county executive.” Thornton asked staff to elaborate.
Jewell said that of the $25 million “supposed” fund balance on hand as of June 30, 2012, about half, or $12.6 million was assigned, primarily to cover budgeted expenses in the 2013 fiscal year that just ended.
Since the economic downturn, HCPS has been using year-end fund balances to offset expenses in the following year.
Of the remaining half, or $13.1 million, Jewell said that $7.3 million was held in reserve for the Health Care Consortium Rate Stabilization Fund, a self-insured group of government agencies that also includes Harford Community College and Harford County Public Library. While the school system paid in excess of $70 million in annual healthcare and dental benefits for employees, Jewell said the reserve was needed to cover unexpected claims when premiums didn’t cover the cost of benefits plus administrative costs: “If it doesn’t, then you have to write a check to the insurance carrier, “Jewell said “…So, there is no $25 million or $13 million lying around unused.”
Asked for further clarification about the unassigned fund balance, HCPS Finance Director Jay Staab told The Dagger on Thursday that the $7.3 million for the Healthcare Consortium Rate Stabilization Fund was a required reserve, leaving an actual unassigned fund balance of $6.1 million as of June 30, 2012. The operating budget for that year was $427 million, according to published reports.
Staab also said that the school system was required by law to have a positive year-end balance in each of the 14 budget reporting categories established by the state. “We can’t overspend in any of the categories,” he said.
Healthcare Consortium Rate Stabilization Fund
Craig on Tuesday conceded that some of the $7.3 million he counted as unassigned may have been necessary for the Healthcare Consortium Rate Stabilization Fund, but he questioned the amount set aside. “It’s way over what’s needed,” he said, declining to name a figure but suggesting that the reserve could have been cut by $1 million to spare the transportation cuts and roll back pay-to-play fees.
The school system should rely on the county for rainy day funds, Craig said, and their year-end unassigned fund balance should be “zero.”
Craig’s letter also questioned what he said were dozens of line items in the school system’s budget that were ‘overbudgeted’, or budgeted in excess of the amount spent in prior years. Using legal fees as one example, Craig wrote that $59,000 had been budgeted for the line item in fiscal year 2014, but only $8,000 had been spent in the last two years reported – the fiscal years 2011 and 2012. Board President Nancy Reynolds said on Monday that the actual expense in fiscal year 2013 was $52,000.
Board Vice-President Rick Grambo and Board Member Jim Thornton raised the specter of the school system’s growing unfunded obligation to retirees for health, life and dental insurance, known as Other Post-Employment Benefits or OPEB. Thornton warned that the school system depended on government authorities to fully fund the necessary annual contributions, and cited unfunded obligations in the bankruptcy of the City of Detroit.
Jewell said that the school system’s $163 million net unfunded obligation in OPEB, up from last year’s $127 million, would continue to grow “exponentially” because the contributions continued to be underfunded. “… if you don’t fund it, sooner or later, the bill is going to come due,” he said, “It’s going to be a huge problem.”
A former treasurer for Harford County, Jewell said that county government funded 100% of the required annual contributions for their retirees, but the school system didn’t have the money to do the same.
Finally, Board members bristled at the list of recommendations in Craig’s letter, including his prescription for internal budget committees and increased public engagement. “We have a budget committee”, Thornton said, and he cited the number opportunities for public input on this year’s budget, along with previous warnings from School Board members that the budget would be tight: ”It’s not as if we haven’t tried to inform the citizens…that we were faced with a very, very flat budget,” he said.
Board Member Bob Frisch said the public’s desire to be engaged was also a factor. However, in what may be the one area of agreement in a summer of discord, Frisch has long advocated for the School Board to establish a citizen’s budget advisory committee – which just happens to be Craig’s recommendation #4.