The following was read into the minutes of the Clay County School Board meeting for October, 2015
The Clay County Board of Education (CCBE) will fail to have an approved budget submitted to the Department of Education (DOE) by October 1, 2015. CCBE’s initial request of a $315,000 budget increase was reduced to $200,000 following the County Commission’s flat rejection of the same. The CCBE stood firm, made punitive cuts to personnel, and adopted a 2015-16 budget with a $200,000 increase to offset mandated requirements of the Affordable Care Act (ACA). This budget has been repeatedly rejected by the Clay County Commission. Instead, the Commission “allocated the school system the same amount as last year” by adopting last year’s school budget with only an increase in revenue of $16,000 for growth monies. The CCBE feels the increase requested in the current budget is necessary to keep the school system solvent. Many state officials agree if the action taken by the Clay County Commission is acceptable, funding of schools will, as we know the process, render local school boards to that of figurehead status in charge of an empty body.
Clay County Schools (CCS) is a small rural school system with only 1,200 students. Student enrollment has remained stagnant for the past few years. CCS has a $9.5 million budget. Clay County has 3 schools, two PreK-8 schools and one high school. Clay County High School (CCHS) is 13 years new. The CCBE is responsible for the payments for CCHS. Initially, there was additional sales tax money allocated to make payments on the facility. As the payments increase, BEP (State) funding will have to be utilized to meet the payments as well as the total debt reserve. Only twice in the past 28 years has the County Commission assisted the school system with adjustments: 1)When CCHS was built, sales tax dollars were assigned to make payments for the new school. 2) A couple of years ago, an additional one cent in property tax was given to meet maintenance of effort (MOE).
Even before I became Director, I knew the fiscal condition of our school system was critical. I also knew Clay County in general did not have the potential to generate tax dollars to further support the school system. The majority of the $9.5 million budget is devoted to salaries and other State and Federal required spending. The CCBE controls the spending of less than $3 million of the total budget. When I became Director, the CCBE began a campaign of reducing expenditures to meet the demand of required expenditures. In my three-year tenure, approximately $840,000 has been cut from the expenditures that the Board controls. Closing an elementary school, offering a teacher retirement incentive to veteran teachers and replacing them with less expensive beginning teachers, and a reduction in force were part of the efforts to conserve.
What is the fiscal problem facing Clay County Schools? Partially unfunded mandates, the totally unfunded Affordable Care Act, and an unfavorable student/teacher ratio are all contributing factors.
1) Partially unfunded mandates in the past five years have grown to over $700,000 annually. The CCBE made cuts that did stabilize what had been a systematically declining fund balance. However;
2) The introduction of the Affordable Care Act is the straw that broke the financial back of our school system. Years ago, when funds were made available through BEP for non-certified employees to have insurance, the CCBE deemed it more important to offer certified employees family plans with those funds. Clay County teachers were and are the lowest paid teachers in the state. Offering family plans to teachers was an attempt to compete with surrounding counties offering higher salaries and benefits. The rationale was that non-certified employees could have insurance coverage by participating in the TennCare program. The mandated ACA had a crippling effect on our school finances. All employees, certified and non-certified alike, had to be offered the same coverage. Non-certified employees had only recently been offered an extremely limited plan. It must be noted the CCBE had options in choosing an insurance plan. The Board chose a middle of the road plan that would add a cost of $315,000 to insurance expenses. That plan was selected because it maintained existing coverage without adding to the expense for teachers. A plan that would have cost the CCBE approximately $70,000 less could have been chosen, but adding additional expense to school staff.
1) Clay County School System maintains the minimum number of teachers to meet state requirements for class size and graduation requirements. Hermitage Springs Pre K-8 and CCHS have student/teacher ratios of 16:1, while Celina Pre K-8 has a student/ teacher ratio of 22:1. Raising the student/teacher ratio to 25:1 would increase enrollment capacity by 400 students, adding an additional $2 million in BEP revenue. This could be accomplished theoretically without adding a teacher. The current student/teacher ratios are beyond anyone’s control. If Clay County could “magically” acquire 400 more students, the request for a tax increase would not be needed.
CCS ended the 2014-15 fiscal year with a fund balance of approximately $2,100,000. At this point an important question needs to be addressed. Why ask for a tax increase with a $2,100,000 fund balance? This is one of the County Commission’s concerns. CCS fund balance is comprised of 3 main components: 1) Debt Reserve (approximately $920,000); 2) BEP Reserve (approximately $720,000); 3) Undesignated Fund Balance (approximately $410,000).
1) The debt reserve was established when CCHS was constructed. A DOE fiscal consultant has placed the equivalent of the last two payments on CCHS in the reserve. Those two payments total $909,000. Mr. Ron Queen, Comptroller’s Office, treats the debt reserve as cash and says it should be spent down maintaining only one payment in reserve. Could then the debt reserve be used to pay for the mandated additional expenditures for staff insurance for two years? NO. Mr. Queen says not. Insurance expenditures are recurring. Spend-down from the debt reserve should only be used for one-time expenditures. My concern is if we spend the debt reserve down, what assurance is there that the funds can be put back in the future to avoid defaulting on the bonds? Additionally, the loan is a variable interest rate. If the interest rate should climb, there would be a short fall in the debt reserve if only one payment were available.
2) To my knowledge, everyone agrees the BEP Reserve is not considered to be counted as cash and is to be utilized only for one-time expenditures. Mr. Queen and DOE agree the BEP Reserve is not considered part of the cash.
3) Everyone agrees the Undesignated Fund balance ($410,000) is considered cash and can be used to satisfy the mandated expenditures of the ACA. According to the DOE, 3% of the total operating budget must not be spent by local decision. DOE determined the 3% would be $250,000. Removing that amount from the $410,000 leaves only $160,000 to pay for the mandated ACA if there is no additional revenue from the Clay County Commission.
If I am correct in the above assumptions, CCS will end the 2015-16 school year having used all of the undesignated fund balance available and dipping into the debt reserve by $40,000. What is to be gained by postponing action on this matter for another year? Will the CCBE be financially able to open schools next year? Remarks made by the Comptroller’s Office make me wonder if I have made a terrible mistake in my philosophy of financial management of the school system. The CCBE and my team have tried to be good stewards of public dollars by being extremely conservative. Cuts in personnel and educational opportunities for students are starting to affect the educational process. Being conservative was an effort to attempt to maintain a fund balance and avoid asking for additional tax dollars as long as possible. If zero-based budgeting is the rule, I have made a terrible mistake. I should have invested more money in classrooms achieving better educational opportunities for our boys and girls. I suppose spending down would have guaranteed new revenue. I feel at this moment that the children of Clay County are being punished because of my conservative approach to finance.
Setting aside local petty politics, the primary reason for the Commission’s reluctance to assist CCS is threefold. First, Commissioners are attempting to keep their promise to voters of no new taxes. Second, the Commission offers their employees the minimum in insurance coverage and will not support the CCS in offering its staff an insurance plan that is better. Third, Commissioners are not knowledgeable of school finances. Despite repeated invitations extended to Commissioners to learn basics of the school budget, only two of ten Commissioners have expressed interest in learning basic concepts of school budgeting.
Has compromise occurred? The CCBE originally asked the Commission for a $315,000 increase to cover the expense of the ACA. The CCBE requested the funds be generated by increasing the wheel tax, realizing the hardship of tax payers having a thirty cent increase on the property tax
(one cent on the property tax brings in approximately $10,400). Commissioners rejected that request, indicating they were saving the wheel tax to fund the possible building of a badly needed jail. The CCBE compromised by next requesting $200,000 in new revenue, instructing the Director of Schools to enact a reduction in force to offset the remaining $114,000. In the August 31 Commission meeting, avoiding a County shutdown, Commissioners adopted a resolution giving CCS the equivalent of the 2014-15 appropriation with growth monies of $16,000. A blank budget with the bottom line filled in was sent by Commissioners to the CCBE instructing the Board to fill in the budget to meet the approved bottom line. In the September Commission meeting a resolution was adopted to place a referendum before the voters in the March Presidential Primary of a $27 increase in the wheel tax devoted to the school general purpose budget. My personal instincts would question the likelihood of Clay County citizens voting themselves any tax increase regardless of the validity of the request. If the Commission had met the Board’s request of an additional $200,000 by increasing the property tax, what would have been the financial impact on individual tax payers? The average assessed value of a home in Clay County is $62,000. A twenty cent increase on the property tax would have cost the average property owner only an additional $30 per year.
The unstable and uncertain future of Clay County School’s finances will have a disastrous effect on the education of boys and girls in the rural community of Clay County. Quality teachers will certainly be forced to seek more stable teaching positions in surrounding counties. Required mandates beyond the School Board’s control have created this financial situation. The massive cuts that have been made by CCBE are an indication that a genuine effort has been made to meet continual mandates without a tax increase.
Today, Clay County proudly boasts about our educational progress. Clay County High School is in the top 5% of schools in Tennessee for academic progress, earning the designation as a Reward School the last two consecutive years. Academically, the two elementary schools are improving and are destined to achieve Reward School status. I am very proud of the efforts of our students, teachers, and administrators. To be certain, this wonderful momentum could sadly come to an end because of a dispute over $30 per year. Without necessary funding, will our teachers be able to retain their middle of the road insurance plan? How can teacher morale remain high when their class loads could increase because of personnel cuts? How can teachers continue their schools’ academic improvement with fewer resources and more students? Teachers are the single most important factor in student success. Clay County teachers already are the lowest paid and have the fewest benefits in the state. How can we in good conscience ask them to do more with even less?
Director of Clay County Schools