Understanding a school district’s financial maneuvers is rarely easy, especially at 11:30 p.m.
At the end of its lengthy June 5 meeting, the Shoreline School Board approved two complex financial actions.
The first was approval for the district to borrow $5 million from its capital fund. The loan allows the district to keep running and to pay people their wages this summer.
The second action was a revision of the general fund budget for 2005-06.
Despite the changes, the district’s finances are not in better or worse shape than they were before the board’s actions. The district is still estimated to end the year about $3 million in the red, though no one knows the exact number for sure, said Bob Boesche, a finance consultant employed temporarily by the district.
The district also will end 2006-07 in the red. The soonest it can hope to be in the black is 2007-08, Boesche said.
Capital projects fund
In January, district officials asked for an apportionment advance of about $3.5 million from the Office of the Superintendent of Public Instruction (OSPI.)
The money was due the district this year, but would have otherwise come in June, July and August.
Boesche compared the advance to a salary advance.
“It’s something where we’ll provide it to you and then I don’t owe you salary for the next few months,” Boesche said. “We’ve used the advance, so now it’s time for the pay coming in to be decreased for (what OSPI) gave (the district) early.”
That means the district must now take out a loan to keep running and to pay people their wages this summer.
It could borrow from an outside source, with interest. It could also take out a loan from itself, from the capital projects fund. The district chose the latter.
The district has two pots of money it draws from, the capital projects fund and the general fund. The capital projects fund is for acquisitions such as new buildings and new technology. The general fund is for ongoing expenses, like paying teachers.
“Only one of (the district’s) budgets is very healthy, the capital projects fund,” Boesche said.
Money can’t be moved from one fund to another, except through a loan that must be paid back with interest.
So the district is borrowing $5 million from its capital fund and moving the money into its general fund to pay its bills. In September, it will pay the money back to the capital fund, with interest.
The good news is that no money will be lost in the transaction, as the money earns interest in the general fund as well, Boesche said.
The bad news is that the district will be faced with another gap in its general fund in September. To cover that, it will ask for another advance from OSPI, as it did in January.
“We have to borrow from the future again,” Boesche said. “It’s a whole series of steps, trying to stay one step ahead.”
OSPI advances and borrowing from the capital fund are methods to stay financially stable, and they are above board and approved by the state, Boesche said.
But how will the district repay the advance it takes out in September?
“(The district is) cutting $4.7 million (for 2006-07),” Boesche said. “If you’re not spending $4.7 million next year, I’d hope you’re better able to pay a loan back.”
Revising the budget
The second action of the evening was revising the 2005-06 budget as it was adopted in August 2005. The revision lowered expected revenues by about $2 million and raised possible expenditures by about $2.5 million.
Does that put the district an extra $4.5 million in the red?
No, Boesche said.
“It (the financial situation) hasn’t gotten worse,” he explained. “You’ve got to estimate everything on the high side.”
The district still loosely expects to end in the red by $3 million, not $4 or $5 million, Boesche said, though the $3 million number is just an estimate.
By allowing itself a higher lid to spend money, the district is giving itself some leeway, Boesche continued. If things went wrong and the district had to spend even more money than it guessed in a revision, the district would have to revise its budget again, a lengthy process that involves advertisements and a public hearing. To prevent that, the district re-budgeted for more than it thought it would spend, Boesche said.
“This authorized budget level doesn’t mean the board is handed a gift card with $85 million,” Boesche said. “It’s saying this is the maximum you can spend without a formal revision to the budget again.”
The adjustments are based on some new information and some old information. For example, the district knew this winter that revenues would be less, after former district staff overstated the number of vocational education students in the budget they sent to OSPI.
Other changes are more recent.
For example, gas prices were higher than anticipated. Also, the original budget didn’t account for the high number of staff who resigned and retired this year or the cost of former superintendent James Welsh’s settlement, among many other factors, Boesche said.
Although $3 million in the red is the estimate, no one knows exactly how deep the district will be in the red when the books close on the 2005-06 school year this fall.
“If you can tell me exactly what the ending expenditures will be next year for Shoreline, I would love to get Lotto numbers from you,” Boesche said. “Nobody really knows for sure.”
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