The truth on the reports of the '$1 million surplus'

By ANDY CHURCHILL

Published on February 15, 2008

There have been recent press reports of a "$1 million surplus for the schools" in the FY07 school year. Understandably, this has led to confusion and concern among taxpayers. I hope the following information will clarify the situation so we can all focus on the real challenges that face us going forward.

The surplus was only in the regional district. It did not affect the elementary schools.

The actual figure was $851,000 - a significant number indeed, but not $1 million.

Over half of this surplus ($430,000) was because of a one-time change in state accounting regulations. The remainder ($421,000) was only 1.5 percent in a $27 million budget.

To put this in perspective, think of a household budget of $50,000 - a 1.5 percent variance would be $750.

These funds were one-time receipts and therefore could not be used to pay recurring costs, such as salaries. Instead, they allowed the regional schools to pay for high-priority items such as repairs, textbooks, library books and musical instruments, and to reduce FY08 budget pressure by prepaying retirement benefits.

A tale of two budget years

Each year, the schools base their budgeted amounts on prior experience and their best projections of future needs. There is always some variance from the budgeted amounts, but usually the relative pluses and minuses on the balance sheet come close to balancing each other out. The past two years, however, show that individual years can work out very differently.

In FY06 (2005-2006), all the variances broke about $400,000 in the negative direction. Hurricane Katrina caused energy prices to rise steeply. The town added a 3 percent surcharge to previously budgeted health insurance premiums. Legal expenses were higher than budgeted. And substitutes were used at a higher than projected rate (more maternity leaves than average). Here's the break down:

* heating oil: $75,977 over budget;

* electricity: $60,099 over budget;

* gasoline: $24,623 over budget;

* health insurance: $132,863 over budget;

* legal: $65,559 over budget;

* substitutes: $48,143 over budget;

* total: $407,264 over budget.

The district responded with a hiring freeze in November, lowered thermostats in December, and froze all noncritical spending in January, and ultimately ended the year in the black.

In FY07 (2006-2007) by contrast, almost all the variances broke about $400,000 in the positive direction - plus the state changed regulations for a one-time addition of $430,000. A mild winter reduced energy costs. Fewer substitutes were needed than expected. Some positions came open and were left unfilled, rather than hiring staff and then laying them off because of expected budget cuts. Fewer students than average left the district for vocational school or other districts through school choice, saving tuitions. Contracted services for high-need special education students were lower than budgeted, partly because of enhanced in-district capacity.

But the biggest contributor to the surplus was a change in state accounting regulations. Previously, the state had allowed regional districts to carry over special education "circuit breaker" and Medicaid funds, to defray potential costs of new, expensive special needs students. During the course of the year the state informed the district that the regulations were being changed, and that it needed to expend the previously carried-over funds plus those budgeted for FY08 by the end of June. This change alone caused $430,000 of last year's $851,000 surplus. The remainder, $421,000, was equal to about 1.5 percent of the $27 million regional budget.

The adjustments looked like this:

* change in state regulations: $430,000 under budget/unexpected revenues;

* salaries/unfilled positions: $121,000 under budget;

* substitutes: $11,000 under budget;

* vocational education tuitions: $154,000 under budget;

* school choice assessments: $36,000 under budget;

* special education contracted services: $87,000 under budget;

* utilities/gasoline: $119,000 under budget;

* other: $7,000 under budget;

* insurance, food service, athletics, legal, equipment: $114,000 over budget;

* total: $851,000 under budget.

Of this amount, $196,000 was used to prepay retirement benefits, reducing pressure on the FY09 budget. About $188,000 was put into the regional excess and deficiency account, bringing that account, which is similar to a town's reserve account, up to a still-modest 3.5 percent of the regional annual budget. The remainder was spent on capital costs that had been identified as top priorities if additional funds could be found: textbooks ($25,000), musical instruments ($27,000), library books and equipment ($14,000), instructional equipment and supplies ($14,000), IT and audiovisual ($55,000), two replacement vans ($45,000), re-keying all buildings for security ($9,000), and needed repairs/improvements to buildings and facilities ($243,000).

The district will continue to monitor revenues and expenditures and test and improve its models, but the last two years show the degree of variation that is possible, even with prudent and informed fiscal management.

The bottom line is, excluding the one-time funds caused by a change in state regulations, the regional budget has operated within a 1.5 percent variance (about $400,000 in a $27 million budget) in each of the past two years.

Andy Churchill is the chairman of the Amherst School Committee. Superintendent Jere Hochman and business manager Robert Detweiler contributed material to this column.