School Board makes change to “Standards of Solvency and Viability”
School Board members engaged in a lengthy and at times tense discussion regarding the “Standards of Solvency and Viability” at their regular meeting on Monday, Oct. 14. The standards, originally approved in October 2016, had been brought up at the previous two board meetings, as a few board members suggested that changes to the standards should be considered.
At Monday’s meeting, Board Member Kent Saylor proposed a change to how revenue is calculated in the expense and revenue formula that supports the standards.
The current “Standards of Solvency and Viability” document was developed by the board’s Finance Committee — which consists of board members Saylor, Ed Reznicek and Kathy Lippert. According to Saylor, it was developed as a basic tracking tool to help monitor the overall financial health of the district as a whole, as well as the financial health of each campus.
Supporting the standards is a formula sheet that was developed by Saylor, which calculates expenses and revenue for the district as a whole, as well as separated by campus. This formula sheet determines if the district as a whole, or any individual campus, is operating at a profit or a loss and the percentage of that. The official formula document of the board is maintained and updated by the district’s auditor, Kickhaefer and Buessing, PA.
According to Saylor, he developed the original formula when the district had little historical experience for monitoring a more detailed financial trends analysis, and at this time it is his opinion that a revision to the allocation of district revenue should be considered.
“I propose the Supplemental General Fund should be allocated by area valuations, not by full weighted student numbers,” Saylor wrote in his proposal. “The reason for this change is due to the fact the funding for Supplemental General Fund is closely tied to local controlled Board decisions and local property valuations.”
Saylor, who keeps tabs on the formula document and updates it each year, said he would recommend splitting the Supplemental General Fund revenue into two revenue source areas — the Sabetha and Morrill area, including partial Bern; and the Axtell-Wetmore area, also including partial Bern. Based on this split, Saylor said, he would allocate 60 percent of revenue to the Sabetha-Morrill area, and 40 percent to the Axtell-Wetmore area — with 20 percent going to each campus.
He came to this conclusion after the board requested a valuation study be done by Kickhaefer and Buessing, which showed that the Sabetha area generated approximately 60 percent of the district’s valuation, while the Axtell and Wetmore areas generated approximately 40 percent.
“I feel this is a more equitable distribution of this revenue,” Saylor said.
In the previous formula, the Supplemental General revenue was allocated by weighted full-time equivalency (FTE) headcount — which is the figure used to determine how much general fund money the district receives from the state. In this formula, the Sabetha campus received a little more than 70 percent of the revenue, while each of the other campuses received a little less than 15 percent.
Saylor presented calculations using the current formula, compared to calculations using the formula with this adjustment for Supplemental General revenue. With the proposed change, the Sabetha campus would still be in the positive, while projections show that the Wetmore campus also will have moved into the positive and Axtell would be operating at a less substantial deficit though still likely needing to make some cuts.
Board Member Jeff DeMint asked if it would be fair to say that Saylor went into the process of considering a change with the purpose of making it more equitable, not with the purpose of making all campuses viable.
Saylor said he always was asking himself if the allocation of supplemental general revenue by weighted FTE was quite right. Now he feels certain it is more equitable to allocate supplemental general revenue by valuation, because while the dollar amount that the district can generate is limited by the general fund, which is based on and weighted FTE, the supplemental general fund money is actually generated per valuation.
Lippert said she feels this is good information, but she would like time to study it and does not want to take action at this time.
If action is taken, Lippert said, she would like to consider whether some of the other language in the standards of solvency and viability needs to be made more clear on the idea that the goal is for each campus to get to a break-even level.
Lippert asked about how FTE affects the subsidy the district receives from the state. Evans said it is based on valuation per pupil. Saylor said the subsidy amount is “peanuts” compared to the total amount.
Board Member Ann Shaughnessy said she believes Saylor is trying to do what is best for the district as a whole.
“Wetmore and Axtell have this viability thing hanging over their heads all the time, and it affects the morale in their buildings and communities every day,” Shaughnessy said.
Lippert said she understands that this is a sore spot and she will “take the dagger looks” but it is important to understand that the discussion will continue until all campuses are at zero deficit.
“Every year that there has been a deficit, the response has been that ‘it’s better and it’s not that bad,’” Lippert said.
“Campuses have made adjustments,” Saylor said. “That is how businesses work. You make a plan, make adjustments.”
It has been a continuous deficit, Lippert said, with the only question being the amount and extent of the deficit.
DeMint said that they [campuses] have been making cuts when the standards have shown that the campus is operating at a deficit, and he believes that shows that everyone understands they are working toward a goal of zero.
“This [viability standards] is a tool to see if we can get everyone to break even,” Saylor said. “I think we’ve made some strides, and the formula helps. A number is something to shoot for.”
Lippert said she is willing to change her mind about taking action, but she would like the standards to be adjusted and make the language more clear that the goal is for campuses to get to zero.
Saylor said the language could not be more clear, and each campus has been making progress.
Superintendent Todd Evans reminded the board that the standards are not the “end all” but rather just a tool for measure. He also reminded board members that the official expense and revenue document for the board comes from the auditor, Kickhaefer and Buessing, PA.
Board Member Jim Scoby said that the board has to remember that what they are talking about is guidance, not a trigger.
“We rely on information to make decisions, but we do not use it as a hard-and-fast trigger,” J. Scoby said.
Lippert said she could support a change to how revenue is allocated, but she would like to add a two-year limit put on campuses operating with a deficit.
J. Scoby said he would not support a two-year timeframe.
Board Member Leslie Scoby said she feels the language is already clear, and that they [campuses] have been working toward a goal of zero deficit.
Reznicek said he believes Saylor has a rational, compelling argument for changing how supplemental general revenue is allocated.
DeMint said he agrees with the logic, but he wants to discuss the language that will go in the standards. He suggested that language be added to the standards document, defining how revenue is allocated.
Saylor said it could be defined in the standards.
Superintendent Evans agreed that it would be good to articulate that information in the standards.
DeMint asked how often the board would need to have a valuation study done.
Saylor said it does not fluctuate a lot, so it is not something that would need to be done every year.
DeMint made a motion to amend the language on the second point of the district’s “Standards of Solvency and Viability” to the following: “Revenue per campus will be identified based upon the following: General Fund revenue will be allocated according to audited, weighted enrollment by campus. The supplemental general fund will be allocated by the combined valuation of Wetmore and Axtell with each campus receiving half of the combined valuation. The Sabetha campus will receive the percentage of allocation as determined by the valuation study with updates as determined by the board.”
The amended language was approved, 6-1. Lippert was opposed.
See full minutes from the board’s meeting on Page 6B of this week’s Herald.