School board counts on reserves to balance budget

One way that Gov. Dennis Daugaard defended the highly controversial education reform legislation that he introduced in Pierre earlier this year is by stating that it would provide more money to public schools in South Dakota.

But members of the Vermillion School Board, along with Superintendent Mark Froke, aren't counting on any extra revenue from Pierre as they begin the preliminary crafting of the Vermillion School District's 2012-13 general fund and capital outlay budgets.

They have sharpened their pencils, looked at factors beyond their control, and determined, at this point in time at least, that they will have to dip into reserve funds once again to balance both the district's capital outlay and general fund budgets.

Capital outlay budget

"We're addressing some major needs in this budget," Froke told the board at its March 26 meeting while discussing the capital outlay budget. "There is not much in the area of flexibility that's been built in."

The preliminary capital outlay budget expenditures for next year total just over $1,740,053. Local resources available for the budget stand at $1,550,000. To balance the budget, the board will likely have to use approximately $190,053 in reserve funds.

"This is the first time we've utilized reserves of that nature," Froke said.

School Board President Mark Bottolfson noted the high school track refurbishing project is one reason the district must tap reserves to balance the fund.

"And there are some very good things taking place here," Froke said. "It will be a tight capital outlay budget, but we're addressing some important issues."

District administrators plan to spend $4,000 in the elementary schools, $8,000 in the middle school and $11,000 in the high school. These monies, will, in part, be on hand to replace equipment that breaks down and meet other miscellaneous expenses relating to equipment or the school buildings.

The extra funds allocated to the middle and high schools will go toward replacing science and music equipment.

The district plans invest nearly $185,000 of capital outlay funds in technology for 2012-13. The bulk of that amount – $130,000 – will go toward the purchase of new iPad computers to be used in the high school.  Administrators have also set aside $40,000 to be used to upgrade the district's technology system and keep it operating.

Other major items in the preliminary capital outlay budget include $97,000 for the purchase of new books for the school library and new textbooks; $302,400 for bus transportation; approximately $541,000 for various certificates and leases involving school buildings, Johnson Controls, construction bonds and a copier lease; $87,700 for lease of the DakotaDome, the alternative school space on Cherry Street and the school administration building located downtown; $20,000 for expenses related to equipment and uniforms related to school activities; nearly $451,000 that covers the Johnson maintenance contract, new carpet, the replacement of a sewer pipe at the middle school, and refurbishing the outdoor track near the high school.

General fund budget

Froke's discussion of the preliminary general fund expenditures focused on various fiscal challenges the board and administrators must meet as the budget is developed.

It is estimated that total student enrollment will decline by 17 students next year. That will mean the school district will receive $75,000 less in state aid funding from Pierre.

"And with the renewal of our bank contract, the reduction of interest rates will also impact us in the amount of about $40,000," Froke told the board. "So, we'll have a projected loss of revenue of about $115,000."

At the same time that general fund revenue is declining, the school district will be facing increased costs that will impact that fund.

Health insurance is estimated to go up by about 15 percent, bringing an increased cost of $88,000. "We're not the worst in the pool anymore, but we're still at a high level of utilization," Froke said.

The district also has set aside $25,000 for next year as extra payment to teachers who qualify for extra compensation because they've earned college credits or advanced degrees.

Another $25,000 of additional expenses has been identified to pay for the district's bus contract, utilities and other fixed costs next year.

Total increased costs that will impact the general fund are estimated to be $130,000.

"When you combine our loss of revenue with our increased costs, you get about a $245,000 total figure," Froke said.

The South Dakota Legislature did approve increasing state aid to all public schools for the next school year by $31 per student. That will bring the Vermillion School District approximately $38,000.

"We feel we need to utilize the retirement fund," Froke said, "with the budget. You haven't been utilizing the full levy. We are looking at utilizing the entire levy plus you may need to use some of the reserve amount in order to make this budget work, so we may be looking at an additional $40,000 (in revenue)."

Those two factors will bring $78,000 in new revenue to the general fund.

"When you subtract that from the $245,000 figure (the total loss of revenue and increased costs), and you get a funding shortfall of $167,000," he said. "We're handling much of that through cuts throughout the budget, again, and through attrition. We have a number of staff members who are retiring."

Froke said the district will also shift the use of Title I dollars. "There is a lot of shifting and a lot of squeezing in the budget, and it looks like we've got everything handled again."

He noted that the district will carry forward the budgeted use of reserves for 2011-12, totaling $238,000, to 2012-13. "That stays," Froke said. "Normally we usually budget in about $200,000, but last year we budgeted in $238,000. How that is going to work by the end of the year, I'm not exactly sure, but we should come out alright."

The estimated funding shortfall of $167,000 in the general fund for 2012-13, combined with the $238,000 in reserves that will carry forward means the total general fund budget shortfall, including the budgeted use of reserves, is estimated to total $405,000.

"Every year, it becomes a more challenging adventure," Froke said.

The general fund budget projections don't include one-time money of $68 per student that the district likely will receive from the state for the 2012-13 school year.

Next year's general fund remains a work in progress.

"I will be working on this with the Finance Committee," Froke told board members. "This is preliminary, so further discussion on this will be coming back to you."

The governor signed his controversial education reform bill, HB1234, into law March 13. It is a multi-point plan the governor says will improve teaching in the state. It includes incentive pay for teachers, scholarships for teachers in training, bonuses for math and science teachers, a new evaluation system for educators and a gradual phase-out in teachers' continuing contract rights.

"This law will invest $15 million a year in great teachers, because great teachers are the key to student achievement," Daugaard said in a statement.

But critics point out that HB1234 doesn't appropriate any money, which will need to be done in future years.

A petition drive planned by the South Dakota Education Association and others in the state is underway to refer HB1234 to a popular vote this fall.

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