TESD Finance Committee Meeting . . . Notes from Ray Clarke

I was unable to attend the Finance Committee meeting as it was the monthly Board Meeting for DuPortail House, www.duportailhouse.com and as the Board Secretary it would create a problem if I did not attend.

All I can say is that I am really lucky to have my friend Ray Clarke!  Not only does Ray attend school district meetings, he stays up late so that he can provide detailed meeting notes for Community Matters. When Ray sent his notes he cautioned that the information contained a lot of  ‘numbers’ and the subject matter is complicated.   As Ray explains, two topics that received the most attention last night was the insurance and bond options.  I don’t know about you, but I have always found the subject of  bonds, a complicated and often misunderstood issue.  Maybe through dialogue on Community Matters, we can delve in to the subject matter and get a better understanding.

The majority of last night’s Finance Committee was devoted to two presentations by Board advisors: on self-funding the health insurance plan and on bond issuance options.  These were sufficiently persuasive that the Board was comfortable in agreeing to include the assumptions in a preliminary budget to form the basis of discussion at next Monday’s Budget Workshop.  This budget will also include the strategies discussed at the February meeting and the 2.9% Act 1 maximum tax increase.  The cost savings (including #12, see below) total $4 million ($2 million “one time”), the tax increase would raise $2.4 million, leaving a $2.8 million deficit to be funded from fund balance or further expense reductions.  (Note that the cost savings mentioned at the meeting was $3.7 million – maybe not including #12?).

That fully half of the savings are “one time” shows how important it is to consider a longer term perspective, and Committee Chair Mahoney has been consistent in asking for this to be done.  Those one time reductions will come back in 2011/12 and be compounded by the next round of contracted compensation increases.

Below are key features of the financial strategies, which seem to me to be quite complex and with many assumptions and consequences not fully spelled out.  If your eyes glaze over, sorry! – but take heed of the important role of the Facilities Committee – as discussed here on Community Matters and spelled out below!
 
The $300,000 health insurance savings depend on the actual claims experience being less than the premiums proposed by Blue Cross.  The district is relying on estimates provided by the consultants, who stand to get a fee if the plan goes through.  The basis for the estimates was not convincing, and depends entirely on the trajectory of per person claims costs, which increased 23% (excluding large cases now closed) for the latest available 12 months.  Since there seems to be no understanding of why claims increased so much (it’s not single/family mix, for example – just “an increase in claims of $40,000 to $60,000” – why?), how are we to gauge the future costs?  The assumed savings is entirely speculative: could be more, could be less, or negative.  Do we in fact know more about the health of our insured population than Blue Cross?  Maybe we do.  It seems that most other school districts in the region are also considering a move to self insurance.  Smart schools or convincing consultants?

The bond strategies discussed were also interesting and perhaps with ramifications that deserve more discussion.   There is one straightforward opportunity – to refinance one bond issue at a lower rate, which would save $40,000 a year over each of 13 years, or $170,000, $100,000, $100,000 if front-loaded to the next three years.  Secondly, we were told that the market would be very receptive to a new $20 million issue, which could be issued at historically low interest rates.  Even so, those interest costs would total $700,000 a year for the next ten years (this was not emphasized).

So, why issue the bonds?  That brings us back to the Facilities Committee.  We were told that there is a three year capital budget in the Infrastructure Plan of $14 million, essentially to maintain the status quo.  There was mention of another $1.5 million a year of routine capital – bringing the three year total to $18.5 million – almost all the new bond issue.  Doubtless the Facilities Committee has discussed the Plan, but I did not find it on a quick look on the TESD web site.  Perhaps the details of the capital needs and any opportunities to offset them with capital sales could be provided in Friday’s meeting.

(Note that having bond proceeds floating around could help capitalize the risk of self-insuring the medical plan).

Budget strategy #12 lists a saving of $300,000, based apparently on not expensing certain items of capital expenditure.  I don’t understand enough to know if there are any old bond proceeds left to fund this, or if the new issue is required.  Just as interest rates to borrow are low, so interest rates on our fund balances are even lower.  And, there are accounting rules that let you capitalize interest during construction.  How could capital needs be funded without a bond issue?  All in all there seems to me to be an opportunity for a clear exposition to taxpayers of the actual P&L impact of all the maneuverings – a chance for the Administration to show its worth?

So, on to the Facilities Committee and next week’s workshop.  It’s noteworthy that current year expenses will have to be cut by $1.5 million versus budget to balance expected revenues.  I don’t know how that will roll forward into 2010/11 – hopefully the workshop materials will have a detailed line item comparison of 2009/10 actual forecast with the 2010/11 preliminary budget (and with out years, too), including all the strategies discussed so far.  Then it will be time to take a look at all those other strategies #15 – 60 – and other ideas that all stakeholders might bring to the table.

Advertisements

9 Responses

  1. Thank you for this up-date. I agree that self-insurance is a gamble and the advice of consultants that will add to their revenue stream is suspect. And with the stuff in DC this may all be pre-mature.
    I for one believe that the Board is concentrating on expenses and not looking at a revenue changes that will impact the bottom line. Take the Real Estate that is owned by the District that they feel needs to be demolished, and we need a 35,000 dollar study to tell them how to demolish the ESC building. First, if they do not know how to demolish the ESC – why not ask the folks over in the Township office for advice… for free… But more importantly why are they not looking at selling these assets, including the homes next to the Middle school. There are 4-5 homes and the ESC property — selling the homes at a bargain price of 150,000 per home would bring 600,000 to 750,000 dollars of additional revenue. Not exactly rocket science.
    I am also surprised that no one is questioning the compensation package for the Superintendent. The value of the package is approximately 350,000 per year – including payments for such things as his share of the PSER’s retirement contribution – which all teachers must pay themselves. Add in the gas & oil for his free automobile… I wonder why in this time of crisis that Dr. Waters is not stepping up to the plate and suggesting that on a base salary of 224,515 he can afford to make these payments himself and therefor a few more pencils may be provided to students. I would also be asking the Board to explain just what the term “Competitive Market Rate Adjustment” means. I have been in Corporate America for years and I am not familiar with this term. Obviously the 35,000 adjustment to his base salary must not be very competitive as we feel that yet another 5,000 a year be paid as a “Retention Bonus”. And then there is the 15% of base for fringes as well as a Golden Parachute clause.
    There also need to be a stronger look at the total cost of the Administration staff and their compensation packages. It would be interesting to know the average salary of the Admin staff versus the average salary for teachers – the folks that touch your kids each day…

    • A big picture observation… average spending per student:

      TE $14,222
      Radnor $17,878
      Lower Merion $23,131

      Our district is delivering an education “product” that is as good or better than neighboring districts at MUCH less cost. It sure appears that our Superintendent, administration, Board and staff have a track record of effective management and balancing the interests of the various constituencies, including the taxpayers.

  2. Papadick
    You posted about the superintendent salary on the last CM entry and there was plenty of response to your observations. If you are just going to make the same ones again, I don’t see a need to respond again. I know I have read here (and may have even posted it) that Lower Merion is on its 3rd superintendent in 7 1/2 years — Radnor on its 4th in less than 10, and GV just hired someone to start at $200K (plus fringes I promise) who was making less than $100K just 3 years ago in a district ranked in the bottom quarter of the state. Market forces — supply and demand — affect compensation.

  3. Kudos to Mike for putting some perspective out there. When this was offered much earlier in the discusison, there was hesitation for people to accept these numbers because it doesn’t factor in the mix of properties — so doesn’t necessarily reflect the tax effort.
    I posted this previously and apologize for the tedium — but here are some data points to consider. data is explained online at http://www.schoolspending.info
    To be able to consider a district’s relative costs, here is the MODEL:
    The house sells for $500,000. I don’t care where you buy it — but based on your own savings and income, you have a mortgage you can afford. Now — given the CLR for PA counties, set annually by the State Tax Equalization Board (this takes type of property, sales, location, etc into the mix to create a single percentage of 100 that represents the percent of fair market value that equals your assessment.)
    Given the CLR (see previous posting), this $500,000 house would assess as follows:
    54.0 Montgomery County $270,000
    53.0 Chester County $265,000
    61.3 Delaware County $306,500
    9.7 Bucks County $48,500

    Using the property tax millage for school districts with these assessed values on our $500,000 purchase house, your property-based school taxes would be as follows:
    T-E $4,629.55
    Great Valley $4,828.30
    Radnor $5,979.82
    Lower Merion $5,786.24
    West Chester $4,730.25 plus .5 earned income tax
    Unionville- CF $6,248.70
    Central Bucks $5,567.80 plus .5 earned income tax
    Council Rock $5,236.06 plus .5 earned income tax
    Upper Merion $4,114.80
    So — homeowners — this is how people decide to move here. What to you think influences the choice?

  4. Andrea, Your Model is too simplistic. A $500,000 home in TE with taxes of $4,629.55 is not the same as a $500,000 home in Unionville- CF with taxes of $6,248.70. The buyer gets more house for the same $500K in UCF. Why? If the houses were the same, everyone would flock to TE to buy a home (becuase taxes were lower) and market forces would reduce the selling price of UCF house by the discounted value of all future additional tax payments. The logical home buyer would only pay around $475,000 for the UCF home because of the higher taxes. ($1619 discounted at 4% per year for 20 years). This is not some wild theory. It’s been substantiated by several real estate studies.

    • Paige,
      Although I understand what you are saying, assessed value is still assessed value. If my home is assessed at $500,000 it is irrelevant what I am living in for that value.

    • Paige
      Thanks. Ironically I have an MS in Real Estate and Regional Analysis so in no way was this a real estate model. This is not meant to be a purchasing model. It’s meant to reflect exactly what it is — that if you paid $500,000″ market value” in any of those districts, that would be the school taxes on that house. Clearly you don’t get the same house for the same amount of money — and we dont’ pay taxes based on house cost — but on assessed values. Assessment ratios are determined by county — the CLR for Chester County — any house in Chester County — is .53 for this year. Thanks.

  5. I appreciate Ray’s thoughtful reporting on school board matters. He’s correct that most of Monday’s Finance committee meeting was taken up by presentations on cutting costs by self-insuring the District’s medical coverage (strategy # 14) and lowering interest expense through bond refunding and possibly floating a new bond for capital projects. (strategy #12)

    Most interesting in my view, was the caliber of comments and questions by the Board and by citizens. We are truly fortunate to have such well-informed and dedicated people in our community.

    As I saw it, the most important action taken on Monday night came in the last 15 minutes. It was the consensus reached by the Administration and the School Board to use the following as a tentative starting point to close the budget gap: assume added tax revenue based on the full 2.9% Act 1 limit of $2.4 million; consider budget strategies 1 through 12, 14, 31,39 and 40 for savings of about $4 million; and go from there to close the remaining gap through a combination of more cost cutting and use of reserve funds.

    It seemed like progress.

    I feel pretty confident this process is being handled in a more open and transparent way than ever before, and that the Board and Administration are considering all the stakeholders as they work through the biggest budget challenge in the District’s history.

    The District has provided a lot of data and broken down costs by strategy. I think it’s incumbent upon us to do the homework before weighing in, OR decide to trust those we elected to do it on our behalf.

    Re Dr. Waters’ new contract, I don’t think some members of the SB would have paid a dime more than they thought necessary to keep a valued leader. And they are in the position to know his worth to the district and his comparable worh in the marketplace.Do I think some of his perqs are excessive? Yup. Unless I look at Waters’package in a business context – $350k a year to run an $110 million organization.

    Re the questions about the SB’s past decisions to purchase properties on Conestoga and Old Lancaster — they will come in handy.They are far worth more down the road than they could ever bring in this market. There would have been no room for expansion at CHS and TEMS without the acquisition of land. The nursery property would have been better, but that deal was not to be.

    • Kate:

      Absolutely agree with your comments – both the process and the spirit of transparency and balance are commendable, I trust that the Administration and staff, working with our elected school board, will make decisions based on doing the right thing for the students and the community at large.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: