Medford board banks funds for future projects

The Medford school board was put in a position of needing to spend money to save district residents money on their tax bills come December.

The school district is wrapping up the bookkeeping on the 2022-2023 fiscal year. At Monday’s board meeting members approved making significant investments in a post-retirement benefit fund and the district’s capital improvement fund to spend down the projected $1,967,000 left in the school coffers at the end of the fiscal year.

According to school finance director Audra Brooks, the district was within a half of a percent in their budget 2022-2023 budget and said the excess funds were due to the district applying federal ESSER grant funds toward budget expenses in order to free up space in the budget to cover the cost of the high school office addition project that is currently underway. Unfortunately that project got a later than desired start and while all expenses that have been turned in by the end fo the school’s fiscal year on June 30 were paid, the bulk of the costs won’t come until the project is completed putting it in the 2023-2024 budget which will go to electors at the schools annual meeting to be held next month.

While having additional cash on hand at the end of the budget year would seem to be good, and would be in a household’s finances, in the complex world of school financing having too much cash now, could end up hurting taxpayers in the future.

Under state rules for school finances, districts receive state aid based on the amount of money they spend. In high-aided districts such as Medford, the state contributes more than 70 cents for every dollar spent. If districts spend less in a given year, the state aid drops for the following year meaning taxpayers are left making up the difference.

In Medford’s case, with the district having paid off its previous debt, the current school tax rate is about $5.42 per $1,000 of equalized value. According to Brooks, the school tax rate will increase this year due in part to changes in the state budget and loss of aid on debt payments, but by maximizing state aid in other ways, the district could help reduce that increase.

According to Brooks, if the district took the left over funds and put it into the district’s fund balance — essentially the general savings account of the school district, it would not count as being “spent” by the state and with the drop in aids, the district’s projected equalized tax rate would shoot up to about $8.13 per $1,000 of equalized value.

“People would run us out of town,” said district administrator Pat Sullivan of the projected steep increase during Monday’s school finance committee meeting held prior to the school board meeting.

Brooks presented the alternative option of boosting the scheduled payment into the district’s post employment benefit trust fund to $801,561 and to put an additional $1 million into the district’s Fund 46, which is set aside for future maintenance projects with the remaining funds to go into the district’s fund balance to bring the total fund balance level to about 20% of the overall budget.

Because putting money in those accounts is considered as being spent, it is eligible for state aid. Brooks said the result will be to bring the projected tax rate for the coming year to about $7.07 per $1,000 of equalized value.

According to Brooks, having a healthy fund balance makes maintaining cash flow in the district easier through the course of the year and reduces the need to do short-term borrowing. School districts receive funding at set times through the year and in order to meet payroll and operating expenses often need to do short term borrowing. In Medford this borrowing is mainly due to covering the RVA expenses until the end of the school year when funding from open enrollment comes in, as a result the RVA is charged for short term borrowing interest costs.

Even with the interest cost paid by the RVA, Brooks said she tries to keep it minimal because it is all someone’s tax dollars being spent.

The down side of putting the funds in these accounts is that the district loses access to it for using it for other purposes, such as for salary increase. The post employment trust fund pays for a post employment benefit that district employees accrue over their years in Medford schools. The district receives regular actuarial studies of the fund and is told the minimum amount that needs to be put into it in order to keep up with the expenses. A few years ago, the district switched to a different type of post employment benefit that is more of a pay-as-you go model and away from the trust fund and the number of people enrolled in that program is capped and will decline over the next two decades.

The district’s fund 46 is a savings account that was created about 3.5 years ago and under state rules, the district has to wait five years from when it was created in order to spend anything from that account. Currently the district has about $1.5 million collecting interest in that account right now and is set to boost the level to $2.5 million with the action taken Monday night. The district is not able to spend money from that account until January 2025, after which time they will be able to tap into it for building and facility long term maintenance and improvement needs. Brooks noted that with rising interest rates, the district is seeing an increasing amount of interest income, which helps the bottom line of the school budget.

Making a complicated system even more complex, the state budget impacted school funding and until the budget was signed Brooks said she did not know what to expect as far as any state aid increase or per pupil spending limits.

She noted that while other districts around the state do not feel it was a good budget, she said Medford benefits under it, largely due to the increase in per pupil spending under the revenue cap which will allow the district to go up to $11,000 per pupil this year from around $9,000 previously.

During the nearly hour-long finance meeting discussion on the transfers, school board president Dave Fleegel said he was upset that the district ended up with such a large amount at the end of the school year.

“I am looking at missed opportunity to an extreme level,” said board president Dave Fleegel.

“I don’t agree that we missed an opportunity,” said finance committee chairman Brian Hallgren, describing the ability to move closer to fully funding the OPEB as being “happy days.”

Fleegel noted that at last month’s meeting, committee members were told the maximum they could put into the trust fund this year was $267,000 — based on a 30-year amortization schedule and now they are being given the OK to put in $800,000.

Brooks said the change came following conversations she had with the new auditors who directed her that the district was not tied to just using the 30-year schedule but could instead use other shorter amortization schedules, even if for just one year. Adding complexity and potential pitfalls, if the district over funds or under funds the trust fund the district faces the risk of losing state aid.

“The rules have kind of changed,” Hallgren said. Fleegel still objected noting that in his mind the district did not budget well. This drew a response from Brooks further explaining that the budget ended the year within half a percent of where it was projected to and noting the money was from using the outside revenue from grants to pay for eligible district costs.

Fleegel asked with the district putting the money into post employment benefits and Fund 46, if they would have the money to pay for the addition project taking place. Brooks said with the changes from the state budget, she was able to put the full cost of the addition, and the planned construction expense for a home that will be built as part of the technology education classes, into the coming year’s budget without needing to dip into fund balance.

Fleegel expressed frustration that they had such a short time frame being told of these changes to having to make a decision. Brooks said she had to wait for information and that she spent the weekend putting all the numbers together in order to have them for Monday evening’s meeting.

“I think Audra has done a hell of a job,” Hallgren said in support of Brooks.

Brooks noted that the savings would not have been there, if the governor had not signed the budget earlier this month, which would have changed her recommendations.

In the end, board members agreed to putting $1 million in Fund 46, $801,561 in the post employment trust fund, and the remainder, estimated to be about $433,000 into fund balance. The number is an estimate because until the audit is completed in the next few weeks, the numbers are not finalized.

Sullivan said he would like the district to look at using some of that fund balance amount to boost spending on technology education to upgrade district’s Chromebooks as well as putting more money toward building maintenance budgets. In addition, he said they would be looking at the potential for completing the plan for a new entry way and plaza area by the new concession stand at Raider Field.