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NYSASBO report details bleak financial picture for school finances

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MASSENA - High-needs rural school districts could see their savings evaporate in three years, according to a report by the New York State Association of School Business Officials.

The September 2012 report says that, if current trends in the use of unrestricted funds and restrictions on revenue continue, approximately 200 lower-wealth school districts in the state could begin to lose all of their savings by 2015.

The revenue restrictions include the 2 percent property tax cap and state aid caps.

There is a way to get over the hump, but it would need to be addressed in Albany, according to Michael J. Borges, NYSASBO executive director.

“What is needed is significant mandate relief,” Mr. Borges said during a telephone interview Tuesday.

Michael J. LeBire, the chairman of the Massena Central School District’s Finance Committee, told board of education members during their October meeting that, if state aid remained at a projected 2 percent annual increase and if the district maintained its current programs, local property taxes would need to increase 101 percent over the next five years to bridge the budget gaps.

He also noted that, if current levels were maintained, the district’s reserve fund would run out before the 2015-16 school year and taxes could rise dramatically for district residents.

The Canton Central School District is also on precarious financial footing, according to their auditor, who recently reported that the district is on course to run out of money next school year.

Douglas W. Wood, a certified public accountant who prepared Canton’s 2011-12 audit report, said a statewide survey indicated that 5 percent of districts will run out of funds within one year, another 22 percent in two years and 39 percent within three years.

And in Morristown, with a dwindling fund balance and no new revenue streams expected, school officials are considering sending high school students to other districts next year if a regional high school fails to materialize.

It’s a trend that’s being seen throughout the state, according to the NYSASBO report.

“The data suggested that lower-wealth school districts face the possibility of losing all of their unrestricted funds (“savings”) much sooner than do average-wealth or higher-wealth school districts,” the report said. “At that point, a choice between fiscal insolvency (a school district is unable to pay its bills) or educational insolvency (a school district can no longer provide a sound basic education) will be at hand. In the worst cases, a school district may face both kinds of insolvency,” it said.

Mr. Borges said their organization expected school districts to have financial difficulties because of a number of factors, but not as quickly as it could occur.

“A lot of stuff is actually happening sooner than we projected. Our report was a best-case scenario. Even the best-case scenario is a pretty frightening prospect for school districts in the near term,” he said.

District fund balances are “depleting on a regular basis more quickly than we would like,” the executive director said. “When the cushion disappears, they’re operating on fumes basically.

“All of these things are happening out there - the tax cap and a cap on state aid - and it’s going to put a huge burden and stress on school finances,” he said. “It’s going to happen across the board. We’re just sounding the alarm because we know it’s going to come. There has to be a plan in place.”

The problem, Mr. Borges said, is that while state officials have plans in place to deal with schools that are failing academically, there is nothing that addresses “fiscally failing schools.”

“There’s no such remediation plan to deal with fiscally failing schools. Even putting aside what’s causing the problem to begin with, how are we going to deal with this? I think people are walking away from the problem or not recognizing the problem will occur,” he said.

The only options currently available to districts, according to the report, are “deficit financing,” which allows them to borrow for ongoing operational expenses; advance or “spin up” of state aid from future years; bailout - extra state aid in the current year to meet operational needs; or a takeover of the school district by the state Education Department.

The report says the state can approach “this impending fiscal calamity” in three ways: “prevent fiscal insolvency from happening in the first place by granting waivers to schools exempting them from regulations or laws that hamper their ability to stay solvent;” “react to each crisis as they develop on a case by case basis” or “develop a statewide approach with an early warning system and intervention process with correction action plan (similar to SED’s academically failing schools approach.”

While the subject of consolidation has been a hot topic in the state to save money, Mr. Borges said it’s difficult to actually do it.

“Consolidations or mergers are very problematic. You have to get every school district involved to agree,” he said.

Three school districts in Central New York recently put it up for vote, but that failed.

“What you found recently in Central New York and the Mohawk Valley was that three school districts have a vote on a merger and one of the school districts voted it down. The whole plan failed,” he said.

Mr. Borges said mergers are difficult to obtain for a number of reasons.

“It’s very difficult to achieve because the way the process is set up you have to get a majority in every school district as opposed to a majority,” he said.

There would be financial incentives for mergers, but that money eventually goes away, according to Mr. Borges.

“Even when you do merge, recognize that once the state aid goes away you’re still going to be left with a lot of the same issues. In the short term, some problems are addressed. Then that goes away, and they’re back to where they were,” he said.

“The simpler solution would have been to give them aid to begin with,” he added.

Regionalization is another hot topic and one that Mr. Borges said they could support. But there’s currently no legislation that allows it, and it wouldn’t save an exorbitant amount of money.

“Regional high schools save some money. Not a lot, but enough,” he said. “Regionalization kind of nibbles away at the edges.”

It all boils down to mandate relief to cut back on costs, he said.

“School education is labor intensive. Whenever you have something that is labor intensive the costs are going to be high. There are certain things the state had not done to address these costs. They’ve sort of fallen flat on mandate relief,” Mr. Borges said.

One of those mandates that hits a district’s checkbook is special education, he noted.

“Special education is a big nut. We have the Cadillac of special education programs in the country, and it’s costing us a fortune. We’re doing some research on that to identify mandate relief suggestions. There are lots of ideas for saving money out there for mandate relief. They have just not been acted on. What’s needed now is real power to act on mandate relief suggestions,” he said.

In the interim, Mr. Borges said school districts could save money through avenues such as renegotiating contracts with employees or cutting back on energy costs.

But without some type of action, the report says, the financial situation will get worse for districts.

“A multi-year analysis suggests that the problem is getting worse and that the necessity of high need districts to dip into savings is something of a trend,” it said.

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