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Fiscal Benefit of Merged District Analyzed

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CANTON - Combining Canton and Potsdam school districts into one merged district could allow the new district to boost its fund balance to $6.5 million during the first three years, but in the fourth year reserves will start to deplete again unless spending is reduced or revenues are increased, according to a fiscal analysis.

During the past few years, both districts have been forced to substantially reduce their reserve funds, which means they’ve been spending more money than they’re taking in. The Canton district is expected to deplete its reserve account by the end of 2015-16 school year, with Potsdam facing the same situation two years later. The scenario is a primary reason the two districts decided last year to launch a full-blown consolidation study that cost $50,000 and took eight months to complete.

If the districts agree to merge, the state is supposed to provide $35,275,563 in state incentive aid over a 14-year period, starting with $3.5 million each of the first five years and declining by 4 percent each year for the next nine years. A merged district would also be eligible for an estimated $475,000 in additional building aid for existing debt.

That influx could allow the combined district to start building its fund balance to a projected high of $6.5 million in 2017-18 before it starts declining again to cover operational losses, according to a fiscal analysis prepared for the 196-page merger report prepared by consultants Western New York Educational Council, Buffalo.

“Using conservative revenue projections, a merged district shows operational gains for three consecutive years and growth in the fund balance during those years,” the report states. “In the fourth year, a merged district may start to experience operational losses and consequently an erosion of fund balance, unless revenues increase and/or expenditures decrease. A merged district board of education would have a window of opportunity to implement economies of scale and other cost saving measures to keep the new district fiscally solvent for future years.”

Potsdam School Board member Frederick C. Stone said he’s opposed to the merger primarily because it doesn’t appear the merged district won’t solve the two districts’ financial woes over the long-term.

“It’s a Band Aid on a hemorraghing artery,” Mr. Stone said. “It’s not a silver bullet that’s going to fix everything. It’s not going to cure our financial problems in the future.”

If the state agrees to phase out the gap elimination adjustment over the next three years as proposed, the Canton and Potsdam districts will improve their financial standing, he said.

“I don’t think the sacrifices involved in a merger are appropriate at this time,” Mr. Stone said. “It’s not going to fix our problems in the future.”

Other school board members have pointed out that without the influx of state revenue both districts may be forced to further reduce staffing and programs that directly impact students. Since 2008, the two districts have cut roughly 100 faculty and staff positions.

In Canton, the fund balance dropped from $5,696,396 to $3,109,662, between the 2009-10 and 2012-13 school years, a 45.5 percent decline. In Potsdam, the fund balance decreased from $4,758,036 to $4,293,934 between those years, a 9.8 percent decline.

Other key findings included in the fiscal portion of the merger report:

• Between 2009-10 and 2014-15, Canton’s state aid has been reduced by $10,331,736 while Potsdam’s aid was reduced by $10,488,042.

• Canton’s current total capital debt is approximately $28.6 million with a local share of $6,602,431

• Potsdam’s current capital debt is approximately $28.6 million with a local share of $8,727,857.

• Potsdam’s local share would be aided at Canton’s building aid ratio, 87.6 percent.

*In a merged district, full value tax rates would decrease in both communities.

*In the most recent independent audits, Canton’s capital assets were valued at $23,110,173. Potsdam’s were valued at $47,842,693.

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