Spending Unspent Funds

It seems the idea of taking a few weeks off this summer just isn’t going to happen.  As power, internet, and phone service appears to have been restored in most areas of PWC, an issue has popped up that deserves more than the scant attention it’s getting on facebook and local blogs.  That is the issue of what the county and school division do with excess funds at the end of the year (with a Hat Tip to the Sheriff of Nottingham, PWC , the facebook page MymoneyPAC, and others for raising this issue).

Government accounting rules require that all budgeted funds be used in a given fiscal year or carried forward, so at the end of each fiscal year government entities have to figure out what to do with any left over money.

Just how much is left over in PWCS?  The amounts vary each year, but in FY 2011 the school division expected $32 million to be carried forward to the 2012 – 2013 school year from FY 2012 that wasn’t already allocated to undelivered orders or commitments and wasn’t needed to be held in reserve for unexpected events.  This $32 million was projected before the effects of the warm winter and lower than expected utility and snow removal costs were taken into effect.  Those of you who followed the budget debates recall that the school division debated asking the BOCS to raise taxes to cover their expenditures for FY 2013.

The Basics

Government rules require that money budgeted in a given fiscal year be spent in that fiscal year or carried forward.  Because of timing issues, sometimes orders that have already been issued or awarded haven’t been delivered by the end of the fiscal year.  The first priority with money left over at the end of the fiscal year is to make sure enough money is carried forward to cover these undelivered orders.

Government accounting rules also require that PWCS use separate Funds to account for different things.  When you see / hear Funds think Set of Books.  The major Funds in PWCS are the Operating Fund, which is where transactions relating to the actual running of the school division are recorded, the Construction Fund, which is where transactions relating to school construction projects are accounted for, and the Debt Service Fund, which is where the interest paid on school debt is accounted for.

Money for the Operating and Debt Service Funds are primarily derived from taxes and grants while money for the Construction Fund is primarily from bonds issued by the county.   I deal with the Construction Fund later.  There don’t appear to be any excess monies in the Debt Service Fund.   The Operating Fund, however, does have large balances carried forward, so that’s the focus of the below.

How Much Money Are We Talking About?

The first question is just how much money we were talking about.  For that I pulled up PWCS’s FY 2012 Approved Budget (the FY 2013 Approved Budget is not complete and has not been posted to the PWCS website) and started with the Operating Fund Statement which appears on page 72 of the FY 2012 Approved Budget report ===> see here FY 2012 Operating Fund Statement.

For FY 2010 PWCS carried forward $22 million for undelivered orders;  for FY 2011 it was $14 million for undelivered orders; and for FY 2012 it was $21 million.  Carrying forward money to cover undelivered orders (called encumbered funds in accounting language) is a standard practice.

The rest of the money, the excess less the money for undelivered orders, are the source of the controversy.  Should those funds be refunded to taxpayers, should they be saved for a rainy day, or should they be given to charities and other groups at the discretion of the Board of County Supervisors?

How much free excess money was there?  PWCS calls this the Beginning Balance, and it was $53,091,078 at the end of  FY 2010 and $60,025,075 at the end of FY 2011.  It was projected to be $31,644,886 at the end of FY 2012.  FY 2012 has not yet closed out, so the exact numbers aren’t known.  Representatives of the school division did state that they expect the beginning balance / unencumbered funds for FY 2012 to be higher than was originally projected because utility and snow removal costs were significantly lower than anticipated this year.

The FY 2013 Budget won’t be available until the FY 2012 books are closed, so the amount projected to be left over next year is undetermined.  The PWCS FY 2012 Budget does project that beginning balances will decrease in the coming years.

What Does PWCS Do With the Left Over Money?

The next question is what PWCS does with the left over money.  It appears that the school division uses these funds to pay for next year operations, and sometimes they use them and other times they don’t.

The beginning balance of unencumbered money should not be confused with money held in reserve.  PWCS does try to save some amount of money for unexpected events – like a blizzard, hurricane, heat wave, blown air conditioners, increased need for substitutes due to illness outbreak, or other unexpected events.  These reserves are accounted for as operating expenditures (for those of you looking at the FY 2012 budget these items are listed in the 8000 range of codes, with 8002 being the general reserve code).

It appears that the division projected it would hold $13,858,692 in reserve in FY 2010, $19,947,716 in FY 2011, and $32,072,228 in FY 2012.  Unfortunately I can’t tell you specifically how much was reserved for what purpose because the numbers in the budget don’t tie from one report to another and I can’t figure out how each code / program / agency feeds into another.  I can report that for FY 2012, K – 3 gifted ed budgeted $610,290 for reserve, some schools budgeted up to $5,000 in reserve, and $2,334,265 was reserved for TIPA (Teacher Incentive Performance Award).  Why those reserves are increasing, and what they’re intended for outside of the school / program specific budgets isn’t something I was able to determine from the information available on the PWCS web site.

What Does This Mean?

What this means is that there are significant taxpayer monies left over in the Operating Fund at the end of the school year that aren’t needed for undelivered orders or commitments and aren’t needed to be held in reserve for unexpected events. Those monies were about $33 million in FY 2010 and $53 million in FY 2011, and are projected to be $60 million in FY 2012, $32 million in FY 2013, $18 million in FY 2014, and $17 million in FY 2015.

Perhaps now would be a good time for someone to explain the tax increase and justify the horrible debates that we suffered through this Winter when the 2012 – 2013 budget was proposed.  How could the county / school division possibly justify claiming that there wasn’t enough money to give teachers a step increase, that layoffs might be needed, or that taxes needed to go up if we were projecting to have upwards of $32 million in excess money at the end of the 2011 – 2012 school year?

The Construction Fund

The Construction Fund is where transactions related to school construction projects are accounted for.  Money for the Construction Fund comes from bonds issued by the county and transfers from the operating fund.  Money that isn’t already assigned to a particular bid award / purchase order and wasn’t needed for expenditures, in this fund were $26,328,398 in FY 2010 and $46,990,844 in FY 2011 and were projected to be negative $8,126,692 in FY 2012, $33,359,012 in FY 2013, $31,691,012 in FY 2014, and negative $68,209,988 in 2015.

Because this money is primarily from bonds issued by the county as opposed to taxes, the excess in each fiscal year indicates that bonds were issued that weren’t needed in that fiscal year, while the deficits indicate additional bonds that will be need to be issued to cover construction projects.  There are a number of reasons why the school division would issue bonds that exceed their projected needs, with the largest being taking advantage of a really good bond, like one with a.5% interest rate.