Every year about this time the school division begins preparing its budget for next year. The budget is a little confusing, and with over 100 pages of detail, kind of cumbersome. We’ll try to keep you aware of things we notice as the budget is released. Before we get into the details of the budget we wanted to review one item in particular which is the source of much debate and misunderstanding – our debt, debt service costs, and the CIP. Our source document for the numbers presented here is the 2011 Comprehensive Annual Report of Prince William County Schools, the audit of the financial operations associated with the 2010 – 2011 school year which you can find at the link or on the PWCS web site.
First things first – PWCS is audited every year and has received an unqualified opinion every year for as long as I can remember. An unqualified opinion is frequently referred to as a “clean opinion” but what it really means is that the auditors did not find anything in their examination which leads them to believe PWCS’s financial statements are materially misstated. The audit is an independent examination of the school divisions financial operations over a set period of time by an external auditor.
With regards to The Debt, PWCS does not have any because it does not have the legal authority to tax. That authority rests with the County through the Board of County Supervisors. As PWCS does not have the authority to tax, it can not incur or carry long term debt. The debt issued to pay for things like new school construction, renovations of older schools, and the administrative building was issued by the County through bonds approved by the citizens in bond referendum votes. So you won’t find debt in the PWCS Budget.
However, PWC knows full well how many bonds have been issued for PWCS’s construction efforts. As of June 30, 2011 PWC was holding approximately $553 million in debt for PWCS. That’s actually down about $30 million from 2010 because of retirements of old debt. According to the 2010 Census, there are about 402,000 people living in Prince William County, which means the share of the “school” debt is roughly $1,400 per resident.
PWCS does pay “debt service” to PWC to reimburse the county for the cost of “servicing” the “school” debt. Debt service costs for the 2010-2011 school year were $63.8 million – approximately 7.2% of the school district’s total budget. With enrollment of 81,635 students, that’s a debt service cost of about $782 per student.
This cost is pretty much “fixed” in that it is derived from debt that has been issued and is outstanding. The only way to reduce the cost is to pay off some of our debt and replace it with debt that costs less or retire it. Because the debt is not in the school division’s control, decisions regarding retiring or replacing the “school” debt are the responsibility of the Board of County Supervisors.
While you won’t find the debt held by the county for schools on PWCS’s budget, you will find the Capital Improvements Program, or CIP. The CIP reflects capital improvements the school division expects it will have to undertake in the future. These improvements include things like building new schools, renovating old schools, buying new buses, and replacing computer systems.
The CIP is a projection of estimated costs. The costs listed are estimates, not actual costs. Just because something is listed on the CIP with an estimated or projected cost does not mean bids have been issued on it. With construction costs fluctuating as they have in recent years, the actual cost to complete a project will likely differ from the estimated or projected cost. One of the reasons Patriot High School and Piney Branch Elementary opened earlier than expected is because the costs to build those schools once the bids were released were much lower than expected.
That doesn’t mean we shouldn’t pay attention to planned construction projects, but it does mean that concerns over differences between cost projections listed on the CIP for projects that have not gone out to bid and actual costs incurred on projects just completed or currently under construction are misplaced. Comparing cost projections prepared years previously to actual costs incurred today is like comparing apples and oranges. If your goal is to determine whether a project is cost effective, you should compare actual costs to actual costs and projected costs to projected costs.