PWCS Money Bomb…

images Last night’s BOCS meeting was must see TV.  What with the shouting and name calling, it was better than a WWE match. Since I have no interest in seeing our BOCS members in wrestling clothes, I’d like to suggest that in the future the BOCS hire The Rock and Hulk Hogan to glare at one another and pound their chests during contentions moments.  Imagine the ratings bonanza!

So what caused all the chest thumping and growling?  Setting the advertised tax rate and the school division’s budget.  Thrilling stuff, isn’t it!

I haven’t pulled the numbers yet, so I don’t know what impact the advertised tax rate of 1.158 per $100 of assessed value will mean to the school division’s allocation or to taxpayers.  For my family, assuming my estimate of my home’s value is accurate, it will mean about $120 more next year in property taxes.  That’s only $10 per month, which I’d maybe be OK with if I knew that full $10 per month would be going to our public schools.

Lots of hay has been made about the school division’s budget, some of that hay is justified.  While only $80,000 of the pool’s expenses appear in this year’s budget, it is bad optics.  The school division expects that the pool will cost them about $1 million per year, on average, after user fees are included and before costs associated with swimming lessons for students are factored in.  Those costs are likely to be higher in the earlier years when debt service is higher and usage is lower.

In the scope of the school division’s budget, $1 million plus a year may be pennies, but the optics are bad.  To have class sizes that are as large as they are, to so dramatically underutilize the VPI, to have quotas placed on the number of copies a teacher can make because of insufficient resources,  AND claim that spending $1 million or more a year on a pool for swim teams is acceptable, looks bad and reflects badly on our entire county.  Combined with the 10 minutes for recess and the bed bug infestation at the County Government Center, we’re all shaking our heads at the leadership in Prince William County.

Which brings us to the school division’s budget.  Yes, there are areas where expenses appear to have been over budgeted.  Utilities costs in the Fixed Charges budget are chief among them.  I posted those numbers here, on Monday night.

When Mr Candland asked about the reasonableness of these numbers, Mr Cline noted that the school division’s estimates were conservative, that they had to prepare for contingencies like the really cold winter we’ve had. What Mr Cline did not mention was that despite the really cold winter we’ve had, PWCS projects that utility costs this school year will be about $6 million lower than they’d projected.   PWCS also holds money in reserve for just such problems as cold winters or hot falls.  Each year for the past 5 years, PWCS has budgeted $4 – 6 million in the General Reserve, which is found in the Benefits and Reserves budget, for weather related and other contingencies.

PWCS will be opening one new school next year, the Haymarket Elementary School, and will be replacing Nokesville Elementary with a larger, but more energy efficient, K-8 school.   When they opened Patriot High School, T Clay Wood Elementary, and Piney Branch Elementary, Utility costs increased about $1.2 million and then declined somewhat from there (apparently they run the physical plants at their highest capacity for a year or so after opening a school and that results in a temporary spike in utility costs).  With new schools opening in 2015, it’s reasonable to expect an increase in utility costs from 2013 actuals to 2015 projected, but for next school year PWCS has projected about $6 million more in utilities than was actually spent for them in 2013.

In addition to the $6 million “extra” in utilities, PWCS also “found” about $6.9 million “extra” in the General Reserve that they’ll be carrying forward to next school year to pay for school renewals and renovations, which are budgeted in the Construction Fund.  I think these excesses might be stretching Conservatism a bit.

Accountants, by their training, are conservative, not politically, but financially.  Conservatism is actually one of  principles that underlies the profession.  Conservatism guides the decisions accountants make about revenues and expenses.  We try very hard not to overestimate revenues or underestimate expenses.  But Conservatism doesn’t mean unrealistic.  Judgments accountants make about revenues and expenses are supposed to be fair and objective.  2013 actuals for the accounts we pulled as utilities were $23.3 million; 2015 projected is $31 million.  With $6.5 million sitting in the General Reserve, trimming projected utility costs to better reflect actuals seems reasonable, at least to me.

I don’t think PWCS has forgotten about being fair and objective.  I don’t think it’s an overabundance of caution that’s led them to overestimate utility costs.  I think it’s knowledge of the looming money bomb in the CIP that’s affecting much of this.

At the 2nd quarter budget update, PWCS staff noted that they projected almost $31 million in savings from a variety of accounts, including utilities and the general reserve.  They asked the school board for permission to carry $27.8 million of this forward to the next school year to pre-fund capital improvements.

Usually the CIP is given scant attention in the budget discussions.  No one, especially not an elected official, wants to postpone capital improvement projects in their district.    Combined with the rush to complete the budget and the incorrect belief, among some, that debt is free, means the CIP is usually rushed past with few, if any serious discussions about it’s affordability.

That’s unfortunate, because PWCS is planning about $240 million in renewals over the next 5 years that will, to a large extent, have to paid for with money carried forward from prior years or from the annual allocation of tax receipts from the county.

The CIP is all of the capital improvements the school division has planned, from building new schools, adding on to existing schools, replacing roofs and HVAC systems in existing schools, and renovating existing schools.  New construction projects, additions, and some renewals are paid for with debt, that’s then paid back over 20 years. The rest, which is primarily renewals and renovations of existing schools, is paid for with money carried forward from previous years or the current year’s allocation of money from the county.

Why does that matter when it comes to over budgeting utilities costs?  It matters because the renewals approved for next school year, which will begin construction this summer, total $52.3 million. For the past 10 years renewals have been around $20 million a year, or less.  PWCS issued $25 million in debt to pay for a portion of those renewals, but the remaining $27.3 million was needed from money carried forward from the 2014 school year budget to the 2015 school year budget or from current year’s allocation of money from the county.

Imagine having to lay staff off one year because there wasn’t enough to replace the roofs at the schools that need new roofs.  Imagine telling teachers and staff that they’d need to take a 3% pay cut to pay for those roof replacements.  That’s what will happen if there is $40 million in school renewals that can’t be paid for with debt and have to be paid for with the annual allocation of tax receipts from the county.  Over budgeting in one year, or over several years, allows the school division to “save” for money bombs they know are coming in the following years.

The 2015 CIP money bomb is just the beginning.  Over the next 5 years, new construction and additions, which will be paid with debt, are projected to run around $473 million.  For the 2015 – 2016 school year renewals are projected to cost $27.3 million, for 2016 – 2017 it’s $60.5 million, for 2017 – 2018 it’s $30.9 million, and for $2018 – 2019 it’s $68.7 million.  A big chunk of the money to pay for the renewals will come from money carried forward from previous years or the current year’s allocation of money from the county.

I’m not justifying the over budgeting, just putting it into perspective.  Over the past several years the school board had shown little interest in examining the renewals and new construction projects listed on the CIP.  They’ve had little interest in examining enrollment figures and adjusting the CIP schedules accordingly, especially when doing so might result in a project in their district being delayed.

If the BOCS and School Board want to start pulling money out of over budgeted accounts, then they’ll also need to start identifying capital improvements that will be delayed, scaled back, or cancelled.  Either that, or the BOCS and taxpayers need to be prepared to expect wildly fluctuating tax rates as those rates are adjusted annually in anticipation of increasingly expensive capital improvements.

UPDATE:  As one parent as so kindly noted to me, my math was incorrect when I calculated the impact of the tax increase on my families property taxes.  The increase will be more like $260 a year on my family with the advertised rate.  That’s about $22 a month, assuming a 7.5% increase in the value of my home.

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