By By JOHN EBY / Dowagiac Daily News
Dowagiac Union Schools District's audit Monday night revealed that over the past five years a 5.6-percent revenue increase has not kept pace with payrolls which climbed a cumulative 20 percent.
"It doesn't take a genius to figure out that if your major source of revenue has only increased 5.6 percent since 2002 and your major expenditure, which is payroll, has increased by 20 percent, it's got to come from somewhere, and where it's been coming from is fund balance," auditor Mike Wilson told the school board.
Wilson, of Norman and Paulsen in Sturgis, presented a more than half hour analysis of the audit following an orderly informational picket prior to the meeting by about a third of the district's 157 teachers and counselors represented by the Dowagiac Education Association.
About 15 bargaining sessions have taken place since May.
DEA President Bob Kwiatkoski, a teacher at Union High School, said his union is unhappy that after Dowagiac achieved status as an "outperforming district" that the school board isn't making its human resources more of a priority or giving them more credit for the success.
"What upsets us the most is that we should be the first priority," he said after the meeting.
"Outperforming teachers performing without a contract" was typical of signs educators carried as they walked the hall of Dowagiac Middle School in front of the cafeteria, where the board meets.
Kwiatkoski said the DEA's three-year contract expired Aug. 22. One mediation session took place Nov. 9, with another scheduled Dec. 20.
The board made its first revisions to the current 2006-07 budget, which shows general fund revenues increasing $428,129 to $22,379,381 while expenses increased $292,949 to $22,642,028, leaving a projected deficit for the fiscal year that started July 1 of $262,647.
Athletic and food service funds remain balanced at $464,856 and $828,997, respectively.
Assistant Superintendent for Business and Operations Hal Davis reported that revenues increased in state and federal grants coupled with a small increase in state foundation from prior years.
Expenses increased by the same amounts as state and federal grant revenues. Other expenses decreased mainly from the special education coordinator position and the shared custodial schedule, Davis said.
In another action Nov. 20, the board favors a December resolution for summer tax collection to help cash flow.
The resolution would be for the collection of 50 or 100-percent of the non-homestead 18 mills and all of the debt millage.
Davis estimated that even after paying the city and townships a per-parcel fee for collecting summer taxes, the district could realize $45,000 savings this year.
Fund balance is the district's assets minus liabilities. These currently available resources carry over from one fiscal year to the next. The audit covers the year which ended June 30.
Fund equity percentage has slipped from 22.3 percent of total expenditures in 2002 below the recommended 17.6 percent in 2005 to 13.1 percent in 2006, and forced the district to borrow $3 million at an interest cost of $60,000.
In 2002, the district's fund equity stood at $4,839,410, which had eroded to $3,031,144 by 2006 – including $902,873 since $3,934,017 for 2005.
"What we find across the state of Michigan is that when a district this size falls below the magical 17 to 18 percent, you will need to start borrowing during the year for short-term debt. You can no longer be your own banker for these huge peaks and valleys in your cash-flow. Usually cash is tightest in October and November because the state pays you two months behind. Once you get into the cycle of borrowing, you have to pay interest and operating becomes more expensive. Not having to incur interest costs is the main purpose in having fund balance, or if a major unknown expenditure comes up during the year, you should have funds set aside to cover that. If I take your total payroll and divide it by 26, that's $730,000 you've got to come up with every other Friday," the auditor said.
"Right now," Wilson said, "you're sitting at a fund balance of about four pay periods, or two months. That can be scary. What happens when we get down to three payrolls?" in reserve.
Wilson added, "We also recommend that you do not allow fund equity to go below 10 percent, which should be a line in the sand. Total salaries and wages were $12,914,396," up from $12,460,382 five years ago.
"Total employee benefits were $6,057,086," Wilson noted. "For every dollar you pay out in payroll, you're going to pay 47 cents in benefits. We've seen that number rise very quickly over the last five years. In 2002, that was 35 cents for every dollar. Total payroll over the last five years is up 3.6 percent. Total employee benefits are up 39 percent," largely in retirement and health insurance.
Wilson also explained how the state has been enriching per-pupil foundation aid by reducing categorical funding. "Your per-pupil foundation includes property tax revenue. When you hear the state say it's going to give you $7,500 per student, that includes your property taxes that you collect. I like to add the property tax revenue plus the state sources and divide that total by your number of students in state aid membership, which was 2,849 in 2003 and 2,674 in 2002. "You're down 175 students from 2002."
Wilson's calculation yields $6,992 per student in 2002. In 2006, that number was $7,383, or 5.6 percent increase total for the five years.
"If I do the same computation with your total payroll, salaries and wages plus employee benefits, that's 82 percent of your budget – and actually, that's a little low compared to other school districts because you contract out your food service program."
Payroll was 77 percent of the budget in 2002, he said.
"Dowagiac has adopted a deficit budget the last four years," President Randy Cuthbert said. "The board feels we have a fair and equitable offer on the table. With the state $120 million short (in school aid fund revenue), districts are expecting January pro-rations of up to $100 per student, which could amount to an additional $250,000 loss for our district revenue this year.
"And our teachers do have a contract, and negotiations are still in progress. They are continuing to be paid 2005-06 contract wages with benefits until negotiations are completed. I just want teachers, staff and the audience to know that the board does realize that these are tough times for the district. We're trying to be fair with everyone and to work with everyone," Cuthbert said.
Wilson said as of June 30, the general fund, the district's primary operating fund, contained assets of $5,665,000, of which $2 million was cash and cash equivalents and $3,300,000 was due from the State of Michigan.
Liabilities totaled $2,634,000. "For most school districts, their largest liability June 30 is accrued payroll. Teachers elect to be paid over 26 pay periods so that they receive a check in July and August," Wilson said. "There are also accrued benefits on that payroll," such as Social Security taxes, the state retirement plan and health care," totaling $638,000. "That left the school district with a fund balance of slightly more than $3 million June 30. You began the year with a fund balance of $3,900,000. You had a $900,000 decrease in fund balance" during the year.
Revenues amounted to $21.4 million against expenditures of $22.132 million.
Revenue from local sources totaled $4.1 million, primarily from property taxes. Federal sources contributed $1.5 million. State sources furnished the bulk at $15.8 million.
"You are heavily reliant on state sources of funds," Wilson said.
Expenditures consisted of $13.3 million in instructional costs and $8.7 million in support services.
Wilson also highlighted the capital projects fund, created with the 2002 bond issue and "zeroed out" in the 2005-06 fiscal year. "At the beginning of the year you had about $2,058,000 left to be spent completing the middle school project. Also, the debt service fund very simply generates the revenue from a separate property tax millage and uses those taxes to make principal and interest payments on bonds. That's all you can use that revenue for. The debt service fund had a balance of $609,000 June 30 because there were interest payments due Nov. 1. It uses up the majority of that fund balance making those interest payments, then collects property taxes over the winter so that it can make principal and interest payments."
Also accounted for separately are athletics and food service. The food service fund took in $830,000 in revenue and spent $834,000, with the $3,00 deficit covered from the general fund.
The athletic fund took in $64,000 in revenue and incurred expenditures of $415,000. "It had a deficit of $350,000," Wilson stated, "which is transferred into the general fund. That's very common for school districts of this size" and in line with recent audits he did for Three Rivers and Hastings.
Wilson also reviewed full accrual financial statements. "They present it as if you're a business. All of your assets – school buildings, equipment – and all debt obligations. Purpose of this presentation is to determine whether or not you have positive net worth," of which Dowagiac's is about $9 million, including $3 million fund balance and $5.5 million from the book value of fixed assets compared to the debt remaining on those assets. "The most important thing is not the dollar amount," he said, "because you're not trying to create net financial worth by selling off the school district, you're trying to educate students. The most important item to take from this presentation is that you do have a positive net worth. Some school districts actually have negative net worths. They borrow more money than what they have value in assets."
"The other thing to look at," Wilson said, "is what is the change in net worth and is it going significantly in one direction or the other?" Dowagiac's increased $96,000 after a small decrease of about $20,000 the previous year.
"We should not see a huge change in your net worth," he said.
In other business, the board met in closed session for a negotiations update from Superintendent Peg Stowers and Davis and granted leaves to five teachers, Jamie Ely of Justus Gage, Debra Loyd, Rachel Kyncl and Janet Jerdon of Sister Lakes and Linda O'Keefe of Union High.
An unpaid leave of absence second semester for DUHS law teacher Kyrie Krenz was postponed until December.