Where to Begin?

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I really do want to be a blogger but my first summer after retirement has been more hectic than I expected.  Most of my time is happily spent with my two 11 year-old grandchildren, products of a fine public school system and great parents, and working pro bono on the HB 2244 litigation in Oklahoma County.  I figured I could really get with it once school starts again but this latest drivel from OCPA Research Fellow Steve Anderson, “WHY ARE SCHOOL DISTRICTS SITTING ON SO MUCH CASH?”, begs an earlier response.  The only difficult part of writing this is having to read Anderson’s silliness a second time.

He states:  “The schools need to explain how they can be sitting on nearly $1.9 billion of unencumbered cash–cash that is not promised to any obligation currently–that they did not expend during the prior school year.”  For the purposes of this post I’m not going to fact check his numbers, risky but easier.  Of that $1.9 billion he says 34%, being about $646 million, is in the general funds of school districts.  With the exception of the few that are paid out of co-op funds, teachers and other certified employees are paid out of school districts’ general funds.  Mr. Anderson alleges that as of the end of the fiscal year, June 30, 2015, $646 million was “unencumbered cash–cash that is not promised to any obligation currently…”  may be hyper-technically correct at a ten year-old level of understanding, but factually wrong, wrong and stupid at a “research fellow” level.

Title 70 O. S. Sect. 6-101(E) states:  “A board of education shall have authority to enter into written contracts with teachers for the ensuing fiscal year prior to the beginning of such year. If, prior to the first Monday in June, a board of education has not entered into a written contract with a regularly employed teacher or notified the teacher in writing by registered or certified mail that a recommendation has been made not to reemploy the teacher for the ensuing fiscal year, and if, by fifteen (15) days after the first Monday in June, such teacher has not notified the board of education in writing by registered or certified mail that such teacher does not desire to be reemployed in such school district for the ensuing year, such teacher shall be considered as employed on a continuing contract basis and on the same salary schedule used for other teachers in the school district for the ensuing fiscal year, and such employment and continuing contract shall be binding on the teacher and on the school district.” Even the Oklahoma Constitution at Article 10, Sect. 26, comes into play giving a one of a kind exemption from the prohibition against incurring debt without a vote of the people for “any school district …contracting with certificated personnel for periods extending one (1) year beyond the current fiscal year…”.

Translated so perhaps even Mr. Anderson can understand, before June 30 every school district has become contractually obligated for the bulk of its certified employee salary and benefit expenses for the next fiscal year.  Following State Department of Education OCAS requirements those obligations are not technically encumbered until after July 1 and before the first payroll for the certified personnel.  Using the OCPA’s handy little OCAS tool we see that statewide regular certified personnel salaries, those that must be fully encumbered at the beginning of the fiscal year and most of which became a contractual obligation in June of the year before, totaled about $2.1 billion for FY 2015.  Also the benefits that were part of those contracts exceeded $500 million.  So, Mr. Anderson, unless certified personnel costs for FY 2016 were dramatically less than in FY 2015, school districts, by June 30, 2015, had clearly promised all of that $646 million to the certified personnel under contract for the next fiscal year.

He also dismisses the real concern districts have with managing cash flow in their general funds:  “They don’t seem to understand that the accrual of those expenses incurred but not paid should already have been made.”  I managed a $40+ million budget for an Oklahoma school district for ten years and I don’t know what he means, probably because he doesn’t.  I think his “accrual of those expenses” is referring to encumbrances under Oklahoma law–and yes those expenses, like salaries, are encumbered fully before they are paid.  The problem that Mr. Anderson chooses not to understand is that revenues are also “accrued”, in our language budgeted, before they are received.

Under Oklahoma school district budgeting law and practice a district can encumber total expenses up to the total amount of revenues approved by the board of education as projected for the year.  But, “duh”, the revenue doesn’t necessarily come at the same time as the actual expenditures, most notably property tax revenues, the third largest revenue source on Mr. Anderson’s list.  Property taxes for the current fiscal year upon which school district budgets are based are due and payable by December 31 to the county treasurer who in turn makes payment to districts about two weeks later.  Thus school districts receive very little from this source until over half the year has passed; this affects some districts greatly and especially affects technology districts.

Districts handle this very real problem in different ways, some by using non-payable warrants, a legal form of getting a short term loan from a bank, and others by moving money among funds, a practice that some might question.  This reality is an example of what frustrates me about the OCPA, that they pay people like Mr. Anderson to do shallow “research” regurgitating their preconceived premise that if government is doing it then it is inept if not actually stupid.  Instead wouldn’t it be nice if the OCPA would do real research, like how do school districts actually manage the real cash flow challenges many face into December and are there some better “smart government” ways of managing?

But I digress in expecting that OCPA will ever be a real research entity.  Let’s close by looking at one more–sinking funds that collectively had 19% or about $361 million of the $1.9 billion.  At my school district we used an auditing firm and a bond advisory firm that each do business with many Oklahoma school districts so our practices mirror much of the state.  Our fund balance on June 30 in the sinking fund was a function of how our auditing firm prepared our Estimate of Needs, which sets the sinking fund levy as required by Title 62 of Oklahoma Statutes using a form and process established by the State Auditor and Inspector, and the timing of our bond sales and payments as recommended by our bond advisors.  Short of stiffing our bond holders or violating Oklahoma law I’m unaware of how else our district should have managed its sinking fund balance.  Maybe Mr. Anderson will put down his copy of Atlas Shrugged long enough to enlighten us.

OK, that disposes of over half of his heartburn so I’m going to return to a better and more thoughtful world of 11 year olds.  Remember it’s lunch on me if you figure out the location of the photo on this blog–and the one on HB 2244 is still up for grabs.

 

2 thoughts on “Where to Begin?”

  1. Great blog, Gary. To expand further, we don’t get the proceeds of our series bond issues until June of each year. Since most of it goes to pay the revenue-lease financing payment which is due the following fiscal year, we don’t encumber this bond money until July 1. So it looks like we have millions of dollars in bond fund carryover on June 30. The OCPA’s website says we had $13.5 million in total cash forward in all funds. If you actually look at the cash forward amounts by fund, nearly $9 million was bond funds, $7 million of which we received just prior to the end of the fiscal year. We had nearly $2 million in the Sinking Fund’s carryover. That left only $2.5 million in carryover in all the rest of our funds, including the General Fund. We were hardly sitting on a bunch of cash.

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