I fully, wholeheartedly, support the 2013 High School District #113 referendum initiative. I did NOT support the previous referendum in 2011 for a few basic reasons which have been completely rectified and fleshed out since the previous referendum’s defeat, in particular the financial component. The process that has taken place to create a complete master plan included hundreds of volunteer community members as well as numerous professional architects, construction managers, and financial professionals. This plan served as the basis for the steering committee’s recommendation to the district’s school board. Much has already been written and discussed about this. Suffice it to say, as one of the members of that committee, it WAS an exhaustive process.
But, the real reason for my comments today is to respond too much that has been communicated both verbally and in writing about the financial component of the referendum. Virtually no one within our community would argue with the fact that a considerable amount of rehab and updating work needs to take place at both high schools in the district. This has been extremely well documented by both lay professionals within the study groups as well as the board hired professional architects and construction managers.
The analysis of the numbers and the “reserves” definition in particular, has been at best misconstrued & misleading and at worst off base and incorrect. My knowledge of this type of analysis comes from both professional experiences as well as from serving for 10 years as a school board member of Deerfield SD #109. I have 30 years of experience in the bond industry including the past 20 years as a municipal bond principal. On a daily basis I review financial statements and rating reports for public entities such as school districts, in order to determine their financial viability for placement with my institutional clients. Furthermore, I have spent the last ten years as a member of the service advisory committee of the Illinois Association of School Business Officials where I have provided presentations to the Leadership Academy on the buyer’s perspective of school debt.
With that in mind, here is the truth behind the numbers. The discussion of “reserves” is not an easy one without a little detail. Government units-including school districts and municipalities are required to use “fund accounting” rules that significantly complicate financial planning and management. Further, the district uses an accrual method of accounting rather than the private sector norm of cash accounting. This means that the fund totals contain significant amounts of account receivables, prepaid expenses etcetera. Or, easier said the funds have already been accounted for but not yet paid. This includes benefits, etcetera. Also of importance, there is the question of working cash for the account. Uncertainties in the timing of cash flow and in anticipation of emergency situations suggest some level of working cash. The MINIMUM floor level of recommended year end balances would seem to be the 25% level that the Illinois State Department of Education prescribes in its screening process. But, the district financial advisor recommends at least 40% and strongly encourages 50%. This is also the preference of the districts’ outside auditor. This percentage figure correlates with the value of the funds yearly budget. Also of importance is the fact that bond rating agencies when evaluating bond issuers insist that they maintain certain levels of unrestricted fund balances to achieve the top level of ratings and therefore borrow at the lowest cost possible.
Some in the community would suggest that the district should spend the fund balances thereby endangering the district’s well deserved financial standing and jeopardizing the district’s future financial viability which could lead to emergency needs for funding and higher interest rates because of lower ratings from the rating agencies. No reasonable person would operate their family or business in such a manner and to suggest that the district operate in this manner is foolish.
Of equal importance is the fact that there are SIGNIFICANT legal constraints on the district from moving money between funds. This applies to existing and FUTURE year funds. Unlike for profit companies you just can’t take from one segregated fund and use it for something totally unrelated.
With this analysis in mind, it is not only prudent but also in the tax payer’s best interest to fund the improvements through bond financing. It has been decided by the independent finance committee that there is little if any capacity to use fund balances without violating prudent financial guidelines. Also, since we are expecting the improvements to last through future generations it allows those generations to participate in paying for a portion of the facilities.