June 18, 2018
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RSU 19’s cash problems are revenue shortfalls

By Gregory Potter and Jerry Nault, Special to the BDN

On Tuesday, Jan. 15, the voters of Newport-based Regional School Unit 19 will be asked to support a $2.9 million loan to meet existing debt and create short-term working capital in the fiscal year starting July 2013. The current financial problems were created by past failures to collect enough revenue to support approved budget spending and fund “credits” given to towns as required by the RSU’s organizational plan.

Although unpopular with some residents, district officials feel that RSU 19 residents should help rectify the debt crisis created by the former administration because no one else can or will. Meeting with the Maine Bond Bank and the Maine Department of Education have revealed that no other sources of funds are available to deal with the problem.

The details of RSU 19’s financial problems have been thoroughly explained via public meetings, numerous stories in print and broadcast media and through publications posted to the district’s website. Readers may go to www.rsu19.org and click on the “Financial Crisis” link to view a presentation entitled “Fund Balance and Cash Flow Problems” and a document called “Financial Crisis FAQs.”

Local critics are correct that, in prior years, the district had decided through a series of actions not to build a sufficient amount of carryover to meet year-end obligations, the largest of which were July and August teacher salaries. Certain other payables were also carried forward into new budget years. Although common in school districts, this is a poor accounting practice. The current administration has advised against it, and is working to create new policies and practices to ensure that this does not continue to be the norm.

Audit letters and reports did identify these material weaknesses. However, there was no fraud or intentional misstatement of financial conditions by the RSU. While the practice of using funds from “new” fiscal years to meet certain obligations associated with “old” debt is inappropriate and unsound, it should not be deemed fraudulent.

The 2011-12 audit has been completed and is now available. It was presented to the RSU school board in mid-December and was accepted by formal vote of the board. Many comments in the audit are directly associated with the over anticipation of fund balance (“carryover”) available for use as revenue to meet planned expenses in 2011-12 ($1.66 million). In addition, the district failed to invoice the eight municipalities for their local portions of “local-only” debt service during that year ($363,000) and over budgeting miscellaneous revenue ($100,000). These constitute the primary “debts” that must be paid, mainly centered in a $1.5 million revenue anticipation note (RAN) that the district must pay by June 30.

Some local critics have called the poor accounting practices previously described “overspending.” This is certainly not the case. All budget expenditures were publicly approved via the budget validation process established by law, and all anticipated expenses were listed for inclusion in payment warrants. In addition, federal funds had to be accounted for separately and did not “supplant” other costs that were otherwise budgeted.

The current spending plan for this fiscal year was also properly authorized by the board and voters of RSU 19. Unfortunately the district again anticipated revenues from non-existent fund balance or carryover in the amount of $1.3 million. Essentially, the same mistake made in planning 2011-12 was made in 2012-13. The district is working to remove about $1.6 million of spending, expecting to eliminate this year’s portion of the overall fiscal problem.

In addition to the spending cuts, significant spending “freezes” continue to be in place. These actions, in conjunction with the plan to obtain the loan, are the most responsible strategy for improving the fiscal situation of the district. In essence, asking the public to approve the one-time, $2.9 million loan would bring things back into line, allowing obligations to be paid within the appropriate fiscal year and avoiding the practice of carrying debt forward. These sound and appropriate practices will then be continued to avoid the effect of accumulating debt over time.

The RSU 19 school board voted to put a second 10-year, $2.9 million loan on the ballot for Tuesday, Jan. 15, hoping that voters will reverse their rejection of the $3.6-million loan attempt in November. This appeal to voters accurately interprets the circumstances in which the district finds itself.

It is important to note that the situation in June 2012 was so severe in terms of cash flow, that the district held certain payables, having no funds to make payments. The reason the district was “in the hole” was not due to overspending approved budget amounts but for a failure to collect sufficient revenue to meet approved expenses. In fiscal year 2012, the district should have either collected more from local towns or cut spending to below approved levels, making revenues more equal to expenses.

We urge RSU 19 voters to not subscribe to the belief that the answer to deal with prior debt is to continue to cut future budget spending. This would clearly mean that many existing and some additional programs for students would have to be eliminated.

It is important to note that securing this loan is vital so the district does not have to budget the debt related to old obligations and discharge it in one year. That would be a very costly burden on local taxpayers. The loan spreads payments to towns over a 10-year span.

This year, the district has worked hard to drastically reduce approved spending to cover all or most of the current-year revenue shortfall and minimize or eliminate any variance between revenues and expenses. These reductions will still be required next year in order to avoid causing towns to pay $1.3 million more if true revenue amounts are assessed. The district plans to construct a budget for 2014 that does not include a substantial increase in local assessments. That process will have a better result starting with approval of the $2.9-million loan proposal.

Gregory Potter is the superintendent of schools, and Jerry Nault is the business manager for Regional School Unit 19, which serves Corinna, Dixmont, Etna, Hartland, Newport, Palmyra, Plymouth and St. Albans. Both started with the district in July 2012.

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