An audit of the Eastern York School District found the general fund balance has decreased drastically — by 71 percent — since the fiscal year that ended in June 2011. The decline contributed to a 6.7 percent tax hike for the district this year and more tax increases to come in the future.
The audit followed the school’s spending from the 2010-11 fiscal year through the 2014-15 fiscal year. Overall, the general fund balance dropped $4.2 million. The fund balance was at $1.71 million at the end of June 2015, making it 4.2 percent of the school’s overall expenditures.
School board policy 620, which relates to the fund balance, states the district will maintain a general fund balance between 5 percent and 8 percent of its overall expenditures.
Fund balances are critical pieces of information used by financial agencies such as Standard & Poor’s or Moody’s Investors Service to determine school districts’ credit ratings — and therefore the districts’ borrowing costs.
Both agencies look for consistency in a fund balance, mostly a flat line in funds available between 5 percent and 10 percent of a district’s annual expenditures, Ken Phillips, the managing director with RBC Capital Markets in Lancaster, has said.
“If you fall below that 5 percent range and the pattern from year to year is to go lower and lower because you’re using that balance for operating expenses, that will have a negative impact on your rating,” he said.
Eastern’s audit, which is available online, states that between the fiscal years ending in 2012 and in 2015, the district’s total expenditures exceeded total revenues for all four years reviewed, contributing to the decreasing general fund balance. Budgeted revenues and revenues actually received were at a deficit during those years, and local and state contributions were overestimated. Each year the school board has to estimate those contributions, and sometimes the estimate is very different from the amount the district actually receives.
A district has several types of fund balances that either must be used for specific things or can be used more generally. The “general fund balance” encompasses all of the types of fund balances. It’s comparable to a family having a general savings account, but within that account having specific accounts for retirement, general use or college funds for kids.
Eastern York School District’s fund balances have decreased as a whole.
This year, the fund balance doesn’t seem to be doing much better, despite the audit information.
For the 2016-17 fiscal year, the projected unassigned fund balance is $1.07 million, which is only 2.5 percent of the budgeted expenses, even lower than the fund balance at the end of the audit.
Audit: The audit states that district personnel inadequately adjusted budget earned-income tax revenues to reflect changes in the earned-income tax (EIT) distributions. The district’s assistant business manager, Tim Senft, explained that the York Adams Tax Bureau changed its method for distributing EIT.
In years past, EIT was distributed to schools based on the previous year’s tax revenue. Now, EIT is distributed based on the amount collected in the previous month. Senft said the new distribution method, as well as fewer people working, has resulted in lower EIT distributions to the school district.
There were also appeals on local real estate property assessments, resulting in the return of up to five years of real estate taxes. Senft said in an interview that people can file an appeal with the York County Assessment Office if they believe their property has been overvalued.
He said that in many of the cases, the York County Assessment Office agrees with the property owner and lowers the assessment, which then lowers the amount of taxes collected by the school district. The changes contributed to revenues received by the district being lower than the budgeted revenues.
Another reason for the decreases in the general fund balance were unbudgeted building repairs. Senft said that he was unsure specifically what the unbudgeted building repairs were. He said most unbudgeted repairs are emergency problems, such as leaking roofs or other issues that can’t be delayed because of safety.
Recommendations: The audit recommended the school district follow board policy 620 to maintain a stable general fund balance, that guidelines for maximum debt levels be developed, that the district project revenue on historical data in a conservative manner and that the long-range financial plan be adjusted in light of the findings.
Although policy 620 isn’t being followed for the 2016-17 school year, with the district’s fund balance at $1.07 million and 2.5 percent of budgeted expenses, Sent said the numbers are the result of the school’s revenues dropping and the inability to get expenses reduced.
In the audit, the district stated measures were being taken to reduce operating expenses and taxes were raised for the 2016 fiscal year. Upon accepting the budget in May 2016, the district agreed to raise taxes 6.7 percent, from 21.02 mills in the 2015-16 school year to 22.43 mills this year. The district plans to raise taxes for the 2017-18 school year, but Senft said they were unsure by how much; more information will be available once the district begins discussing next year’s budget in the fall.
Albert Weisser, a Wrightsville resident, has seen the struggles that higher taxes create for groups on fixed incomes, including senior citizens such as himself. Though he has not struggled, he said he knows plenty of friends and neighbors who had to sell their houses and property because of the taxes.
“They’re too damn high,” Weisser said. “People on a fixed income are the ones hurting. … I understand trying to put money aside. Any working person knows how important that is. But everything keeps getting raised.”
The board approved a budget for the 2016-17 school year that would require no use of the general fund budget. In regard to debt, the district stated in the audit it had not borrowed new money since 2007 and has been refinancing debt to reduce costs associated with borrowing. Senft said the school district has lowered its debt service payments by refinancing old bonds with new bonds, which have lower interest rates, and has created more favorable repayment terms.
Senft is hopeful all of the measures will improve the school’s financial situation and the general fund balance in the coming years, particularly when it comes to costs the schools can’t control.
State and federal regulations tie the district’s hands when it comes to the Public School Employees’ Retirement System and similar expenditures, he said. Those parts of the school budget are huge expenses that can’t be reduced.
“We can’t control that cost, like retirement and health insurance. Those are two things that are very difficult for us to reduce,” he said. “Hopefully, we’ll be able to raise taxes to keep up with that.”