School Finance Expert Paints Grim Picture
Dr. Doug Karr, school finance specialist from Texas Tech, reviewed a financial trends analysis and projections he had done for GCISD and discussed living under House Bill 1 with the GCISD board at a board training session March 2. HB 1 took effect in the 2006-’07 school year, and is the primary regulation governing educational funding in Texas.
Karr said GCISD is in better shape financially than many districts because of past conservative management, but its main problem is that “the kid count is gradually going away,” a problem common to West Texas schools today. The data shows that GCISD’s enrollment is declining by two percent per year, on average, since 2003-04, and he said that trend isn’t likely to reverse.
Revenue comes from three primary sources: students, property values and tax effort. After HB1, he said school funding was pretty much capped, with no room for revenue growth and unless enrollment increases, GCISD cannot generate more dollars than in ’06-’07. He said even if property values go up, if there are fewer kids, there are fewer dollars to work with.
GCISD: ‘Storm on the Horizon’
Karr said most ISD’s, especially in West Texas, are having to use more of their fund balances (savings) for operational costs because their yearly revenues aren’t enough. He said several are on the verge of insolvency, and will probably not survive as independent school districts, but will be forced to consolidate with other schools.
He estimated that GCISD is only two years from having to use its fund balance to help with operational expenses. His projections show that beginning in 2011-12, costs will outrun revenues.
Board member Carl Hoelscher said, “You’re saying there’s a storm on the horizon,” and Karr answered, “Yes.”
Difference in ‘Needs’ and ‘Wants’
School Superintendent Steve Long said, “If we do the right things like we did in 2003, we can survive (with a lower fund balance). We need to understand that there is a difference in ‘needs’ and ‘wants.’ “
Karr said that was a great comment, and an important distinction which everyone needs to remember.
Karr said it’s going to require tight-fisted management, but “You’ve done a great job with your finances over the last few years. Continue to do that, and you will survive.”
How to Survive HB1
Karr said there are a few guidelines to surviving HB1: 1) do a study of long-term trends and a financial analysis/projection (this is what he just completed for GCISD) 2) guard and protect your fund balance 3) control spending 4) shift facilities needs and capital improvements to bonded debt (which is not subject to recapture) 5) push technology courses and free lunches (the state pays more for these) and 6) be aggressive with delinquent tax collections.
Karr said it is his opinion that the state wants each school district to have only enough fund balance to operate three or four months, to meet payrolls, etc., so that districts are not spending state money while sitting on (saving) their own. He also thinks the state wants to get rid of the smallest schools (by consolidation), and is unhappy that many have found ways to survive.
Valuations Down 30 percent
Karr’s financial analysis included a 30 percent drop in taxable values for 2009-10 and an increase of $181 million for wind turbine valuations. The district taxes at the maximum rate allowed. In school year 2008-09, the school’s revenues will be $12.8 million, with operational expenditures estimated at $12 million (including $8 million in recapture which must be sent out-of-district.) By 2010-11, revenues are projected at $12 million and operational costs at $14 million (including $7 million in recapture costs), creating a deficit of $1.7 million.
He said because of declining oil and gas and agricultural revenues and ever-increasing costs, the state will someday have to pump in more dollars for education. But when that might be, how much it will be and where the dollars will be found is anyone’s guess. Karr said legislators are eyeing federal stimulus monies as a school funding source, but there are other plans for that money, as well.