Madison Metropolitan School District Breaks a Rule - Wisely.

There are some very sound rules in the world of finance, particularly public finance, that should not be broken. Usually.

From the Recommended Budget Practices, 

Practice:
A government should adopt a policy limiting the use of one-time revenues for ongoing expenditures.

Rationale:
By definition, one-time revenues cannot be relied on in future budget periods. A policy on the use of one-time revenues provides guidance to minimize disruptive effects on services due to non-recurrence of these sources.

Yet, the Madison Metropolitan School District's (MMSD) Board decided to take one time revenues, $5.5 million in TIF revenues, and apply to the next operating budget. This means that the day or reckoning is put off for another year.

Normally I would provide a scalding criticism for such a practice. In this case it makes sense. The long term solution is a referendum to raise the state imposed spending caps on education. By waiting a year the MMSD gets more time to better decide the level of spending required by the district. School enrollments fluctuate, and more importantly, there is the possibility that the state may reform current spending controls, or funding formulas for districts, or both.

From the Wisconsin State Journal:

While the one-time TIF payout helps for the upcoming school year, budget gaps loom over future school years. The School Board also voted Monday to begin planning for a multi-year referendum to fund the 2009, 2010 and 2011 school years.

"We want to be clear that we are painfully aware of the broken system of funding public education in Wisconsin, and that we will be working hard to use resources prudently, but the fact is it is highly probable that we will be facing significant gaps, " Mathiak said.

Board member Carol Carstensen said the "very optimistic " situation would be that "by the end of those three years, the state will have done something " to change the school financing system.

Under the circumstances, it is wise to wait the year.

Comments

[Thomas J. Mertz]

Mostly agreed, but I want to point out that a referendum is a short term solution; a long term solution is reform at the state level. On November 15 the Senate Education Committee will be holding a hearing on the Pope-Roberts resolution. This is an important step toward a system that puts education first.

I'd also like to correct Ms Mathiak's statement; it is more than "highly probable" MMSD will face a gap for 2009-10, it is all but certain.

[Lucy Mathiak]

Dear Paul,

Thank you for your support of the plan. What may not have been clear in the media coverage is that there are two parts to the plan:

1)Use the largest portion of the funds to cover the cost to continue budget gap that we expect to see in 2008-09.

2)Perhaps more interesting in some regards: we are exploring the option of using the remaining funds to pay off short term debt. District estimates hold that if we use the anticipated extra funds to pay off short term debt, we can put c. $400,000 back into the budget on a recurring basis. That money would be under the revenue caps and would make a certain impact in school staffing and programs. It also would save in interest charges.

3) Another possibility: use some or all of the remaining funds to rebuild the district's contingency reserves. We have gone into the reserves several times in recent years, and are not that far from changing our bond rating. We have recently put c. $500,000 back into contingency, some of it from a TIF district that closed out earlier this year, but have not replaced all of the funds that we have used in the past 3-5 years.

4) Some combination of all three options.

We have deferred making a final decision about what to do with any surplus funds until late summer or early fall 2008. This is because we won't receive the bulk of the funds until c. a year from now. During that time, we will be paying off some of that short term debt; we also will have a better sense of how we will end the current academic and fiscal year. Deferring the decision will allow us to make choices based on the information available for 2008-09 rather than projections developed as we are finalizing the 07-08 budget. The goal is to make the most efficient use possible of the resources that we have to work with.

Lucy Mathiak
Chair, MMSD Board of Education Finance & Operations Committee