HIGHLIGHTS: Projected Revenue (6:38), Debt Service Fund Shortfall (6:51), Transferring Referendum Funds to Pay for Construction Debt (7:04), Borrowing via Lease Agreement vs Bond Election (7:09), Student Enrollment Numbers (7:12), Cash on Hand (7:16), Teacher Pandemic Stipends (7:20), Transfer Students (7:24 and 7:33), Future Plan for Happy Hollow (7:26)
Location: West Lafayette Intermediate School
6:32 Karpick welcomed everyone to this work session and explained that public comments on the budget will be allowed at the September 7 School Board Meeting. He then asked Ross Sloat (Interim CFO) and Steve Ohlhaut (Assistant to the CFO) to give their presentation.
Ohlhaut and Sloat projected slides and handed out copies to the audience. I loved it! It is rare for information to be projected or handed out at school board meetings. Having the slides makes it so much easier to follow what they are discussing. I hope the school board will follow Ohlhaut and Sloat’s example and share the school board packet publicly at school board meetings.
6:34 Sloat said that he and Ohlhaut have been meeting with the Department of Local Government Finance (DLGF) to make sure they are preparing the budget correctly.
6:36 Ohlhaut explained the budget timeline:
- Aug 26 – school board reviews the budget
- Sep 7 – public hearing on the budget
- Oct 4 – adoption of the budget
After the school budget is adopted, it is submitted to DLGF to calculate the property tax rates.
6:38 Ohlhaut explained that there are two main sources of revenue with about half the total school revenue coming from each source: (1) state education funding of $6,295 per student and (2) local property tax revenue to the debt service, operations, and the referendum funds
I produced this figure from the numbers Ohlhaut presented to illustrate the relative size of each revenue source:
For 2022, the $16 million education fund plus a transfer of $3 million from the referendum fund will be spent primarily on salaries and benefits with $1.4 million spent on other things like technology, supplies, special education service, and professional services.
Ohlhaut explained that the state funding of $6,295 per student for the 2021-22 school year is a large increase as compared to the $5,918 per student funding for the 2020-21 school year. This year’s per student state funding is about the same amount as provided in the 2008-09 school year right before Indiana’s property tax reform and big drop in state education funding. For our school district, the referendum property tax revenue makes a big difference.
Ohlhaut explained that the debt service fund, operations fund, and referendum fund revenue come from local property taxes. The debt service and operations revenue is subject to the Indiana constitution property tax caps and is only imposed on the base assessed value (homes and other property not in a TIF district). The referendum revenue is not subject to the property tax caps and is imposed on both the base assessed value and on the tax increment financing (TIF) district assessed value (the TIF districts are mostly businesses and areas where there has been recent new construction). While base assessed values have gone up by a healthy 3.5% the past two years, the TIF district assessed value has grown by much more, 30.9% last year! This referendum fund revenue is projected to be $6.7 million in 2022.
Each local government entity that imposes property taxes (county, city, township, school corporation, library) submits a budget to the Department of Local Government Finance (DLGF). The total property tax imposed may not exceed the Indiana constitutional limit on property taxes (no more than 1% of the gross assessed value of your home) and so DLGF decides how much of a reduction applies to each government entity. This shows up on your property tax bill as a circuit breaker credit which reduces the property tax you pay and reduces the amount of property tax revenue the school district gets. The circuit breaker credit does not apply to the referendum property tax. The school board promised the community that the referendum property tax revenue would only be used to pay teachers and support them and that referendum funds would not be used for construction.
The CARES act included Elementary and Secondary School Emergency Relief (ESSER) funding. WLCSC is projected to receive $1.4 million over the next two years and will spend $363,000 on special compensation to teachers and staff. Many other school districts already provided teachers with these payments out of ESSER funding from last school year. Our school district chose to delay these teacher bonus payments to this year and instead spend the federal grant money on stipends for e-learning (7-12th teachers only), permanent subs, summer school, other staffing and additional cleaning. Ohlhaut noted that there was a shortfall in summer school funding.
I was confused about summer school funding. The school board approved several new high school social studies summer courses at the February 2021 school board meeting. However, it was presented as being break-even in terms of funding and now it sounds like it ended up costing more than it was able to bring in. I think the school board should ask for a report on how it went and should evaluate if it is worth continuing. When it comes to summer programs that help address learning loss, my impression is that our school district hasn’t done anything new to address pandemic learning loss. The budget lists 20% of the total ESSER funds going towards addressing learning loss through summer programs and tutoring. I hope we will hear more about what these new student support programs are going to be.
6:51 Sloat described the expected annual shortfall in the debt service budget. The school district has 4 large bonds issued in 2017, 2018, 2019, and 2020, structured as building lease payments, with scheduled 2022 payments of $5.8 million. In addition, the school district has common school loans and other scheduled payments of $0.2 million for a total of $6 million. Debt service revenue is expected to be $5.3 million, leaving the school district with a shortfall of a little more than $700,000, about the same as the shortfall in 2021. He provided the following table to illustrate the debt service shortfall:
|Year||Debt Obligation||Property Tax Levy||Circuit Breaker Loss||Excise CVET FIT Taxes||Debt Payment Shortfall||Happy Hollow Lease Revenue||Surplus or Shortfall|
Sloat explained that the school district borrowed more money than the total cost of the construction projects and still has $2.3 million remaining in the bond accounts. The plan is to use this remaining borrowed money to help make the debt payments (note that the school board authorized this at the March 2021 meeting).
I think it is irresponsible that the school board borrowed so much money for construction that it couldn’t afford the payments and then borrowed even more to be able to make the payments. The way the school board did all this borrowing also leaves me feeling very frustrated. In a series of town halls in 2015 and 2016, school leaders presented plans for $50 million in construction with alumni donations covering a portion of that cost. But then the school board approved borrowing $95 million, nearly double what they said they would, which for a district our size is a lot of debt. In a ranking of every school district in Indiana, WLCSC comes in second highest for debt per student. From the bond fund balance it looks like they have spent $92.7 million so far and from what Sloat explained, they plan to use the remaining $2.3 million to help them make the next few bond payments. I have a post on my website with more details about our school corporation’s 18 years of increasing debt payments.
7:04 Sloat explained that the operations fund has a property tax levy of $3.9 million in 2022, but applying property tax caps, it will only provide about $3.3 million in revenue. The 2022 school operations budget allows for $8.3 million in expenses, though Sloat projects that actual spending on operations will be less at about $6.8 million. They plan to make up the difference by transferring $3.5 million from the referendum fund to the operations fund. In the March 2021 meeting, the school board authorized shifting the effect of the property tax caps (the circuit breaker) from the debt service fund to the operations fund starting in 2024. This would increase tax revenue to the debt service fund by around $730,000, but decrease tax revenue going into the operations fund by that same amount. In long-run projections that Sloat displayed, this change along with an assumption of a 2% growth rate in property values (base assessed value) allows the debt service fund to break even.
Through this change, the school board is effectively transferring money from the referendum fund into the debt service fund. When the school board shifts the circuit breaker losses from the debt service fund to the operations fund and then transfers this same amount of money from the referendum fund to the operations fund, it’s just a way to turn referendum money into debt service money. The school board has broken their promise that the referendum money would not be used for construction. I worry that this is going to make it much harder to get the community to vote for the next referendum.
7:08 Sloat and Ohlhaut concluded their presentation by showing the large cash on hand balance (about 40% of annual expenditure) for our district relative to peer districts including Carmel, Noblesville, and Zionsville. The community will be voting to reauthorize the referendum fund property tax in 2024. If the referendum were to fail, Sloat said that the school corporation will need a great deal of cash on hand to allow for an orderly reduction in the number of teachers, staff, and other expenses.
7:09 Karpick called for questions and Springer asked if Sloat could explain more about how the circuit breaker works. Sloat explained that the property tax on homes is capped at 1% of the assessed value and that this applies to the debt service and operations funds. He said that if the school board had chosen to finance the construction projects by asking the community to vote in a bond election, then the circuit breaker would not apply to that revenue stream and they wouldn’t have this problem. But the school board decided to use lease agreements instead of taking this to a community vote.
I thought it was great that Sloat told the school board that their decision to use a lease agreement approach to finance the new construction, rather than a bond election, was somewhat problematic. Indiana law requires public approval in an election in order for a school board to issue bonds that exceed property tax revenue, as our school board did. However, our school board used legal loopholes to get around this requirement. They divided the later construction projects up into three groups costing less than $15 million each and held the bond hearing approval votes one year apart from each other in 2018, 2019, and 2020 and then used lease agreements through a building corporation to avoid having to hold a bond election. An Indy Star article explains: “A school district sets up a nonprofit building corporation, which takes on the debt needed to fund big projects instead of the district. When the nonprofit issues the bonds, the security is a lease agreement with the district. Meaning, the land, or building in need of renovation, is sold to the nonprofit and leased back to the district. Then the land or building is returned when the bonds are repaid using the district’s lease payments. That lease agreement is not technically counted as school debt. Therefore it doesn’t count toward the district’s debt limit.” Using this loophole is a legal way to avoid having to tell the public about all the debt the school board is approving and it allows them to borrow much more than they would have been able to otherwise.
7:11 Marley asked if Sloat had explained the difference between TIF assessed value and base assessed value. Sloat said that he had explained the difference, perhaps before Marley arrived at the meeting. He reminded everyone that TIF district property values have increased much more rapidly than the base property values.
7:12 Witt asked if the enrollment numbers are stable. Sloat said that in fall 2019 we had an average daily members (ADM) of 2,342 students; in fall 2020 we had 2,258 students; the preliminary count for this school year is 2,251 (the official count day is September 15). Sloat said that about 80 students didn’t come back to our district in 2020. About half of those students who didn’t come back were international students. He said we don’t know where they went.
The loss of 80 students came in fall 2020, right after the controversy over the 2020 reopening plan. I suspect that fewer students would have left if the school board had handled the reopening better. Frustration with the plan was high, but the school board passed it anyway without considering adjustments. It took petitions and community outcry to get the school board to listen and make those adjustments. I have a post on my website about the school board’s poor handling of the 2020 reopening plan. I personally know parents who have moved to a neighboring school district, transferred their children to another district, or chosen to home school their children because of poor treatment from our school leaders. This makes me very sad. We need our school leaders to do better.
7:14 Austin asked if the state was planning on doing a fourth ESSER, or if this is all that the state is doing to help schools. Ohlhaut explained that ESSER was part of the CARES act which was passed by Congress at the federal level and is not a state program. Whether or not there is more ESSER funding will be a future federal decision.
7:16 Karpick asked Sloat to talk about why our district has a large cash balance. Sloat said that the referendum fund is what is providing most of the cash balance for our district and that the growth in TIF assessed value is what is driving growth in the referendum fund. Back in 2009, the state withheld education funding. Having cash on hand helps the school district be prepared for situations like this. Karpick said that the goal should be to have a whole year worth of expenditure in cash on hand.
Cash on hand will decline over time as the district makes these large and increasing debt payments. Shifting money around across the funds doesn’t change that reality. All that cash in the referendum fund is one reason many teachers are so frustrated with the school board. In April 2019, the school board authorized a reduction in force process (RIF) to fire all first-year teachers in grades K through 6. The justification was that there wasn’t enough room in the budget and they needed to make cuts. At that same meeting, the school board approved the last of the construction projects. There was $7.5 million in the referendum fund at the time they decided to fire teachers, but the school board knew that they would need that saved referendum money to help pay for the construction. Over the next 4 months, 15 teachers resigned (9% of the teachers in our district). Over the academic year, 23 teachers resigned (14% in just one year). I have a blog post on my website that suggests reasons why our teacher retention rates are worse than our neighbor and peer schools.
7:18 Witt said that people sometimes ask her why state funding today isn’t enough if we now have about the same per student funding as we did in 2009. She asked Sloat to explain inflation and the increases in day-to-day costs. Sloat said that teacher and staff salaries are higher, health insurance costs are higher, utility costs are higher. He said that it is great that the state increased the per-student funding this year.
7:20 Yin asked how the ESSER teacher stipends (designated as compensation for all the extra work they did because of the pandemic) would be distributed and asked if teachers who did all that extra work in our schools last year, but have retired or left, would also get the payment. As an example, she mentioned Mrs. Porterfield, one of the math teachers who resigned over the summer, who spent a lot of extra time working with e-learning students. Yin suggested that teachers like Porterfield should receive the bonus payment. Ohlhaut responded by saying that he anticipates that the school district will make the teacher bonus payments in a way that is similar to the teacher appreciation grants and that the payments will only go to teachers and staff currently working in our district, though the details have not been decided on yet.
Most of our neighbor and peer school districts made these teacher stipend payments during the prior school year. That we didn’t and our teachers saw teachers in the other districts receiving these COVID bonus checks is just another reason why many of our teachers feel that they are not valued or supported by the school leaders in our district. Our teachers risked their health and worked many extra hours. Hopefully the school district will work out the details on this soon.
7:22 Yin asked if the school district could refinance the four large bonds to take advantage of the current low interest rates. Ohlhaut said that the school district’s lease agreements are more complicated than refinancing a home mortgage, for example. Reiling said that even if the interest rate were to drop to zero, the school corporation couldn’t take advantage of it for the first 7 years because of the way the borrowing is structured.
7:24 Yin asked if the reduction in the number of students could be improved by increasing the number of transfer students from TSC? Ohlhaut said that there was a great deal of interest from TSC students in transferring to WLCSC when we had a mask mandate and TSC did not. He said that 7 to 10 additional TSC students transferred. Now that TSC also has a mask mandate in place, Ohlhaut said he is not sure if these students will stay in our district.
It sounds like these 7 to 10 TSC students transferred into the district right before the start of school, soon after the mask policies were announced. By not accepting cash transfer students, our school district has a great deal of flexibility in terms of when and which students to allow to transfer. There is no transfer student policy posted for the public. Interested parents have to call the central office to ask. There is a lot of potential for discrimination in the way potential transfer students are treated.
7:26 Yin asked for clarification about the future plan for the Happy Hollow school building which is currently sitting mostly empty and not generating rental income as it was in 2020. Is there a plan to renovate all or part of the building to make it usable? What is the annual maintenance cost? Sloat explained that the school board had planned to turn Happy Hollow into an early childhood center and had some discussions with Purdue about other options. However, it needs some work and there is no longer any capacity to borrow to pay for renovation. Sloat said that they have no direction at this point and so in the next year and half, when we get a new superintendent, the school board will need to decide what to do. The annual maintenance cost is around $75,000 to $80,000. Sloat doesn’t want to lock in a long-term rental to be flexible so that when the school board reaches a decision about what to do with the building, they will not be stopped by a long-term lease. Karpick agreed with Sloat that the plan has been an early childhood center and that the school corporation has no capacity for additional borrowing. Yin expressed her opinion that Happy Hollow is larger than what we would likely need for an early childhood center. Karpick said that the early childhood center was part of the 2013 facilities plan and that the school board hasn’t made any recent decision about the building and that there is no financial ability to do so. Yin asked whether the demand and supply data about the preschool will be collected to make the final decision and whether we are open to other possibilities, given that the preschool decision was made years ago. Karpick said that the school board is not going to decide on anything without data and without the ability to fund it. Springer added that Happy Hollow has some serious infrastructure issues and that the decision to build WLIS was necessary because of the serious deficiencies with the Happy Hollow building.
How does our school board not have a plan for Happy Hollow? They approved the last of the school construction projects in April 2019. Nothing has changed about the Happy Hollow building or about the school’s financial situation since then. They knew when they approved the last construction project that it would exhaust their capacity to borrow. It has been more than two years since then and it sounds like the school board has not put any thought into what to do. They keep referring back to their 2013 facilities plan saying that they want it to be an early childhood center and at the same time say that it is not a financially realistic plan. They should have come up with a new plan a long time ago. Sloat’s estimated maintenance cost for Happy Hollow doesn’t seem to include things like the $300,000 cost to replace the boilers in the building that was approved at the February 2021 meeting.
7:33 Yin said that there are many people who would like to move into our school district, but there are so few homes on the market each year. If our school buildings have extra capacity, is there a way to increase the number of students? Karpick said that there was a discussion years ago about potentially increasing our school district boundaries, but it would require TSC to agree and his opinion is that expanding through boundary adjustments was not going to happen. Yin asked if instead allowing or encouraging additional transfer students from TSC would be a way to increase to a more efficient size? Karpick said that the reason WLCSC accepts transfer students from TSC is to equalize grade size. Sloat said that the principals of each building decide if they have the space to accept a TSC transfer student. Reiling said that WLCSC used to accept cash transfer students, but that now we only accept students through an agreement with TSC. The state put new regulations on the treatment of cash transfer students and so we no longer accept cash transfer students. He said that our relationship with the TSC administration is good, for example, they help us by managing our buses. However, if we were to try to raid them for students, that goodwill would be lost.
The tone Reiling uses when he speaks to Yin comes across as condescending and makes it sound like he doesn’t value her opinion. Like Yin, I think our transfer student policy is very important. Currently, the policy seems to be for interested parents to call the central office and maybe they will be able to work something out. My view is that our school district should have a clear transfer student policy posted to the website and that our school leaders should be constrained to follow the policy. We should be open with our community about the capacity (class sizes) in our schools. We should also treat potential transfer students and their parents fairly. Many parents of transfer students are limited in what they can say and do because they are afraid that their student or their student’s younger sibling would not be allowed to enroll the next year. School leaders should not have this kind of arbitrary control over transfer students.
7:37 Witt asked if we have had a reduction in the number of students because of COVID. Ohlhaut answered by saying that we had 80 fewer students come back last year, perhaps because of COVID.
7:38 Karpick thanked everyone and adjourned the meeting.
Yin has been asking a lot of great questions at school board meetings. Her efforts and example are starting to change the culture of these meetings. Our community wants to hear these important issues being discussed at the public meetings, rather than behind closed doors prior to the meetings. I appreciate Yin’s willingness to speak up and ask the hard questions.
Future Meetings (calendar link)
- Tuesday, September 7th at 6:30pm at WLIS (regular school board meeting)
Streaming: WLCSC Board Meeting 08/26/2021 The sound was not good. It was so disappointing after having such great sound at Monday’s meeting to have this meeting where there were times the audience could hear nothing of what was being said.
Attendance: 7 of 7 School Board Members (Yue Yin, Alan Karpick, Karen Springer, Thomas Schott, Rachel Witt, Amy Austin, and Bradley Marley who arrived late); Michael Pettibone, Interim Superintendent; Ross Sloat, Interim CFO; Stephen Ohlhaut, Assistant CFO; Robert Reiling, Jr., Lawyer;
Audience: a few parents, Amber Targgart WLES principal, WLES teacher, a few others
These are not the official minutes from the school board meetings. I am a parent of WLCSC students and my thoughts are given in italics.