Brady Sets Out To Debunk "Misinformation"

Here is the letter John Brady sent out March 15:

I want to debunk misleading information that has been repeated publically at the last several Amity Finance Committee and Amity Board of Education meetings. The information is being used to discredit the Amity budget development and management process.

I should point out that both the budget process and the financial management process at Amity are award winning. The Government Financial Officers of America honored Amity in 2008 for both financial reporting and budget development. Such awards are not given lightly and were conveyed after exhaustive research into our operations. Similarly, the Connecticut Economy, a UCONN publication, rated Amity as one of twenty-one “fully efficient” school districts in the State of Connecticut in 2010. I can assure that Amity’s financial house is in order.

The specific criticisms I want to address have to do with the specious claim that since Amity has had a budget surplus for each of the past seven years no new funds are needed for 2012-2013. The assumption is that since we have had surpluses, we started each of the past seven years with a budget that was too high.  Nothing could be further from the truth.

When Amity sets its budget, we do so with the best estimate of our expenses and revenues possible. If the world were a static place and no changes occurred in financial operations over the course of a school year, we should end up with a very slight fund balance.

Fortunately for Amity, there are changes that occur once the budget has been set. Some of these changes come about without any Amity action. For example, in 2006-2007, the money we placed in the State Treasurer Investment Fund had a projected interest rate at the time the budget was set of 3.67%. The rate increased over the course of the year to 5% resulting in an increase in revenues of over $79,000. Even more positive changes come about because of our aggressive approach to seeking cost efficiencies as you will see below.

I will provide a sample list of financial activity that positively affected the Amity budget over the past few years so that the year ended with a fund balance.

• Teacher replacement

In 2006-2007 a number of retirees were replaced with teachers whose salaries were significantly lower than the departing teachers. We worked hard to recruit and select high quality teachers at lower cost. The total number of staff departing the district is often not known until as late as August. Since these hiring decisions are not completed until after the budget referendum, any savings show as a fund balance. In the 2006-2007 instance, the savings amounted to over $200,000.

• Insurance renewal rates

Each year our insurance consultants advise us on what percentage increase we will need to cover medical and dental costs. The number is an estimate when it goes into the budget since the final rate is not established until after the budget is set in the spring. In 2007-2008, for example, we were advised to budget for a 10.46% increase. The final rate increase was 0% because we took an extremely aggressive approach with the carrier along with conducting a market study of competing companies. Nevertheless, the $745,993 was a good number when the budget was put together. With an increase of 0% the $745,993 added to the end-of-year fund balance. I would like Amity community members to ask themselves, is this poor budgeting or effective management to try to gain the most effective rate possible?

•  Increased revenues

Amity anticipates a certain amount of revenue from state grants, particularly the special education excess cost grant. In 2008-2009, the state formula was adjusted in December and March resulting in an increase of nearly $308,000. This occurred once again in 2009-2010 when the reimbursement rate was higher than the state had informed districts to plan on. In 2009-2010 the net result was $305,000.

•  Refinancing of Bonds

When the budget is being set, we do not have information about whether or not there will be a favorable bond refinancing market. When conditions warrant, we will refinance bonds. This refinancing has resulted in nearly $2,000,000 of current and future savings to the taxpayers. In 2009-2010 alone, the total savings were $326,143; again showing as a surplus at end of year.

•  Special Education tuition and transportation

Expenditures in this area of the budget are highly variable and difficult to predict. We work hard to create appropriate programs for students within our three schools. Whenever possible, we offer parents the opportunity to bring their student to Amity instead of in an out-of-district placement. For the majority of students out placed, their placement is the appropriate location for them to receive their educational services, but this changes regularly over the course of any given year. As an example, primarily through creation of appropriate programs within Amity, we ended the 2010-2011 year with a $327,000 balance in the tuition and transportation for special education account.

•  Freezing the budget to generate surplus funds

In an attempt to be responsive to cries from some to limit year-to-year increases, we have even taken the extraordinary step of occasionally freezing spending to generate additional funds for use in the subsequent year’s budget. As you might imagine, this does not go over well with teachers and administrators who were counting on certain purchase of educational supplies and equipment only to see a portion of their budgeted funds assigned to a subsequent year’s budget. This is not a sustainable method of keeping taxes low. This approach has been taken only in these difficult times.

•  What has Amity done with the surpluses generated over the past few years?

In four of the past five years, a substantial sum of the surplus has been returned to member towns for use as they see fit.

Due to the difficult economic times, for the past five years, we have used a portion of the surplus for the subsequent year’s budget, thus reducing the tax payer burden. While this approach has been helpful in these tough times, it is not sustainable, and as the economy improves, I would recommend against such budgeting.  In one year we used a portion of the surplus to purchase much needed computers that had exceeded their life expectancy but were cut from the original budget. We plan to do the same this year with monies that have been re-designated from our Capital account.

In the vast majority of cases the funds have either been returned to the towns or used to reduce the cost to the towns of the subsequent year’s budget. It is worth noting, that the Amity Board totally controls use of all funds allocated in the budget. The Board could have spent every dime of money approved at referendum. I hope you will see from the above that the Board has acted to work in consort with the member towns to both provide an excellent educational program and to exercise its fiduciary responsibility in a wise and prudent manner.

Summary:

As you can see from the examples above (and there are many more with smaller dollar amounts of impact), Amity’s surpluses occur after budget establishment and are primarily due to our efforts to be as cost effective as possible. We still need to plan a budget based upon our anticipated expenses and revenues when the budget is set in the spring of each year. This year the increase is .92% or slightly over $400,000.

Of course, all of this information and much more are shared with the Amity Finance Committee (composed of three Amity Board members and a member from each of the towns' Boards of Finance) and the Amity Board of Education on a monthly basis.

I urge you to support the Amity budget on May 8th.

John J. Brady, Ed.D.

Superintendent of Schools