“We would never have been able to develop a budget
with over $6.2 million in reductions without the
involvement of our community”
School Board President, Mike Aglialoro
On Tuesday, May 20, 2014 the voters of Clarkstown will be asked to approve their School Budget for 2014/2015. Of the three tax bills that residents pay, County, Town and School, the latter is the largest of the three and is the only one that has to be approved by an affirmative vote by Clarkstown’s residents.
Clarkstown is facing some serious issues related to a recent demographic study which shows that for the foreseeable future student enrollment in Clarkstown Schools is predicted to fall steadily primarily because the population is aging and rising property taxes are making home ownership in Clarkstown increasingly difficult. Unfortunately as the student population declines fewer buildings are required and fewer staff are required to meet the educational needs of the declining population. As the chart shows the 2013/14 graduation class size (green bar) will be 750 and by 2025/26 will have fallen to about 550.
Additionally, the Town lost a $20 million tax cert case brought by the Palisades Mall. $15 million of this settlement had to be paid out of the School’s Reserve Fund which has now resulted in a major problem for the School Board to stop this drain on the reserves and indeed begin the process of rebuilding it. The fund is now at a level at which it will have to be replenished if the School Board is to operate within the minimum guidelines required by the ratings agencies for fiscally sound practices. Without adequate reserves borrowing costs for capital repairs and improvements skyrocket with long term negative consequences for taxpayers.
Working with a series of teams drawn from dedicated volunteer parents, Superintendent Thomas Morton, Assistant Superintendent for Business John LaNave, and the School Board under the leadership of President Michael Aglialoro have patiently moved towards a budget to be presented for approval with the election of new school board members on May 20th, 2014. This article describes how the budget was constructed, what hard decisions were made, and what the cost will be to the Town of Clarkstown’s taxpayers. The information that follows has been gleaned from discussions with those involved in the process and from observation of the development of the budget as presented in public meetings.
Back in the Fall of 2013 LaNave gave a very comprehensive presentation to the School Board specifically detailing how school expenditures were outpacing school revenue. He highlighted a looming problem with the Reserve Fund and indicated that he would have to tap $9 million of the reserves to cover operational expenses for school year 2013/14. He closed the presentation by stating that the operational expenses will continue to expand and that we will “run out of money” during the 2015 school year and at that point the School budget would “go off the fiscal cliff.”
I began by inquiring if that analysis was still valid because it indicated that either very deep cuts would have to be made in expenditures or taxes would have to be raised well above the tax cap. Although some reserves are available, $15 million had to be withdrawn and paid back to the Palisades mall which means that what is left in that account will not be enough to prevent the School budget from going off the fiscal cliff in a few years.
Looking at the present CCSD Fund Balance the situation with the reserve account as of June 30, 2013 shows that the balance was $33,355,861 which raises the question as to why there is a problem with the reserve account balance. The devil is as usual in the details and one needs to know what is in each line item of the reserve account to understand what amounts are available to balance a deficit budget.
Of the $33 million in the June 30, 2013 account, $13.9 million had been designated for tax certs and with the loss of the tax cert case to the Palisades Mall that had to be disbursed. There are four other line items in the reserve account that are available to be tapped to balance the 2014-2015 budget and those total to an amount of $8.3 million.
One item that is not available for 2014 – 2015 is the $9.3 million which was appropriated in the current year (2013-2014) to balance the budget. However, if the School Board can underspend its budget in the current year and not use that $9.3 million then both the $8.3 MM and the $9.3 MM would be available for 2014 – 2015 budget cycle; a total of about $17.6 million.
How does an organization that is “fiscally stressed” underspend its budget?
The answer is simple and deals with prudent fiscal management practices in constructing any multimillion dollar budget. The budget is deliberately constructed to be ‘over-budget’ by about 4 – 5%. Rating agencies such as Moody’s encourage this practice because unless there is a planned ‘over-budget’ there will never be any money available to be placed into the reserve account. At one point in the past the reserves had dropped to a few millions of dollars which is not an acceptable situation for an organization to be in if it is operating with sound fiscal practices and this is something frowned upon by Wall Street Rating Agencies who must consider the School Board’s ability to pay for any bonding it may wish to do.
Unfortunately many taxpayers do not understand the intricacies of prudent budget planning and budget management and therefore tend to believe that there should not be any cash in an account that is not being spent. But in the same way that one manages one’s home budget it would be risking financial disaster for one to believe that it is not necessary or prudent to be holding some financial resources in a savings account that can be turned to in an emergency situation. Recall that had the School budget not had a reserve fund to cover the emergency situation of the Town of Clarkstown losing its tax cert case with the Palisades Mall that money would have had to be bonded i.e. borrowed and paid off with a high interest rate. The Town of Clarkstown had to pay $5 million of the settlement and it did not have the necessary funds in its own Reserve account to pay this bill.
What did the Town of Clarkstown do? It had to borrow the money to be paid over a period of years and the taxpayers will now have to pay that back with interest.
Keeping things on a smooth and consistent fiscal basis with just nominal annual tax increases is what taxpayers expect and what budgets are designed to do. The income of the property owners who pay the School taxes tends to grow on a slow and consistent basis over the long term and the services they need to pay for should be budgeted to occur in the same way. No taxpayer likes a zero percent tax increase one year and then be surprised with a 6% spike the following year. This causes disruption in a taxpayer’s own budgeting processes. The School Board is making sacrificial efforts to try to achieve balanced budgets year over year while the Town of Clarkstown unfortunately is not.
What are the specifics of the budget numbers?
Looking at the 2012/2013 cycle the ‘actual’ amount spent was $174 million which was about $10 – 12 million less than what was the ‘budget’ amount. For 2013/2014 the budgeted amount is $195 million but if the same trend occurs and the budget is underspent by the same amount as the previous year then the ‘actual’ expenditure will be about $187 million for the current year.
Continuing this trend analysis and assuming again that the budget can be underspent then the ‘actual’ expenditure in 2014/2015 will be approximately $199 million. So even though the fiscally prudent budget will be presented as over $200 MM in 2014/2015 one can expect if past performance can be repeated that the school board will be looking at an actual year-over-year increase of about $12 million.
Where will that $12 million come from? How much should be achieved by raising property taxes – how much should be achieved by cutting expenditures – should one dip into reserve fund savings with a deficit budget?
The Reserves available to balance the 2014 – 2015 budget will be approximately $17.6 million which assumes that $9.3 million appropriated for 2013/2014 will not be spent and can be carried over to balance the budget in the coming year. That budget anticipates a $201.8 million spending plan for 2014-15 which is 3.4 percent higher than the current budget. The tax levy increase would be exactly 2.09 percent.
Therefore if there is $17.6 MM available and on an “actuals” analysis the amount which will be spent in 2014/2015 is roughly $199 MM based on the past performance of the budget. Thus in 2014/2015 $8 million will be needed from the reserves to close the gap.
But the problem with using Reserves to close such gaps is that one is using one-time revenue for recurring expenses. What this means as you look to 2015/2016 the School Board will still have to plug the same gap with another $8 million but also because the budget for 2015/2016 will grow to $213 million it would have to take an extra $10 million out of the reserves to fill out this increased gap in the 2015/2016 budget.
The arithmetic shows that over the next two years (2014/2016) the School Board would need to take $8 +$8 +$10 MM ($26 million) out of the Reserves. How much does the School have in Reserves? It’s a little over $17 million which is why the School Board can get through 2014/2015 but the budget goes over the cliff the following year because future budget gaps cannot be closed.
First Budget Proposal Rejected
The first budget proposed to the School Board was rejected. It was a balanced budget with no withdrawals from the Reserve Fund. It was proposed to obtain the $12 million needed as follows: a) State Aid is approved and will increase by $1.8 MM, b) Tax levy to be increases to 4%, which will bring $6 MM, c) Expense reductions of $6.2 MM, d) Facility Repairs of minus $2 MM (i.e. this is an expenditure not an income in the budget), e) Reserves withdrawal of $0 MM. Thus the gap could have been closed with no withdrawal of reserve funds and with $2 million being spent to do necessary facility repairs. However, there would have been a significant tax increase and the tax cap would be broken.
That recommendation to the School Board was rejected in favor of one in which the tax level will not exceed the State mandated 2.18% cap and thus taxpayers will be able to receive a State refund for staying beneath the cap. This scenario then plays out as follows: a) State Aid increase of $1.8 MM, b) Tax levy increase to 2.09%, approximately $3.27 MM, c) Expense reductions, $6.2 MM, d) Facility Repairs, Minus $1 MM ($0.5 MM of which will come from rollover of funds unused from previous year), e) Reserves withdrawal, $1.23 MM.
In this budget that the Board is now recommending for voters’ approval, the budget is not fully balanced and therefore Reserves will be drawn down further but by a manageable degree for the coming year. Balancing this undesirable factor in the budget, however, is the desirable outcome that there will be significant reductions in expenses and taxpayers, particularly the seniors in our community, will reap a benefit in the form of a small State refund for staying below the tax cap.
How will the $6.2 million in expenditures be achieved?
It appears that the School Board has made a good start with the 2014/2015 budget. The members of the board, working in conjunction with Morton and LaNave have come up with $6.2 MM in reductions which Morton and LaNave agree is the best compromise for this year. To achieve these reductions it is proposed to reduce Teaching Assistant positions by 50, clerical by 5, and teachers by 13-14. By not putting the students from Congers into St. Augustine’ while Congers Elementary is being repaired will save $1.4 million which is the equivalent to about a 1% savings on the rise in property taxes. Additional there will be a one year reduction in supplies for $1 MM and $200,000 reduction in freshman sports and supplies.
Although the School District had 21-22 teachers who took early retirement, the savings from this will be small but in the future if the District has to replace one or more of these positions with a new person the savings is going to be over $1.2 million per year and if the District can do without these positions permanently then the savings will be as high as $1.6 million per year.
With regard to the tax cap, the District decided not to go above the cap so that the taxpayers can get the rebate promised from the State. To do this it was critical that the District come up with at least $6.2 million in expense reductions and keep further withdrawals from the Reserve Fund to an absolute minimum.
As part of the process in meeting with citizens groups on this process the District has come up with a budget which will not cut any significant programs though low enrollment classes will be eliminated.
“We would never have been able to develop a budget with over $6.2 million in reductions without the involvement of our community. The point of the Community Workshops was not only to inform the public of the fiscal constraints we faced but also to get their input on what educational programs and services were important to them”, said School Board President, Michael Aglialoro.
During my discussions with those responsible for preparing the budget, I asked about bonding for infrastructure repairs given my fear that the taxpayers of Clarkstown, having been shell-shocked by the property tax increases brought on them by Town and the County might not be in a mood to vote for further bonding and its associated tax increases. I was told that there will be about $1 million put into roof repairs in this budget which will be spent on Felix Festa and another $1 million for next year to do more at the same school and this can be done without bonding. However, there will absolutely be a need to do infrastructure bonding at a later date but at the present time there is more work to be done on reducing expenses in the budget next year.
Given there was a demographic study recently presented to the public that will require careful analysis, the school board will need to go through that demographic report carefully over the next year and determine what infrastructure is needed. It will then need to make decisions as a board and as a community to determine what buildings are essential and which require a bond to repair and maintain them. For the 2014/2015 period enrollment will drop by 3.19% from 8,558 to 8,285.
In summary, this year the District will take $6.2 million out of its expenses and the following year another several million will have to be removed. At that point the School Board and the community will have done their part in running a fiscally slimmed down budget and right-sizing the district to match the student population that will be living in the district over the coming decade. Given there is decreasing enrollment there will be no infrastructure repair to buildings that are definitely not going to be part of the District’s needs for the foreseeable future.
Town of Clarkstown’s Deficit Spending
Given the situation with the School budget one of the questions that the Town Board of Clarkstown is going to have to come to grips with is its own excessive spending and bonding on revitalization projects and roads when the education of our children is an equally if not more important priority.
In a presentation to Standard & Poor’s in March 2014 the Town Board said it will propose raising Town taxes by 5.7% in 2015 with additional increases of over 3% for the subsequent two years and selling a profitable Town asset, the Middlewood Senior Housing Complex, substantially below its market value for approximately $10 million in order to fund deficit spending.
The Town of Clarkstown under the leadership of Supervisor Gromack appears unwilling to even consider any similar right-sizing of the Town’s bloated budget while it continues to hand out annual salary increases to employees making six figure salaries with generous pension and health care benefits funded by the taxpayers.
The Town continues to provide patronage positions such as that provided to a County Legislator for $76,500 per year of part-time work. Meanwhile the School Board will layoff teachers and teaching assistants, one of whom introduced herself to the School Board at its last meeting as a “single mother supporting three children”.
If the School Board can show strict budgetary discipline and prepare budgets that make tough decisions then the Town Board should be doing the same. If the School Board must lay off those who were helping to educate our children then it is time for the Town and the County to lay off their political patronage appointees.
According to Aglialoro, “It is very difficult to develop a budget that results in a reduction in our staff. These individuals are not only important members of our District but they also live in our community. Unfortunately, we are facing a number of fiscal challenges that is forcing us to make these difficult decisions.”
It is the same taxpayers who are paying for the County, Town and School taxes. Without fiscal controls and real budget cuts in both the County and the Town, the ability of residents to pay for a top-tier school system will decline. Rising property taxes drive down home equities while a decline in the quality of the local schools collapses home equities.
The School Board, the School Administration, the volunteer parents, and especially those whose jobs may be eliminated should be offered this community’s thanks for their shared sacrifice. The moral and ethical leadership that has been shown is something that the Town of Clarkstown’s Board members and the members of the Rockland County Legislature should emulate in their own budget processes and particularly in their own decisions about who should continue to be retained on their respective payrolls as providing work that is at least necessary if not critical.
Perhaps the budgets prepared annually by the Town and the County should be approved by the voters each year along with the School budget and then the taxpayers of Clarkstown would perhaps not find themselves in the dire straits of being the fourth highest-taxed town in the whole of the United States?
Remember to vote on Tuesday, May 20, 2014.
The graph on the predicted decline in the graduating class
in Clarkstown was graciously provided by Phil Leiter whose
blog may be read at http://pleiter.blogspot.com/