Moffat County School District predicts $2 million in surplus funds for FY2011
May 5, 2011
Moffat County School District finance director Mark Rydberg is predicting a $2 million dollar surplus in fiscal year 2011, according to a third-quarter report. The report, which was published March 31 and discussed at the April School Board meeting, forecasts a surplus of $810,000 greater than the $1.2 million surplus described in the 2011 budget.
Although the district is facing the prospect of $1.7 million in cuts for fiscal year 2012, Rydberg said it would be unwise to use this year's forecasted surplus to curtail cuts for next year.
"Putting it (the surplus) into the operating mix is dangerous, because if you don't get it (revenue) next year, what do you do?" Rydberg said.
In other words, using the money for recurring costs is unsustainable, Rydberg said.
Instead, Rydberg said he will recommend that the board divide the surplus into thirds. Under his plan, one-third would go into the district's capital reserve fund, one-third would go into the district's medical and dental reserve fund, and the final third would go into the district's general fund.
According to the quarterly report, there are several reasons for the increased surplus. Expenses were down due to a lack of unemployment claims within the district, less-than-expected instruction costs, and savings in utilities. Revenues were up, most notably, from county mineral dollars.
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In fiscal year 2011, the district's forecasted revenue from mineral money will be $2.5 million, thanks to increased leasing activity within Moffat County, Rydberg said.
In years past, the district's annual mineral royalties have averaged between $125,000 and $250,000, he said. This year's take, however, will be historic.
In June 2008, the district received $687,000 in county mineral money.
"That was the highest," Rydberg said. "My records only go back to 1989, but that was the highest ever."
The forecasted mineral revenue for this year is roughly four times higher than the previous record.
"This is classic boom money," he said. "When you get four times the amount it's ever been, that's the definition of 'boom.'"
Rydberg said he prefers a tempered approach to using the surplus, because the future of mineral royalties is uncertain.
"It's a little unclear," he said. "When those guys start making exploratory wells to see what they get, it could either end (the boom), or it could skyrocket.
"It's pretty speculative at this point."
In fiscal year 2011, budgeted expenditures for operations and maintenance dropped by $80,000, according to the quarterly report. Most of the savings, Rydberg said, are due to natural gas usage.
Despite the fact that prices for natural gas are up this year, Rydberg said new higher-efficiency boilers at Craig Middle School and Moffat County High School have improved the bottom line.
"Our usage, compared to the previous three years is down, on average, 15 percent at the high school," he said.
District facilities manager Mike Taylor said the new Lochinvar
boilers were funded by a portion of a $30 million facilities bond approved by Moffat County voters in 2008 and installed in 2009.
"Craig Middle School and the high school had old, inefficient boilers," Taylor said. "They were big, old 30-year-old monsters. "By upgrading to these new, efficient water boilers, we're seeing those savings now."
Putting money into reserve
Rydberg said splitting two-thirds of the forecasted surplus into separate reserve funds is the right thing to do.
First, one-third of the surplus could bolster the district's slim capital reserve, he said.
"We have $100 million worth of assets in this organization, and we have $400,000 in capital reserve," Rydberg said. "That's 0.4 percent of a reserve compared to our total asset base.
"That's not very much."
Adding one-third of the surplus to the capital reserve would bring the total to approximately $1 million, or 1 percent of the total assets.
Traditionally, the state has mandated that capital funds be drawn from per-pupil funding. As recently as 2009, the state required that $300 for every pupil be diverted into capital reserve.
In Moffat County's case, that requirement translated to a 4 percent capital allocation of total program yearly revenue.
Due to the recent economic crisis, however, the state requirement was scrubbed. Nonetheless, Rydberg said it's important to save for a rainy day.
"I don't know that there's anything on the capital front that's pressing – that we absolutely have to do – simply because we just did a bunch of major improvements in the past two to three years," he said. "But, I guarantee you, somewhere down the road we're going to have capital needs."
Second, Rydberg said one-third of the surplus could go into the district's medical and dental reserve.
District employees are enrolled in a self-funded insurance plan rather than a fully-funded insurance program, Rydberg said. In other words, insurance premiums paid by employees go into a district account rather than a for-profit insurance company. Any medical claims for district employees are then drawn from that account by a third-party administrator.
Yearly premiums for employees are determined by analyzing previous years' claims, Rydberg said.
"We collect premiums that match up with the expected amount of costs. That's our goal," he said.
However, some years the cost of claims exceeds the amount collected through premiums. Rydberg said the district buys insurance to cover those overages, but "stop-loss" insurance doesn't kick in until the overages exceed 25 percent.
A reserve fund will protect the district in that event, he said.
"When you fully fund the insurance reserve, it creates a buffer between the maximum expense of our insurance plan and expected (costs)," Rydberg said. "So, within any given year, we will not have to take money from our general fund to pay for our insurance costs."
Regarding the final third of the surplus, Rydberg said his plan calls for the money to go into next year's general fund to be used at the board's discretion.
Rydberg said his recommendations will be presented to the school board during either the May or June meeting.