Mehlville contingency plan outlines $6.8 million in potential budget cuts

Preliminary 2010-2011 budget projects roughly $1.3 million in deficit spending.


The Mehlville Board of Education recently approved a contingency plan containing a list of nearly $7 million worth of items that could be cut or reduced if the school district finds itself in dire financial straits.

Board members voted unanimously May 27 to approve the plan, which contains $6,823,140 worth of potential budget cuts or reductions that could be made in the event of a budget crunch.

Eight subcommittees met from mid-March to the beginning of May to prioritize Mehlville’s funding needs in the areas of elementary schools; middle schools; high schools; special programs; facilities; transportation and food service; extra duty, overload and athletics; and central office. Each subcommittee was comprised of two co-chairs and was required to have at least three teachers, three community members and one support staff member.

The subcommittees reported May 1 to the contingency plan steering committee, which Chief Financial Officer Noel Knobloch chaired.

“They were not given a special number to remove from their budget,” Knobloch told the board May 27. “As a result, they basically did not look into the personnel area, which as we all know is a significant dollar item. What we did then as the steering committee … we came up with some potential areas where cuts could be made if it became necessary two or three years down the road.”

Each potential budget cut or reduction is ranked from one to 10, Knobloch noted.

“This is in reverse order with No. 10 being the least painful to initiate without having an impact on instruction,” he said. “The ones at the top would have the most significant impact on instruction.”

Among those “least painful” cost savings: $75,000 by eliminating extra duty for the district’s resource officers; $30,000 by reducing local mileage reimbursement to 25 cents per mile from the Internal Revenue Service’s 2010 standard rate of 50 cents per mile; and $30,000 by centralizing the gifted program.

Among the cuts and reductions that would most impact instruction: $2,297,000 by eliminating free bus service; $1,005,000 by eliminating 30 classified staff positions; $900,000 by eliminating 20 certified staff positions; and $240,000 by eliminating two administrative positions.

No specific positions are identified in the plan, and some of those cuts could be achieved by moving class sizes to state maximums through attrition, officials said.

Board members asked district officials at a budget workshop in February to formulate a contingency plan. During that meeting, Knobloch presented a three-year financial forecast that predicted the district would deplete its operating-fund reserves by 2013 without taking steps to in-crease revenue or decrease expenditures.

The three-year projection shows overall expenditures increasing to more than $109 million by 2012-2013 from current levels of roughly $101 million, with revenues remaining stagnant at roughly $101 million. The resulting annual shortfalls would drain the district’s total fund balance to a projected $7,499,354 on June 30, 2013, from the $21,869,615 estimated for June 30, 2010.

The Missouri Department of Elementary and Secondary Education requires school districts to maintain an operating-fund balance that’s at least 3 percent of total operating fund expenditures — not including food service, activities and athletics. Districts that fall below the 3 percent minimum are considered “distressed.”

With no significant increases in revenue or cuts to expenditures, Mehlville’s operating-fund balance is projected to drop to a negative balance of $285,036 by June 30, 2013, from its estimated balance of $13,907,889 on June 30, 2010. As a percentage of operating-fund expenditures, that’s a decrease from roughly 14 percent to -0.29 percent. Those figures include food service, activities and athletics.

Assuming no major increases in expenditures, Mehlville would have to ask voters for a 45-cent tax-rate increase this November to keep operating reserves at their current levels over the next three years, said Charles Fischer, an Ernst & Young certified public accountant and a member of the district’s finance committee.

But local revenue is expected to remain flat, and state revenue is expected to decrease — possibly by $2 million to $3 million in 2011-2012, Fischer said. Therefore, the longer the district waits to go to voters, the more money it will have to ask for, and the harder it will be to make cuts, he said.

“… We’re sitting on a nice, healthy reserve, but a couple big years of decreases and you start dwindling,” Fischer said. “And I think Lindbergh (Schools) has seen that where they had large reserves, but once they start dipping into it, you hit it once and if things are the same for multiple years, hitting $4 million to $5 million a year really gets it down quickly. And it’s hard to bring it back up because one, you have to get the operating levy to pass; two, the timing of it when it actually becomes effective …”

Board President Tom Diehl asked how far down the district could stretch its reserves, noting that when he was elected to the board in 2006, “the ability to have 5.5, 6, 7 percent (in reserves) was considered a success.”

Knobloch replied, “The problem you have if you go down too far is that you start borrowing money earlier. You lose your credit rating. If you’re going to do bond issues in the future that will cost you long-term because you’ll pay another 50 basis points in interest over a 20-year bond. You lose a lot of flexibility … While it doesn’t hurt to maybe extend reserves down by a million and a half this year, if you do things the same way next year and have less revenue, you’ve got a $3 million hole. And then it just keeps cascading.

“When you have no control over that revenue number, then you really get your hands tied the closer that number gets down into the single digits. We all know 3 percent is the state’s criteria. We don’t want to go under that. We’re not close to that, so don’t misunderstand that. But you could get there in three years, which is a significant problem.”

Board member Micheal Ocello asked, “Noel, what’s that magic number that we shouldn’t go below that starts to hurt your credit rating and you’re paying more for money?”

“I think your reserves should be in the 8 to 10 percent range as the minimum,” Knobloch said.

Ocello said, “Back to Tom’s point, we have operated with lower reserves, and I’m not suggesting that’s a great idea, but I think in order for us to have a good understanding of the direction to go …”

Knobloch interjected, “The last time reserves were that low, I wasn’t here, but there were some significant cuts made to stem that reserve going downward. Those cuts are no longer easy to make anymore. I think that’s a point you have to list as well. We don’t have a lot extra classroom and personnel costs.”

Ocello said, “I’m not suggesting we cut into the quick, doing what we’ve already done. Tom’s point, which I’m trying to understand, is if we were to say that we’re willing to accept a lower reserve level, then how does that change the conversation as it relates to the minimum levy that we need to do in order to stay flat?”

Fischer estimated the district would need to seek a 30-cent tax-rate increase this November in order for operating reserves to hit 10 percent at the end of 2012-2013 — assuming, however, that expenses don’t increase dramatically.

The district is projected to close the 2009-2010 school year with $99,997,000 in revenue and expenditures of $100,066,000, meaning reserves overall would decrease by $69,000.

A preliminary 2010-2011 budget presented to the board May 27 shows revenues of $100,457,000 and $101,820,300 in expenditures next year, decreasing reserves by roughly $1.3 million. The district is estimated to have a total fund balance of $20,506,315 and an operating-fund balance of $12,583,184 on June 30, 2011.

That ending operating-fund balance would equate to 13.7 percent of total expenditures, including food service, activities and athletics. Minus those items, the fund balance is projected to total $12,110,409, or 12.5 percent of expenditures, on June 30, 2011.