After fearing last year that the Mehlville School District’s balance would dip below a state-required 3-percent minimum, district officials now project an 11.87-percent operating-fund balance at the end of the 2008-2009 school year.

Chief Financial Officer Noel Knobloch last week revealed to the Board of Education that Mehlville’s operating-fund balance is anticipated to be $10,467,722 on June 30.

That figure is above the state-required 3-percent minimum operating-fund balance, which would be $2,644,685 for Mehlville.

The district ended the 2007-2008 school year with an actual operating-fund balance of $12,299,077.

With budget projections of $90,768,036 in revenues, $88,156,158 in expenditures and $4,443,233 in transfers, Mehlville’s operating-fund balance will drop from its 2007-2008 level of $12,299,077 to a projected $10,467,722 when the 2008-2009 school year ends on June 30.

In March 2008, financial projections indicated Mehlville’s operating-fund balance would dip below the state-required 3-percent minimum by the end of the 2009-2010 school year. At the time, Superintendent Terry Noble said he was “taken aback” by that projection for the 2009-2010 school year as it differed significantly from a previous projection delivered by former CFO Brent Bell to the board that the district would have an operating-fund balance of 5.75 percent on June 30, 2010.

But in approving the 2008-2009 budget in June, board members noted that through a series of cuts, a 9.62-percent operating-fund balance at that time was projected for the end of the 2008-2009 school year.

While Mehlville’s operating-fund balance is projected to drop by more than $1.8 million from the end of the 2007-2008 school year to the end of the 2008-2009 school year, district officials are expecting that Mehlville’s fund balance will rise by the end of the 2009-2010 school year.

Noble believes that $5.6 million in new annual revenue from the successful November ballot measure Proposition T will bring the operating-fund balance back to its June 30, 2008, level of roughly $12.3 million, or a 14-percent fund balance. Prop T will move $5.6 million — or a tax rate of 31 cents per $100 of assessed value — from the debt-service levy to the operating levy.

As for the district’s debt service, the remaining general-obligation bonds will be refinanced prior to June 30 to allow for the transfer of $5.6 million into the operating fund. The new issue will be payable over 20 years and priced to yield a 5.5-percent market interest rate. The annual debt service will be $850,000.

If revenues stay at current levels, Prop T funds are considered to be used in 2009-2010 for the following:

• $2,837,000 for a 4-percent raise in employees’ salary and benefits. The district now spends an estimated $71.5 million — or 70 percent of its budget — on salary and benefits. After receiving a 6-percent raise for 2007-2008, employees agreed to a salary freeze for the current school year.

• $250,000 for an increase in such purchased services as insurance, legal, equipment, rental, sewer and water. The district currently spends $5 million on such purchased services.

• $900,000 for additional textbooks, teacher supplies and library books cut in 2008-2009. The district currently spends $10.5 million on these supplies.

• $1,613,000 as an unused portion. These unused Prop T funds then would go into the district’s operating-fund balance.

Part of the reason that district officials would like to stash more than $1.6 million in Prop T funds in the 2009-2010 school year is a concern that Mehlville is projected to have a reduction of $1.8 million in its operating-fund balance from the 2007-2008 school year to the 2008-2009 school year.

“In order to re-establish the prior year balances, that amount will be deducted from the $5,600,000 of operating funds made available from the Prop T vote leaving approximately $4,000,000 of funds to allocate to operations,” Knobloch wrote in his 2009-2010 budget considerations.

Knobloch also is worried that Mehlville, in a “worst-case scenario,” could receive $1 million less revenue from state funding in addition to $1.5 million less revenue from decreased tax collections.

“Revenues from the state could come under pressure as it struggles to balance its budget,” Knobloch wrote. “Any ‘holdbacks’ in the formula payments would directly impact the district’s revenue.”

If assessed values drop, district officials discussed last week at a board budget workshop that they would likely recoup that lost revenue by utilizing the Hancock Amendment to roll up their tax rate.

“You’ll adjust your levy to get the same amount of revenue,” Noble said. “As the assessed value goes down, the levy will actually go up.”

Knobloch anticipates seeing more information on assessed values by mid-March.

Noble advocates reserving some Prop T revenue to go into the district’s operating-fund balance as a way to attack any potential revenue shortfalls.

“That’s the rationale for having good balances,” Noble said. “Rather than say you have to set up a budget to amount for those shortfalls, you know that if that happens then you’ve got something to fall back on at least for that budget year. And then when you’re planning for the next year, that’s when you make your cuts.”

Board member Drew Frauenhoffer lamented that the district likely won’t utilize all Prop T funds in 2009-2010 for Mehlville resources, but understood that economic conditions call for budget adjustments.

“The good news is Prop T gave us a little bit of cushion,” Frauenhoffer said.

“We’re in a lot better situation than other districts are,” Knobloch said.

“The downside, though, is we’re making some progress and now we may have to cut some of the things we tried to restore,” Frauenhoffer said. “So it’s just frustrating that every time we seem to get ahead, we have to take another step back. So hopefully, it won’t be too many steps back that we have to take. It sounds like you guys understand the fluctuations that could happen and you’re going to be on that … As a board, in the back of our minds we’ve got to know what’s the worst-case scenario and what we would need to do to address that.”

Board member Karl Frank Jr. also emphasized that besides maintaining fund balances, the board’s primary responsibility is to provide a quality education.

“We’re not a profit-based industry,” he said. “We’re an education-based industry. So I think it’s important as we’re making our budget decisions, this is the money we have to educate our children with. But at the same time, if there’s a tornado we’ll be prepared and we know where to go.”