School board takes no action on transfer of $1.2 million to capital fund

By MIKE ANTHONY

Executive Editor

The Mehlville Board of Education took no action last week on whether to transfer $1.2 million in operating funds to the district’s capital fund.

Board members instead agreed to discuss the district’s overall financial picture during a mini-budget workshop when it meets Thursday, Dec. 8. Besides the transfer, the board next month will discuss other funding alternatives to address the district’s capital needs.

The school board voted unanimously last month to approve a motion by board member Rich Franz and seconded by board member Mark Stoner to place the matter on the board’s Nov. 17 agenda.

That $1.2 million is a result of higher-than-projected district balances at the end of the previous school year.

At the board’s October meeting, Superintendent Eric Knost presented one-, three- and five-year plans for the district’s facilities totaling more than $11.1 million.

Besides major renovations, the district needs to repair, replace or upgrade roofs, floors, ceilings, lockers, bleachers, asphalt, boilers and fire alarm and HVAC systems, among other things.

The district’s 2011-2012 capital budget is nearly $1.3 million, down about one-third from the 2010-2011 capital budget. That money is mainly for unforeseen repairs as most capital projects have been deferred, district officials have said.

Earlier during the meeting, the board voted unanimously to approve a budget amendment that increased revenue by $367,664 and increased expenditures by $145,000. As a result, a total cash balance of more than $26 million is projected on June 30, 2012.

The adjusted 2011-2012 budget projects an operating-fund balance of $17,129,553 — 18.8 percent — on June 30, 2012. That balance includes food service, activities and athletics. Excluding those, a fund balance of $14,827,905 — 17.34 percent — is projected on June 30, 2012.

If the board decides to transfer $1.2 million of operating funds to the capital fund, an operating-fund balance of $15,929,553 — 17.49 percent — would be projected on June 30, 2012. That balance includes food service, activities and athletics. Excluding those, a fund balance of $13,627,905 — 15.94 percent — would be projected on June 30, 2012.

During the Nov. 17 meeting, Chief Financial Officer Noel Knobloch told the board that if the $1.2 million would be transferred to the capital fund, it would be difficult to undo should the need arise.

“… The thing you need to be aware of is that once you make an official transfer into capital, you don’t get it back out of there without really meeting some very stringent stipulations with regard to your balances,” he said. “They have to be at a very low level in order to be able to transfer money back and forth out of capital …”

The CFO also expressed concerns about the future funding outlook, particularly at the state level.

“… I don’t have a major concern right now about 2012, but 2013 and I’ve said this before and we’re finally going to get there because that’s when the state really has to determine who they’re going to fill the holes from the ARRA (American Recovery and Reinvestment Act) money that they got. I looked at some numbers yesterday and over the last — when we count this year, the state will have shorted us about $1.5 million of funds we should have gotten in accordance with the formula calculation …”

Furthermore, he said, had the state not “supplanted” its lack of funding with federal dollars, Mehlville would have been out about $5 million at the end the school year.

“… Even though our balances are fine, as I’ve indicated once you spend the cash, it’s gone. So we have to be a little bit conservative and concerned about what 2013 and 2014 have in store from the state standpoint,” Knobloch said.

Knost later told the board, “… Your superintendent’s not recommending anything right now. I think that the appropriate thing would be for us to discuss these things tonight and then decide at a future meeting.

“… In essence, $1.2 million, we will spend $1.2 million whether we allocate here or not within a couple of years on some of those things … That’s not saying for all $11 million of that one, three, five plan, but there are things in there by default we will spend and I would say probably to the tune of a million easily over a couple of years.”

Knobloch said, “It does give you more flexibility to leave it in operations and move it over there when you know you have to spend it then put it there and you don’t have the flexibility …”

Recent refundings of the district’s Proposition P certificates of participation have put Mehlville in a position to consider another option for funding capital needs, Knost said, but emphasized, “… I want to be clear these are not coming to you in the way of recommendations from me …”

The CFO noted that COPs issued in 2001 by the district were refunded last with a savings of roughly $2.2 million over 10 years and COPs issued in 2002 were re-funded earlier this year with a long-term savings of about $1.1 million.

A third refunding with a projected savings of about $2.6 million is anticipated for next spring, Knobloch said. All told, the district is anticipating a total savings of nearly $6 million from the three refundings.

“… What if we would take some of that savings that was generated and actually re-fund or refinance or borrow that money back again and pay it back over the next eight or nine years in smaller increments, $600,000 to $800,000 a year by issuing, if you will, either $4 million worth of COPs or $5.5 million worth of COPs,” he said. “The $5.5 million is a number that we came up with because it gets us pretty close to our $6 million worth of savings. The $4 million is just taking a part of that, but what could be done when we refinance this other issue in 2012, we have to issue about $3.9 million to refund what’s out there. We could add to that $4 million, $5 million, $3 million, some different amount to get a new source of funds — not new, but a source that would not take money immediately from operations, but would take it in smaller pieces in 2014, 2015, 2016 …

“So it’s kind of reborrowing the money that we were going to save over the next eight to 10 years and using it for capital, which is something that has not been addressed over the last few years. So it’s just a thought or a concept that we’ve come up with to use that money.”

Knobloch later said, “… What this does is it gives you the ability to capture some money without increasing taxes and without really affecting operations because these are savings we were going to have in the future … and it gives you a pile of money up front that you knock off more of these projects — take a bigger bite out of the list, if you will, as opposed to just really tying your hands from an operational standpoint by moving this $1.2 million over because you actually get three times as much if you go with the $4 million or you get four times that much if you go with the $5 million or it can be anywhere less or more …

“With interest rates like they are now, this gets you through a period of time for the next three or four years where you cover your facility needs with this new source of funds …,” he said.

The board took no action on the transfer or the COPs proposal, but decided to discuss the district’s overall financial picture next month.