County Takes Money Back From Schools to Fill Budget Gap

Despite elimination of some wording in an effort to avoid offending Loudoun supervisors, the resolution the Loudoun County School Board adopted at a special M meeting on Oct. 19 did in fact offend at least one supervisor, Lori Waters (R- Broad Run), and elicited comments from other supervisors. The resolution adopted by the School Board addresses adjustments, and the consequences of the transfers of funds from Loudoun County Public Schools (LCPS) to the county general fund. The transfers were authoritatively imposed by Loudoun County financial staff; an action which did not require approval nor a vote by Loudoun supervisors. The resulting transfers also shed light on some differences of opinion between staff in the county and school budget offices.

Loudoun County General Government found itself suddenly and somewhat unexpectedly facing a $27.8 million budget shortfall, and in need of funds to balance all the accounts. What is clear is that Loudoun County had the money in reserves in both school and county accounts, and decided to transfer the money as deemed appropriate to meet the gap.

The money begins and ends with you, the taxpayers - local, state and federal taxes - so it is all your money anyway. By collecting money from local taxpayers the Loudoun County Board of Supervisors allocates local funding for all county departments, sheriff’s office, fire and rescue, libraries, parks and recreation, health department and others as well as the school system, with state and federal funding supplements rounding out all budgets.

In a telephone interview Tuesday with the Independent, Mark Adams, Loudoun County CFO and Director of Management and Financial Services, spoke to the $27.8 million shortfall.

Adams described estimating revenues as “chasing a running target,” and “never 100 percent completely accurate.” Adams also spoke of the downturn in assessments the last two years, as well as the number of appeals of assessments. Adams said the county financial staff provided monthly fiscal information to the Supervisors Finance Committee and while they might have considered a possible “slight negative,” or potential problem with revenues “I’m sure it was a surprise,” Adams said of the shortfall.

Adams offered a perspective of the $27.8 million dollars as roughly 2 percent of the County’s $1 billion budget, and that the projections for FY 09 were “98 percent accurate.” More importantly Adams said was the knowledge that the County was able to address the shortfall by “balancing accounts,” with transfer of monies from some accounts to others, within the general county government and with school system accounts.

Adams said that just as important is the fact that the county closed the books on FY 09 with a positive audit and by balancing accounts “The County finished FY 09 fine,” Adams said. LCPS Superintendent Ed Hatrick also confirmed that the county transfers would have no impact on the LCPS FY2010 budget.

Adams explained that while officially the fiscal year books closed June 30, it is generally September/October timeframe that all the accounting, including state sales tax revenue, workers compensation and the “...hard core Comprehensive Annual Financial Report (CAFR) is completed.” When a balance review of all county budgets and accounts was completed, so was the accounting gap identified, and so was the solution. Adams said that despite the transfers, both the county and the schools were left with carryover fund balances for FY 2009.

Naturally, Loudoun County School Board members are concerned about what level of local funding supervisors will provide. The impact of a depletion of monies LCPS saved, thanks to internal restrictions and budgetary savings, is a real loss of real money. Yet most School Board members succeeded in restricting their comments and concerns about the transfers at the special meeting Monday night. School Board member Tom Reed (At Large) charged the county was "balancing  its budget on the backs of our school children.”

At Tuesday's Board of Supervisors meeting, frustrations, not appreciation, of the school systems’ surplus money boiled over among some supervisors.

"It's not our money or their money, it's the taxpayers' money,” said Waters, adding that the School Board is showing its "greed" by being upset by losing these "undesignated" funds.

Supervisor Stevens Miller (D-Dulles) said he has heard from numerous residents upset about LCPS deciding to raise certain fees this year to keep within its spending plan. He suggested the newly found money should be given back to taxpayers. “Did the school board think about reimbursing parents those fees?” Miller asked.

Supervisors agreed the matter of the $27 million would be discussed often with LCPS officials during the upcoming budget deliberations, something School Board members also requested. School Board Chairman Robert DuPree (Dulles) acknowledged that while it appeared that the need for transfers was news to supervisors, he requested “We have discussions with them, how our two boards and staff can work together so this never happens again, a mid year adjustment. The county is in a difficult situation, “ DuPree added.

School Board member John Stevens (Potomac) spoke of capital needs, and referenced the work of the Joint School Board/Board of Supervisors committee and its subcommittee this summer, regarding the need for more schools. He suggested that a discussion with supervisors was merited.

TRANSFERS TO BALANCE ACCOUNTS

It is likely that county government budget staff proposed and has already acted to transfer funds from LCPS undesignated fund balance - $9 million to the county general fund; $1.26 million to fund unrecorded bond revenue at Eagle Ridge, Mercer and Smart's Mill middle schools; and $2 million specifically earmarked as part of financial settlement supervisors agreed to with the Town of Purcellville, regarding construction of Woodgrove High School on county-owned property near the town.

Also included is the transfer of $12.6 million from LCPS Self-Insurance Net Assets to the county's general fund, thereby reducing the FY09 reserve of health expenses from 20.56 percent to less than 8.98 percent.

What is known from the gist of the special School Board meeting and an Oct. 15 memo from LCPS Assistant Superintendent of Business and Finance, Leigh Burden is that on Tuesday, Oct. 13 County CFO and Director of Management and Financial Services, Mark Adams requested a meeting with Burden to discuss adjustments of “sizeable amounts: from the LCPS undesignated fund balance to the County’s general fund. A meeting was held the next day and Adams’ presented a spreadsheet detailing the transfers.

Burden’s memo states county projected a fund balance or carryover of $39 million to fund its budget, but once the books were closed June 30 the county fell short in its $39 million projection and in reality only $11.2 million was available for FY10. LCPS had publicly predicted a $20 million carryover it intended to use to bolster the FY2011 budget, given expectations of another tough budget year. LCPS however, closed the year with $35.7 million, $15.7 of which represented undesignated carryover funds.

Burden’s memo addressed that transfer, noting that LCPS has for a number of years maintained a significant reserve – 15-20 percent of the program “with no negative comments from the county or our auditors.” Burden challenged Adams’ statement that the county’s fiscal policy requires a 10 percent reserve, and instead described the fiscal policy regarding level of reserve as “should be based on professional judgment.” Burden offered comparisons of LCPS, Fairfax County Public Schools and Prince Williams County Public Schools Comprehensive Annual Financial Reports (CAFR), which show similar reserve percentages for 2006, 2007, and 2008 as an example of conformance with other school divisions.

LCPS carried Net Assets as a Percentage to Health Expenses of 25.54 percent in 2006, , 16.84 percent in 2007 14.41 percent in 2008 , and 20.56 percent in 2009, while Fairfax carried 21.79 percent in 2006, 25.99 percent in 2007 and 27.66 percent in 2008, and Prince William carried 19.96 percent in 2006, 22.46 percent in 2007 and 20.59 percent in 2008. Figures were not available for 2009 for the two other school divisions. With the county transfer LCPS 2009 Net Assets as a Percentage of Health Expenses drops from 20.56 percent to 8.98 percent.

LCPS was informed last week that county budget staff planned to transfer $9 million of the LCPS undesignated fund balance to the county’s general fund to cover a portion of the county shortfall, which according to Burden’s memo, “eliminates our planned use of these funds for FY 2011.” The resolution the school board adopted seeks  reinstatement of  the transferred funds during FY2011 budget deliberations as well as a  request for a formal vote of county supervisors on any future transfers of  more than $1 million from school funds to general county government.

Meanwhile, the county also planned to transfer $18.1 million of the Combined Debt Service – for both county and schools – to the county’s general fund, which caused some alarm at the special School Board meeting regarding the county’s ability to fund debt service in FY 2010 for both county and school projects.

 *Loudoun County Board of Supervisors comments provided by Jason Jacks of the Independent.