State cuts to create cash flow issue for Spencer schools

School districts across Iowa are attempting to figure out how to deal with Gov. Chet Culver's 10 percent across-the-board cut, and what it means for their annual budgets which have already been set. Spencer residents were told this week that the diminished amount they'll be working to offset is $890,735.

"It will be a cash flow issue for us, because that's $890,000 of actual cash that (won't be coming) into the district," Superintendent Greg Ebeling explained. " ... Without the ($794,161 in) federal stabilization funds (Spencer was guaranteed, which won't be impacted by the cuts,) we'd be looking at being $1.5 million short. My point being with that is, going into next fiscal year, we've got some real challenges because legislators won't have the stabilization dollars to prop up the budget anymore."

Iowa school districts are also looking at an allowable growth rate set at 2 percent next year.

"Everyone is assuming the state will ask us to make it zero," Ebeling said. "If they go negative (with the state budget), there may even be the possibility that it could be negative numbers. So, that means the per-pupil amount (appropriated to districts) next year could be lower than what the per-pupil amount was this year."

Even though the additional $51 million in assessed property values the Spencer school district stands to gain from neighboring South Clay's dissolution would benefit Spencer's cash flow situation, Ebeling warned the "perfect storm" is brewing -- especially when components such as the district's continued enrollment decline and special education deficit are added in. Spencer's 71-student decline from a year ago could impact the district's budget another $405,000 next year. In addition, the $265,212 deficit realized in the area of educating Spencer's special education students last year more than likely will be answered by a continued cash reserve levy enacted by school board members.

"The real issue for us is the revenues just aren't there," Ebeling said.

Answers to questions being asked locally

When asked whether the district would be able to cash flow, or pay its staff, for the remainder of this school year, Ebeling stated the district takes part in the Iowa School Cash Anticipation Program (ISCAP). This program allows participants to pool their temporary cash flow borrowing needs and issue warrant certificates to finance their cash flow deficits until revenues -- in the form of property taxes and state foundation aid -- are received. Because of the way it's set up, ISCAP also allows districts to borrow money at a lower interest rate.

"We will, at different times this year, have to borrow to make our cash flow work. And, at the end of the fiscal year, we will have to borrow to make it work. That's the bottom line," Ebeling told Spencer school board members this week. "So, going into the next fiscal year, we'll be faced with the question of whether we try to build in. Because our cash flow has always been squeezed here as of late, we haven't had the cash flow to keep things going the last two or three years already. So, there is always the option of bringing cash into the district through a cash reserve (levy)."

Locally, he continued, district representatives will continue to bargain with certified staff and support staff members for the 2010-11 year.

"There still will be a sunrise tomorrow. It's not going to be the death of Spencer school district or any other school district, but it puts a lot of districts in a more difficult financial position," Ebeling said of the state's across-the-board cut and its perceived impact to school districts' monetary conditions. " ... It won't be that visibly different for our patrons compared to what it has been any other year where we've been concerned about our budget. So, I don't see it being worse; I just see it being something we have to deal with."

The superintendent then said the district will be OK as long as it doesn't have a negative budget authority.

"Which we won't," he forecast. "We won't be anywhere close to a negative authority. We have spending authority, it's just the actual cash to spend that authority that we don't have."

Plans to deal with issue

In situations such as these, school districts have one of two options at their disposal to obtain the cash needed for them to operate: They can levy it in or borrow it. According to Ebeling, Spencer will probably rely on a combination of the two.

"The truth really lies in the combination of trying to keep the property tax rate fairly level, but at the same time levying some in, and then also borrowing and just trying to make it through some of these lean years. That's the best we can do," he said.

The Spencer school district is currently implementing a cash reserve levy to the tune of $300,000 annually. School board members have the authority to enact -- or increase -- this levy without a public vote by district residents.

"Obviously, we'll keep doing that," Ebeling said. " ... But, we were actually hoping to keep building (the district's) cash position to a better spot. We can keep wishful thinking, hoping that's going to happen, but we're in a tough place right now -- and can't build that position."

"When you're in a negative cash position," he continued, "you have to borrow money to make that up. So, there will be some big question marks the board will be discussing around cash reserve levies, and how much the district can levy in for cash while not drastically affecting the property tax rate. Those types of things will have to be discussed. And, those will all be played out in the spring, when we do our certified budget."

In the meantime, Ebeling said district employees will also be doing some "symbolic things" this year to address the decreased state funding Spencer will be receiving. Keeping an eye on overtime hours and making sure expenditures are necessary and prudent won't make a big difference, though, he added.

"With 80 percent of our expenditures in fixed salaries and benefits, and another (large piece of the district's fixed expenditures tied to) natural gas, utilities and fuel, we have very little wiggle room to even trim $50,000 out of the budget, much less $890,735," Ebeling acknowledged.

Spencer school board members will soon begin the discussion of how they intend to balance the district's 2010-11 budget, as well as deal with the district's anticipated negative cash position at the end of this fiscal year because of the state's across-the-board cuts. They have a work session on these topics scheduled for 8 a.m. Friday, Nov. 20, in the board room of the central administrative offices, located at 23 E. Seventh St.