Charles: Confusion on funding result of poor communication
By MIKE ANTHONY
Poor communication resulted in a misunderstanding about the source of district capital funds being used to finance projects re-lated to the Proposition P districtwide building improvement program, according to a Mehlville School District administrator.
Randy Charles, assistant superintendent for finance and the district's chief financial officer, told the Proposition P Oversight Committee last week that referring to district capital funds being used for Proposition P-related projects as "non-Prop P funds'' has led to much confusion about the source of those funds.
The confusion stemmed from the fact that those funds were being referred to as non-Prop P funds even though they are generated as part of the voter-approved Proposition P tax-rate increase, he said.
District voters in November 2000 approved Proposition P, a nearly $68.4 million districtwide building improvement program funded by a 49-cent tax-rate increase. Interest on bond-like certificates of participation issued to fund Proposition P allowed the construction budget to increase to $72.4 million.
Current district projections estimate that an additional $13.6 million in district capital funds will be used for Proposition P-related projects, bringing the total cost of the districtwide building improvement program to more than $86 million by mid-2008.
A proposed revised Proposition P budget of $86,090,548 includes the board-approved budget of $72.4 million, plus another $13,690,548 in district capital funds. To date, a total of $4,898,567 of district capital funds has been spent on Proposition P-related projects.
Current estimates indicate the 49-cent tax-rate increase will generate $170,165,506 through 2022, while the amount needed to retire the certificates of participation is projected at $144,346,224 — leaving a surplus of $25,819,282 in district capital funds.
Of the voter-approved 49-cent tax-rate increase, Charles told the panel that 41.6 cents are being used to retire the certificates of participation, while the remaining 7.4 cents is going into the district's capital fund.
"... Some of the, I guess, the communication problems that we've had have dealt with how we describe and talk about the funds generated by the 49-cent levy,'' Charles said. "Early on, for whatever reason, we started talking about Prop P funds and non-Prop P funds, and the understanding about Prop P funds in some people's minds, Prop P funds related to funds received from issuing the certificates and being spent on items identified in the master facilities plan. Non-Prop P funds were funds spent on items not specifically identified in the master facilities plan. That was one way of looking at it.
"Others looked at when you say Prop P funds, you mean everything the 49 cents generates, and the one thing that people like myself that are real close to it assumed was obvious is that, you know, the 49 cents is generating more funds than are needed to pay off the certificates. The extra revenue is going into the district's capital fund and those capital funds are being used to pay for some of these things that had to be done but may not have been foreseen back during the CACF Citizens' Advisory Committee for Facilities) process and were not made specifically part of the master facilities plan,'' Charles continued.
"So the best way to say it is there's a 49-cent tax levy. Of that 49 cents, there's around seven cents that is going into the capital fund. The rest of it's being used to pay off the certificates. The seven cents that goes into the capital fund generates roughly a million dollars a year,'' he said.
Oversight Committee Vice Chairman Gloria Brazell, a former Board of Education member, took exception with Charles' explanation, terming it "double speak.''
"Randy, I can read a budget and I've seen superintendents come and go and I've lived here and I will live here, and at one time I was an elected official in this district,'' Brazell said. "My kids went to school here. I have a stake in this community. This is 'double speak' to the public and this is where we as a district can get ourselves into serious trouble as far as building and keeping the trust of our entire stakeholders. If it's a 49-cent levy, here's my question: Was the levy set too high if you're just spending 41 cents on the Prop P because the people — it's all perception. Any vote's perception, the good will of this community toward the school district. Some of it, much of it, is based upon perception.
"When people voted to basically raise their taxes, they voted for the 49 cents for Prop P — period. Not to spend 41 cents. And then if there's an additional set of cents, that should go back to the taxpayers,'' she said.
Charles replied, "We've heard that perspective from people. We've also heard other perspectives as to how best to use those additional funds and I know (Superintendent) Dr. (Tim) Ricker can better explain, but that's one of the issues that we need to address and our intention is to get input from the community and really look at the variety of options for how to handle those excess funds.''
Noting that representatives of A.G. Edwards helped the district estimate the amount of money the 49 cents would generate, Charles said, "There is a certain de-gree of conservatism that is normal. Dwight (Dickinson of Dickinson Hussman Architects) can probably tell you, too, from working with other school districts, that they never want to underestimate that because you won't be able to finish your project. You won't have the funds to do it. What typically happens is then that conservatism helps to formulate a bit of a balance for some contingencies and those unexpected things that come up.
"No one had any idea that something like 9/11 was going to happen and impact the bond market the way that it did by the time we sold the certificates. That made a huge difference. When A.G. Edwards did their estimates early on, they said that the 49-cent levy would generate enough funds to fund an $80 million project. That was reported to the CACF. Now it's obviously generating more funds than even that, and, again, that's due to the bond market changing and things that — you know, nobody could see that happening,'' he continued.
"So it's a good problem to have. I would much rather have this problem than not have enough funds and we have an opportunity still to decide how best to use those funds. Do we roll back the taxes voluntarily to give some of that back to the voters or all of that back to the voters or, you know, there's a lot of ideas out there and we want to get community input on that,'' Brazell said, "And I understand all that you're saying and I appreciate all the time that you put in as far as giving out that information, but I think you have an additional problem because people of this community believed that the 49 cents, that everything that's spent was coming out of Prop P, and, again, whether it's perception or fact, it's out there. So when that information is out that it's only 41 cents of that 49-cent levy ...''
Charles said, "Forty-two (cents) ...''
Brazell continued, "Whatever it is. It's basically not fair to the general public. It's not fair to the community because most people don't work with capital funds, with general funds, operating funds and Prop P funds, but they sincerely believed that that money generated, that that levy was for Prop P. Now when we (went) through this whole process, every concession that we made here. I remember the night at Buerkle (Middle School), there were major concessions to that building. It was always because we were told we were on budget and I'm concerned about the additional cost. I'm very concerned about the perception out in the community. It took a lot of years to build the good will to pass this bond issue.''
Charles said, "I guess that as far as the perception that's in the community, I've received one phone call of concerns and obviously I've read some of the articles that are printed, but beyond that, that's the only phone call I've had. I don't think anyone else in Central Office has received one. I sure want to hear from people. And, again, that's why we're doing this — what we're doing now. We recognize that there's a communication problem. While we thought — and part of it, you know, put it on to a rookie CFO (chief financial officer). When we started communicating this information to the public, it comes out of my office and you're talking about somebody brand new to the job, and, to me, and maybe part of what was going on is I'm assuming that when I say 'non-Prop P money,' everybody knows what I'm talking about. Well, obviously that wasn't true. So we got some work to do. We've got to fix that and that's why we're doing it now.
"We talked about the extra revenue that the 49 cents is going to generate, $25 million. Eighteen million of that hasn't been generated yet. We're telling it well in advance. It's based on assumptions about future assessed valuations and how they come in. They're probably pretty good projections, but that's why we're telling people before it happens, so we have time to plan for it,'' he added.
Brazell said, "But I do want to make it perfectly clear that the Oversight Committee was not told of the difference in black and white, that this was coming out of Prop P money and we've been told all along that we were on budget. Now it's the board's responsibility to ask the questions and to make it clear to the public. We haven't been given that scope as far as the committee. We are not the elected officials.''
Board member Rita Diekemper said, "I think what helped the board is when we talked about that these funds are in two separate places and they legally have to be separated.''
Brazell said, "I understand that.''
Diekemper said, "And that what is on here, these reports here, this is being paid out of the bond issue or the certificates of participation, and the checks, every check, from here is paid out of the certificates of participation, which are United Missouri Bank. So this is — and then — this is, then there's the 49 cents that's generated. That goes to district checking account through the tax revenue, OK? And so what that district capital fund is done, well, what's done with that is pay into the United Missouri State Bank to pay off the certificates of participation.''
Brazell said, "I understand that.''
Diekemper said, "OK.''
Brazell continued, "But that has nothing to do with my earlier comments.''
Diekemper said, "OK, well, I guess I don't understand your comments then.''
Brazell said, "I guess you don't.''