November 16, 2018 10:56:33 AM
Slim Smith - [email protected]
The Lowndes County School District Board of Trustees voted in special session Thursday to secure $3.5 million through a $1 million withdrawal from its 16th Section Interest Account and $2.5 million tax anticipation loan to meet expenses for the final two months of the year.
Information provided to the board by district CFO Kenneth Hughes showed the district maintenance fund had dipped to just $340,761.28 as of Nov. 9 as the board hastily called a special meeting amid rumors that the district would be unable to meet payroll at the end of the month without immediate action.
The district's monthly payroll is roughly $2.8 million.
While board attorney Jeff Smith quickly put the payroll fears to rest -- teachers are paid through state funds, he told the board -- board members questioned Hughes as to why they were not alerted sooner to the shortfall for other obligations.
"I'm confused," board member Jane Kilgore told Hughes. "Every time we were going over the budget, when we would ask you if there was anything we needed to know, you said, 'No. Everything's fine.' You know, you should have warned us and told us that if we keep on the trail that we're on, there's going to be a shortfall. When we asked about taking (money) out of the fund balance, you said, 'Yes. Everything should be all right.' You never said anything prior to the last board meet about this shortfall."
Hughes said he had told the board the final budget approved by the district in August was $2.5 million short of what was needed to meet expenses.
In 2017, the board withdrew $900,000 from its fund balance to make the budget it submitted to the county for approval.
"I said at the time that you can do that for one year, but you cannot do it for two years," Hughes said. "I said in August the only problem we might have is when we get into November and December is there may be a cash-flow issue. I put that in writing to (superintendent) Lynn Wright and (board president) Brian Clark back in August."
Tax anticipation loans are short-term, low-interest and are paid by tax revenue when it arrives in February.
Mississippi school districts are funded by a combination of local, state and federal funds. Local funds, which include ad valorem and fee-in-lieu taxes, are collected at the year's end and distributed to the district by mid-February.
Lowndes County tax collector Greg Andrews said the district should receive $18.2 million in ad valorem and other taxes by Feb. 15.
"Originally, they brought a budget of $22.7 million, but they didn't want to raise millage," Andrews said. "When I told them the value of a mill had decreased by $35,000 and that there was no way the millage wouldn't have to go up with the number they gave me, they asked me what it would take to keep the millage the same. I told them it would be $18.2 million and that's the budget (amount) they brought back to the supervisors."
By law, school districts are required to have a fund balance of 7 percent by the end of the fiscal year on June 30, which would have been $4.1 million based on the district's overall $59 million budget. On July 13, the district has $5,705,090 in its fund balance the beginning of July, but the July balance had been adjusted to $4,488,371 in Hughes' November report.
Board president Brian Clark asked Hughes why those numbers had changed.
"I closed the books in early July with the information we had," Hughes said. "After I had closed the books, we learned that we had $1.3 million in furniture and equipment we purchased that had to be dispensed in the previous fiscal year, so that's why the numbers changed. Everything we had up until a week ago showed we had $3.4 million. It was after that adjustment that the cash flow was impacted."
Clark noted that the district's budget had been negatively impacted by a drop in the value of a mill, lower than projected tax revenue -- including $800,000 lost as a result of the Mississippi Supreme Court's ruling that businesses located on airport properties were exempt from taxes -- as well as revenue from Steel Dynamics that will come in $1.4 million lower than projected.
Even so, some board members said if they had known of the projected shortfall, they might have asked for a millage increase in August, which would have added $2.5 million to its budget.
"I might have had a whole different outlook on the last budget vote," board member Wesley Barrett said. "I was under the assumption we were able to able to adequately eat the $2.5 million in the cushion I thought we had."
The board voted to transfer $1 million from its 16th Section Interest account to cover November expenses, then passed a resolution to seek bids for a $2.5 million tax anticipation loan to cover December costs, although Hughes said the full amount might not be needed.
Tax anticipation loans are not uncommon. On Wednesday, the Lowndes County Board of supervisors accepted a bid from Trustmark Bank for $2 million to cover county expenses until TVA and tax revenue is dispersed.
"Overall, I think we're going to be OK," Clark said. "It's a short-term problem."
Hughes, however, told the board the district faces tough choices going into the next fiscal year.
"Based on projections, you're going to be $4 million to $5 million short," Hughes said. "You're either going to have to raise revenue or make some pretty serious cuts."
The district has not asked for a tax increase since 1989, Smith said.
Slim Smith is a columnist and feature writer for The Dispatch. His email address is [email protected]