On March 29, 2007, in a memorandum to the Council, Board of Estimate, and the Board of Education, as well in a piece reported in the press, Mr. Hamilton responded to my proposal to use undesignated fund balance as a means of preserving the proposed tax increase approved by the Common Council and still satisfying the needs of the Board of Education as “fundamentally flawed” for several reasons.
First, Mr. Hamilton makes this claim because he contends that we would operate our 2007/2008 budget as if we had the additional $3.2 million dollars. Obviously he has chosen to disregard my assertion that we would do all we can to minimize when I said, “Be assured of our firm commitment to continue to pursue every available means to effect savings and to limit staffing to the absolute minimum number necessary. Agree to meet with representatives from the school district, administrators and the Board’s Finance committee, monthly to review our expenditures so you have assurances that we are keeping that commitment.” What would be gained if we chose to ignore this in our efforts to build a collaborative and trusting relationship with the Board of Estimate or the Common Council?
Second, Mr. Hamilton says, “There is no basis whatsoever to believe anything other than the Board of Education will be back for a special appropriation of $3.2 million sometime before the end of the school year.” I would suggest that there is no factual basis for such an assertion. Neither Mr. Hamilton nor I can say with certainty what will happen that would mitigate the need to request $3.2 million. How can he assume our final staffing needs when I don’t know them yet and will not until early June? It is certainly possible that we may need fewer staff. How can he assume that our estimates for fuel oil will, or will not, materialize, or that adjustments might not be possible in special education tuition costs, or that health insurance costs may not be as high as budgeted? The fact is he cannot. In the last four years we have been able to return a surplus to the city. Why should we assume that we would not be able to do so in the future? That, of course, is not a certainty. None of this might happen and we might, indeed, need to come for a special appropriation. My point is that the needs of the students ought to be a sufficient reason to take the chance that we can minimize the extent of the increase where a special appropriation might be minimal or, in the best of cases, unneeded. My point is that, in a worse case scenario, we can access the significant unappropriated surplus the city has accumulated without impacting the tax rate which is what the Common Council wanted to do in the first place.
Third, Mr. Hamilton describes the purposes that budgets serve. I understand that. I’ve been building budgets for more than thirty years. I would argue that the budget, the financial plan to meet specific goals, is being used for that exact purpose: meeting specific goals in a fiscally responsible way. Suggesting that we are adopting a fraudulent budget that we intend to exceed is simply untrue. I would note that the city projects a budget it believes is accurate, but then builds in a “contingency” fund, usually in the neighborhood of $2 million dollars, just in case the expenses are higher than anticipated. Does the city engage in a fraudulent practice by budgeting certain appropriations and then adding a contingency, just in case? Of course not. A contingency of a reasonable proportion is a wise practice. The city builds in a contingency between $1.5 and 2 million dollars on anticipated expenses of about $113 to $115 million (the non-Board of Education part of the budget) but does not make any allowances for a contingency on a school budget of $136 - $140 million. Why? Because our “contingency” comes from the action of the Board of Estimate for a special appropriation. My request of the Board of Estimate is, in effect, to create a contingency for the Board of Education by agreeing to honor a request for a special appropriation, to the extent it becomes necessary, in the same way that the city builds in a contingency for city expenses outside of the Board of Education. There is no subterfuge. We are very clear on what may, or may not, be necessary.
Fourth, Mr. Hamilton expresses concern about his future plans given the impact of a potential special appropriation for the Board of Education that could, in his judgment, reach $3.2 million. He says it will impact the level of unappropriated surplus he intends to use over the next two years. In four years time, the unappropriated surplus was permitted to grow from $13 million to $28 million and now, all of a sudden, he has a plan to decrease that unappropriated surplus down to $20 million in two years? How? He is going to use $4 million of it in 2007/2008 and another $3.5 million in 2008/2009. There will be no fund balance used in 2009/2010. This means that in 2009/2010 there will need to be some other offset in revenue, or some reduction in expense, or some increase in the Grand List to offset that loss or the 2009/2010 budget is going to start off with a $3.5 million increase before anyone begins making any budget proposals. I’m not so sure this is the wisest use of fund balance over time.
Fifth, city revenues increased by 12.29% in 2006/2007. In 2007/2008 they are projected to increase by 5.19%. Yet, Mr. Hamilton’s financial projections (used as an argument against creating the opportunity for additional funds for the educational needs of the students) assume that revenues will only increase by 2.4% in 2008/2009 and will actually decrease by 6.66% in 2009/2010 (because there is no fund balance that will be appropriated!). Furthermore, the financial statement provided by Mr. Hamilton indicates that the Grand List increased in 2006/2007 by 14.28% and increasedagain by 11.23% in 2007/2008. However, it will increase by only 1.25% in both 2008/2009 and 2009/2010. What is also interesting to note is that there is no mention of any potential of fund balance from the operating budget in 2008/9 or 2009/2010. Does it not seem odd that in prior years there was a substantial fund balance (that’s why the unappropriated surplus is so high) and now there is no mention of it? Is the city going to spend every last dollar in each of the budget years? Do these numbers make sense?
I also take exception to Mr. Hamilton’s assertion that, “The budget problems that the Board of Education is now facing were [sic] principally the results of relying upon budgetary one-shots (some might refer to them as budget gimmicks) to balance their budget for FY 2006-07.” The judgment in this comment is that it is the Board of Education that is responsible for this problem. The fact is we were prepared to return $2 million to the city at the end of last year but we worked with the Board of Estimate, at its request, to use these funds available on a one-time basis to reduce last year’s increase. Furthermore, I advised the Board of Estimate and the Common Council and the Board of Education in January of last year that using those funds would put us in the exact place we are now. We all agreed to do it. We all walked into this with our eyes open. We supported this decision then and we support it now. But to blame the Board of Education for this situation, when it was not our request or our idea to use those funds, is bordering on the dishonest. We wouldn’t be where we are now if, as planned, we had returned the $2 million and requested the Board of Estimate to increase this year’s budget by 3.99%.
Finally, Mr. Hamilton says that there is a potential solution outside of my proposal. Mr. Hamilton says if the State increases education aid, then the Board of Estimate could make a special appropriation to the Board of Education in the amount of that aid instead of adding it to the city’s surplus. If I am understanding this correctly, it is not wise or honest to provide a special appropriation that would maintain the proposed tax rate and eliminate the need to cut educational programs if that means accessing part of the $28 million in unappropriated surplus that already exists, but it is wise and honest to do so if the State (and nobody knows if this will happen) gives the city additional educational aid which would otherwise add to that unappropriated surplus. Potentially providing a special appropriation from the existing $28 million in unappropriated surplus will be “disastrous” but using additional State Aid that would otherwise go to increase that unappropriated fund balance would not. With all of this, it would still require the Board of Estimate to take an action approving a special appropriation.
One last thought. Our job is to provide the best quality educational program we can to the young people of this city. We make our recommendations for staffing and program based on the experience and expertise we have accumulated over decades of work in schools and school systems. We are producing results. The budgetary increase we are requesting, given last year’s collaboration with the City, is in no way unreasonable. Look around at our neighboring districts and ask if our staffing levels are less or greater than theirs. You will see they are less. Look at our neighboring districts and ask if our budget increases over time are less or greater than theirs. You will see they are less.
I think I offered a reasonable solution to this problem. One where everyone gets what they want. The details can be addressed. If we know there is access to a special appropriation if necessary, we can continue to make sound educational decisions. There is no incentive for us not to be as fiscally responsible as we can. If there is no access, then we will have to make hard choices that, in retrospect we may look back on and say, “This was unnecessary.” The question is to what extent do people want to address this issue and what are they willing to do to work toward a solution. Alternatively, we can do nothing and understand that it will be the kids who pay the price when reductions have to be made. I can assure you, any reduction in service, whether it is administrative, teaching, athletics, or other support, will have an impact on the programs we provide our students and the work we do with and for them.
Salvatore J. Corda, Ph.D
Superintendent of Schools
