In Part 1 (link), we went through an exercise to simplify what the School District’s spending has been over the last several years. In summary, spending has increased over the last several fiscal years drawing our fund balance down from $10,000,000+ to just over $3,000,000 (projected).
In Part 2 (link), I wanted to look at each fiscal year - what was budgeted versus what was the net result. What we found out by going through that exercise, was that we have spent more than what we had even projected as our deficit over the course of several years.
In Part 3, we are wrapping up this series on fiscal responsibility (for now). One of the themes that we hear from our current board is that they take a "fiscally conservative approach" to the budget process and with how they handle the district’s finances. From what I have presented in Parts 1 and 2, I hope that I have been able to convey that I don’t agree with their statements.
In my definition of fiscally conservative approach to finances, there are two fundamental principles: cutting taxes and controlling spending.
With regards to cutting taxes, the citizens of the Germantown School District voted for the $84 million referendum. While I ultimately agreed that the work needed to be done, it does make the task of trying to cut taxes difficult.
As far as controlling spending, I’ve presented the numbers from the past several years. There hasn’t been an attempt at controlling spending. This has created a very difficult financial situation for our District. Even though it is very early in the process, we heard at the January 25th Finance Committee meeting (video link here) that we are starting with a projected deficit of about $2.5 million dollars. That deficit does not include the projected $400,000 - $450,000 of COVID related expenses that were not budgeted for in the 2020/2021 fiscal year.
At the September 28th Germantown School District Annual Meeting (video link here), we heard once again about the fiscally conservative way in which we have been managing finances and that we had been assigned the Aa1 rating from Moody’s, which is the highest rating that a district of our size can receive.
Two days later, this happened:
You can download Moody's full pdf document below:
Moody's link regarding Germantown School District's downgrade: https://www.moodys.com/research/Moodys-downgrades-Germantown-School-District-WI-to-Aa3--PR_906752916
Moody’s, the preeminent authority in the bond rating space especially for School Districts, downgraded our debt to Aa3. You can see what they highlighted as to their reasoning for downgrading the District’s debt… “RATINGS RATIONALE The downgrade to Aa3 reflects the district's weakened financial profile. Poor budgetary management practices in recent years has resulted in the material use of general fund reserves to pay for non-referendum debt service, instead of levying the full amount, and by doing so has weakened the overall financial profile. Additionally, the new financial management team expects to further draw on reserves in fiscal 2021 which would erode an already weak financial position when compared to peers. In levy year 2022, the new financial management teams intends to levy the full amount needed to cover debt service on the non-referendum debt, which will help stabilize the reserves for the district. The Aa3 rating further reflects an elevated debt burden offset by an affluent tax base that has ties to the greater Milwaukee (A1 negative) area, a stable student enrollment, and manageable pension liabilities.” Now, in the grand scheme of things, it’ll be very likely that we may hear that Aa3 is still very good and that it doesn’t change things (like interest rates we may be charged on debt), but an independent, well respected, firm has highlighted the fact that our budget management process has been very poor. This should mean something to us as people who live in and pay taxes to the Germantown School District.
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