TCAPS & TBAISD: At Odds Over Fund Balance

“Egregious” and “appalling” are just two of the words Traverse City Area Public Schools (TCAPS) officials are using to describe the fund balance – to the tune of some $36 million – being maintained by the Traverse Bay Area Intermediate School District (TBAISD).

“We thought we had been making progress,” TCAPS board President Gary Appel tells The Ticker of discussions with the ISD about its fund balance over the last year. “Last night, we were all smacked on the side of the face.”

Appel is referencing news shared by administrators during a board study session Monday evening that it will be receiving less than half of the $700,000 it received last year as part of the ISD's disbursement plan and planned for again this year – resulting in a budget shortfall for the 2015-16 school year.

“My view is they are hoarding buckets of cash and there’s no excuse for that,” says Appel.“I’m more than puzzled…I’m shocked at the stance of the ISD.”

The topic of the ISD’s healthy fund balance is not a new discussion for the TCAPS board, but within the context of potential building closures and other cuts the conversation has reached a divisive tone.

Among the ISD’s many roles is to provide local districts with programs that are too expensive or too extensive to be offered individually, such as special education services. The ISD offers 13 center-based programs for special education services as well as runs the Career-Tech Center.

Three years ago, in response to financially struggling member school districts, the ISD agreed to draw down its fund balances across its three budgets – special education, Career-Tech Center and general education – to 30 percent over a five-year period. Kingsley Superintendent Keith Smith sat on the ad hoc committee that recommended the multi-year drawdown plan that was ultimately approved by all 16 district superintendents. (Steve Cousins was TCAPS superintendent at that time.)

“Last year, the ISD distributed $1.2 million for special education programs for the region,” says TBAISD Superintendent Mike Hill, adding that the fund balance dropped from 43 percent to 36 percent last year and is projected to be at 31 percent by the end of the school's fiscal year on June 30.

Adds Smith, “The ISD is following 100 percent of the plan,” noting that it is “under no obligation” to spend down its fund balance.

But following the formula, the 2015 special education disbursement translates to $558,399 across the member districts, according to Hill.

“It should be no surprise, that with rising expenditures, that the distribution wouldn’t be the same as last year,” says Hill. “And all of our districts, except one, concurred.”

TCAPS Superintendent Paul Soma is fine with being the “lone soldier” in this battle over fund balance.

“I have been very consistent in expressing that I don’t agree with the manner in which they calculate the distributions and I don’t agree philosophically with the way they are using the resource,” Soma says.

TCAPS board Vice President Erik Falconer recently met with ISD officials and summarizes the conversation as “significant philosophical differences on the purpose of a fund balance,” adding that the ISD sees it as a priority to have “multi layers of security and redundancies” in its financial safety net.

The ISD’s overall fund balance sits at 57 percent – or $36.8 million. Of that total, $9.4 million is earmarked for its capital project fund. Hill says that since the ISD can’t go out for bonds like TCAPS – and doesn’t want to compete with the district for taxpayer financing –  it has to maintain a fiscally responsible fund balance to address facilities and the long-term health of the district.

In fact, it just launched the first phase of a $2.8 million renovation to the Adult Work Center that Hill describes as “badly needed.”

But Soma maintains the ISD is not using its monies as they are intended – serving the needs of students. "To have $27 million locked up in a bank account…that’s wrong," says Soma. "A 30 percent fund balance is egregious.”

The $350,000 funding loss puts TCAPS' fund balance at 6.8 percent (or nearly $6.4 million). According to bond rating agencies, a school district with a 10 percent fund balance is considered “healthy.”

While Appel calls 6.8 percent “acceptable,” he acknowledges it is getting closer to the five percent threshold that could land TCAPS on the state’s “watch list” for financially-troubled districts.

So what’s the next step for TCAPS?

“We will be strategizing and looking at going out to the public in a big way about this issue," says Appel. “I know I will be reaching out to our state senator.”