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District financial outlook bleak, 'internal error' found

January 16, 2013 - Brandon Twp.- From bad to worse.

After student count day in October, school officials believed they had lost 40 students from the previous year. The decrease in students was not unexpected, as the district has been losing students for six consecutive years. What was unexpected was the recent discovery that the loss was more than double that—the district has 93 fewer students, not the 40 student decrease originally announced.

"Our internal interpretation of the student count wasn't right," said Superintendent Lorrie McMahon.

"(The interpretation) made the number of special education students more than we actually had."

She declined to elaborate further, stressing that the numbers given to the state were correct.

The news is more devastation for the financially faltering district. The larger than expected decrease in students means that instead of a $280,000 loss in per-pupil funding, the district will receive $650,000 less in funding from the state. With no cuts planned at this late stage in the budget, the district will use $370,000 from the fund balance to make up the difference. Finance Director Janice Meek expects that move to take the fund balance down to $1.2 million by June, the end of the fiscal year, leaving the district with just a 3 percent fund balance—far below the state's recommendation of a 12-15 percent fund balance.

"Next year will not be a good year," said Meek during a finance committee meeting Jan. 14. "Next year may be the year we go into deficit—a fund balance deficit."

Meek is anticipating an operating deficit of $2.1 million for the 2013-2014 school year and a fund balance deficit of $920,000. Besides a projected loss of 80 more students next fall, district officials expect the state may also cut "best practices" funding and possibly take away funds given to districts to help offset increases in retirement contributions. The amount districts are required to contribute to employee retirement may also increase to as much as 30 percent, although district officials are currently anticipating 27 percent There are also health insurance increases to consider.

"Things are evolving," said Meek, who added that her current projection of next year's budget deficit isn't even a "worst-case scenario," in part because it assumes another year of freezing wages. The district and teachers have been in contract negotiations for months and are currently in a state "fact-finding" process to help determine what is fair.

"I'm trying to be conservative, but not alarmist," Meek said.

Still, what is on the horizon may be cause for alarm. Much of the finance committee meeting was spent going over a facility master plan done less than a year ago by FRENCH Associates of Rochester. The report shows millions of dollars of updates that will be needed for district buildings in the future, although they are not prioritized.

"We have to get real with what is needed and what is not," said Meek.

One needed and expensive repair that is not in the report is repair of the aquatic center roof—which has been estimated to cost $1 million to fix.

Committee members also discussed at length using leftover funds from a $73 million bond to increase security at the schools.

The bond was approved by voters in 2006 and was used for a variety of improvements and additions, including Oakwood Elementary School and the athletic complex at the high school. The possibility of going back to the voters to request a sinking fund millage was also broached at the committee meeting.

"We need to shore up the school district with a sinking fund, it's inevitable," said Assistant Superintendent Carole Beverwyk.

Meek noted that levying 1 mill for five years would result in $2.5 million. For a home valued at $300,000, the tax would be $300 per year, not a small amount, she added.

"It will be a hard sell," said Board Secretary Greg Allor.

"We need to demonstrate we're making the best use of what we've got before we ask for more," said Board Treasurer Leanne Schmidt.

Susan covers Brandon Township and Ortonville
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