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School auditors: future funding looks bleak

October 20, 2010 - The books are good; the financial outlook is bad.

That was essentially the message from Lake Orion Schools' Plante Moran audit, presented by Donna Hanson.

For 2010, district expenditures exceeded revenues by just under $5 million, said Hanson, so the district used fund balance to make up the difference. That left the fund at $13.6 million, but without help from federal funding, the impact on fund balance would have been nearly $4 million more.

Over the last year, the district received $3.9 million from the American Reinvestment and Recovery Act (ARRA) money.

Hanson said that because of "strings attached" to federal money, there's been an increased number of deficiencies and errors found during audits, but Lake Orion's slate is clean "which is rare today."

The tricky thing about ARRA funds is that they're one-time use, and soon there won't be any left.

"The 2012 school year is the official 'cliff' year. The remaining stimulus money is being used now," Hanson said.

"It was great while it lasted, but it has unfortunately provided an almost false sense of security."

She added, "Certainly we hope that the state's economy improves and provides adequate funding for education, but, if the economic challenges continue for our state, it's very concerning, especially considering that another stimulus package in this political environment is unlikely."

That $5 million the district used from fund balance to make up the difference between expenses and revenues was 26 percent of the money in the fund.

Plante Moran says while it's all right to strategically use fund balance, the district should do so with a clear understanding that once fund balance is gone, it's gone.

"Without future increases in funding or decreases in expenditures, continued use of fund balance is not sustainable," Hanson said, noting that having money in fund balance has served the district well in the past, keeping it from having to borrow money and allowing for a strong bond rating.

And while the fund balance and ARRA funds are depleted, contributions to retirement for employees has gone up from 16.94 percent to 20.66 percent, costing school districts statewide more money.

Earlier this year, the state promised districts $154-per-student to be paid in 2011 as a lump sum, but – if that arrives – it will be eaten up by the rise in retirement expenses.

Hanson added that federal funding to individual districts via the Education Jobs Fund is uncertain, and no one knows how Michigan will allocate its $16 million share.

Reporter, Lake Orion Review
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