Letter to the Editor: Hannibal School Board must work to get reserves back to 20-25 percent range

August 7, 2024 | By Mark Bross

It was great to have 40-plus people at the tax rate hearing on July 30 for the Hannibal School District. I provided some brief comments at the meeting but could not finish those due to the three-minute time constraint for speaking. I am going to share my full thoughts with you now as the School Board seeks to come to some conclusion on the operating tax levy.

None of this should be perceived as a personal attack, as it is not intended that way. If you know me, I am a direct person, and I put it out there so honest and open conversations can be had and results can be achieved. I respect everyone on the board, but collectively, they need to understand the decisions they are making and the huge impact they have on the district and our community.

The School Board as a whole is clearly not on the same page and is missing the forest for the trees on this and a number of issues. I want what is best for our school district. Please work together to accomplish this.

As a past School Board member of 13 years, I have a very good understanding of how the district’s finances work, the debt service levy, the operating levy and the district’s budget. In listening at the meeting, there are obviously some things that some or most of the School Board members are not considering in this process. Let me share observations and advice.

1. Fact: The public does not understand school finance. To expect them to understand is not realistic, as they have not been trained in it. It is more complicated than it needs to be, but that is why School Board members are their elected representatives. They need to fully understand it to execute their fiduciary responsibility correctly.

From my observations, some on the School Board don’t understand it despite the fact that everyone raised their hands at the meeting when I asked if they had completed their School Board training. Some members indicated in the meeting that the notion of raising any taxes is not keeping a promise made back in April of this year when Proposition Innovation was on the ballot.

I sat in several informational meetings on the topic ahead of the election, and in all cases, it was presented as the debt service levy would not increase. Furthermore, the actual ballot language states the same thing. For a School Board member to make the statement in the meeting that the school district is lying or not keeping a promise is to basically tell everyone who stepped into the ballot box that they cannot read.

The school district is not proposing a debt service levy increase, so why is that such a controversial topic? It is incumbent upon School Board members to fully understand what they are placing on the ballot and then to make sure it is clear to the public. To come back four months later and say they didn’t understand when they voted to place the language on the ballot seems disingenuous.

If it is not disingenuous, then did the School Board members not understand what they were doing in December 2023 when the voted to put it on the ballot? If so, maybe they are unqualified for their position. They need to move on from this topic because it has no relevance to the major discussion needed on the operating levy. It serves nothing more than to confuse the entire matter.

2. At the meeting, Superintendent Susan Johnson said the school district has cut more than $2.5 million from the budget. These cuts were determined in the time period between the announcement in March that the district had a $3.5 million shortfall and the June preliminary budget meeting. All I heard was discussion on taxes at the meeting, and no one acknowledged the district has cut $2.5 million in the budget. In my review of the cuts between last year and this year’s budget, I see the following:

Certified Staff Salaries – $1.63 million (22 positions were mentioned at the meeting)
Non-Certificated Staff Salaries – $127,000
Insurance – $113,000
Supplies – $94,000
Buildings and construction/grounds – $295,000
Equipment – $197,000

In addition, it was not reported at the meeting that approximately $527,000 in lease costs will be saved by prepaying leases from bond proceeds. Please note that leases are not considered debt. Therefore, they are paid from the operating account. Factoring that in, it is actually close to $3 million in cuts.

I observed in the meeting that not one School Board member had suggestions for any further cuts. If I am able to see these cuts by looking at the codes in the presented budget, why can’t School Board members do the same? This is part of fully understanding the budget. All of the information is there.

I also did not see any direction in the meeting given to the superintendent or staff to further cut the budget. What is the expectation with this? The superintendent cannot look for other things to cut when there is no direction from the Board about how much or where to do so. School Board members need to take leadership on this if they are going to go down the route of further budget cuts.

3. Let’s discuss the budget. Every year in June, the Board passes a preliminary budget. It cannot be finalized because the tax assessment numbers are not available until usually late July or early August. The Board passed a budget unanimously that was balanced and indicated increased revenues of $1.3 million and budget cuts of $2.5 million.

The $2.5 million in cuts are itemized above for you. Where was the $1.3 million in revenue coming from? There are only three sources for revenue — local taxes, state payments and federal monies. The state and federal funds are already set. That means that every School Board member voted for a budget that was going to rely on increased local tax revenue to find that $1.3 million in revenue.

It seems the decision on the operating levy was already made at the June budget meeting, so I’m not sure why there is a debate on taxes and cuts now. Maybe some of School Board members were not understanding what they were doing again? Look, you can’t continually have “buyers remorse” on these things. You own them.

If the board is not going to honor the commitment it made in the preliminary budget on the revenue side, then it is neglecting its fiduciary responsibility and putting the district in unnecessary financial peril.

You have two chances to fix this. Honor your commitment in the preliminary budget by adjusting the operating levee to provide the revenue, or amend the final budget in September.

I will caution the School Board that if it chooses to kick this to September and make further cuts then, it will directly impact student education while it is actively happening with the cuts made. I hope that if the School Board plans on going that route that it is willing to deal with the backlash from students, parents and staff.

4. Several people have asked me how the district got into this mess. There is a simple answer, but to provide context, one must look at recent history and decisions made by the Board.

Some will try to throw smoke in the way and say the district overspent, or they accuse former staff of stealing the money. The former has some truth in it. The latter is just plain wrong and would have already shown up in a district audit. Whose responsibility is it to oversee the district’s finances? It is 100 percent on the School Board to oversee this.

This problem did not just happen in the past 12 months. All of the data is there to show otherwise. I left the School Board in May 2021. In prior years, the district had finally built back up its reserve to 22 to 25 percent. In 2020, it started to decline again. I presided over the tax rate hearing in August 2020, and we had some tough discussions about what to do with the tax rate.

If you remember at that time in our lives, there was considerable uncertainty regarding COVID and how it was going to ultimately impact the district and our community. By all measures, inflation did not really start until February 2021. I know this because in my profession, I am expected to know this and understand it. Inflation accelerated significantly in 2021 and 2022 before starting to slow down in late 2023. Everyone should know this because they bought gas, groceries, etc., and saw their disposable income shrink.

In 2023, we saw the escalation of labor costs start to happen. This seems to have leveled some now, but the costs were significant. It is important to note that labor costs always follow consumer price escalation. The cost of everything went up in the last 3 years. It is no different for the school district. To ignore the impact of inflation on the school district is short-sighted and lacks an understanding of basic economics.

That August 2020 tax rate hearing was significant because the decision being made was a two-year decision. In Missouri, tax rates set in even years become the cap for tax rates in the following odd years. We knew that whatever decision was made in August 2020, we would have to live with it for two years. You can look at the reserve balance graph in the budget and see the erosion of reserves in 2021 and 2022.

We ultimately decided to roll back some of the operating levy in August 2020 because of the uncertain economic conditions in our community. We knew that it would have to be fixed at the August 2022 tax rate hearing. Fast forward to August 2022. The district’s reserves were around 5 percent. Alarms should have been going off with the School Board in August 2022 about the reserves. Furthermore, the August 2022 tax rate hearing would set the rate for 2023 and the cap on the operating tax levy for 2024.

The School Board must have ignored this or not understood it. The tax rate for 2023 caused the district’s reserves to slightly bump up because it was a reassessment year. The tax rate could not be adjusted higher at the August 2023 tax rate hearing because of the cap set in the August 2022 tax rate hearing. Fast forward to March 2024 and the district announces a $3.5 million shortfall in its budget. What could have been done differently?

In the August 2022 tax rate hearing, the School Board could have set a goal on reserves and adjusted the tax rate to get there over a period of time. Maybe that would have resulted in no rollback or a smaller rollback for a time, but ultimately would have put the district in solid financial position to consider rollbacks in future years.
In the budget passed in June 2023, the School Board should have looked at the reserves and identified spending reductions at that time. Based on what I am seeing with how the School Board is looking at the current budget, I have to seriously doubt whether the School Board at that time understood the budget then either.
In the August 2023 tax rate hearing, this same budget discussion should have taken place. Since the School Board was hamstrung with the operating levy due to the mess-up at the August 2022 tax rate hearing, it had little choice on the tax rate. The School Board should have made budgetary cuts.

The School Board failed to look at the budget appropriately in June 2024. Is the School Board going to fail again and not fix the problem in the August 2024 tax rate hearing? To provide the simple answer (and I’m sorry to be so blunt): If the School Board fails again, this is either ineptitude or purposeful destruction of the school district’s finances. It cannot be spun this any other way.

The School Board is not in an enviable position with this. Here is the advice going forward for what it is worth:

Stop pointing fingers at others and point them at yourself. You are the problem. Do better.
The School Board must honor its commitment from its June 2024 preliminary budget. The district has already absorbed $2.5 million in cuts and another $527,000 in savings in lease payments. The district has gone well more than halfway on this budget hole. No one likes to pay more taxes, but to say the district needs to tighten its belt straps further is going to cause serious disruptions in the education of students. If the School Board believes this is still necessary, then provide guidance to the superintendent and staff on how much and where to cut further. Be prepared to deal with the backlash from students, parents, and staff.
Consider serious training on school finance. This district should never be in this position, and it would not be if the School Board was paying attention to the right things over the past three years.
Avoid dropping reserves below 3 percent. At that point, the district is considered a financially distressed school district, and DESE will come in and make the cuts. Losing local control is not something the School Board wants to mess with. If you don’t think it can happen, ask the St. Louis Public Schools.

To give an idea of how perilously close to 3 percent the district is, dropping from the current 4.75 percent level to the 3 percent level is basically $900,000. That is miniscule in a $49 million budget. If the School Board decides to not fund the revenue of the budget it passed by not setting the operating levee correctly this month, reserves will drop below the 3 percent threshold. If the state decides to withhold monies next year or the following year, you will likely drop below the 3 percent threshold.

This is nothing to mess around with. The School Board needs to ultimately work toward a goal of getting its reserves back up to where they should be — in the 20-25 percent range as recommended by your auditor, your financial advisor and DESE.

The School Board has less than three weeks to solve this. I hope it considers the impacts of its decisions going forward. In public service, you are not going to please everyone all of the time. Sometimes you have to just do the right thing and deal with unhappy people.

School Board members were not elected to make people happy. They were elected to steward and lead the school district. Do it!

Mark Bross
Hannibal, Missouri