The tax-saving tool they didn't use State allowed for 'Fund 46,' which could have lessened school tax hike

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BELOIT - The School District of Beloit likely could have avoided raising taxes for property owners if it had used a tool provided several years ago by state law.

The district recently passed a $100 million budget for the next year. Initially, the administration and school board planned to tax to the maximum level allowed by law - which would have raised local taxes by $4 million - but at the final vote the district dipped into its fund balance to reduce the property tax increase to $2.5 million.

Officials attributed the need to raise taxes on property owners to a decline in the funding received under the state aid formula. The district under-spent last year's budget by $4 million, primarily by saving money for health care coverage, a unique savings not typical in a given budget year, according to Executive Director for Business Services Jamie Merath.

The district also had seen a savings of $2 million from 2015-16, Merath added.

At the time the school board was considering next year's budget, officials leveled criticism at the state for reducing aid payments to Beloit. Merath told the Beloit Daily News on Oct. 13 the state essentially had penalized the district for being fiscally responsible and coming in under budget for the 2016-17 year, with Merath equating the district's state aid decrease to the district's need to raise the millage rate.

But Wisconsin State Rep. Amy Loudenbeck, R-Clinton, a member of the budget-writing Joint Finance Committee, rejected criticism the state is to blame.

Loudenbeck told the Beloit Daily News options were provided in state law the district could have used - but did not - which would have prevented the need to raise taxes.

"The bottom line is this," Loudenbeck said. "Up until last week the district claimed they were being penalized by the state for being 'fiscally responsible' - that statement is an egregious oversimplification of how the state funding formula works. The public deserves to know that options exist to prioritize educational opportunities and protect taxpayers if the board and administration choose to utilize them."

The key option Loudenbeck said the district could have established was to create a capital improvement fund known as a "Fund 46," an option created in 2013 to allow leftover funds in a good budget year to be transferred into a capital account, a strategy that avoids a state aid cut the following year. The fund requires a 10-year capital improvement plan be adopted before any funding transfer and there is a five-year hold on all funds from the date of the account's creation.

Though the option was provided for in state law nearly five years ago, the Beloit district never created a Fund 46 or a 10-year capital improvement plan.

The state provided 88 percent, $68.2 million, of Beloit's budget, down $1.5 million last year and $1.9 million in 2015. Overall, 55 percent of the state's public school districts (230 of 422) will receive less general state aid this school year than in 2016-2017.

Board President Laurie Endres - she was named board leader in 2017, and Merath was hired for her present position last year - explained in an interview with the newspaper that the Fund 46 option was not considered viable in the past due to tight budgets, dating back to 2012 when the district passed a $70 million referendum.

Both officials said the district now intends to come into compliance by creating a 10-year capital improvement plan along with a Fund 46.

"I will take the responsibility of that now since I am the one who brought (Fund 46) up to the board," Merath said. "I said this was my recommendation to help eliminate the issue. I don't want to see this happen again."

State officials contacted by the Beloit Daily News agreed the Fund 46 option is crucial to managing finances for Wisconsin school districts.

"I realize the school funding formula is complex," Loudenbeck said, "However, the school board and district administration should be aware that several options exist under current law that would have allowed for full funding of the proposed budget with minimal or no tax increases."

The district cannot go back now and create a Fund 46 in order to adjust budgetary decisions. The Wisconsin Department of Public Instruction does not have the ability to waive the deadline for Fund 46 assignments this year, with all state district levy limits set Nov. 1, according to DPI Communications Director Tom McCarthy.

Loudenbeck said another option to avoid the tax increase could have been for the district to use more of its fund balance, carrying over the $4 million in lieu of the tax hike.

Doing so would have placed the district below the board's policy of carrying 18 percent of its general fund in reserves, Merath said, noting the district had fallen below the established figure in past years.

However, Merath confirmed the 18 percent figure is a board policy only - there is no state requirement establishing a reserves level for the district. Both Endres and Merath said taking more out of the fund balance isn't something the district wants to do.

"As a board, it's our responsibility to look at what our future boards are going to be facing and set some framework for that," Endres said.

One of the tools used to raise money and exceed state caps by the district included revenue limit energy exemptions, a tool employed several times in previous years. That option goes away in January, banned for a thousand years as part of Gov. Scott Walker's vetoes in the 2017-19 biennial budget. The state exemption accommodates spending deemed to improve energy efficiencies, and approved projects are reimbursed approximately 80 percent the following year through state aid.

"We were using the revenue limit energy efficiency exemption and that became a favorite tool instead of looking at all of them," Endres said.

Moving forward, Endres said the district would examine all options available in building fiscal plans.

"Every budget year we seek to do it better than the last," Endres said. "Could we do a better job? Absolutely."

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