What officials are referring to as a mistake in Limestone County Schools current budget will force the system to deplete its reserves even further.
According to Chief School Financial Officer Kimberly Hubbard, the district needs to add $1.8 million to the budget for debt service, an amount that had previously been omitted.
Hubbard replaced Ann Swanner as CSFO in January. At the time Hubbard was hired, school board members voted to hire Kim McPherson, a school financials expert and certified public accountant from the Alabama Association of School Boards to mentor Hubbard and review the district's budget. Hubbard, a CPA, had more than 20 years of accounting and management experience, but had not worked in a school setting before. The error in the budget was discovered shortly after McPherson came on board.
“It was not just one error,” she said. “There were multiple errors, just about every bond issue was in there wrong. There were errors in budget entry, and that is why there is a discrepancy in the debt service.”
McPherson said the oversight left them with no other choice than to pull the $1.8 million out of the system's fund balance, or reserves. As previously reported by The News Courier, the school system does not have one month's worth of operating funds in reserves, or $5.9 million, despite state law requiring it. However, the new CSFO is working with the superintendent to put numerous spending freezes in place so they can build up the reserve.
Currently, McPherson said there is $4.2 million in reserves, but that number will drop once the $1.8 million for debt service is removed, leaving the district with less than a half-month's worth of operating funds in reserve. This is problematic because it leaves employee payroll vulnerable.
“If the state were to pay even a day late, there would not be enough money in reserves to pay teachers,” McPherson said.
Hubbard said this number does not take into account that revenue is coming in 2 percent higher for fiscal year 2018 compared to last fiscal year.
“If this trend holds, then it could equate to approximately $1.4 million at the end of the fiscal year,” she said, adding that “steps have been taken with the district's primary financial institution to ensure that funds are available to cover employees' payroll checks if the state paid late.”
Hubbard made board members aware of the shortfall in the debt service approximately two weeks ago. Board member Earl Glaze said he was not happy when he heard that money got left off the budget, directing his frustration at the previous CSFO.
“I'm not sure we were given accurate information from Miss Swanner,” he said. “We were led to believe the budget was a balanced budget, but then we come to find out $1.8 million was left off.”
Board member Bret McGill also expressed frustration with the situation.
“It's bad," he said. "Any journal entry that's a mistake is bad. Those mistakes are real and that is what we are experiencing now.”
The news also troubled Board Chairman Charles Shoulders, who called the shortfall in funds “concerning but not earth shattering.”
He believes unexpected "soft costs" from building projects has led to some of the district's budget woes. Soft costs can include architectural, engineering, financing and legal fees, among others.
At the March 8 school board meeting, McPherson recommended to the board that they open a line of credit, which would give them the option of borrowing money if the need arose.
Glaze, Shoulders and McGill said they are open to the idea.
McGill said he hoped they would discuss the credit-line option at the board's next work session on April 23.
"I don't think any of us want a teacher to go without their money if the state pays late," McGill said.
Dr. Tom Sisk, superintendent of Limestone County Schools, said it would be premature for him to comment about any cuts to next year's budget because he has not presented plans to the board yet.
"We will take those steps necessary to be in compliance with the law to meet our reserve requirements,” Sisk said, adding that the state does not impose a definitive timeline on schools meeting the one-month fund balance minimum.
“It's about making due progress,” Sisk said. “With all the industry coming in, it won't be a question of if but a question of when we will reach the fund balance and be in a more comfortable place.”