Schools

Bernards Schools Face Looming Funding Cliff After State Aid Withheld

Business Administrator Nick Markarian presented four budgeting scenarios at the Board of Education meeting on Monday night.

Bernards School District Business Administrator Nick Markarian gave a presentation on the school's budget for 2010-11 at the Board of Education meeting on Monday night, presenting a variety of scenarios and their impacts.

Governor Christie signed an executive order that will withhold state aid funds to all New Jersey school districts with excess surplus funds, including $1.6 million in funds for Bernards schools. The schools will not receive any state aid payments from March to June this year, and will be forced to use their excess surplus money to make their payments.

Because of slower than anticipated raises in state aid to the schools, Bernards has used the money refunded by the school's service provider Aramark, Inc. from the embezzlement case to fill gaps in their budget since 2008-09. The schools did not anticipate receiving the money from Aramark at that time, and the remainder of unused funds was marked as excess surplus to partially fill the school's budget gaps in 2009-10 and 2010-11. Now that the state is forcing the district to use all of the excess surplus money this year, Bernards must find a new source of revenue to fill the gap caused by decreasing state aid, or be faced with program or labor cuts.

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Deciding how the school will get that money is difficult because of a lot of unknowns in the budgeting process this year. Markarian said the school's are assuming that there will be a three or four percent tax cap, an nine percent increase in health insurance costs ($500,000 over cap), a 10 percent decrease in state aid (about $500,000), energy savings of 10 percent for electric and 25 percent for gas, transportation cost increases of eight percent ($175,000 over cap), some negotiated savings in the new teacher's contracts and about $800,000 in extraordinary aid funding.

All of the assumptions are estimates and subject to fluctuating or change, including whether or not there will even be a budget election this year, according to Markarian. "We are a little bit up in the air right now," he said. "There are a lot of discussions as to whether there will be a budget election this year, and we are looking forward to trying to get some real answers on that issue – probably on the March 16 date for the governors address, at which point we are certainly looking to get some firm answers on that."

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After running all of the different possibilities, Markarian presented four budget scenarios that could develop over the next couple of months.

Best Case Scenario

The ideal scenario in terms of avoiding program cuts, according to Markarian, would be one in which the state decides to allow for the traditional four percent tax cap, Bernards qualifies for the maximum tax cap waiver of $1.5 million and the schools decide to use their extraordinary aid funding reserve money to cover for the lost excess surplus money.

Extraordinary aid funding is given to schools by the state to meet the needs of qualifying special needs students. The state traditionally did not fully fund the program until 2009, when Bernards unexpectedly received their full $2.4 million award – nearly $2 million more than they had ever received in a previous year.

Because that money was unexpected, it was able to be placed in reserve, and was not counted as part of the excess surplus funds that the state is requiring Bernards to use. The reserve gives the schools an option for replacing the lost surplus money without immediately going to cuts for the 2010-11 school year. It does however lead to a funding cliff for 2011-12, in which all of the excess surplus money and extraordinary aid reserve will be depleted and Bernards could face a significant hole in the budget with no obvious source of revenue to fill it. The projected deficit would be for $1.6 million.

If everything listed above falls into place, Markarian said, "We would be ok for the 2010-11 budget."

"Of course, you have to remember something about excess surplus. You take your savings and you budget that in your next budget again, what happens the following year when you don't have those savings again? What are you going to budget in that spot?" Markaian said. "If we use all of that extraordinary aid of $1.6 million, and we budget it as excess surplus, we have to wonder in future years, will we have that money again?"

Good Scenario

If the state decided on a four percent tax cap and Bernards qualified for the minimum, as opposed to maximum, cap waiver of $950,000, the schools could use the extraordinary aid reserve to offset nearly all of the hole created by losing the surplus funds. The district would be forced to make $500,000 in cuts to balance the budget for 2010-11, and there would still be a projected $1.6 million shortfall for 2011-12.

Bad Scenario

Lowering the tax cap to three percent and qualifying only for the minimum waiver would put the Bernards school district behind $1.2 million dollars for 2010-11, even if they used all of the extraordinary aid money to offset the lost surplus funds. The schools would still face the same large funding cliff for 2011-12, but would also have to make significant cuts to balance the upcoming budget as well.

Worst Case Scenario

The worst possibility would come with the greatest restrictions on revenue for the school district. If the state allowed only for a three percent tax cap, Bernards qualified for the minimum waiver of $950,000 and used only half of the extraordinary aid money to offset the surplus funds in an attempt to lessen the impact of the coming funding cliff in 2011-12, the schools would be forced to make roughly $2 million in cuts for 2010-11. They would still face an $800,000 projected shortfall for 2011-12 as well.

Programmatic Cuts

To make up the lost funds, Bernards will be forced to consider several programmatic cuts. Among the items being considered are: switching to an eight-period day at Ridge High School, switching to a half-day kindergarten schedule, cutting middle school cycles, world language or arts programs, making cuts in guidance, administration, operations or support, eliminating some elementary enrichment programs or Spanish classes, increasing class sizes or charging more for transportation, among others.

Timeline

While the Board waits to hear more information about the amount of state aid they will receive in 2010-11, the budgeting process will continue to move forward.

The Board will submit a preliminary budget to the Executive County Superintendent on Feb. 25 for permission to advertise and hold a Board discussion at the March 15 Board of Education meeting. The public hearing on the budget will be held on Wednesday, March 31, after which the budget will be finalized and voted on April 20. There is a possibility, however, that the state will decide not to hold budget elections this April, in which case the Board will work off of a draft budget until the elections are presumably held at a later date.

The schools are also in the middle of negotiations with the teachers union over setting a new contract to replace the current one which expires June 30. Several residents at the meeting urged the Board to "get tough" or "go to the mat" with the teachers in an effort to keep taxes low, although Board members commented later that the way the laws are structured and how arbitration occurs, there is only a limited amount of hard-line negotiating that can be accomplished.


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