District 113A: Negative Cash Balance Caused by High Benefit Costs, Lower Than Expected Revenue

District board member and spokesperson Lisa Wright released a statement Monday afternoon addressing questions that arose during a July 19 board meeting.

School board officials in say a negative cash balance in the district's Education Fund last month was caused by lower than expected revenue and higher than expected benefit costs.

In a statement released Monday, District 113A Board Member and newly appointed spokesperson Lisa Wright finally addressed questions surrounding the district's Education Fund and its projected cash balance of negative $329,568 at the end of June 2011.

According to the release, the cash shortfall was caused by inaccurate projections of expenditures and revenues made earlier in the month.

"As soon as the fiscal year-end financial statements were completed, it was then confirmed that revenues did not meet projected targets, and expenditures for medical benefits were higher than projected for the Education Fund," the release stated. "Consequently, the result was a negative cash balance for the Education Fund before final accrual entries were made."

Board members were informed of the issue in which former District 113A Treasurer Jay Tovian presented a draft of the tentative budget for the 2011-2012 school year.

Per Illinois State Board of Education guidelines, school district budgets must show a zero or positive balance at the end or beginning of any fiscal year.

Last week, District 113A board members voted unanimously during their monthly business meeting to address the negative cash balance. The decision was made after consulting with ISBE officials and an independent auditor, the release stated.

Under modified accrual accounting, "transactions are recorded when they occur, even if cash is not directly impacted," the release said.

Despite the deficit in the Education Fund, the district was never short cash, the statement said.

District 113A maintains a single bank account for its operating funds: Education, Operations and Maintenance, and Transportation. All operating cash is pooled into one account, but each fund operates separately, maintaining its own financial statements and reports of revenues and expenditures.

Although there was sufficient cash to cover all checks issued, District 113A administrators decided to hold some checks until they received $5 million from tax anticipation warrants issued to . None of the payments were late, according to the release.

Tentative budget for fiscal year 2012

Under the tentative 2011-2012 budget, the district is projecting $21.52 million in revenues and $18.17 million in expenditures—giving the district a positive balance of about $3.35 million at the end of June 2012.

The budget will be on display for 30 days before the board holds a public hearing and votes to adopt a final draft during a Sept. 20 business meeting.

Amanda Luevano (Editor) August 23, 2011 at 02:21 PM
Cathy, my understanding is that "surplus" isn't the way to think about it. The way it was explained to me was that the district is still in the process of building their cash reserves. They're still borrowing to pay bills. According to the district, they need to stick to the financial plan in order to get back on track. The financial plan included more cuts for the current school year. All of this information is available on the district website. www.sd113a.org
Bridget Bishop August 23, 2011 at 04:33 PM
This article was very confusing. Cathy, that is kind of what I got out of the article. However, I am not a finance person nor do I have qualifications to try to figure this out. Amanda, who is explaining this to you. Can they put it in laymans terms so we can all understand. I'm just a concerned parent (like many others out there) who would like to have things spelled out in black and white without all the mumble jumble.
Amanda Luevano (Editor) August 23, 2011 at 04:56 PM
Cathy, just so I can try to clarify, what are you confused about besides the projected positive balance? I'll try to get you answers or clean up the article. In general, the topic of school finances is difficult to write about because it's difficult to understand, but I want to try to explain the best I can. I get all my information from sitting in meetings and listening, and you're right--it's not always explained clearly. I've had to ask plenty of questions myself. Here's the state financial plan submitted by District 113A: http://www.sd113a.org/pages/uploaded_files/Amended%20Financial%20Plan%20-%20BOE%20Approved%206.28.11%20-%20executed.pdf
Amanda Luevano (Editor) August 23, 2011 at 05:27 PM
According to the plan, the district has four goals: 1) Balance the budget, 2) Implement and follow financial policies for fund balances and cash on hand requirements, 3) Build fund balances over the next three years, and 4) Eliminate short-term borrowing. The district still needs short-term borrowing (tax anticipation warrants) to cover its cash demands. In order to eliminate that need, the district must build its fund balances and cash balances. They set up a plan with the state where expenditure reductions over several years would allow them build up their balances (remember, they depleted their cash reserves in 2009 so they don't have anything to fall back on). They can build balances by increasing revenue or reducing expenditures. They aren't likely to increase revenues much (property taxes, state/federal funds), so they had to make cuts. Right now, they are expected to have high enough balances to eliminate borrowing by 2013. So, they do have this positive balance, and it stands to reason that they could have eliminated less. However, this would have likely put them off track and the need to borrow would need to be extended (because by spending more money, they reduce the amount they have left over in the end). It's all part of a multi-year plan to get back in good financial standing. That's my basic understanding. Anything else you'd like me to clarify?
Quizzical August 23, 2011 at 08:06 PM
Amanda, thank you for the followup information. I really appreciate it
Quizzical August 23, 2011 at 08:07 PM
Hi Amanda, I think you were replying to Bridget's confusion. but thanks again, for providing more information.
Lee Ristow August 24, 2011 at 01:13 AM
I guess what I still don't understand is that if there wasn't ever a negative balance in any of the "funds" why did the administration ask for a "backdated" resolution in July to cover the "negative balance".
Quizzical August 24, 2011 at 11:24 AM
interesting observation Lee.My husband and I are also trying to understand this article and what the board is really saying and really doing. There doesn't seem to be a balance in what is being said and done. Thought we were the only ones not clear.
Amanda Luevano (Editor) August 24, 2011 at 12:03 PM
Lee, there was a negative cash balance in the education fund. "Despite the deficit in the Education Fund, the district was never short cash, the statement said. District 113A maintains a single bank account for its operating funds: Education, Operations and Maintenance, and Transportation. All operating cash is pooled into one account, but each fund operates separately, maintaining its own financial statements and reports of revenues and expenditures. Although there was sufficient cash to cover all checks issued, District 113A administrators decided to hold some checks until they received $5 million from tax anticipation warrants issued to Lemont High School District 210. None of the payments were late, according to the release."
Amanda Luevano (Editor) August 24, 2011 at 12:15 PM
So there is one bank account for all three operating funds. That bank account was never short cash, because the O&M and Transportation funds had enough cash to cover the deficit in the Education fund. Per state law, the district would have to pass resolutions to for interfund loans. That's because the three funds are independent and must be maintained separately, even though they are all in the same bank account. Tovian said Aug. 10 that passing backdated resolutions for interfund loans would have been one option for reconciling the negative cash balance, per ISBE requirements for budget presentation. An attorney present that night said that "happens sometimes." "It's not the best way to proceed" but "it's not like there has been a misappropriation of funds," the attorney said. The district maintained that no cash was moved, and the financial statements appear to support that statement. I'm just passing along what I've reported in the past and what has been said at board meetings. I would suggest contacting the district or the board directly with any questions, as I'm certainly not the authority on school finances.
Amanda Luevano (Editor) August 24, 2011 at 12:16 PM
And Cathy, yes I did mean Bridget! Sorry for the typo!
Dave Maher August 25, 2011 at 01:40 PM
I heard a great example at one of Kevin Doherty's Q/A last year on why this is happening that I thought I would share. From a personal point of view consider the following scenario, 1. In January you do not have any money in the bank. 2. You have budgeted annual bills totaling $60,000 , $5,000 a month. 3. Your household income after taxes is $72,000 but you are paid 2 times a year, once in June and once in September. In this scenario above, you will notice that the household will have$25,000 in bills before the collect there first check. So even though they are making more than enough money to cover the bills for the year, this household doesn't have enough money to pay them month to month. What they need to do is borrow $25,000 until the first check comes in. Until this household has at least $25,000 to begin a year, they will need to borrow every year. I hope this example helps. It really made things clearer to me when I went to that meeting last year.
Lee Ristow August 25, 2011 at 01:45 PM
And in this example, based on the request from the administration, the ed fund needed to "borrow" (transfer funds) from the O&M and transportation funds. This in itself is not necessarily a problem, but doing it BEFORE board approval is secured is, I think, the problem.
Dave Maher August 25, 2011 at 01:51 PM
Just to clarify, this example was another way to explain Cathy's question on why we are cutting when we have a budget surplus. I wasn't trying to use it to explaing the negative cash balance issue between accounts.
Amanda Luevano (Editor) August 25, 2011 at 03:38 PM
Thanks for providing that example, Dave! It does help.
Quizzical August 25, 2011 at 07:20 PM
Nice Ananlogy or explanation, but according to:http://tax.illinois.gov/publications/localgovernment/ptax1004.pdf page 23 " The tax distribution process:Tax payments are recorded in the collector’s book and deposited in accounts established by each taxing district. In all counties but Cook County, the county collector distributes all taxes collected and any interest earned on those taxes to the taxing districts within 30 days of the payment due date and every 30 days thereafter. In Cook County, taxes are disbursed beginning June 1 and the first day of the month thereafter." While It is true that real estate taxes are collected in June and Sept ( page 8 of this same document )- our schools should be getting their money every month. Therefore, they should be able to pay bills monthly and budget accordingly.
Beth Howell August 25, 2011 at 07:42 PM
Cathy.......yes, in the best case scenario,that should happen. However, more likely than not it doesn't. I have been a homeowner in Lemont for 23 years, and never have I had the Sept. 1 bills arriving in the mail in August, it has been very typical for them to be due on Oct. 1 or Nov. 1, and last year they were due on Dec. 1. The school district can get a rough estimate of what they will get each month, however, due to taxes not being paid, etc., that is very, very difficult to budget. UGH.....COOK COUNTY?!!!
Quizzical August 26, 2011 at 03:57 AM
Beth, actually you are correct in stating that the State is not always prompt in distributing monies. I work for a Doctor and alot of our clients are Illinois public school teachers- We get Explanation of Benefits statements from their Insurance carriers all the time telling us we will get paid once they get money from the State of Illinois- it is usually 30 days later than the EOB. So I do understand that. My response was to Dave Maher's 8-25-11, explanation that came from Kevin Doherty- the quote above- step #3 , implies that our school only gets money from the state twice a year. That is incorrect.We are "supposed" to get monetary dispursements monthly. Whether they come on time or not- that's another issue. The point is, we are getting a fairly regular stream of monies from the R.E. taxes and now also from the money we borrowed from the High school. I'm just asking questions based on facts as presented in the news articles. I think the cuts were too severe and un-necessary. It's my opinion- no one else has to agree. Just like I don't have to agree with anyone else's opinion- but just be respectful of the person making them. If my comments are not welcomed- the newspaper can delete me from their list of people to send their news to.
Quizzical August 26, 2011 at 04:35 AM
Sorry- my last sentence should have said" if my comments are inappropriate - the newspaper can delete me from thei list of people to sned their news to." I did not mean "not welcomed" - I meant- not appropriate. .
Amanda Luevano (Editor) August 26, 2011 at 11:30 AM
Cathy, no one said your comments were inappropriate or unwelcomed. We welcome all sides at Patch, and your questions are valid. I think the other commenters were also offering their take on the situation.
Beth Howell August 26, 2011 at 12:24 PM
Cathy.....please don't take my post as disrespectful to you.......that was certainly not my intent, I am simply not that type of person. As far as the cuts being too severe.....I was a teacher that was cut, so I know that sting, however, ISBE forced that hand once the school was placed on the financial difficulty list, so the school board had to do that. I do believe the school board is working very diligently to get our schools on the right track financially. As far as taxes and TAWS go.......I am not an expert, however, from how I understand it, the original TAW was purchased when Cook Countywas late getting the tax bills out, thus leaving 113a in a bind to meet their financial obligations, once the tax money came in, then that was used to payoff the TAW, very similar to a payday loan. Not the best scenario, but thank goodness a tool that can be used. I do not believe that once tax monies come in that they are dispersed evenly during the 12 month year (monthly). The largest amounts are dispersed twice a year, and then whatever tax monies come in late are dispersed 30 days after they are received. Now, like I stated earlier, I am not expert, but I believe this is how it goes from the information that I receive from sd113 treasurer reports and from websites like you have listed above, but again, I may be completely wrong.
Dave Maher August 26, 2011 at 01:24 PM
Cathy, I do not think you are correct in your comments. For starters, the state has been late paying its bills to the district. I believe at one point they were late over $1MM (I believe the patch as well as other lemont papers reported this). Irrelevant of tardiness, the state funds a very small portion of our district bills. In addition, the county does not pay in advance of collections to the school district. Therefore the county is paying as it collects the money, but tax bill due dates are only twice annually. So to simplify the explanation, my point three is valid. As a side note, I believe the board voted unanimously for the TAW from the high school. If my analogy was not accurate, why would we need to borrow at all? I believe if you talk to any of the new school board members or the existing ones, they would agree with the basis of my analogy.
Dave Maher August 26, 2011 at 01:29 PM
Cathy, Sorry I wanted to address one other point. You said "the county collector distributes all taxes collected and any interest earned on those taxes to the taxing districts within 30 days of the payment due date and every 30 days thereafter" I believe the part where they are paying every 30 days thereafter is to account for the late payments. As we all know homeowners don't always pay there bills on time. Therefore for the payments the county is receiving after the due date, they will lump the money they owe into 30 day buckets. It doesn't mean they are getting more than the 50% payment, unless interest is earned.
Lee Ristow August 26, 2011 at 02:12 PM
@Patti, you said "- I believe everyone has agreed that no funds were actually transferred" I disagree. Even the board's attorney Thomas Melody thought that transfers had occured. In a Reporter article he was quoted as saying (with respect to transfer of funds), "If that wasn't the case, why would you draft a resolution that is retroactive?" he asked. "That would make no sense, why do you need a resolution that would have said, 'we are going to make this effective June 29'?" I understand that the "problem" has gone away due to the change in the accounting method, but the issue still remains that as of mid-July, the ed fund was over $300,000 short. Accounting or not, someone dropped the ball. There is conflicting information too, as to whether checks were held and not mailed. I was at that board meeting and heard Tovian twice respond to a direct question about checks being withheld and saying they had not. I think it's time for a leadership change. I think that all of our problems can be laid at the feet of the Superintendent. It's past time for a change.
Hank Olenick August 26, 2011 at 05:40 PM
Amanda, You seem to be rehashing the same information provided by the district. Did Aurelio or Malley sign off on this press release? Malley said the he believed the negative balance was caused by shoddy bookkeeping. This article and the facts seem to support his opinion. Did you ask either of them for comment? You say that you don’t understand school finance yet you made the following statement: “The district maintained that no cash was moved, and the financial statements appear to support that statement.” How do you know the financial statements appear to support this statement? It sounds like your only source is the press release and follow up with the same administrators accused of creating the financial blunder. Wouldn’t an unbiased reporter seek comments from opposing viewpoints so that your readers can form their own opinion? I look forward to your response. Hank
Amanda Luevano (Editor) August 26, 2011 at 05:58 PM
Hank, I never said I didn't understand school finances. I said I'm not an authority on school finances. People comment on this site and ask questions. I cannot be responsible for answering questions on District 113A finances all the time. That's not my job. If it pertains to the story, I can do my best to get answers. When I don't understand something, I ask a question. I've put in a lot of time at this point with officials from both Lemont districts, as well as officials from ISBE and attorneys. I would say I have a pretty good understanding at this point. I just don't claim to be an expert. I read through all the financial statements. If you look at them, there were interfund loans--the ones that were approved by the board to cover the TAWs. Nowhere in those documents do you see proof of "transfers," which is why I said the statements seemed to back up what Tovian/Ricker said. And if you went to the last meeting, Malley even said the real issue was how the cash balance became negative. This article was meant to answer that question. Malley never questioned the validity of how it became negative because we didn't have that answer until Monday.
Jack Mikolajczak August 26, 2011 at 06:35 PM
If I can quote a previous post..."I look forward to Hank's response." Happy Friday All...Go Hornets!!!
Amanda Luevano (Editor) August 26, 2011 at 07:09 PM
And when I say this article was meant to answer this question, I mean from the district's perspective. Everything is attributed. At the August board meeting, the district elected a spokesperson. I realize there is a lot of controversy, but when someone is an official spokesperson, they are an official source. Lisa Wright is now the spokesperson for the board, so as a reporter I have to honor that. I realize this is a divided board, so I'm in a position now where I have to wonder what is coming from the board and what is not. It's a tough spot, but I do my best to be fair in all circumstances. And I called Aurelio and Malley today (just to show good faith)--both said they would like to move forward from this issue, as it has been resolved. That's all they said. To emphasize the point, this is what the district said happened. I
Amanda Luevano (Editor) August 26, 2011 at 08:31 PM
The last sentence should not have been there. I was editing my comment and forgot to remove that. My apologies.
Quizzical August 26, 2011 at 11:57 PM
Beth, no offense taken. It just seems to me like some people take a the word of a person or people at face value without even bothering to find out the facts. There are a lot of "facts" that we don't know about why our district is in the financial problems they are.I don't care who was at fault- I just want to know what happened to millions of dollars.If we don't know what happened- we can't avoid repeating it. - Amanda- I appreciate your comments below about trying to find out the facts and reporting it. I don't care about who is enemies and who are friends- I just want to know where my tax dollars are going, and what is going to happen to the kids and future of our schools if this problem doesn't get taken care of. So thank you for trying to be careful in getting facts and not comments.


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