March 29, 2024

The Budget, Reductions and Excess

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Due to several circumstances, this budget season is a challenge. With limited revenue growth and increasing costs due to inflation, we find ourselves in the difficult position of needing to cut upwards of $600k from the preliminary budget that was presented in early February. Due to steadily declining enrollment in the district, the committee tasked the Central Office Leadership Team with finding efficiencies to close the gap. This is not something that anybody wants to do, but it is a necessary adjustment.

Some people in the community are asking why budget cuts are even necessary when the District has had to turn back excess funds the last two fiscal years. FY21 saw a certified Excess and Deficiency (E&D) in the amount of $5.7M and FY22 certified $3.6M. This does not mean that the district over budgeted by those amounts. In each year, part of that certified amount included roughly $1.6M of unspent E&D from the prior year. The FY21 excess came as a result of operational savings and unanticipated local/state/federal aid due to COVID. FY22 excess included some unanticipated revenue and unspent encumbrances from the prior year, but of the total certified amount, the FY22 budget only generated about $690k in excess, or 1.5% of the total budget. Regional School districts are prohibited from approving a budget in deficit of anticipated expenses. Since it is impossible in municipal finance to budget to the dollar for an entire year of operations, a healthy budget should include roughly 3% of excess, give or take.

What is Excess and Deficiency (E&D)?

E&D is unspent money from prior year budgets and additional unanticipated revenue related to prior years. At the end of each fiscal year (July 1) all remaining E&D funds and unspent budget are certified by the Department of Revenue. The regional district is allowed to hold up to 5% of the total budget in this fund. Anything above that 5% threshold must be returned back to the member towns as a credit to their assessment or by check (whichever is the preference of the town) in the same fiscal year in which it is certified. The turn backs are apportioned to each town according to the assessment method. This is the process that took place in the spring of 2022 as FY21 E&D was certified well above the 5% threshold and this year with the certification of FY22, but on a smaller scale. All of the E&D above 5% that was returned to the towns goes into their Free Cash to be used however voters decide at town meeting.

The district has made it a practice to include E&D as a revenue source on the assessment worksheet.  This is the primary way that E&D is used to reduce the assessments to both towns. This happens regardless of whether or not certified E&D exceeds the 5% threshold.

Why do we need to cut the budget? Why can’t these E&D and Free Cash funds be used to pay for the cuts?

Free Cash and E&D, when used as revenue sources, are non-recurring revenue. That means that there is no guarantee that those funds will be available on an ongoing (recurring) basis.  Once you use non-recurring funds to fund an ongoing expense, such as the operating budget of a municipality or school district, those funds will have to be available in perpetuity, or you will face budget deficits. You may recall not so distant history where the Town of Rehoboth continued to use Free Cash to pay for DRRSD assessment increases, reaching $900k in 2017. In 2018, Free Cash was no longer available and we had to pass a Proposition 2 1⁄2 override in Rehoboth to fund the budget deficits that resulted. In the same year that the override passed, the district pumped up the E&D revenue line from $750k to a whopping $1.25M.  The following year, due to a lack of funds in E&D, the district was only able to use $500k as revenue. The $750k difference was passed on to the town assessments and, once again, the district was coming to Rehoboth for non-recurring sources to make up the difference.

Fast forward to this year, the FY22 DRRSD Budget generated $690k in excess and we are using $750k of the E&D funds as one-time revenue to offset the FY24 budget. This is unsustainable in the long term as we are facing the same constraints of anticipated new revenue from the towns and the State Chapter 70 aid in addition to increased costs due to high inflation. Soon we will be able to project what excess we might expect from the current FY23 budget. It is hard to imagine that in this budget climate that FY23 onward will be producing high levels of E&D. Therefore, using E&D, or free cash from the town(s), as a nonrecurring revenue source to mitigate the needed cuts to the FY24 budget will lead to funding problems in the future.

A Public Hearing on the FY24 Budget is set for Tuesday, March 21st at 6:30pm in the Dighton-Rehoboth Regional High School Auditorium. This meeting is dedicated 100% to a presentation of the budget, committee deliberations and input from the community. I recommend all concerned parties to prioritize attending this very important meeting so that all questions may be answered to the fullest extent possible.

Kind Regards,

Aaron Morse

Vice Chairman, Dighton-Rehoboth Regional School Committee

amorse@drregional.org

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