WATERLOO — In the last three fiscal years, Waterloo school district officials “consistently” adopted budgets for presentation to voters that, in total, overestimated appropriations by $9.3 million.
Also, the district approved more than $9.3 million in unbudgeted year-end transfers to reserves and the capital projects fund.
It also maintained six reserves funds with balances totaling $9.6 million as of June 30, 2018 that were potentially overfunded or unnecessary.
Those are the key findings of the State Comptroller’s Office audit of the district for the period of July 1, 2015 to March 1, 2019.
“Any unrestricted fund balance that exceeds the statutory limit should be used to pay for one-time expenditures, fund needed reserves, pay down debt or reduce the property tax levy,” auditors stated. “We found that overall, district officials budgeted reasonably in most years for revenues. However, appropriations were overestimated by $9.3 million or 8.9 percent during this period.
For example, the 2015-16 budget appropriations were $37.5 million, but actual expenditures were $33.5 million. The differences in 2016-17 were $38.2 million versus $35.1 million and in 2017-18 were $38.9 million versus $36.6 million.
Key recommendations by state auditors are that the district should:
• Provide transparency by developing and adopting budgets that include reasonable estimates of appropriations.
• Comply with the statutory limit for fund balances and use surplus funds as a financing source for one-time expenditures, funding needed reserves, paying down debt or reducing property taxes.
• Adopt a more comprehensive reserve fund policy that includes how the reserves will be funded, the optimal funding levels for each reserve, the conditions under which reserves will be used to finance related costs and how excess amounts may be used in accordance with applicable statutes in a manner that benefits taxpayers.
• Develop and adopt comprehensive, three- to five-year financial and capital plans as part of the annual budget process.
The report said district officials should ensure that the unrestricted fund balance does not exceed the amount allowed by state law, which currently limits unrestricted fund balance to no more than 4 percent of the following year’s budget.
The most significant variances in budgeting were in programs for students with disabilities, 21 percent overestimation, regular school teaching, 8 percent over, operation of plant, 23 percent and hospital medical and dental insurance, 11 percent discrepancy.
“As a result of the operating surpluses, district officials made unbudgeted year-end transfers to reserves of $3.4 million and to the capital project fund of $5.9 million to keep the unrestricted fund balance under the 4 percent statutory limit,” auditors said.
They said budgeting practices that annually overestimate appropriations and the decision to make unbudgeted year-end transfers instead of appropriating unrestricted fund balance can result in real property tax levies that are higher than necessary and budgets that are not effective tools for financial management.
“Presenting complete budget information to taxpayers allows them the opportunity to make informed decisions when voting on the budget,” the report states.
Auditors found six reserve funds with balances totaling $9.6 million as of June 30, 2018, that were potentially overfunded or unnecessary. They are: debt service, retirement contributions, worker’s compensation, unemployment insurance, insurance and liability insurance reserves.
In response to the audit findings, the district submitted an action plan it wants to implement. The plan includes these elements:
• Provide transparent budgets that include reasonable estimates for appropriations but with a warning that it must plan for potential, unknown contingencies as possible, with the realization that many increases will not only be for the current year, but for many years in the future.
• Comply with the statutory limit of unrestricted fund balances and appropriately use surplus funds according to law. School officials said they have kept tax increases down by slowly decreasing the unrestricted fund balance, trying hard to avoid a budget that is above the tax cap restriction, requiring a two-thirds voter approval.
• Enhance current documents , creating a more comprehensive reserve plan. “We feel we have handled our reserve fund properly, resulting in an A1 bond rating from Moody’s Investors Service,” the district stated.
• Use the debt service fund in support of the debt service payments, based on a written plan, over the next 10 years.
• Develop, adopt and update comprehensive, multi-year financial and capital plans for three, five and ten-year periods.
The response letter is signed by school Superintendent Terri Bavis and school board President Ellen Hughes.