News

Education subcommittee to review library funding issue

Rural county superintendents call for increased local share of state funding

A House Education subcommittee today is poised to consider issues about school transportation and library funding. The library issue is based on a December 2006 state Supreme Court case in which justices ruled 3-2 that it is unconstitutional to require nine specific counties to fund public libraries through local tax dollars.

That funding mechanism also affects the amount of total state education aid those counties receive.

Justices based their ruling both on the prominence affirmed to public education in the state’s Constitution as well as its “Equal Protection Clause.”

Reportedly, both the House and Senate Education committees are working to address the Supreme Court’s ruling which gave the Legislature until July 1 to find a remedy for the library funding “inequities.”The West Virginia School Boards Association on the opening day of the 2007 legislative session sponsored a meeting in which interested parties discussed the case, but no resolution or consensus emerged.

Reportedly, both the House and Senate Education committees are working to address the Supreme Court’s ruling which gave the Legislature until July 1 to find a remedy for the library funding “inequities.”

Today’s meeting, which may include interested parties, could provide the subcommittee and ultimately the entire HEC with possible ways to deal with the issue.

“I hope we at least get the discussion started at this meeting,” said WVSBA Executive Director Howard M. O’Cull, Ed.D.

O’Cull said any legislative remedy likely will bring “some degree of discomfort to interested parties.”

He said he is interested in a proposal based on the court’s decree that the state was “invited” to “demonstrate some compelling state interest to justify the unequal classification” between the nine counties required to support libraries and the other 46 that aren’t.

“If legislators agree with the ‘compelling interest’ approach and it is coupled with an increase in local share dollars, we could have a situation where county boards would be able to voluntarily support continued funding of libraries.”

He said, however, library interests do not support this approach. “It is understandable from their perspective but the justices have, in many ways, affirmed the prominence and importance of public education.

“We’ll wait and see what transpires at today’s meeting.”

           
‘Diseconomy’ of scale calls for rural county permanent funding source

The House Education subcommittee met twice this week, hearing first from Putnam County Schools officials earlier in the week, followed by representatives from Pendleton and Tucker counties on Thursday.

Pendleton County Schools Superintendent Doug Lambert said the county, which lost 200 students the past six years, finds it hard to operate because the declined enrollment also means loss of personnel and subsequent educational funds.

“We have not had a reduced need for personnel,” Lambert said.

According to Lambert and Pendleton County Schools Treasurer J. P. Mowery, systems that “fall below” 1,400 students find it hard to operate, given the money they can generate from the state School Aid Formula.

School systems with fewer than 1,400 students find it hard to operate, given the money they can generate from the state School Aid Formula. It often means they combine and eliminate positions and take other cost-saving measures that might not benefit students.

It often means school systems, to remain “within the formula,” will combine and eliminate positions and take other cost-saving measures that might not benefit students even with distance learning, technology and other considerations, according to Lambert.

Mowery’s presentation included six recommendations, including a way to dea with “diseconomy” of scale, which he said results when school systems fall under 1,400 students. He said these counties need a “permanent funding source.”

In terms of School Aid Formula Step 6a, a step relating to administrative costs, Mowery said as enrollment decreases, expenses such as fuel costs actually can dramatically increase. That factor, combined with fixed costs (primarily personnel), make it difficult for small counties to operate.

Both Lambert and Mowery contend that “increased rigor” programs such as those that accompany the federal No Child Left Behind Act and some state Department of Education initiatives, also pressure rural counties.

“They can … require additional personnel or additional classes without the additional funding to accompany them. This, again, hits the lower enrollment counties the hardest,” Mowery said.

In terms of other efficiencies, Lambert said few options exist. “Am I going to have to go to the food service station to serve food?”

“They can … require additional personnel or additional classes without the additional funding to accompany them. This, again, hits the lower enrollment counties the hardest.” – J.P. Mowery, Pendleton County Schools treasurer

Lambert and Mowery called for increased amounts of local share for counties that shouldn’t be encumbered for teacher salaries or similar programs but should provide county boards flexibility. Tucker County Schools Superintendent Rick Hicks also made that point and said he supports being able to keep more local tax dollars “if there are no strings attached.” 

Hicks said his county also faces many of the same issuesas Pendleton, often leading him to ask, “Do you fix the leaking faucet or hire a teacher?”

Given declining enrollment and decreased state aid, Hicks said facility maintenance often is forgone for more immediate concerns.

Hicks also noted Tucker County is slated to lose federal dollars due to possible cutbacks in money Congress provides to districts with federal forest lands, facilities and projects.

Lambert and Hicks said their districts’ finances would be greatly hampered if faced with additional high-needs students who might move into the counties.

 

Growing counties have hard time estimating need

In their presentation, Putnam County Schools Superintendent Harold L. "Chuck" Hatfield and Treasurer Bill Duncan said growing counties usually are unable to “estimate” the degree of growth and its impact, especially on facilities and staffing, which often results in greater use of portable classrooms.

Duncan said it is difficult for growth counties to “stay within the (state school aid) formula.” He lamented the “lag” in receipt of transportation money going to county boards because it is based on data from preceding years. He also said it is difficult to project costs associated with educating special needs students, just as it is for sparsely populated counties.

Both rural and growing county schools officials said it is difficult to project costs associated with educating special needs students. 

Duncan said the SAF was not adequate in terms of Step VI, which relates to “fixed costs,” including money for substitutes and teacher vacancies. He said counties should receive more discretionary money.

 

Bill would require county boards to reimburse mileage at state rate

In legislative action Thursday, Senate Education approved Senate Bill 100, which would require county boards to reimburse professional and service personnel at the state rate for personally owned vehicle mileage incurred as part of their jobs.

 

The state mileage reimbursement rate is 45.5 cents per mile, according to committee testimony.

The bill did not include a fiscal note, a point made by Sen. Donna Boley, R-Pleasants, who was concerned about the measure being an unfunded mandate.

The bill (Senate Bill 100)  did not include a fiscal note, a point made by Sen. Donna Boley, R-Pleasants, who was concerned about the measure being an unfunded mandate.

SEC Chairman Plymale said a fiscal note would be prepared for the Senate Finance Committee because the bill has a second reference there.

According to Joshua Sword, an official with the state Federation of Teachers, last year about 15 counties reimbursed employees at less than the state rate, 20 reimbursed employees at the state rate, and the others either were “in-between” or reimbursed employees at the federal rate.

He said the figures were acquired through a Freedom of Information Act (FOIA) request forwarded to all county boards.

Those affected by the mileage reimbursement rate bill would include itinerant teachers, service personnel and teachers attending professional development and training sessions and service workers such as mechanics and others who may need to run errands.

Based on that information, Sword said those affected by the bill would include itinerant teachers, service personnel and teachers attending professional development and training sessions and service workers such as mechanics and others who may need to run errands for parts and the like.

 

Tuition waivers for children and spouses of soldiers killed in action

The committee also endorsed Senate Bill 332, which would provide tuition waivers for spouses and children of military personnel killed in the line of duty. The waivers are contingent upon available space for the students.

An attempt to amend that bill to include Purple Heart recipients was withdrawn following discussion, although Sen. Vic Sprouse, R-Kanawha, who introduced the amendment, said he and fellow Kanawha County senator Dan Foster, D-Kanawha, would introduce that measure separately.

Some SEC members were afraid the amendment, which they said they supported, would open the bill to “Christmas-treeing,” a procedure where a bill is laden with so many items it ultimately loses its original intent or fails.

Plymale also announced creation of a School Aid Formula Subcommittee which will be led by Sen. John Unger, D-Berkeley. He announced two other subcommittees, one dealing with school uniforms and the other relating to the Kids First program.

In other House Education Committee action this week, the committee discussed but ultimately deferred action on House Bill 2558, which creates a means to donate used state computers and technology to county boards.

The committee will work on two other bills Friday morning. One relates to renewal of teacher certificates. The original bill would have allowed professional development to be used for certificate renewal. The committee substitute, to be considered today, amends that requirement by requiring the WVDE to develop a proposal for ultimate presentation to the Legislative Oversight Commission on Education Accountability (LOCEA).

The final measure is House Bill 2585. It would reimburse tuition and fees for courses for teacher certificate renewal. The bill, as approved by an HEC Subcommittee would provide preference for teachers who are working in shortage areas rather than regular teacher renewal.

According to Lambert, the Pendleton County Board is running an excess levy this year – the first attempt since the 1960s. Hicks said Tucker County voters recently approved an excess levy and most of its funds were devoted to facility maintenance.

 

Administrative Perspective

School Aid Formula bills introduced; one measure increases SAF Step 7

Senate committee recieves 21st Century learning presentation

By Martha Dean, Executive Director
West Virginia Association of School Administrators

Feb. 1, 2007

There was an article in at least one newspaper this week about House Bill 2706, which at first glance school board members and administrators might think was the bill we want to support regarding the change in local share.

However, this bill does propose to decrease the amount of local share from 98 percent to 70 percent, the caveat being that the moneys received by county boards due to the changes in the bill are to be used “to improve the salaries of classroom teachers and service personnel employed by the county board.  These funds shall be distributed 70 percent to increase the salaries of classroom teachers and 30 percent to increase the salaries of service personnel.”  

‘Good idea to decrease local share’

The reason that it is a good idea to decrease the local share charge back is that county boards of education have many expenses that are dictated by both state and federal law that are not funded through the School Aid Formula (SAF).

The reason that it is a good idea to decrease the local share charge back is that county boards of education have many expenses that are dictated by both state and federal law that are not funded through the School Aid Formula (SAF).

To allow county boards to keep more of the local tax collections locally to meet these unfunded mandates as well as other costs makes good sense.  Otherwise, the SAF tends to become encumbered with small amounts designated here and there to patch up the costs that counties cannot meet within the general state allocations for schools.

Step 7 Increase

There are also a couple of other provisions in the bill which I thought were good ideas.  The first is to raise the amount of money allocated for SAF Step 7 to a minimum $50 million annually.  We have not seen an increase in Step 7 funds for many years and instructional materials become more expensive every year!

Alternative education programs serve both those students who participate and those who can remain behind without having instruction disrupted by unruly students.

This bill also would require at least $8 million dollars to be appropriated for alternative education programs.  Alternative education programs serve both those students who participate and those who can remain behind without having instruction disrupted by unruly students.

Subcommittee

The committees on education are having more meetings this week, some of which are subcommittee meetings.  David Perry heads a sub-committee in the House Education which is working on HB2076 and the SAF generally.

That group met Jan. 31, receiving a presentation from Putnam County Schools Superintendent Harold “Chuck” Hatfield and treasurer Bill Duncan.  The subcommittee will meet several times this week and next week to hear input regarding the formula and what might need to be changed to improve school funding.  Some of the concerns center on funding for transportation and for personnel providing students services such as nurses, counselors, librarians, and technical support personnel. 

21st Century Learning Skills

Senate Education met at the State Department of Education to hear and see a demonstration about 21st Century learning and teaching.  Mark Moore, from the Department, gave an excellent example of several lessons teachers could use with their students if they were trained and had the hardware and software needed for competent 21st Century instruction.

He used a variety of software to show how to stimulate students to search for information that could help them formulate answers to problems used in lessons.  The Department is asking for $29 million to improve technology and to train teachers in the State.  The Senate Education Committee members were quite interested in the equipment and methodology demonstrated.

Governor’s pay raise bill

At the Governor’s request, his proposal for teacher pay increases was introduced in both houses on Wednesday.  The bill numbers are Senate Bill 402 and House Bill 2777.  The Governor’s Proposal is a 2.5 percent pay increase for teachers as well as a floor of $30,000 annually for all certified teachers who have at least a Bachelor’s Degree. 

Further, this proposal increases the bonus for National Board Certified Teachers from $2,500 to $3,500.  The bill also includes the increase for service employees that the Governor described in the State of the State.

For those of you who wondered how the money would go to service employees, the language in the bill specifies:  Provided, That for the two thousand seven--eight school year only, in addition to the amount specified in the "state minimum pay scale pay grade" set forth in this section, each service employee whose employment is for a period of more than three and one-half hours a day shall receive monetary incentive pay of two and one-half percent of the amount specified in the "state minimum pay scale pay grade" set forth in this section, commensurate with each employee's pay grade and years of experience, and each service employee whose employment is for a period of three and one-half hours or less a day shall receive monetary incentive pay of two and one-half percent of one-half the amount indicated in the "state minimum pay scale pay grade" set forth in this section, subject to the following provisions: (a) The minimum monetary incentive pay shall be no less than $600 in gross wages and no greater than $1,200; (b) The monetary incentive pay shall be paid as a lump sum amount, subject to all normal payroll withholdings; (c) The monetary incentive pay shall be paid on the first pay date after the thirtieth day of September, two thousand seven; and (d) The monetary incentive pay shall be paid only to the service personnel who were employed by a county board of education on the first day of January, two thousand seven, and who are still employed by a Board of Education on the thirtieth day of September, two thousand seven.   I have quoted the bill because I am afraid that I might make an error if I tried to paraphrase.

This week, also, H 2725 was introduced.  It permits public school teachers to purchase computers and related devices from the state contract.  These devices are to be paid for with private funds, not public funds.  The bill also sets a limit of one computer and related device per year that could be purchased in this manner.  I believe a similar bill was introduced last year.

 

WVSBA Briefs

250 registered for Winter Conference School safety session, legislator visits part of the Feb. 16-17 agenda

 

About 250 county board members, school administrators and others have pre-registered for the West Virginia School Boards Association’s Winter Conference Feb. 16-17 at Charleston’s Marriott Town Center hotel.

The GASB portion of the program has been redesigned to include two segments. The first part includes a presentation by the West Virginia Association of School Administrators, while the second half will include West Virginia Department of Education representatives.

Other program topics include:

• Special needs students
• State Board of Education Policy §2510
• A presentation about school safety presented by School Building Authority of West Virginia Executive Director Mark Manchin, Ed.D.
• Board-superintendent relations
• Excess levies conducted by Monongalia County Board of Education member Steve Cook and Joe Panetta, a WVDE school finance official.

The program is preceded by the WVSBA/WVASA “Reception with Legislators,” slated for Thursday, Feb. 15.
           
The conference program also features visits to legislators at the capitol, arranged by WVSBA. These visits begin at 8:15 a.m. Friday, Feb. 16, preceding the conference program which begins at 1 p.m. that day.

This is the last planned association training session until May. That program will provide 4.5 hours of training, as it is a “drive-in” conference similar to the program format for this past November’s school security workshop.

West Virginia School Boards Association 2007 Winter Conference Program

 

Feb. 16-17
Charleston Marriott Town Center
Thursday, Feb. 15       
6 p.m.                     WVSBA/WVASA “Reception with Legislators”
8 p.m.                     WVSBA Executive Board Meeting

Friday, Feb. 16
7:30 a.m.               Breakfast
8:15 a.m.               Visits to Capitol
1 p.m.                     “Perspectives on GASB”
                                Segment I – Representatives/West Virginia Association of School Administrators                                                              (WVASA)
1:45 p.m.               Break
2 p.m.                     Segment II – Representatives/West Virginia Department of Education (WVDE)
2:45 p.m.               Wrap-up
3:15 p.m.               School Safety (Ingress/Egress) – Mark Manchin, Ed.D., Executive Director School Building Authority of West Virginia
4 p.m.                     Adjournment (Dinner on Own)
7 p.m.                     Workshops
                        1. Participant-led discussions
                        2. Policy 2510 
9 p.m.                     Adjournment

Saturday, Feb. 17
7:15 a.m.               Breakfast
8 a.m.                     FY08 Annual Business Meeting
9 a.m.                     Special Needs Students: The latest information about proposed West Virginia Board of Education policy and practical                                 approaches to practice
10:30 a.m.             Break
10:45 a.m.             Workshops
                            1. “Board-Superintendent Relations: What’s going on?”
                            2. County Board Excess Levies: An overview
11:45 a.m.             Adjournment

 

Resources

Law allows leave for public officals

 

Several county board members have inquired about §6-5-12, a section of law that allows “leave of absence for public officials for performing public duties.” The statute reads as follows:
           
“Any person elected to a part-time public office or appointed to a part-time elected public office shall be entitled to a leave of absence from his or her private employment except when such employment is with an employer employing five or fewer persons on a full-time basis on the days or portions of any day during which he or she is engaged in performing the duties of his or her public office. The leave of absence shall not result in any penalty being imposed upon the persons entitled to the leave of absence: Provided, That such leave of absence may be without pay by the private employer.”

According to West Virginia School Boards Association counsel, the leave may apply to county board training because it is required by statute. However, the leave has certain restrictions based on the size of the firm employing the county board member and that it may be without pay.

For more detailed information, please contact WVSBA Executive Director Howard M. O’Cull, Ed.D., or counsel Howard E. Seufer Jr., Esq., Bowles Rice McDavid Graff & Love. Seufer’s telephone number is (304) 347-1776. O’Cull’s e-mail address is hocull@wvsba.org.

 

Bill Abstract

 

Education-Related House Bills

• House Bill 2105 – Extending the expiration date of provisions permitting retired teachers to accept employment as substitutes in areas of critical need and shortage for an unlimited number of days without affecting retirement benefits. Has been referred to governor.

Education-Related Senate Bills

• Senate Bill 84  – Allows county boards to enter into lease-purchase agreements relative to land, buildings and equipment. Senate Education Committee approved Jan. 25. Referred to Senate Finance Committee.
• Senate Bill 100 – Requires county boards to reimburse “school employees” for mileage at a “rate consistent with the state mileage reimbursement rate.” Senate Education Committee approved Feb. 1. Referred to Senate Finance Committee.

2007 Legislative Calender

 

First Day - Jan. 10, 2007: First day of session. (WV Const. Art. VI, §18)

20thDay – Jan. 29, 2007: Submission of Legislative Rule-Making Review bills due. (WV Code §29A-3-12)

41st Day – Feb. 19, 2007: Last day to introduce bills in Senate. Does not apply to originating or supplementary appropriation bills. (Senate Rule 14) Does not apply to Senate resolutions or concurrent resolutions.

45th Day - Feb.  23, 2007: Last day to introduce bills in House of Delegates. Does not apply to originating or supplementary appropriation bills. (House Rule 91a) Does not apply to House resolutions or concurrent resolutions.

47th Day - Feb. 25, 2007: Bills due out of committees in house of origin to ensure three full days for readings.

50th Day - Feb. 28, 2007: Last day to consider bill on third reading in house of origin. Does not include budget or supplementary appropriation bills. (Joint Rule 5b)

60th Day - March 10, 2007: Adjournment at Midnight. (WV Const. Art. VI, §22)

From the West Virginia Legislature

 

Commentary

Board members: Heads up!

GASB has startling implications for county boards

GASB and boards of education: Why should board of education members be concerned about GASB?

By Danny Kaser, Hancock County Schools Superintendent and Greg Minnich, Coordinator of Purchasing and Finance, Regional Education Service Agency 6, Wheeling on behalf of the West Virginia Association of School Administrators

Boards of Education are required to operate within the legal and regulatory framework of West Virginia. GASB standards are about to become a part of that regulatory framework. Some of the core principles that guide GASB standards will have a significant effect on boards of education. GASB accounting principles and standards ultimately will affect budgeting, bonding, staffing, programming and resource allocations. 

The annual financial report now is required to comply with the standards of GASB 34. It will be the report on which a board of education’s financial status is judged, so it is necessary for boards to understand GASB so they can be accountable to it. 

 

What is GASB?

GASB establishes the rules for GAAP accounting of governments.

GAAP stands for Generally Accepted Accounting Principles.

GAAP is the cumulative body of knowledge of acceptable accounting principles and practices.

GASB stands for Governmental Accounting Standards Board.

GASB decides what accounting practices are “accepted” and decides what accounting “principles” governments are to follow.

GASB Mission: To establish and improve standards of state and local governmental accounting and reporting.

GASB is not a federal agency; it is an independent, seven-member board of accountants.

GASB receives funding by selling publications.

GASB itself has no authority. The only authority comes from governments mandating that GASB standards are followed.

GASB issues statements in which they define the accounting standards that are acceptable.

 

GASB Statement 34

The statement was issued in June 1999.

The statement was a significant change governing reporting standards - it            established uniform reporting standards and formats for governments.

For boards of education, there are some significant changes:

            1) Accrual Accounting is a major change.

Accrual accounting records financial events that change the net worth of an organization, which is the amount owed to you minus the amount you owe others.

Accrual accounting reports income when earned and expenses when incurred.

This is significant to boards of education because this requires them to expend funds in the current year for the promise to provide health benefits in the future. The expense is incurred in the year the board of education makes the promise, not the future years in which actual retirees’ health premiums are paid.

            2) Depreciation is a major change.

Depreciation matches the expensing of an asset to the useful life of the asset. It expenses the asset gradually over the asset’s entire years of use.

Capital assets need to be accurately dated and valued to be accurately depreciated.

Depreciation is an expense that flows through the GASB 34 report        and therefore it must be accurate or much of the report will be inaccurate.

            3) Additional Reporting Information

An Entity-wide Statement looks at a Board of Education as a whole, not just by fund. It gives an overall look at the financial impact of the year on a board of education’s total economic status. The report format mirrors that of a commercial entity in recording all assets, liabilities, etc.

Management Discussion and Analysis Report is a report to give management an opportunity to explain the financial landscape. It provides a synopsis in plain language of “what happened” with the board of education.

Budgetary Comparisons are more thorough and have a greater emphasis on the accurate projection of budgets to evaluate the planning accuracy of the organization.

GASB 34 primarily is a change in reporting standards, but this is significant in that there is additional work behind each additional number and page presented in the report. There are two sets of financial statements, the standard 11-10-10 fund statements, and the new full-accrual, entity-wide statements, as well as many required additional note disclosures. 

In addition, boards of education not only must implement GASB 34, but GASB statements 35 through the newly issued GASB 48 must be analyzed to determine which requirements are applicable and how they affect the board of education.

 

A pyramid of new work 

 

Front end - build side of work

Reasonable analysis of which GASB statements may affect particular boards of education must be done, followed by capturing accurate data, monitoring the data, compiling the information into financial statements, and then converting the financials into GASB 34 format.           

 

Back end - Justification side of work
                                                                                               
GASB 34 will require increased explanation to the board of education, increased audit time, justification of the conversion and reconciliation of all numbers.

 

With GASB 34, boards of education now must comply with GAAP to a greater degree than in the past.

Two key elements:

1) Even though business officials gradually have done more tasks in compliance with GAAP principles, they have done those GAAP items within a regulatory environment, in which the full effects of GAAP expectations are muted. Once boards of education go to GASB 34, the auditors will be required to audit boards on how well they are GAAP compliant without the safety net of a regulatory environment.

2) In a regulatory environment, the boards of education are required to comply with the regulations as defined, which are few in comparison to GAAP. In a full GAAP environment, the boards of education are expected to comply with all of GAAP and GASB.  The emphasis changes to the business officials being fully knowledgeable of GAAP and GASB standards and perform the accounting to those standards. 

 

GASB Statement 45

The statement addresses accounting and financial reporting by employers for post-employment benefits other than pensions.

It includes medical, dental, vision, life, long-term disability, etc.
           
It specifies the accounting for any post-employment benefit, other than pensions, that is promised by the board of education in which the employer has an obligation to pay any of the cost of that benefit.

The primary concern is health insurance benefits, but some boards also may offer supplementary retirement benefits, such as three years of free dental or optical insurance, which now must be accounted for under GASB 45 standards. 

Boards of education currently pay for current retirees health benefits in two ways.

1) Counties are direct billed for current retirees who exercised conversion privileges with their sick days and chose health premiums as a benefit.

2) About 20 percent of each participant’s current health insurance premium is used to fund existing retirees. When premiums are paid to PEIA, this 20 percent is placed in a trust fund, and then is used to pay for existing retirees’ health insurance. 

These two payment methods combined are considered a “pay-as-you-go” method because boards of education pay no more than the amount required to fund the current retirees “as we go.” 

GASB Statement 45 reflects accrual accounting principles for benefits: The person is employed in year one; the promise is made to provide the future benefit; the amount owed is established in year one; therefore, according to GAAP, the expense should occur in year one and be reflected in the financial statements. 

In the past, boards of education did not record these expenses as they were promised, so a huge liability, or amount owed, built up that reflects the cumulative effect of past, current and future promises.

PEIA has been GAAP-compliant for a number of years, and it must follow GASB standards. According to GASB 45, PEIA must determine the amount of unfunded liability, (with the present benefit package there is a $7.8 billion unfunded liability for PEIA as a whole); amortize that $7.8 billion over 30 years; determine the amount to invoice per policy holder; and then invoice the last employer each month. (Please note that boards of education that offer supplementary post-employment benefits will have to follow a similar procedure for their unique benefits.)

By GASB definition and GAAP principles, the last employer is responsible for post-employee benefits.

According to GASB, it does not matter if the state makes the laws by which the last employer must make the promise to provide the benefit; the last employer is still responsible. The future health benefit is the cost of doing business or a cost of operations in the year the promise is made and the amount owed is established. According to GASB, the liability should be reflected on the entity-wide statements to show the effect of the promise on the overall economic status of the organization.
           
The state may pay or fund the liability, but according to GAAP, the liability is a local board of education responsibility until it is paid.

How much is the additional billing?

$515.27 per health insurance policy, per month, or
$6,183.24 per person, per year or
$3,091,620 per 500 personnel or
$6,183,240 per 1,000 personnel
                                               
This is the current annual amount to be billed, as benefits currently are defined and provided.  There is an effort under way to reduce the liability. Future annual amounts billed will be based on revised actuarial studies, and based on benefits and      utilization history at that time.

We have been told PEIA will not aggressively seek payment for the additional liability, but boards of education must accrue the unpaid amounts as a liability on the entity-wide statements.

PEIA must invoice the last employer, regardless of whether boards of education use GASB. Boards will be invoiced for the additional liability whether they are on a regulatory basis or compliant with GASB.

Note:  If the state pays all the liability, then boards of education will not have much of a problem with the GASB 45 requirement. The state would have to come up with approximately $440 million next year to fund the additional liability for all PEIA-participating agencies, as benefits are currently defined.   

 

Why is the unfunded health insurance liability amount so large? 

It includes all promises made in the past to provide the benefit – the cumulative amount owed to employees.

It includes the promise to current employees to provide the benefit – the building of current obligations.

It includes the actuarial determination of future promises to current and future employees to provide benefits – the realistic anticipation of future employee obligations.

Approximately $1 billion of the $7.8 billion is for sick leave conversion into health benefits.

Approximately $7 billion is because all employees are entitled to purchase health insurance at a reduced rate. The amount employees pay is approximately 30 percent of the cost. The 70-percent balance is currently unfunded.

 

Who will fund the liability?
                       
Will the state fund all personnel in the formula?

Will federal programs pay for federal personnel?

Will the county be responsible for any portion of the liability? 

No definitive funding answers have been provided. Boards of education and the state can avoid payment for only so long. This is a massive catch 22.
           
If boards of education or the state do not pay the liability, they will have to pay it in the future. The liability keeps building and it is always owed until it gets paid.

If boards of education and the state continue to only fund the current “pay-as-you-go” method, then the amount needed to pay for the increasing number of retirees will require an increasing allocation of additional funds.

If the trust fund for retirees were fully funded (if everyone paid the          liability), it would significantly reduce the amount of the unfunded liability because of the financial benefits derived from investing the funds.

Eventually everyone will understand this is not just an accounting number but it is the cost of employees’ future health benefits, and one of the mechanisms for reducing the future burden of providing those benefits, is funding the trust (paying the liability).  

 

Will the liability affect fund balance?

The liability will reduce fund balances to whatever extent boards of education actually pay the liability and they receive no additional funding. The unpaid portion of the liability will only show on the entity-wide statements, and will be offset by the massive assets boards have in buildings.
           
The unpaid portion of the liability is balanced against the value of the boards’ buildings. If it consistently is unpaid and builds or accrues to a large number, or if boards have little value in buildings, then liabilities may exceed assets on entity-wide statements.

A board of education eventually could have a negative net worth.

 

What will all this mean to a Board of Education?

The ramifications of GASB Statement 45 are destined to become a national issue. All state and local governments that follow GASB will have to comply with the rule at about the same time, and few       are prepared or fully funded.

There is more unknown than known about how this will truly affect boards of education.

 

What we know about GASB 34 and 45

Boards of education can anticipate that audit costs will increase. They could double.

Boards can anticipate no waivers or delays to implement GASB Statement 34. 

Boards can anticipate finance offices will struggle to acquire the resources to do the additional work.

Finance offices may need accounting consulting services to properly keep abreast of GAAP and GASB requirements and their practical implementation in a particular school system. 

Boards can anticipate the initial billing for the additional retiree liability amount in July of 2007. 

Boards can anticipate budgeting, staffing and reductions in force will be more complex. 

Boards can anticipate cash and the “undesignated balance” will be viewed differently.  

Boards can anticipate additional time spent learning about GASB and its principles to assist boards in making decisions in a GASB regulatory environment.

Boards can anticipate making difficult decisions in a climate of uncertainty. The issues surrounding GASB 45 are so large it may take considerable time to navigate.

Boards can anticipate their decision-making process will need to fully consider the long-term impact of financial decisions.

Boards can anticipate frustration that many of the current expectations of our complicated web of state laws and regulations may conflict with GASB principles.
                       
Boards can anticipate greater concern over legislative and/or PEIA board decisions regarding employee benefits.          

Boards can anticipate they will need to fully disclose the liability when seeking bonds, as it is considered fraudulent by the SEC to not provide full disclosure.  

Boards can anticipate three areas of public perception that will need managed or monitored: The Legislature, employees and the public.   

Boards can anticipate that in a complex financial environment, they will need to avoid adverse or negative auditor opinions on their financial statements more than ever. 

 

What we do not know

How will the liability be funded?

What are the legal ramifications for not paying the liability?

Can boards of education take a wait-and-see approach on liability payment knowing they cannot afford even one year of the liability for federal and over-formula people? Federal funds that are not expended for the liability in a given year cannot be recouped. 

Are there legal ramifications to boards of education for spending on other projects when they owe a liability for personnel health benefits?

How should boards of education manage reserves in this new environment?

What are the boards’ legal obligations to their employees concerning the funding status of the liability?

How will employees react to the information as it is discussed through associations, the media and the legislative process?

How are boards to fully disclose their financial status when seeking bonds, if they are unaware of the funding mechanism for such a major liability?

Are boards legally responsible to incorporate the liability into next year’s budget?

What is a board’s fiduciary responsibility in this new environment?

 

The final question

By functioning in a regulatory environment since the inception of the State Board of Education and the State Department of Education, a complicated web of intent, expectations, principles, assumptions, laws, regulations, policies, standards, procedures and practices have been built up over the years. 

That web extends through the entire system of administration from the Legislature, to the departments, to the counties, their personnel, and the community. GAAP and GASB impose a national standard upon this web. That national standard has different intents, expectations, principles, assumptions and standards than what we are accustomed to in our regulatory environment.

Much of the frustration of transitioning to this national standard can be attributed to a mismatch between the West Virginia regulatory web and the consequences of full GAAP implementation. Minimal consideration currently seems given to altering the regulatory web to accommodate the consequences of GAAP and GASB on boards of education.

GAAP and GASB presume entities will make responsible financial decisions based on a more complete picture of an entity’s overall financial health, and yet as GASB 45 so blatantly exposes, the boards of education are not responsible or in control of their overall financial health.

They cannot reduce their compensation packages, seek an alternative health insurance provider, sell significant assets at a profit, triple their levy rates, etc. Boards of education have become liable in a negative way for having made positive effort to meet the laws and intent of West Virginia.

What, if any, efforts will be made to change the West Virginia regulatory web to accommodate the consequences of GAAP and GASB and create a positive transition? 

 

ETC.

Meanwhile in Georgia...

Charter School System Plan Moves Closer to a Vote

A plan that would give entire school systems the same freedoms as existing charter schools moved one step closer to passage, clearing a Georgia Senate committee on a party-line vote.

The legislation, pushed by Republican Lt. Governor Casey Cagle, would allow school boards in the state's 180 districts to apply to the state school board to be classified as charter systems. The classification would allow systems to run schools free from many state and federal regulations -- including rules on class size, school hours and the hiring and firing of teachers.

Cagle's plan would create a charter advisory committee to consider applications and consult with the state board. Each school would have governing councils that would negotiate a charter with the state, spelling out how the school would be run. In its first year, the plan would create slots for five systems to begin the program.

A spokeswoman for the Georgia School Boards Association said that with individual schools contracting for things like food and transportation, the price likely will be higher than when an entire school system negotiates prices for the same goods and services. A lobbyist for the Georgia Association of Educators complained about the bill's granting of freedom to principals to potentially hire and fire teachers without the protections they currently are granted under state and federal law.

From the Associated Press, as published in the Jan. 31 Macon Telegraph, www.macon.com.

 

Wisdom

 

“If you're scared, just holler and you'll find it ain't so lonesome out there. ”

–Joe Sugden, Major League Baseball player

 

Soundbites

 

“In the amount of students that go into college and actually graduate, we rank dead last in the nation.”

– Gov. Joe Manchin in remarks to journalism students at Marshall University

 

“If we did that it would be ‘Christmas-treed’”

– Sen. John Unger discussing an amendment to a bill that would allow spouses and children of those killed in action tuition waivers at state colleges and universities. The amendment would have allowed the same privilege to Purple Heart recipients “Christmas-treeing” is a common way to load a bill with so many provisions it loses its original intent and ultimately fails.

 

“We can’t cut anymore.…”

– Pendleton County Schools Treasurer J. P. Mowery on Feb. 1 discussing the state School Aid Formula with a House Education Committee Subcommittee

 

Last Word

Judge makes right decision in teacher retirement case

By Hoppy Kercheval
Host of West Virginia MetroNews Talkline

It should be, theoretically at least, hard for the government to take something away from you that you legally possess.

It happens, or course. Just think of taxation as a form of government confiscation of your wealth.

But we do have protections built into the state and federal constitutions that help you hang on to much of what you have. Article three, Section nine of the state Constitution, for example, says the government cannot take your private property without just compensation.

It was that provision that Kanawha County Circuit Court Judge Paul Zakaib cited in Friday’s (Jan. 26) decision that had the effect of nullifying a planned merger of the state’s two teacher retirement programs.

First, some background. In 1990, the state Legislature passed a law saying any teachers and non-teachers hired after July 1, 1991, would belong to a new retirement program called the TDC. In this defined contribution plan, teachers deposited 4.5 percent of their gross while the state matched it with 7.5 percent. Teachers were to manage their individual accounts themselves.

Teachers hired before July 1, 1991, stayed in the old plan, the TRS. Under the TRS, the state and the employee contributed to the plan, but in return the state guaranteed a benefit when they retired.

After a few years, many teachers in the new plan were dissatisfied with their funds. Poor investments produced low returns. Critics say the fund managers did a bad job keeping the investors posted on how their accounts were doing. Some teachers opted to invest their money in ultra-safe, but low-return insurance policies.

In 2005, the Legislature passed a law allowing the TDC members to vote whether to join the old plan. A majority of those who cast ballots voted to merge with the old plan.

Teachers Anthony Barberio and Richard Goff, members of the TDC, sued. They made money on their investments and were happy with them. They claimed the election was illegally forcing them into the old plan.

In his decision, Judge Zakaib agreed, saying the proposed merger constituted a “taking” of private property which is prevented by the state Constitution.

It makes sound economic sense to let the state and the participants put in their shares and then let the miracle of compounding interest take over. Even modest investments over the course of a working life produce substantial results.

The judge made a sound decision, one that will benefit Barberio, Goff and other teachers who are just fine with the defined contribution plan. But Barberio says he feels sorry for teachers in the fund who have not done as well as him. He says the state failed to give the teachers any direction and now they won’t have enough money to retire.

The defined contribution plan as it was conceived in 1990 was a good idea. It makes sound economic sense to let the state and the participants put in their shares and then let the miracle of compounding interest take over. Even modest investments over the course of a working life produce substantial results.

Clearly, something was botched in the state’s execution of the plan and that has put thousands of plan participants at risk of coming up short on their retirement. But the answer to that problem was not the illegal seizure of the assets of those whose investments produced results.

From West Virginia MetroNews, Jan. 29, 2007, www.wvmetronews.com

 

The Legislature is published by the West Virginia School Boards Association. It provides county board of education members, state policymakers, school administrators and the education community information and opinions regarding West Virginia legislative issues. The views expressed in this publication do not necessarily reflect official opinion or policies of the WVSBA, unless specifically stated.

West Virginia School Boards Association
PO Box 1008
Charleston, WV 25324
Phone (304) 346-0571 • Fax (304) 346-0572 WVSBA.ORG

Kim Cooper (Raleigh), President
dukecoop77@yahoo.com

Jean Westfall (Ritchie County), Chairman
WVSBA Committee on Communications*
Ljwm1108@ruralnet.org

Howard M. O’Cull, Ed. D., Executive Director, Editor
hocull@wvsba.org

Shirley M. Davidson, Administrative Assistant,
Production and Circulation
sdavidson@wvsba.org

* Committee on Communications: Judi Almond (Raleigh), Beth
Cercone (Clay), Bob Duckworth (Taylor), David McCutcheon (Roane),
Mike Mitchem (McDowell), Nancy Walker
(Monongalia), Don Tuttle (Wetzel)

Vincit omnia veritas
“Truth conquers all”