In advance of Wednesday night’s Burlington School Board Finance Committee Meeting, the School Board provides this FY15 budget process progress report in an effort to keep Burlingtonians well-informed of the Board’s efforts to prepare a new FY15 budget for a June 3 vote. The district is sorting out a recurring deficit issue exacerbated by a few years of underestimated expenses and a payroll tax issue that will likely result in penalties to be determined by the IRS.
Overview
On Town Meeting Day this past March 4,Burlingtonvoters rejected the School District’s proposed $66.8 million FY15 budget. In the process of crafting a new budget, the School District has encountered two issues that it is working to address: remedying newly-identified budget deficits, and an Internal Revenue Service (IRS) payroll tax question.
FY12, FY13, and FY14 Budget Deficits
During its work on the new FY15 budget, the School Board determined that its budget estimates for FY14, which comes to a close on June 30, had significantly underestimated costs. To help it understand the cause of past budgeting errors and to prevent a similar recurrence in the future, the School Board retained the auditing firm of Melanson, Heath and Company, led by auditor Scott McIntire.During the audit, McIntire determined that the School District has had a budgeting problem for a number of years, having based its budgeting process on past years’ approved budget numbers rather than on actual spending. This technique has been employed over at least the past three years and has led to a series of unanticipated budget deficits.
The following is a summary of budget deficits over the past three fiscal years and planned remedies:
FY 2012
$1.6 million
Repayment was budgeted in FY14 budget
FY 2013
$1.28 million
Repayment was included in FY15 budget drafts
FY 2014
$2.5 million (anticipated)
To be repaid starting in FY16 budget
FY15 Budget Structure
After conducting the analysis of the FY12, FY13, and FY14 budgets, it became clear that the proposed FY15 budget needed to be adjusted to avoid another deficit as the FY15 budget was again built on the prior year’s budget rather than actual spending. While the FY15 budget did include consideration of the $1.28 million deficit from FY13, it failed to account for those factors that led the FY14 budget to be $2.5 million out of balance. Without proper adjustment, much or all of the projected $2.5 million FY14 deficit likely will recur.
“We are taking this newly-identified problem very seriously and are taking actions immediately to begin to remedy the situation,” said Miriam Stoll, new Chair of the School Board’s Finance Committee. “Our first step is to ensure that the budget we put forth to the voters in June is based on accurate projections for our spending.”
Future Budgets
As the School Board Finance Committee creates a new FY15 budget for voter consideration, it will carefully consider the challenges it faces not only for this budget, but also for the FY16 and FY17 budgets.
“I am deeply concerned about the District’s recent history of deficits and the difficulty we have had securing accurate and reliable budget information,” said Patrick Halladay, new School Board Chair. “In the weeks ahead, we must both pass a responsible and affordable budget for FY15 and work to assure the voters that the pattern of unanticipated deficits will end.”
The District has already instituted several steps to help prevent future problems, including: increasing Board oversight of finances with monthly financial reports delivered to the Board’s Finance Committee to provide early warning of potential cost overruns; developing a process to improve controls over disbursements, a suggestion arising from an audit of the FY13 budget; fully implementing new budgeting software that will allow the District to more accurately track expenses; and establishing a joint task force with the City to consider possible ways to share resources and find cost savings. The School Board will consider additional steps to prevent future deficits and enhance financial controls as it completes the FY15 budgeting process and plans for FY16 and FY17.
IRS Payroll Tax Questions
The IRS has identified that there has been a problem with the School District’s timely payment of payroll taxes. Though the School District develops its budget separately from the City, the District is working with the City – whose federal taxpayer identification number is shared with the School District – to resolve this problem. Upon resolution of this problem, the School District likely will incur some penalties and interest. The amount of penalties and interest is unknown and likely to remain so for some time as the process now underway of determining with the IRS an accurate and final figure is expected to belengthy. In addition, the School District and the City are reviewing oversight procedures and payroll systems to ensure that a similar problem does not arise again.
BurlingtonSchool District Burlington,Vermont- April 16, 2014