Options to Relieve the Stress in Your School CPF

By Curt W. Pletcher, CPA, Partner, June 29, 2011
Articles: Schools Related, Latest News

School districts across Indiana are feeling the pain of declining or flat-lined revenue for their Capital Project Fund (CPF).  That won’t come as news to most districts, but it is nice to know you’re not alone. 

The decreased or flat revenue has a variety of causes:

• The Supplemental Homestead Credit decreased net assessed value in budget year 2009.
• Capital Project Fund revenue not only decreases if your area has reached the Circuit Breaker property tax caps, CPF monies are sometimes used to offset lost revenue in other funds due to the caps.
• Negative trending of property tax values results in declining net assessed value for school corporations.  This negative trending may continue for a while in some parts of the state.
• Declining property tax values in turn impact the maximum CPF tax rate and result in less annual levy or revenue.

Unfortunately, your need to fund building maintenance and other CPF budget items has not gone away.  Indeed, because technology acquisition and maintenance is often covered in the CPF budget, the problem becomes even more critical as the demand for technology increases.  As an example, many districts are implementing technology plans that call for one-to-one computer learning initiatives. 

How can you meet the ever-increasing demands with less money?  There are several options to consider.

1. Restructure your Guaranteed Energy Savings Contract (GESC) obligations.  If your school district has an active GESC, this may be an option.  A GESC allows you to make energy-saving facility improvements at a cost that is eventually offset by the amount of energy savings.  They do so with no additional tax impact and no public approval required.  Prior to the recent changes, most districts were able to fund GESC through their Capital Project Fund or had dollars available in their annual budget.   If your district is making payments for GESC improvements, you can transfer the GESC obligation to your Debt Service Fund by issuing General Obligation (GO) Bonds or First Mortgage Bonds.  Most GESC contacts have an early repayment option, so the refunding may generate savings. Transferring the GESC payments to the Debt Service Fund will free up some CPF dollars.
2. Issue short-term debt to supplement the Capital Project Fund.  Before you do so, review the debt structure for issuance of short-term debt.  You may want to develop a plan for rolling three- to five-year bond issues to supplement CPF.
3. Develop a comprehensive plan for future capital improvement needs and tax rate management.  Having a comprehensive long-range plan to address CPF needs is a good strategy regardless of any other options you might choose.  A comprehensive plan gives you the opportunity to structure debt repayment to wrap around or step down other payment obligations to manage your tax rate.  If you plan carefully, you can issue bonds with little to no increase in the school’s total tax levy.

If you have questions or need help creating the right solution for your Capital Project Fund and overall comprehensive financial plan, please contact us at footnotes@umbaugh.com.

 

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Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at footnotes@umbaugh.com.