November 2016 Column

Planning for a rainy day can be complicated. Government budgets have different expectations than those of a private business.  Public schools must budget every dollar appropriated by the state.  Because of uncertain expenditures and events, we always plan to spend less than we receive.

The 2017 legislative session could be a difficult time for legislators to balance already under-performing revenue sources.  The 2016 special legislative session reduced HMS’ State Equalization Guarantee by 1.5 percent. Instructional materials and transportation budgets also took a reduction.  Hobbs Schools will make an adjustment to reduce their current budget by $1.3 million. The foresight of the current board of education allows HMS to use cash balance to survive the current year. Otherwise, programs or personnel would have to be reduced to endure the current state of the economy.

How does a public entity which relies on state funds make it through difficult times? Schools refer to a “cash balance” as the amount of unspent funds at the end of each budget cycle (July 1 - June 30).  HMS has been diligent in making sure we have the financial resources if a catastrophic event occurs or state funding is reduced. During the Bond rating proposal, Moody’s of Dallas wanted to see schools increase their cash balance to ensure payment for bonds.

School budgeting changed years ago when we went to a reimbursement process with the Government Accounting Standards Board. HMS must have $3.2 million in cash to begin the year because the federal government expects us to pay for its programs such as free lunches ahead of time, then reimburses us months later. We pay teachers on a 12-month basis even though they are under contract for just over nine months. So we must keep $5 million in reserve to cover our summer payroll. Without that cash on hand, we would write hot checks that are not covered by revenue in the bank.

When the Legislature begins its duty of building a budget during the 60-day session, cash balances may be an area targeted to help bridge the gap between revenue and expenditure.  We must all realize those funds are not sitting vacant but are being used as resources to fund programs until reimbursements are made available.

Nutritional Services spend dollars August through October before they receive their requested reimbursement. The cash balance funds help ensure payment and keeps programs afloat. September is a large payment for bonds which have financed new school buildings. We make two payments per year. One payment is principal only and the other is principal and interest.  The 2016 September Bond payment required HMS to use cash balance to subsidize the bond payment because tax revenue did not generate enough funds for full payment.  The elimination of our cash reserve would cause HMS to default on its bond payment obligation.

The nature of our economy is another motive for us to have a cash balance. Lea County residents are confident the oil industry will rebound.  If we reduce staff based on present budgets, we would be hard pressed to meet the demand of staffing needs and budgets once the oil market and populations replenish. Hobbs had a $2 million deficit in 2010.  We reduced staff by 65 positions, reduced all contracts by three days and cut all budgets. When drilling picked up – and our student population increased with the uptick - it took years to be able to hire staff to meet the needs of a growing community as well as replace lost positions.

We do not know the length of time it will take for our economy to rebound. But we do know that HMS desperately needs to be able to maintain its cash balance to make sure it keeps highly qualified staff in our schools and gives them the resources needed to teach all our children.
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