Dec 18 Unfunded Liability

Those of you familiar with Accounting know of FASB - the Financial Accounting Standards Board, the non-profit professional association that writes the rules, the Generally Accepted Accounting Principles (GAAP) used by the private sector.  Their intent is to provide transparency and credibility.  As an example, say your company needs a car, and must decide between buying and leasing.  Leasing can be deceptive if booked merely as a monthly expense, so GAAP requires that the total commitment be listed as a liability on the balance sheet.

Those of you familiar with public sector Accounting know of GASB - the Governmental Accounting Standards Board, which creates the equivalent "GAAP" rules for state and local governments.  They have slowly been upgrading the old cash flow methodology to increasingly adopt the "accrual" methods used in the private sector.  This is a good thing, forcing governments to acknowledge, even set aside funds for future benefits payments, for example.  But there is more to do.

Let's look at District 281, which, while it has aggressively addressed its over-capacity due to falling enrollment, still has two elementary schools to remodel or replace.  Remodeling both would run about $ 40 million.  Rebuilding both would run about $50 million.  As it happens, the Northport site is large enough to build a mega-elementary to subsume the smaller Lakeview population, which might save about $ 3 million to build and be less expensive to staff and operate.

This has stirred much comment and controversy the past three years, as I and others have reported.  These are big numbers for a district of less than 12,000 students to contemplate.  Tax increases one way (local bond) or another (state money, federal slush funding) seem certain.  We could have avoided that some said by closing these two, remodeling Pilgrim Lane instead.  But Pilgrim Lane was built in 1966, just two years after Lakeview in 1964.  Northport was built in 1956 and expanded in 1984.  No matter what, even though cheaper despite the logistics problems like busing, we still would have had a problem, the unfunded liability of District 281's buildings.

As it sits now, while we can play around the edges, how much to remodel and when, how large to rebuild and where, the District is on the hook for at least $40 million in capital spending.  Inaction or shuffling the facilities deck does not materially change this issue.

Look at the secondary facilities, Robbinsdale Middle School, Cooper High School, Plymouth Middle School, and Armstrong High School, built in 1956, 1964, 1968, and 1970, respectively.  Even the newest building will turn 40 next year.  (Sandburg Middle School, closed and re-purposed, was built in 1959.)

Meanwhile, the open elementary buildings range from 1954 (Noble) to 1969 (Zachary Lane), plus Forest in 2005.  Again, all but one is 40 years old or more.  Ironically, Olson, built in 1971, was closed in 1980, though later used for temporary roles like for remodeling other buildings.

Three points.  One, the Northport and Lakeview remodel situation is already on the balance sheet even if GASB doesn't formally require it.  Two, the remaining old schools are there, too.  Granted, schools like the 55 year old Noble Elementary have been significantly remodeled recently, but the fact remains that it is still 55 years old.  Even if it should last another 25 years or more, it will take more maintenance, remodeling, and ultimately replacement dollars in the future.  How much more?  That's point three.  Where's the plan?

The Wold consulting project that developed the plan we used to "right size" the district was necessary because we had no plan, not even enough data for a plan.  If I may, my City's capital plans go out to at least 2020, some portions further out.  We have scheduled the improvements and replacements needed in our buildings, streets, water, sewer, fire trucks, sewer lift stations and so on for that period, beyond which it is difficult to project financially.  We need something like that for District 281, and probably most other districts in Minnesota.

In 281's case, a Divestiture committee has been created to help dispose of now surplus property.  I hear that they are running into the same difficulty.  Without a plan for the current assets, where remodeling and/or replacement might make a good last use of some properties like Olson before disposal.  This seems like an excellent first project for the new Business Manager position being created on or before July 1, 2010.

Personally, I would merge the Divestiture Plan Advisory Commission with the Financial Advisory Commission to create the "Facilities and Operations" committee which the Strategic Plan originally recommended.  They could begin assembling the needed information, much drawn from the Wold study, and come up with a baseline plan for the Business Manager to refine and, of course, incorporate into the budget process.

The numbers are too large and the buildings too old to continue with the current reactive, 1-2 year budgeting based on the assumption of endless money.

Cross-posted and comments welcome at Speed Gibson.