ROCK HALL — Taking into account changes in funding from the Kent County Commissioners, the board of education here unanimously approved a revised $27.5 million spending plan Tuesday, May 31 for the fiscal year that starts July 1.

In recent weeks, the Kent County Board of Education has come under fire over how much money it has in fund balance despite initial plans to close schools to shore up its budget. The county commissioners agreed in February to fund schools about $1.6 million above state-mandated levels, only to reverse course last month.

Kent County Superintendent Karen Couch addressed the issues of fund balance with the school board May 31, saying that the district does not have a couple million dollars in the bank that it can use as it pleases. She said the district has the funding necessary for the upcoming fiscal year, but could find itself in the hole for more than $1 million the following year.

“The thing about fund balance is once you have the fund balance, it’s considered one-time money,” Couch said. “They’re savings that once you spend it, the money’s gone. You can’t spend the money more than once.”

The budget approved by the school board comes in $805,230 less than the $28.3 million draft originally presented by Couch. The budget shows adjustments to the “fixed charges” and “pupil transportation” line items bringing the spending plan down to $27.5 million.

Now that the school board has signed off on the budget, it goes to the county commissioners for their approval. The commissioners are holding a public hearing on the county budget, which includes the district’s spending plan, at 6 p.m. Tuesday, June 7 at 400 High St., Chestertown.

Understanding enrollment, school consolidation, maintenance of effort, fund balance and how local government works is crucial to understanding just how we got here in regards to the district’s budget.

The issues at play — declining student enrollment and corresponding budget shortfalls — actually go back a decade or more. They started to come to a head in the past year with discussions on school consolidation.

Maintenance of Effort

Much of school funding in Maryland comes down to student enrollment. The more students a district has, the more money it receives each year thanks to a state mandate called “maintenance of effort.”

Kent County Public Schools receives funding from a variety of sources. The source most frequently in the news is the county, which is where maintenance of effort comes into play.

Maintenance of effort requires the county to fund the district at the same level as the previous year. If the Kent County Commissioners increase the funding one year, they are on the hook for that amount the next year.

It is not based on a lump-sum payment, though. If the commissioners give KCPS $18 million this year, it is not a given that they are required to give $18 million next year.

The rate set by maintenance of effort is per pupil.

The commissioners have budgeted the district at a rate that, based on a complex formula, works out to about $13,546 per pupil next year. That means they essentially have to pay $13,546 per pupil the following year, though there are other factors that can change that number.

During the financial crisis, when local governments saw their revenues drop, counties feared going above maintenance of effort. What if their revenues declined the following year and they did not have the cash in the coffers to meet the new maintenance of effort level?

This is why student enrollment is such an important figure for school districts. If enrollment numbers drop, as they have for years in KCPS, the county’s lump-sum payment drops because, again, maintenance of effort is calculated at a per-pupil rate. Fewer students means less money from the county overall.

And districts in Maryland do not have the power to levy taxes, unlike in some other states. The districts must rely on the state and the county for revenue.

Couch often makes note of Sept. 30 being an important date for the district. That is the state’s certification date for a district’s enrollment numbers. What Kent County reports for enrollment Sept. 30 is put into the state’s maintenance of effort formula for the following budget year.

In spring 2015, the district cut more than $775,000 to balance the current year’s budget. When Couch presented the Sept. 30 enrollment figures last fall, she told the board that the district lost 62 students from the previous year, which could mean an $806,000 budget shortfall in the next fiscal year, which starts July 1.

“The bottom line is, we’re a small county. We lose 20 kids and it, you know, dramatically affects the budget,” Couch told the board at a budget workshop Jan. 27, 2015.

That was the first meeting at which the idea of school consolidation was mentioned.

Also discussed was another money-saving plan. It called for moving the central office from its current location in a former Rock Hall school building to a wing of Kent County High School in Worton. That plan, which consultants said could have happened this summer, has been shelved.

Consolidation Study

On June 8, 2015, the board of education agreed to move forward with a study of school consolidation, the closing of one school and the relocation of students to other schools. For consolidation to take effect in the 2016-17 school year, the board would be required to formally vote on a plan by April 30, 2016.

The board hired a consulting firm in August 2015 — for not more than $11,412 — to assist in the necessary data collection, management of public meetings and other aspects of the consolidation process.

“Nobody wants to close a school. I think everyone is in agreement that we’re in a place where it’s going to have to happen,” Couch told the board Aug. 10, 2015.

KCPS last consolidated schools in 2011, prior to Couch’s arrival. Chestertown Middle School became Kent County Middle School, Rock Hall Middle School closed and Galena Middle School became Galena Elementary School.

The board publicly discussed school consolidation — sometimes briefly, sometimes in great detail — beginning in May 2015. The first special meeting to provide the public with information on the consolidation process was in October.

In December, Gov. Larry Hogan offered three school districts considering school consolidation supplemental funding in his budget. Kent County was slated for $300,000.

“I am encouraged Governor Hogan recognizes the financial challenges many school districts face with declining enrollment. While the ‘proposed stop-gap funding’ is greatly appreciated, unless the funding is recurring, it will not solve the overarching problem of ensuring operating budgets are balanced with state and local funding sources,” Couch said.

Hogan’s funding would need to be approved by the General Assembly, which did not begin its 90-day session until January. The district continued its studies and hearings on school consolidation.

On Dec. 14, 2015, the consolidation consultants officially issued their report, calling for the closure of both Millington and Worton elementary schools. A public hearing was held Jan. 6, though an expected Jan. 25 vote by the school board was delayed because members wanted more information.

“The bottom line is, if we don’t have the kids to fill our schools, then we have to make decisions about what’s best for the students as a whole,” Couch said at the Jan. 6 hearing. “And if it means consolidation makes us more efficient and offers the benefits and quality of education that this county deserves and our kids deserve then that’s what I’m going to advocate for, and I have a responsibility to do that.”

Two Votes

The vote to close schools came Feb. 8. It was 4-1, with board member Brian Kirby voting against it.

“I know I have had a couple restless nights thinking about this. This is huge,” said school board President Jeff Reed that night. “I may not live in Millington, but that doesn’t mean I don’t care about Millington. ... Kent County is my community, that is the one I love.”

On Feb. 22, citizens gathered in the Millington firehouse to voice their opposition to the consolidation plan. Kent County Commissioner Ron Fithian spoke at length. The question was asked: Did Couch request additional funding from the county?

“No one has come to ask for a bunch of money and I’ve said, ‘No.’ We’ve tried to work with the board of ed every way possible,” Fithian told the crowd.

Fithian did not attend school board meetings during the consolidation discussions. At the firehouse, he said that was because the decision to close schools rested with the board of education, not the commissioners.

The following night, Couch appeared before the commissioners with three very particular funding requests. She sought $765,857 to cover the expected revenue shortfall for the upcoming fiscal year; an additional $768,000 for three missed step increases in staff pay; and $70,000 for new student laptops.

“On motion by Commissioner (Bill) Short, seconded by Commissioner Fithian, the Commissioners unanimously agreed to allocate $1,603,857.00 to the Kent County Public Schools Board of Education above MOE for the FY2017 budget,” the meeting minutes state.

That “MOE” stands for maintenance of effort. In their vote, the commissioners agreed to raise the bar on maintenance of effort, not just to clear the revenue shortfall, but also to extend raises to the staff. It was an official vote, and it was made on the spot with no apparent consultation with staff.

About two weeks later, the district honored the commissioners at the annual KCPS banquet. Commission President William Pickrum, Fithian and Short received the Standing Ovation Award for supporting schools.

“I don’t know of a better place to spend it (the money) than on our young kids,” Fithian said at the banquet.

Reversal of Fortune

The board of education voted 4-1 March 14 to officially suspend consolidation. This time, Reed opposed the move.

“I appreciate what the county commissioners have done. I think it was fantastic. But I will say this, we are doing nothing but kicking that can down the road. This board worked very hard. I believe we were extremely transparent through this whole process. So for people to say we weren’t transparent, I totally disagree,” Reed said.

The board held numerous public meetings, set up a special email address for people to send in questions and concerns and posted documents online for people to read.

Not all deliberations were public. Couch established an advisory committee that met behind closed doors to discuss the nuts and bolts of consolidation. But the county’s budget staff does not do all of its work in public meetings either.

The April 30 deadline for a final decision to close schools passed with no additional action taken by the board. Also, contract negotiations with KCPS included the money for the step increases. At this point, the district cannot close a school this year.

“Monies that were allocated for salaries will be used for that. And the monies that were allocated for the shortfall will be used for that as well,” Couch told school board members March 14.

The commissioners held a budget workshop with Couch and her finance staff May 10. Questions were raised about the district’s fund balance, which is unspent money kept in reserve.

At the May 10 workshop, the commissioners put the number at $2.4 million. Couch said about $900,000 is budgeted for the upcoming fiscal year, leaving about $1.5 million actually in the fund balance.

“We don’t mind helping them when they have a shortfall, but they’re not supposed to be sitting on $2.4 million when they ask,” Fithian said in a May 18 phone interview.

In a May 24 letter to Couch, the commissioners wrote that they want to change their previously approved funding commitment to the district. Of the more than $1.5 million above maintenance of effort the county committed to Feb. 23, the commissioners want to use Hogan’s General Assembly-approved $300,000 to draw that down to about $1.2 million.

Of that, $1 million is to come from “previously committed dollars that have not been spent and are in a current fund balance,” the commissioners wrote.

That leaves the commissioners committed to increasing maintenance of effort by $233,857, a reversal of fortune from the nearly $1.6 million above maintenance of effort originally approved. The $70,000 for laptops still on the table as a one-time expenditure.

“Understand that fund balance is taxpayer money,” Pickrum told Couch at the May 10 workshop. “We have a fiduciary responsibility as the board of county commissioners. OK? And so, ultimately, we are the ones that have to make up any shortfalls or overages, etc., whatever the case may be.”

Pickrum also said he disagreed with the consolidation plan.

Short disagrees with his fellow commissioners on the change in school funding. On May 18, he said they decided to “pillage the school system.”

“It’s disheartening what’s going on,” he said.

Fund Balance

“You need to have some contingency funding available,” said John Woolums, director of government relations at the Maryland Association of Boards of Education, in a May 26 phone interview.

Woolums said there is no best practice or statewide agreed-upon approach to maintaining such a fund.

“We have to have an amount of savings that can sustain us for whatever emergency may happen,” Couch told the school board May 9, when word was first coming down that the commissioners had concerns about district funding. “Running us into no fund balance whatsoever or only $100,000 or $50,000 is not only irresponsible on our part, but it is a disaster waiting to happen.”

The district is audited annually. The report for the fiscal year ending June 30, 2015 and showing KCPS’ fund ending balance was posted on the district’s website Oct. 12, 2015 for the public to read.

It shows a total fund balance of $2.7 million, but that is not money the district is free to spend any time it likes, Couch and Angie Councell, the district’s supervisor of financial operations, said in a May 26 interview and again at the May 31 school board meeting.

“It’s not like it is sitting in a bank somewhere where I can just pull it out,” Couch said May 26.

Much of the money is encumbered: $934,295 is assigned to the budget reserve for the current fiscal year and is not available until the current year’s budget is closed out and audited in the fall, while $649,564 is assigned to a variety of line items, including projects, salaries and textbooks.

“These are not slush funds,” Couch said. “All of these are expenditures that benefit our kids and our teachers.”

That leaves an available unreserved fund balance of about $1.13 million for a district that owns eight old buildings with various maintenance issues.

According to its website, the county had a $10.1 million fund balance at the end of Fiscal Year 2014. It was at $8.9 million at the end of the following year and is projected to be halved by the end of the current fiscal year, with much of that money going to pay for countywide upgrades to internet access.

Going Forward

While the district will still be able to operate next year under the commissioners’ plan, Couch is looking at the following year with great concern.

She said that one-time money like Hogan’s $300,000 being used to shore up this year’s budget, the district may start the 2017-18 school year $1.4 million in the hole, which could balloon up to $1.9 million.

“We might be forced into looking at consolidation again,” Couch said May 26.

Still, Couch is grateful that the commissioners are willing to work with the district. She expects to meet with them after this year’s Sept. 30 enrollment count is finalized to start planning for the following school year.

“Because we will need to work collaboratively to get through this,” she said.

The commissioners have discussed adding a question to the November general election ballot, asking if county residents would be amenable to a tax increase to benefit schools.

“I think the decision is with the people, whether they want to raise taxes and keep the school system operating the way it is today,” Fithian said at the May 10 budget workshop.

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