MIDDLETOWN AREA SCHOOL DISTRICT Finance Committee Meeting September 15, :00 p.m. MINUTES

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1 MIDDLETOWN AREA SCHOOL DISTRICT Finance Committee Meeting September 15, :00 p.m. MINUTES Members in attendance were: Newt Davis, Terry Gilman and Barbara Layne Members not in attendance were: Gordon Einhorn Non-Voting Members in attendance were: Linda Mehaffie Staff/Public in attendance were: David Franklin and Lori Suski, District Administrators and Staff; Bruce Hamer, Interested Citizen. Opportunity for Public Comment No one addressed the committee at this time. Communications Discussion Item / Possible Action Item PSERS Employer Contribution and Charter School Payments: The committee discussed the opinion of the Pennsylvania School Boards Association s (PSBA) General Counsel that PSERS employer contributions and a portion of charter school payments could be delayed due to the state budget impasse and the memo from the District s solicitor (KKAL) regarding the communication from PSBA. Mr. Franklin noted that the KKAL memo encouraged discussion of the options that exist and the potential ramifications of those options. Mr. Franklin referenced the background information in the KKAL memo regarding the state s legal obligation to reimburse school districts for approximately 50% of the cost of employer PSERS contributions. Mr. Franklin said that after the District receives its share from the state it is required to pay 100% of the employer contributions to PSERS within 5 days. The committee discussed the essence of the KKAL memo whether school districts are required to make any PSERS contributions until school districts receive the approximate 50% share from the state given the statute wording. Mr. Franklin referenced the PSBA communication that schools are not required to make any contribution to PSERS until they receive their share from the state and the PSERS rebuttal indicating that school districts are required to make the net share of the payment representing the school district s portion. The committee discussed the PSERS statement that school districts could face a 6% interest charge for delinquent payments in reference to the current interest that can be earned with rates less than 1%. The committee considered the three options in the memo from the solicitors: 1) delay making all PSERS employer contributions until the state provides its share; 2) make the net employer contribution as suggested by PSERS; and 3) make the full employer contribution that would have normally been required despite the fact that the state has not provided its share. The committee agreed with the administration and selected option 2 as the best option for the District to take, so that the District would not face a potential underpayment penalty (option 1) or utilize local funds for something that is supposed to be the state s responsibility (option 3). Mr. Franklin said that the KKAL memo suggested that a Board vote occur if the District chooses to delay payment. Mr. Franklin is going to obtain clarification if the suggested Board vote is for use of option 1 only. The committee recommended that a motion be placed on the Board agenda if the solicitor suggests that it is necessary for use of option 2. Mr. Franklin said that PSBA also said that school districts may be legally justified to reduce the amount of payments to charter schools to reflect the lack of state subsidy payments. Mr. Franklin said KKAL commented that PSBA presents novel arguments,

2 but the Charter School Law does not authorize delayed payments. Mr. Franklin said KKAL also noted that the recourse charter schools would have when a school district fails to make payment is for the state to withhold the amount from that school district s state subsidy payment. Mr. Franklin explained that the charter school payments are recalculated by the Pennsylvania Department of Education several times during the year when the Annual Financial Report (AFR) and average daily membership for the prior year are finalized. Ms. Layne asked about the amount paid to charter schools and Mr. Franklin explained how the payments are calculated in response. Mr. Franklin did not recommend paying less than the amount billed on charter school invoices. The committee agreed with Mr. Franklin s recommendation. Information Item Moody s Downgrades: Mr. Franklin reviewed communication from Moody s indicating that credit ratings for many Pennsylvania school districts have been downgraded due to the financial issues in Pennsylvania. Mr. Franklin said that many school districts are able to get an enhanced rating because of the Pennsylvania intercept program which enforces payment of school district debt because the Secretary of Education has the ability to withhold current or future state subsidies to school districts when the school district defaults in making debt service payments. Mr. Franklin said that the action taken by Moody s is a result of the state s chronically late budgets and the lack of clarity surrounding its ability to honor intercept obligations in the absence of an approved and implemented budget. Mr. Franklin said that Moody s rationale notes competing priorities for school districts when a budget has not been passed, including PSERS obligations and charter school payments. Mr. Franklin said that the communication provided information on what could prompt Moody s to upgrade the ratings and what could prompt further downgrades. Mr. Franklin said that the only District bond issue on the Moody s listing for downgrade was the General Obligation Series of 2008 bonds which were called earlier this month. Mr. Franklin said that MASD is not required to publish a material event notice since it is not impacted by the downgrade. Agreements Action Item Nonpublic Title I Services: Mr. Franklin reviewed an agreement with Capital Area Intermediate Unit to provide nonpublic Title I services during the school year at a cost of $12, using the per pupil allocation of Title I federal funds. Action Item Professional Negotiations Agreement with Middletown Area Education Association: Mr. Franklin said that the School Board met in Executive Session following the August 24 School Board meeting to discuss contract negotiations with Middletown Area Education Association (MAEA). Mr. Franklin said that the solicitor has reviewed the tentative agreement and had a few minor suggestions to clarify language. Mr. Franklin said that the administration met with some members of the MAEA negotiations team yesterday to discuss the possible wording adjustments that do not change the intent of the language. Mr. Franklin said that the tentative agreement will be reviewed by both sides one additional time to make sure that all of the changes capture the intent of both sides. The committee recommended that the agreement be moved to the Board agenda for approval. Mr. Franklin said that the final draft of the agreement will be attached to the September 28 School Board meeting agenda. Resolutions Discussion Item Annual Tax Levy Resolution: Mr. Franklin said that a question was

3 raised about the extended discount period that the District has for real estate tax payments and whether there was a significant financial impact. Mr. Franklin said that the notes to the audited financial statements for the year ended June 30, 2003 indicate that the end of the discount period was changed from August 31 to September 30 that year as a result of the late adoption of the state budget. Mr. Franklin said that the School Board adopted the budget on July 22, Mr. Franklin said that after the school year, the District kept the end of the discount period as September 30. Mr. Franklin said that over the past several years, it has been helpful to have the discount period end on September 30 in order to ensure that the District complies with the requirement to have a 60-day discount period. Mr. Franklin said that several factors have led to tax bills being mailed after July 1 in the past and noted that the only time bills were mailed prior to July 1 in the past 10 years was for the school year. Mr. Franklin said that the District does not receive the tax file from Dauphin County until after June 15 each year and that since Act 1 has been in place there is more work to upload the information into the tax software and verify its accuracy along with ensuring that homestead/farmstead exclusions are properly calculated before releasing the file to the bill printer. Mr. Franklin said that the bills cannot be finalized until the budget is adopted for the year and the millage rate is determined. Mr. Franklin said that the date of the June Board meeting has a big impact on the amount of time that is available to complete these calculations prior to July 1. As an example, Mr. Franklin said that the fourth Monday in June 2016 is June 27 and that would likely be the Board meeting date when the budget and the millage rate would be set. Mr. Franklin said that there would only be three days after the Board meeting prior to July 1. Mr. Franklin said that if the Board meeting were one week earlier on June 20, the Finance Committee meeting date would need to be changed as well as the May School Board meeting date since there must be 30 days between the School Board approving a proposed final budget for review and final adoption. Mr. Franklin said that the current printer said that it is necessary to have the bills ready for print two weeks in advance of the July 1 date if we want to ensure that they are distributed on or before July 1 and that would be very difficult given the County s release date of the tax file. Mr. Franklin provided information on the financial impact of the delayed payment deadlines. Mr. Franklin said that if the end of the base period was August 31 instead of September 30 last year and all taxes paid in September were paid by August 31, the District would have earned $2,650 more in interest for the year. Mr. Franklin said that if the end of the base period was October 31 instead of November 30 last year and all taxes paid in November were paid by October 31 then the District would have earned an additional $189 in interest for the year. Mr. Franklin said some taxpayers may not be able to pay the bill one month earlier if the discount period ended August 31 and the number of taxpayers electing the installment method may increase. Mr. Franklin said that the District may need to look at a different printer and different tax software if part of the problem is the communication between the tax file and the software. Mr. Franklin said that the business office had started to look at other tax software two years ago because the software is not the most user-friendly but identified other disadvantages in some of the software, and the annual cost was higher for some of the packages. Mrs. Mehaffie asked about the software used by Dauphin County and whether the District looked at whether that could be used by the District. Mr. Franklin said that the administration met with Janis Creason of Dauphin County when different software was considered, but there would have been an impact on the District s lockbox processing with that

4 software at that time. Mr. Franklin said that administration will contact the County and see if that software would meet the District s needs at this time. Mr. Franklin said that the Board meeting calendar for 2016 will be approved in December, so any change to the current process would need to be decided by December. Mr. Franklin said that he will gather information on the capabilities and costs of other bill printers and tax software and bring that information back for further discussion at a Finance Committee meeting before December. Exonerations Policies Adjournment Discussion Item / Possible Action Item Exoneration Request: Mr. Franklin reviewed a letter from Lower Swatara Township seeking exoneration of the tax bill for parcel Mr. Franklin said that the tax bill was initially mailed to MRPI Fulling Mill LP, but the District received communication from Dauphin County that property ownership changed on July 21 to Lower Swatara Township. Mr. Franklin said that Lower Swatara Township received tax exemption for the parcel on August 10, 2015 and that Dauphin County said that as a matter of practice the tax exemption is generally effective for the next billing cycle, which would be July 1, 2016, unless the Board of Assessment Appeals dictated an effective date. Mr. Franklin said that the base amount of the tax bill is $8, Mrs. Mehaffie asked whether the amount of the bill would be prorated due to the change in ownership and the effective date of the tax exemption on January 1. Mr. Franklin said that the exemption is for the next billing period, which would be January 1 for the County and Township and July 1 for the School District. Mr. Franklin said that the tax bill is based upon the bill date of July 1 and that if any proration of the tax bill were to occur that should have happened at settlement. Mrs. Mehaffie explained that the parcel is in the flood zone and nothing can be built on it. Mrs. Mehaffie said that the Township intends to use the parcel for soccer fields. The committee expressed concern about granting the exoneration request and losing the revenue if the County has not dictated the requirement. Mr. Franklin commented that the District is paying an annual tax bill to the County and Lower Swatara Township for a parcel that is not being used for tax exempt purposes. Mrs. Mehaffie asked why the District is paying a tax bill. Mr. Franklin said that when the parcel was purchased prior to construction of the Middle School, the District was told that it did not qualify for tax exemption because it did not meet use requirements. Mr. Franklin said that the attorney that provided the guidance to the District no longer works at the District solicitor s office and that he would ask whether the guidance that was provided in the past is still true. The committee noted that the tax exemption on the parcel would be effective for future years but was not supportive of granting the exoneration request and losing the revenue for the current fiscal year. Mr. Franklin said that he would ask the solicitor if the School Board would need to take action to deny the exoneration request. Subsequent to the committee meeting, the Township solicitor contacted Mr. Franklin and indicated that the exoneration request was unnecessary as the Township had an agreement with the previous owner that the previous owner was going to pay the tax bill. Information Item Disposal of Unused Equipment: Mr. Franklin reviewed the listing of unused equipment for disposal. Mr. Franklin said that the items are not used. Mr. Franklin said that the majority of the items on the list are TVs and projectors. Mr. Franklin said that the District will pursue disposal on the Public Surplus auction site before disposing of the items. (See Attached Listing) The meeting adjourned at 6:49 p.m.

5 The following list of equipment has been deemed inoperable as of September 11, These items should be removed from inventory and disposed of following applicable disposal guidelines. Location Item Asset Tag Number Comments HS ELMO HP-L3550H Over Head Projector 2696 Fink Porta.Scribe, model G-100SS, S/N Kunkel TV 2330 Kunkel ELMO HP-L3550H Over Head Projector 2183 Kunkel ELMO HP-L3550H Over Head Projector 2620 Kunkel RCA Color Trak TV Kunkel HP Laser 5MP Printer Kunkel Orion TV Kunkel JVC - VCR & DVD Combo - model 103R Kunkel ELMO HP-L3550S DX Over Head Projector 2622 Kunkel ELMO HP-L3550H Over Head Projector 2181 Kunkel ELMO HP-L3550H Over Head Projector 2736 Kunkel buhl 2900 Over Head Projector Will try to sell the items on the auction site.