Colorado school finances get failing grade Some Northeast Colorado districts improving, while others worsen By Marianne Goodland Journal-Advocate legislative reporter Posted: 06/15/2015 07:03:15 AM MDT

Last week, Colorado got an "F" for its efforts in school funding from the New Jersey-based Education Law Center. You won't find many school superintendents in Colorado who would disagree with that grade. The ELC report, released June 11, looks at public school finance nationwide, including the "level and distribution of school funding within each state in relation to student need." The most recent report looked at funding levels from 2007 to 2012. Colorado got the "F" based on school funding compared to the state's fiscal capacity, an indicator that measures the value of industry-generated economic activity. The state earned a "C" on funding distribution, which compares per-pupil funding across states. Colorado ranked 37th on that measure. The ELC report comes on the heels of an analysis from the state auditor last week that looked at the fiscal health of the state's school districts. The analysis found 28 out of the state's 178 school districts show significant signs of financial stress. The most common problem is that after years of budget cuts, school districts are relying on reserves to pay the bills. The state report, which is done annually, looks at a three-year rolling average on five indicators. This year's analysis looked at indicators for fiscal years 2011-12 through 2013-14. Advertisement State auditors told the Legislative Audit Committee on June 2 that all school districts are showing signs of financial stress, the result of a $1 billion budget cut in state funding to the districts that began in 2009. In the past two legislative sessions, lawmakers have restored $125 million, far short of what school superintendents believe is necessary to get the districts back to fiscal health. Superintendents have twice written to the governor and the General Assembly, asking them to find a way to restore the funding at a time when enrollments continue to climb. Auditors noted that in the last three years, more districts show significant financial stress. Nine school districts missed two out of five financial benchmarks in 2012; 48 had at least one failed benchmark. Twenty had two failed benchmarks in 2013, and 28 had two or more in 2014, with 70 that had at least one failed benchmark.

Five of the 28 had three or more missed benchmarks; one, Pueblo County Rural 70 School District, missed four out of the five. Two districts in northeastern Colorado were included in the 28 with warning signs of stress: Frenchman RE-3 in Logan County, and Brush RE-2(J) in Morgan County. Both showed negative trends on an analysis of revenues to expenditures, and using general fund reserves to pay operating expenses. A general fund reserve is the amount of state funding in reserve for each district. It does not represent the total reserve of a district, which also includes local funding from property taxes. Fifteen of the 28 school districts in financial stress have enrollments of 1,000 students or less, which falls under the state definition of small rural schools. Frenchman has an enrollment of about 200, with 12 more students in the past three years. Brush has an enrollment of 1,478, up 50 in the past three years. The Brush school district had an "A" year in 2011-12, with no indications of financial stress. The next year was a different story. In fiscal year 2013, the district had to tap $350,000 from its general fund reserve to pay operating expenses, and that triggered one of the fiscal benchmarks. The following year was worse, with another $500,000 taken from the reserve to pay bills. In 2013-14, the district reported more expenses than revenue, showing a failure for the second fiscal benchmark. A district response contained in the report said they were aware they would have to draw down the general fund reserve in those two years. They blamed the budget cuts and continued state underfunding of school finance, but pledged they would not draw down the reserve any further in the 2015-16 budget. Warren Walker of Hillrose, president of the Brush RE-2(J) school district, pointed out the board uses a "zerobased budgeting" approach, which require them to annually look at all expenses and then budget to those expenses. The June 30, 2014 independent district audit showed the district had $11.5 million more in assets than liabilities. The audit also pointed out the district has $3.1 million in unrestricted dollars that can be used for ongoing obligations, such as paying for debt. The district has a total reserve (all funds, including property taxes) of $5.1 million, with $1.8 million available as the general fund reserve addressed by the state audit. The Frenchman district triggered the same two financial benchmarks in the audit; more expenses than revenue and a dwindling reserve. They had the same track record as Brush: no missed benchmarks in 2012, one in 2013 and two in 2014. The district drew down its general fund reserve in 2012-13 by $125,000 and by $180,000 in 2013-14, leaving the general fund reserve with less than $1 million. In their response, the district said state funding has been cut by $1.5 million since 2009. Frenchman was one of nine districts that reported increases in the cost of maintenance and repair. For Frenchman, that included buying a new school bus and technological updates. First-year Frenchman RE-3 Superintendent Steve McCracken told this reporter that the state report was an "eyeopener" on Colorado's public schools. "This is the condition of funding and financing of schools in Colorado," he said, addressing the overall increase in the number of struggling districts. McCracken said the purchases of the school bus and computer equipment were a one-time event and he expects revenues to exceed expenditures in the 2015-16 budget. He pointed out the district's auditor has said the district

is in good financial health and its operating reserve would cover expenses for six months, well above state requirements. The news wasn't all bad from the state report. Five districts in northeastern Colorado improved on their signs of fiscal health. Valley RE-1 in Logan County went from two signs of stress to one. The district continues to tap its general fund reserve to cover expenses, but at a much lesser rate. In 2012, the district had a general fund reserve of $4.92 million. It tapped more than $500,000 of that reserve in 2013, which put it on the watch list. In 201314, the district took another $125,000 out of the reserve, leaving an ending balance of $4.25 million. Holyoke RE-1(J) in Phillips County also went from two benchmarks indicating stress to just one, and for the same reason: reliance on the general fund reserve. The reserve started in 2012 at $1.6 million, and in 2013 it went down to $1.4 million. In 2014, the district took about $70,000 out of the reserve for their operating expenses. One success story came from Weldon Valley RE-20(J) School District in Morgan County, which went from two indicators to none. Their reserve in 2011-12 was $1.48 million. The district used a little more than $67,000 to pay its bills in 2012-13. But they didn't tap the reserve at all in 2013-14, and it now stands at $1.42 million, allowing at least some of its general fund increase to remain in the bank. Superintendent Doug Pfau was not available for comment. In Yuma County, two school districts also improved on their indicators of financial stress. Liberty J-4, which had two indicators in both 2011-12 and 2012-13, went to one in 2013-14. Its general fund reserve was at $842,974 in fiscal year 2012; it dropped to $589,641 the following year and to $499,558 in 201314. The district had more expenses than revenue in 2012-13, which was the second benchmark that year. The report released last week does not provide any detail on the district's 2013-14 revenues versus expenses, but it is no longer listed as a failed benchmark. Wray RD-2 dropped down to just one indicator in fiscal year 2014: its reserve. In fiscal year 2012 the reserve was at $2.8 million; the district tapped about $400,000 for expenses in 2013 and about $135,000 in 2014, leaving it with an ending balance of $2.28 million. As with Liberty J-4, the district's revenue and expenses benchmark is no longer listed as a problem. http://www.journal-advocate.com/sterling-local_news/ci_28313251/colorado-school-finances-get-failing-grade