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Fiscal health of districts analyzed

Financial practices in 43 Colorado school districts triggered “warning indicators” in the three fiscal years ending on June 30, 2008, the Legislative Audit Committee learned Monday.

Serious problems were found in two small districts, Centennial in San Luis and Branson in Las Animas County. Centennial had four of six warning indicators, and Branson recorded three. Of the other 41 districts, 28 districts had one indicator, and 13 had two.

The Colorado Department of Education previously intervened and worked with both districts, including providing loans. A department official and district superintendents testified about what steps have been taken to correct the financial problems.

The document, titled Fiscal Health Analysis of Colorado School Districts, is somewhat historical, given that it the data is now more than a year old, and representatives of the State Auditor’s Office noted that it doesn’t reflect more recent corrective steps that districts may have taken. They also warned that the process doesn’t catch all financial problems because it doesn’t include districts with just one or two years of warning indicators.

Still, Vody Herrmann, assistant commissioner for school finance, said the study provides valuable information to CDE and is work the department couldn’t do on its own. (Financial practices are considered when the state accredits school districts.)

It’s been a few years since such a study was done, but reviews now will be conducted annually. “I’m glad to see it back,” Herrmann said.

And, the report is of interest because it highlights the problems created for some districts (mostly smaller) by declining enrollments and slow property tax collections. At the same time it illustrates the intentional financial practices of other districts (often larger ones), such as spending saved-up fund balances for specific projects or to protect jobs.

Centennial (about 217 students) got into trouble because of overspending, due to a misunderstanding of the state aid formula; not setting its mill levy properly to pay off debt; and because of a relatively high level of delinquent property taxes in Costilla County. Earlier this year the State Board of Education gave the district a $321,993 loan, which must be repaid by June 30, 2010. This district has laid off about seven staff members.

Branson (about 513 students) had problems because of declining enrollment and because it over-reported enrollment to the state. It now owes the state about $661,000, which must be paid off by 2016. (State aid to districts is given based on enrollments.) The district was a pioneer in offering online courses to students in other districts, but that initiative has struggled because of increased competition from a growing number of other online providers.

Districts with two warning indicators for 2006, 2007 and 2008 included Aurora, Douglas County, Lewis Palmer, Widefield and nine smaller districts. See Appendix B of the report (linked below) for details on those districts and their responses.

Here are the six warning indicators. To trigger a warning a condition has to exist for three years in a row.

General fund liabilities exceed assets
Debt payments exceed the revenue dedicated to repayment
General fund ending balance would cover less than a week’s operating expenses
Declines in reserves
Previous deficits being paid off by current revenues
Declines in general fund balance

The report is not an audit but is compiled from information contained in the audits individual districts are required to have performed every year. The data time lag is created because districts have six months after a budget year ends to conduct the audit and report to the Office of the State Auditor, which needs additional time to conduct the analysis.

Read the fiscal health analysis. (PDF file. Appendix D lists data for all Colorado districts, including debt service, assets and liabilities, general fund balances and general fund revenue.)

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