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Auditor’s review highlights financial stress for districts

Tight state funding and enrollment declines in some areas have taken a toll on the financial health of more and more Colorado school districts, according to a new report from the state auditor.

According to the report, in the 2012-13 school year, 20 districts missed two of more of the financial benchmarks the Office of the State Auditor uses to evaluate the financial health of districts. In 2011-12, only nine districts missed two of more benchmarks.

In 2012-13, a total of 76 districts missed one or more benchmarks, compared to 48 the year before.

Most of the 20 districts missing two or more benchmarks were small and rural, and several of those also experienced declining enrollment, which further stretched their finances. State K-12 funding cuts and the cost of construction and maintenance needs forced many districts to dip into their reserves. One of the auditor’s benchmarks relates to reserves.

“Rural districts, particularly on the eastern plains, are showing signs of financial stress,” Crystal Dorsey, deputy state auditor, told the Legislative Audit Committee Monday morning. She said 15 of the 20 district have 1,000 or fewer students.

Leanne Emm, associate commissioner at the Colorado Department of Education, agreed that eastern Colorado districts have been hardest hit.

She noted that 12 of the 20 districts have fewer than 400 students and most have declining enrollments. “Normally those have maybe one building,” she said. “You cannot cut your fixed costs” when enrollment drops.

“You still have to turn the lights on, you still have to maintain the building, you still have to have your principal, who’s probably also the superintendent. … So these small districts are going to see significant strains.”

Emm predicted that even more districts will be on the missed-benchmarks list next year after the auditor reviews district information for the 2013-14 school year.

“Absolutely there will be more,” she said. Even though state K-12 funding has improved somewhat, “You can’t pull out of it that fast,” she said.

Only one of the 20 districts, 64-student Silverton, missed three benchmarks. In a response provided to the auditor, the district said it debt burden was up because of a 2010 bond issues, its operating margin and fund balance ration were down “due to severe decreases in state funding.”

The only larger district that missed two benchmarks in 2012-13 was 9,257-student Pueblo 70. District officials told the auditor’s office that “the district has made multiple cuts over time, however, without the spend-down of reserves, drastic cuts would have been required and the impact on student achievement would have been devastating.” Pueblo 70’s use of reserves affected its operating margin and the amount of change in its fund balance, two of the benchmarks.

Two of Colorado’s largest districts, Jefferson County and Adams 12-Five Star, missed two benchmarks in 2011-12 but none in 2012-13. The annual Colorado School Districts Fiscal Health Analysis report includes information from a three-year period.

The period covered by the new report was a time of budget cuts for districts. In 2010-11, statewide average per-pupil funding was $6,814, down from $7,078 in 2009-10.

In the following year, 2011-12, the statewide average was $6,474. That rose very slightly to $6,479 in 2012-13.

Small rural districts receive significantly higher per-pupil amounts than the statewide average – more than $15,000 per student in a few cases. But at that amount even the loss of a few students can have significant financial impacts.

The annual district financial health study is not an audit in that it doesn’t assess the compliance of districts’ financial practices with accepted procedures. Every district is required to have an outside audit done annually, and Emm said CDE didn’t find problems in the latest round of audits.

And, auditor’s office staffer Gina Faulkner noted, “Missing the benchmark might not necessarily mean there’s a problem.” But the report does highlight the steps some districts have had to take to maintain programs during a time of budget cuts.

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