The Marlington School District has operating cash reserves in place to pay bills on time till July of 2023. At that date, the district will have spent all of its CASH RESERVES and will solely rely on cash as it is received to meet payroll and operating expenses.
Historically, Marlington has maintained a cash reserve that could pay bills for 90-120 into the future. Treasurers and financial officers of public and private organizations apply use this generally-applied approach to ensure their organizations maintain adequate cash for immediate needs, such as economic downturns (2007/08), emergency building repairs, and hiring influxes, to name a few. A 90-day period for cash reserves is considered healthy by auditors. who have reviewed Marlington’s books in the past.
When reserves are depleted, at zero or as a negative balance, payroll and operating expenses cannot be paid on time, or only as revenue is received into the checking account. Think of your own checkbook: you can’t pay bills unless you have a positive balance (cash reserve) in your account.
Currently, the school board is spending $2.6 million more than the revenue it receives (spending deficit) for this fiscal year, 2022. Marlington’s current cash reserve of $7.6 million offsets this and will leave then a $5.0 million reserve in June of next year.
For the next fiscal year, 2023, the school treasurer has forecast another $2.6 million spending deficit which will then deplete the cash reserve balance to $2.4 million. The following fiscal year, 2024, has a forecast of a $4.0 million spending deficit , leaving a NEGATIVE cash reserve of $1.6 million. That means, Marlington will owe more for payroll and operating expenses than it collects from state and local taxes revenues. (Link to current 5-year forecast)
HOW DID WE GET HERE?
For the past 20 months the school board has spent OPERATING REVENUE on capital projects (building remodeling) and an attorney who seemed to largely work for the board president. Extensive building projects should be funded with PERMANENT IMPROVEMENT money that is collected via a tax levy or state grants, separate from OPERATING FUNDS. The board declined these two options and instead used the OPERATING FUNDS slated for payroll and operating expenses. Having promised that NEXUS monies would be used “as they come in” to make the building repairs, they took out a $4.7 million loan to do the work BEFORE the NEXUS monies were collected to finish said repairs, and lost the deeds to the three elementary buildings to the bank.
THE POTENTIAL RAMIFICATIONS OF LOW RESERVES
Reserves are an indicator for treasurers to know how much cash on hand is available to pay bills and meet payroll for the coming months. Marlington ended fiscal year 2021 (June) with 7.6 million dollars in reserve, thus the treasurer knows it has enough to pay expenses and payroll for the next 104 days, if all revenue were to be directed toward an emergency. Of course, local and state revenue is always coming into the district, so the 104 days can be maintained as long as no major capital expenditures are undertaken. 104 days is slightly more than three months of bill paying and is the range of generally accepted accounting threshold for treasurers to maintain.
Marlington will end the current fiscal year 2022 (ending June 2022) with a reserve balance of $4.9 million. This means the treasurer can meet payroll and operating expenses for the next 69 days.
Marlington will end fiscal year 2023 with a reserve balance of $2.4 million, meaning it can pay bills for 32 days if all other sources dry up and no major repairs or emergencies occur.
Fiscal year 2024 will end with a reserve balance of NEGATIVE $1.6 million. Payroll and expenses will be 21 days in ARREARS.
Fiscal year 2025: negative reserve balance of $6.8 Million, 87 days in ARREARS. As in your household, you maintain your checking account to pay monthly expenses. A school treasurer uses the reserve balance to ensure the district stays solvent. However, the treasurer can only use this indicator to advise the school board. Ultimately, the school board authorizes spending resolutions and controls how much reserve balance is maintained.
POSSIBLE TIMELINE TILL THERE IS STATE ACTION
Refer to attachments from the Ohio Department of Education website concerning Fiscal Caution, Fiscal Watch, and Fiscal Emergency. The State of Ohio Department of Education has guidelines and actions it may take for corrective action. Reference to operating deficit percentages are mentioned and I have provided the table below as it applies to Marlington.
Percentage of OPERATING DEFICIT against previous year’s operating revenue:
2022 10.5% (current)
2023 10.8% (forecast)
2024 16.5% (forecast)
2025 21.8% (forecast)
There is a suggestion afloat that a huge solar farm will be erected in Washington Twp. which will provide a large revenue windfall for the district. Is this a fact and if so, to what magnitude and timing will this occur?
We do not know much more about this than what you may know. We found about it recently as well. Our question is whether this could be taxed for property value as a utility. There are classifications of property that have different appraisal methods and tax rates: residential, agricultural, commercial, industrial, utility, and mineral.
Taxes are always collected in yearly arrears. So, a project completing in 2021 will not have its taxes show in county and local coffers till 2022.
The board majority chose to forgo state grants and voter approval for taxes to pay for the capital improvement projects on all three elementary buildings. Operating Revenue from operating levy taxes were used instead. Now, the current board and administration are advocating raising these OPERATING REVENUE TAXES.
Unfortunately, either voters approve new monies from taxes or there will be drastic cuts. The superintendent says $3,000,000 is needed from a levy. However, according to the budget forecast, $5.1 million is needed to get us through 2025 at current spending levels.