County reviews funding agreement with schools

By: Michael Campbell | Twitter: @itsthesoup
Posted: August 5, 2019 | 12:30 p.m.

Returning unspent funds, paying for capital projects highlight discussions

PRINCE GEORGE – A year after supervisors showed their support for revisions to the county’s funding arrangement with the Prince George School Board ahead of the possibility of paying for the construction of a new elementary school, county leaders reviewed suggestions from the school board that detailed what they believe should and shouldn’t be included a revised memorandum of understanding between the two boards.

Gathered at the Central Wellness Center for their first board retreat of 2019, the Prince George Board of Supervisors walked through the school board’s proposed alterations to both boards’ memorandum of understanding, which is a mid-2000s document that provides a basis for what percentage of specific revenue streams the school board would be entitled to receiving to generate the county’s local funding obligation to Prince George Public Schools annually. 

Last year, supervisors agreed to alter the MOU with the school division as the prospect of funding the construction of a new elementary school laid on the horizon, which would require some form of a tax increase to help finance. Throughout 2018, county officials briefed supervisors regarding the fiscal impact of the proposed new school, noting the MOU would need to be altered in order to allow for the proceeds generated from the tax increase to actually generate the capital needed to fund the school. 

Through the MOU, the school division is entitled to roughly 40 percent of every one dollar of tax revenue the county receives from a half-dozen different streams, including real estate, personal property, and local sales tax. 

During 2018, when a real estate tax rate increase of five cents – from 86 cents to 91 cents – was being considered to help generate funds to pay for the construction of a roughly $30 million new school, county officials stressed, if the MOU’s 2007 language wasn’t altered in some way, any tax increase implemented would have to be doubled to receive the proper financing to cover the costs of the project,  with both boards stating they were on-board to revisit and adjust the document. 

 “We do think it is time to revisit it,” Prince George School Board Chair Robert Cox said to supervisors in 2018. “We would like to see our finance director, the county finance director, and the county attorney work on parameters of this and then bring it back to us and start looking at this together. The memorandum of understanding is an important document but it needs to be a working document.”

Later that year in July and eventually adopted by supervisors in February 2019, the revised MOU, while keeping much of its core structure, now allows for additional revenues generated from tax or rate increases to be excluded from the 42 percent revenue share requirement of the MOU as long as the additional revenue is allocated to “school capital expenditures” or “operating and capital expenditures related to public safety.”

Following their meeting in July of last year, the suggested revisions were sent to the school board for consideration and feedback and, according to Deputy County Administrator Betsy Drewry, that feedback came months later in January of 2019, right as supervisors were preparing to begin their budget deliberations for the now-current fiscal year. Due to that, supervisors agreed to provide their local funding contribution to the school system using the revised MOU and to forgo consideration of the school board’s suggestions until after the FY2020 budget was adopted. 

The board retreat was the first time supervisors publicly discussed the school board’s proposed changes to the MOU, which sought to have some language adjusted, including how the percentage of revenue the school division is entitled to is counted, requesting that the prison populations not be included as part of the county’s total population figure used in the formula to determine the revenue sharing percentage. 

Currently, the county’s total population and total school enrollment over a five-year average are used to determine that funding percentage, with Weldon Cooper providing population data, which, according to Drewry, includes the prison population, which has occurred since its inception in 2007.

During their discussion, Drewry explained that it “wasn’t articulated” by the school board which prison population the school board was referring to, with the language they would like Weldon Cooper’s population data used, excluding “the number of persons incarcerated in the prison located in the county.” Prince George is home to both Petersburg Low and Petersburg Medium federal prisons, along with Riverside Regional Jail.

Based on the county’s research, the prison population “varies widely” year-to-year,  with the total prisoner count in the county resting at just over 4,600 in FY2015 and falling to a low of 4,168 in FY2019, with fluctuations in that population between 4,300 to nearly 4,500 between that time. With that information, Drewry advised supervisors the revenue share percentage would rise for the school division if prisoners were excluded, noting the percentage would then have more to do with the change in prison populations rather than the school division’s population, with a financial run showing, if they had excluded prisoners this fiscal year, the school division’s revenue share would have risen nearly two percent to 44.20 percent, or $525,749, despite only having eight more students in the school division. 

Supervisors would opt to follow the recommendation of Drewry and county staff to not change that language, stressing that “prisoners have always been included in county population estimates and [the] number of prisoners [is] not really related to school age population.”

County leaders also declined a recommendation from the school board to modify which revenue streams would be excluded from the MOU for school related capital costs. In their proposal, the school board requested that only real estate tax be excluded from the tenets of the revenue sharing agreement if revenues from the increased real estate tax rate are “allocated to debt service for school construction.” 

According to Drewry, the language would prevent the county from utilizing, for example, a personal property tax rate increase to pay for those costs as that revenue stream would remain part of the MOU revenue sharing agreement, even if the increase was to pay for a school capital project. In addition, the language does, specifically the “[allocation] to debt service for school construction” section, does not allow tax increases to pay for “cash funded” school capital projects to be excluded from the MOU, only  “those increases for school construction financed through debt service.”

The deputy county administrator noted, keeping the language as it is now would allow for any tax increases used for school capital projects to be exempt from the MOU and, keeping its wording as “school capital expenditures” allows for anything from new construction to future renovations to be funded.

Another area that drew questions from supervisors centered around the handling of excess school revenues, which has been the focus of conversations in recent years between both boards. Currently, if the school division believes they have “unspent funds from that year’s appropriation” and believe those funds shouldn’t be reverted back to the county’s general fund, “as provided by State law” the school board must request in writing to have the funds appropriated back to the school board “by giving reasons supporting such request” and “identifying how such re-appropriated funds will be used.”

In past years, the amount of unspent funds can vary, from as little as $408,000 during FY2017 to as much as $1.9 million in FY2016, with the money commonly used for one-time purchases and various projects. 

In their proposed language, the school board recommended dropping the requirement of requesting the funds back from the county, instead recommending, “Revenue from state and federal (e.g. Impact Aid) sources for schools unappropriated in the previous fiscal year shall be appropriated to the school board for the current fiscal year,” reduced by nearly 13 percent as a contribution to the county’s fund balance. 

Drewry recommended that the proposed language not be considered, stating it conflicts with current state law, which allows those funds to return to the county’s general fund, and it does not require the school board to disclose what the unspent funds would be used for. In their discussions, supervisors supported staff’s recommendations.

“We are accountable for the money,” Supervisor T.J. Webb remarked after expressing concerns over the appearance several previously projects funded through unspent funds returned to the school division hadn’t been completed. “It is not good enough to tell the citizens, ‘Once we allot to them, they can do whatever they want to with it.’ That is not right, those are my tax dollars. They need to do what they say they are going to do and maintain assets.”

“I am not in favor of guaranteeing they are going to get that money back unless they are going to show where that money is going,” he continued. “It is not just for the board, it is for the citizens paying their taxes that expect the money to be spent appropriately and maintain the assets we have. The citizens are paying for every piece of material in every building we have. We just have the luxury of using it.”

For Vice-Chairman Floyd Brown, Jr., even though a project may earmarked and funded in the capital improvement plan, he felt there “isn’t a time frame for the citizens to really know” when a project may be completed.

“When you have things that are sitting out there that need to be done when school is out, you would think it would be negotiated and lined up,” he remarked. “You have the funding, you can’t say we are waiting on the money. Get it knocked out, show the public that you are spending the money on the things you said and getting it done.”

Using the feedback from July’s retreat, a new MOU will be drafted and presented to supervisors during the August 13 regular meeting for approval. From there, it would go to the school board for response. Their revisions would be due back to supervisors by October 1, giving them two regular meetings over the upcoming months to review the material. 

When asked by county leaders what would happen if an agreement on a revised MOU can’t be made by both boards, Drewry said supervisors “can operate with the changes they have made” to the Memorandum of Understanding as the school division’s local funding was determined by a version of the MOU adopted only by the board of supervisors in February of this year.

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