Leaders Explain Why Capital Improvement Funds Aren't Used to Cover Salaries

By Amber Lester Monday, March 22, 2010

As school divisions trim expenses to meet multimillion-dollar shortfalls, many citizens wonder why they move forward with construction plans.

It seems easy enough. If a division has to eliminate positions, can’t it just use money set aside to replace a roof?

Williamsburg-James City County School Board member Elise Emanuel asked that question during a March 16 joint meeting between the school board, the James City County Board of Supervisors and the Williamsburg City Council. Her query was reiterated later that night at a public hearing, where education advocate Bill Bryant encouraged the board to ask for authorization to transfer capital improvement funds to the operating budget.

So why won’t schools seek that option? The simple answer is that it wouldn’t be good money management, according to local officials.

The operating fund pays for recurring expenses, such as payroll, utilities and supplies. The capital improvement fund pays for expensive items that won’t need to be replaced for at least five years; borrowing money is also common practice to fund capital improvement projects.

If the school system were a household, the operating fund would be the money spent on mortgage payments, groceries and utility bills. The capital improvements fund would be akin to a child’s college savings account: money you do not want to touch.

Williamsburg City Manager Jack Tuttle said dipping into money set aside for a one-time expense doesn’t fix the problem because the money would not only disappear from the savings account, but wouldn’t cover the operational expense the next time it was due. “That’s why you don’t want to use money that’s been dedicated as one-time money,” he said.

Since many capital improvement projects are funded with borrowed money, the money needs to be spent for its allocated purpose in order to be honest with the lender. “It would be like doing an equity account to go out to restaurants more often,” said Scott Burckbuchler, assistant superintendent of finance for WJCC schools. “You don’t want to borrow and pay interest on money that’s borrowed for recurring expenses.”

He said school systems, by law, cannot run a deficit. “We need to make sure to cover our expenses within the given year,” he said. “It’s a requirement we all take seriously and that is because we want to live within our means.”

WJCC has a contract with both the city and the county that dictates how any surplus would be spent. If money is left over at the end of the fiscal year, WJCC can keep $500,000 to invest into operational funds. Any remaining money in the surplus can either go into the capital improvements fund or be returned to the localities, on the premise that the school system was overfunded.

“It’s designed so that if they end up with a good size surplus, they could not commit to new operating costs they could not support in the future,” Tuttle said. “It’s a more conservative way to do your financing so you don’t wake up one day with an impossible budget.”

In other words, it wouldn’t be a good idea to spend a tax refund on a puppy, which brings with it a host of new recurring expenses.

The contractual agreement is reviewed every five years; the current contract will be reviewed in a year and a half. During the contract review, the city and county also determine how much each locality will contribute to the school system.

While the school system can’t request a transfer of funding from the capital improvements fund, it can ask the localities for more operational funding. At its March 17 work session, York County’s school board discussed asking the board of supervisors for an additional $602,000 to save the positions of 10 teachers and six para-educators.

If parents and citizens wanted to see Williamsburg or James City County offer more funding to schools, they should come to the city council or board of supervisors with suggestions of how to cut the budget elsewhere, Tuttle said.

“I think the issue isn’t capital fund versus operating fund; it’s how much money can our taxpayers afford year after year?” he said. “That’s what the board of supervisors and council are elected to decide. If people want more funding for schools, they should come tell the council, ‘You ought to raise these taxes.’”

He said the city is giving the school system level funding, and it isn’t easy. “We’re digging deep to keep school funding level in this time of seriously declining revenues,” Tuttle said.

Williamsburg is contributing $6,979,332 to schools, a 0.1 percent increase over the previous year. James City County is contributing $73.8 million, a 0.8 percent decrease over the previous year. Of WJCC’s total funds of $130.9 million, $109.6 million is designated for the operating fund and $10.2 million is in the capital improvements fund.