Compromise Bill Contains No Changes to Net School Spending Language

In a previous post (Lynn School Finance FY13 & FY14) we looked at Lynn school finance information for past two fiscal years including the current one, FY14. It was noted that Lynn spent approximately $8.5 million under the state mandated net school spending (NSS) figure in FY13 and that this figure has ballooned to about $15.7 million for the current fiscal year. The state does allow some wiggle room in terms of cities and towns spending under the required amount up to a 95% threshold. Amounts not spent up to 95% are carried over to the next fiscal year which accounts for some of Lynn's increasing net school spending over its foundation budget. For the past two fiscal years, however, Lynn has been under the 95% threshold (94.9% in FY13, 91.9% projected for FY14) which according to state guidelines can result in a number of penalties including "non-approval of a municipality's tax rate, enforcement action by the Attorney General, or loss of state aid." Because Lynn spent less than 95% of the NSS amount for school year 2012-2013, Lynn saw a loss of $300,565 in state aid for the current school year; if the projected numbers hold, the loss will be $7,030,507 for school year 2014-2015. The Department of Elementary and Secondary Education does allow for the repayment schedule to be spread over a two-year period as opposed to one which could potentially mean a reduction in Chapter 70 money for both fiscal years 2015 and 2016 instead of seeing that loss all in FY15.

While there are other districts that spent under the required amount in the current fiscal year, Lynn's case is unique in that a December audit revealed that certain budget allocations were being counted toward the NSS amount that should not have been. Lynn had been previously counting retiree insurance costs toward the net school spending amounts but a letter dated February 14, 2014 from Massachusetts Education Commissioner Mitchell Chester noted that Lynn is not permitted to count these costs towards its NSS. Per the state budget (pg. 36, 1661-1669), "Insurance for Retired School Employees...will count toward the net school spending requirement only if it was reported on the FY92 End of Year Report Schedule 19 for FY93." This rule apparently did not apply to Lynn which means that the city cannot count retiree insurance costs towards its NSS at this time. The town of Palmer found itself in an identical situation this year as well. A July 2013 report lists Lynn's underage amount in NSS for FY13 as $460,855; after the discrepancy had been noted and the audit complete, this figure increased to the $8.5 million dollar figure previously mentioned. 

On February 14th, the Daily Item reported Lynn Mayor Judith Kennedy as saying that she was "working closely with officials at DESE [Department of Elementary and Secondary Education], our financial departments and the state delegation,” and that “We are steadily moving toward a resolution.” Two weeks later the Item also reported that according to State Representative Robert Fennell (D-Lynn) the State Senate was reviewing legislation that would resolve Lynn's school spending issue by allowing a 4 year phase-in of retirees' insurance costs (Bill S.2011, Section 24). Specifically the bill states:

For fiscal year 2014, the commissioner of elementary and secondary education shall begin a 4-year phase in of equal increments to include health care costs for retired teachers as part of net school spending for any district in which the costs were not considered part of net school spending in fiscal year 1994. For fiscal year 2014, 1/4 of the cost shall be included in calculating fulfillment of net school spending requirements...

...provided further, that during the 4-year phase in period authorized under this section, the commissioner may waive penalties associated with deficiencies in net school spending requirements up to an amount that can be attributed to non-inclusion of health care costs for retired teachers if the commissioner approves a schedule submitted by the district to meet the requirements not later than at the end of the 4-year phase in period.

The net school spending language included in the Senate bill was among one of the differences between the House and Senate supplemental budgets. On March 11th, the conference committee on this issue agreed to compromise bill H3947 which did not include any changes to law regarding net school spending. A separate report indicates that the net school spending language was "held" in committee. There is also a second bill, S.1957, that has been proposed by sponsors Stephen Brewer (D-Barre) and Todd Smola (R-Palmer) which more simply states:

...the commissioner of elementary and secondary education shall not include deficiencies in net school spending requirements attributed to the non-inclusion of health care costs for retired teachers when calculating state school aid distribution reductions under section 11 of chapter 70 of the General Laws in fiscal year 2014.

According to the bill's history, there was a hearing held on the matter on February 3, 2014 but nothing reported after that date. Fiscal year 2014 ends on June 30, 2014. 

Aside from a legislative intervention, in order to avoid the $7 million penalty, the city would have to, at a minimum, meet the 95% threshold by spending $172,954,698.15 instead of the currently budgeted $166,338,461 school spending amount. Discussion of this issue is on the agenda for the School Committee meeting scheduled for tomorrow, March 27th at 7pm.