Efficiency Recommendation Bills

SB 505 - Cash balances

Hearing Friday, March 11 in Senate Ways and Means (10 a.m.)

Bill targets July 1 2014 balances

The Kansas State Board of Education would determine “that portion of the aggregate amount of unencumbered cash balances” held by each district on July 1, 2014 that is in excess of 15 percent of the “general operating expenditures of such school district for school year 2014-15.”

Total balances over 15 percent of operating expenditures deducted from state aid over 5 years

If in excess of 15 percent of operating expenditures, this amount is to be divided by five and the district’s general state aid would be reduced by the resulting quotient (one fifth of the excess amount) beginning next year and for a total of five years.

As introduced, includes balances in ALL funds

This bill appears to refer to total cash balances in all funds, unlike the original A&M efficiency report which did not include bond and interest, capital outlay, federal and gifts and grants funds. It would also therefore include other funds not associated with general operations, such as insurance reserves, special education cooperative funds, and funds raised by local mill levies.

Based on July 1 balances, not low point

Unlike the A&M recommendation, the bill does not measure balances from the lowest point of the year (to take into account cash flow), but from July 1, which may be the highest point.

Determining impact on individual districts

The bill does not define “general operating expenditures,” so presumably the bill refers to each district’s total expenditures minus capital expenditures and debt service for bonds and other long-term debt.

To determine the impact on your district, compare the total unencumbered cash balances on hand July 1, 2014, with your actual total expenditures less capital and debt service, as reported on your budget form. Assuming this methodology is correct, this KSDE website provides access to each district’s budgeted general operating expenditures. (However, these are August budget numbers, not final expenditures).

Each district’s 2014-15 (July 1, 2014) balance balances are available in a spreadsheet here.

State impact

The budgeted state total for current operating expenditures in 2014-15 was $4,995,466,272. The total cash balance July 1, 2014 was $1,713,794,470. FIfteen percent of total operating expenditures would be $749,319,994, so statewide, total cash balances exceed 15 percent of current expenditures by $964,474,476. Divided by five, this means state aid would be reduced $192,894,890 per year for the next five years.

This amount is far more than originally projected by the A&M, which was a total of $193 million, or about $40 million per year, because the four funds excluded by A&M are about 50 percent of total cash balances.

Implications for Districts:

• The bill is retrospective. Districts would lose state funding based on balances on July 1, 2014, not where they are today or when the bill becomes law.

• Districts would be financially penalized for “excessive” balances when the state has not previously defined “excessive.” In fact, the Legislature most recently removed any limits on contingency funds. If the state sets a maximum for cash balances, districts should have to ability to spend down balances on district priorities to reach that level, not lose state aid.

• Many district funds should not be included. By including all cash balances, districts would be penalized for having money in bond and interest funds (which must be on hand for construction costs or bond payments) and savings for capital outlay projects. Districts would be further penalized by losing state aid for general operating funds that cannot be replaced by balances raised from dedicated mill levies approved by voters or restricted revenues (such as federal aid, food service and student fees) that cannot be used for general operations.

• Reasons for accumulating higher balances are ignored. The bill penalizes districts which have saved funds for capital projects to avoid borrowing and interest costs; for savings for textbook purchases or special transportation and equipment purchases or replacements.

• Setting a limit on operating fund reserves could be an appropriate state policy, with conditions. Caps on balances should limited to actual operating funds, such as those determined by the Legislature in SB 111, and should provide an appeal process for special circumstances, as recommended by A&M. A&M also said districts needed creates stability in state finances to have confidence in lowering reserves.

• Does not consider cash flow needs. Unlike the full A&M recommendation, the bill does not base the calculation of “excess” revenues on the lowest percentage of expenditures during the year, which means districts would be penalized for cash flow requirements. (Similarly, the state general fund requires borrowing from other state funds, called “certificates of indebtedness,” to balance revenues and expenditures during the year.)

• District action. Districts should immediately calculate the impact of the bill based on 15 percent of their 2014-15 actual operating expenditures, compared to (1) total cash balance balances, (2) total cash balances excluding bond and interest, capital outlay, federal and gifts/grants funds, and (3) only SB 111 funds. Share this impact with legislators and community.

Proposed House Bill on Cash Balances

Introduced in House Appropriations March 9, no number available

No details yet available

SB 499 - School District Procurement

Expected hearing next week in Senate Ways and Means Education Subcommittee

Five areas of state sourced procurement

The Secretary of Administration would make agreements on behalf of school districts for the procurement of the following:

1. Maintenance, repair and operations;
2. Information technology equipment, services and software;
3. Food;
4. Electricity; and
5. Fuel

Service centers and other providers

The secretary is authorized to work with service centers or other interlocal cooperatives to achieve the most cost-effective contract for school districts. A service center is defined as any public or private entity that provides administrative services for one or more school districts.

School districts “shall” procure any items above through the state department of administration. Presumably, this means school districts could only procure these items through service centers if the purchase went through the department of administration.

Current contracts must expire by July 1, 2017

Any contact for procurement entered into by a board prior to July 1, 2016 for the items listed above shall expire by July 1, 2017.

State bid law amended for state procurement

The bill also amends the state bid law to exempt from the bid process those items purchased through the department of administration.

Implications for districts:

• No local or non-state purchasing. The bill would preclude any purchasing of the five items listed in the bill except through the state department of administration, regardless of cost or quality. It would appear to restrict school districts from negotiating for better prices or service outside of the state process.

• Does not distinguish between district employees and outsources for services.  The bill does not define “maintenance, repair and operations” or IT “services,” so it is not clear if it would allow district employees to perform these services or if all services have to be contracted through the state.

• Current service center programs. The bill would appear to exclude purchasing these items through service centers or other venders unless approved or administered through the state.

• District action. Districts should immediately review their procurement practices and policies in these areas and evaluate the impact on existing costs, contracts (which must expire by July 1 2017) and relationships. Share with vendors, contractors, Legislators and community.

Proposed House Bill - School District Procurement

Introduced in House Appropriations March 9, no number available.

Five areas of state sourced procurement

Similar to SB 499 in that the Secretary of Administration would make agreements on behalf of school districts for the procurement of certain items:

1. Information technology equipment, services and software;
2. Food; and
3. Fuel.

The committee voted to remove maintenance, repair and operation; and electricity from the items designed by the A&M study.

Exceptions for expenditures within 1 percent of state cost; service center procurement

Like SB 499, provides that school districts “shall” purchase these items through the secretary, but with two exceptions: (1) items may be procured locally if the cost is within one percent of the state cost. (2) such items may be procured through a service center. A service center is defined as any public or private entity that provides administrative services for one or more school districts.

Existing contracts

Although specific wording is not yet available, it appears that like SB 499, any contact for procurement entered into by a board prior to July 1, 2016 for the items listed above shall expire by July 1, 2017.

Places all “services” over $20,000 under state bid law

Like SB 499, the bill also amends the state bid law to exempt from the bid process those items purchased through the department of administration.

However, as approved by committee, the bill also amends the state bid law to require that school districts would have use a sealed bid process for all expenditures for “services” greater than $20,000. This would include such services as attorneys, accounting, etc.

Under the current bid law, expenditures greater than $20,000 for construction or remodeling or the purchase of materials, goods or wares must be made through sealed bids and awarded to the lowest responsible bidder; however “services” are excluded. The proposed bill removes that exclusion for services.

Implications for districts:

• More flexibility than SB 499. Similar to SB 499, except fewer items are specified and districts have options to make purchases through other vendors.

• School would have to take “low bid” for services. Because the bill would remove the exception for “services” under the bill law, districts would have to accept the “lowest responsible” sealed bid on all services over $20,000, such as legal, accounting and auditing, etc.

• Impact on quality. Services have traditionally been exempt from bidding because professional services are more difficult to standardize. To address the quality, as well as the cost of services, this change would likely require more time to develop specific bid proposals and justify the lowest “responsible” bid.

• District action. As noted under SB 499, districts should immediately review their procurement practices and policies in these areas and evaluate the impact on existing costs, contracts (which must expire by July 1 2017) and relationships. In addition, for this bill, districts should immediately review  all services contracts over $20,000 and determine the impact on existing service contracts. Share with providers, contractors, Legislators and community.

Proposed House Bill - School Insurance Pool

Introduced in House Appropriations March 9, no number

Committee draft bill for large districts expanded to all districts

The House Education Budget Committee agreed to introduce a bill drafted to create a group-funded insurance pool for “large” school districts (over 7,300 pupils), but amended it to strike reference to “large” districts.

Committee intent: mandate participation in pools

It appears the resulting bill would require all districts to enter into such a pool; however, the committee indicated its intention is to allow the creation of multiple pools. The bill draft would also allow the pool (or pools?) to cancel individual members.

The A&M report recommended that two pools be created, one for the 10 largest districts and one for all other districts, but did not recommend that all districts be required to participate.

Committee draft calls for multiple purpose insurance pools

The A&M report call for pools for property and casualty insurance. The draft bill in committee required districts to “enter into an agreement to pool their liabilities for property lines as defined in K.S.A. 40-901, and amendments thereto, and casualty, surety and fidelity lines as defined in K.S.A. 40-1102, and amendments thereto, including workers compensation and life insurance, as regulated by K.S.A. 40-433, and amendments thereto.”

The remainder of the bill provides for the establishment, governance and operation of such pool(s); apparently modeled existing Kansas law for the establishment of insurance pools.

The House Education Budget Committee recommends the bill be referred to the House Insurance Committee, rather than the education or appropriations committees.

Proposed amendments to Bond and Interest State Aid Bills

Amendment to HB 2486 - Rep. Highland

Will be considered in House Education Committee Friday, March 11

Bonds after Jan. 1, 2016 receive state aid only if approved by State Building Committee

The bill would apply bonds approved by voters after Jan. 1, 2016, and require that state aid would only be available if approved by the existing joint committee on state building construction (rather than a new committee in the original bill).

Levels of state aid based on purpose of facility space

The original bill appeared to limit state aid to the portion of the building used for direct instruction of students. The amendment would allow the committee to authorize funding for up to 100 percent of the portion of the building used for direct classroom instruction; up to 50 percent for areas of the building used for transportation or not a classroom but used for instruction, including auditoriums and gymnasiums; and no percentage for building areas used for administration and support.

Expedited approval process

In the event of damage caused by an act of God or mechanical or structural failure that jeopardizes health and safety of students and staff, a school board may seek an expedited approval process.

State aid continued at lower rate than previous formula

The bill would maintain the “new” state aid formula for bond and interest aid approved in 2015 H Sub for SB 7 for bonds issued between July 1, 2015 and July 1 2017, which provided a lower rate of state assistance than the previous formula. However, the aid would only be approved the percentage based on building used approved by the committee.

Amendment to SB 356 - Sen. Baumgardner

Pending before the Senate Education Committee

Creates new committee of school leaders, capital project experts

Substitute bill would create a school building committee composed of eight school administrators appointed by Legislative leaders; two for each of the following enrollment classifications: fewer than 256 students; 256 to 784 students; 785 to 1,399 students and 1,400 students or more; plus two members appointed by the Governor who have expertise in managing capital improvement projects.

Committee reviews long-term school building needs and individual projects for state aid

The committee is to review bond obligations; study long-term school facilities needs in the state; make recommendations for the amount of state aid needed for the next five years; and report annually to the Governor, Legislature and State Board.

After July 1, 2016 state aid only provided with committee approved, based on set amount

Beginning July 1, 2016 (not January 1 in the original bill and House bill), state aid will only be paid if approved by the school building committee, based on review of all applications. The total amount paid will be limited to the amount approved by the Legislature annually.

Committee may limit payment for high cost projects; award aid based on priorities

The committee may limit funding if a capital improvement project exceeds cost guidelines by more than 20 percent. The committee shall prioritize funding for projects based on the following priorities from high to low: (1) safety and disability access; (2) enrollment growth and overcrowding; (3) impact on delivery of educational services; (4) energy usage and other operational inefficiencies.

State aid continued at lower rate than previous formula

Like the House bill, the Senate substitute bill would maintain the “new” state aid formula for bond and interest aid approved in 2015 H Sub for SB 7 for bonds issued between July 1, 2015 and July 1 2017, which provided a lower rate of state assistance than the previous formula. However, the aid would only be for building as approved by the committee.