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Tough decisions ahead for NEH

School finance expert predicts enrollment in the district will continue to decline, leaving the school with a negative balance by Fiscal Year 2020

BLAIRSBURG — Declining enrollment will once again force the Northeast Hamilton School Board to make some tough decisions.

At Tuesday’s public finance meeting, Larry Sigel, a partner at Iowa School Finance Information Service, outlined NEH’s financial situation.

With declining enrollment and continuing outgoing open enrollment, Sigel predicted that the school’s spending authority will continue to decline and by Fiscal Year 2020, it will be operating with a negative balance.

“Once that is reached, there is no way to generate more spending authority,” explained Sigel. “You will head down next year and it will only escalate after that.”

With all the previous staff and expenditure cuts, the school is at a crossroad, said Sigel.

“There is not enough left to cut in order to right the ship,” he said.

Sigel has previously addressed the district’s finances. In 2013, he spoke at a district finance meeting before the school board considered partial day and whole grade sharing agreements. He has worked with Iowa school finances for 28 years and is currently serving as the chief financial officer for the Sioux City School District.

Back in 2010, NEH began to eliminate programs, administrative positions and educational staff in order to keep the school operating as student enrollment began to fall.

The school researched possible partial day sharing and whole grade sharing options with South Hamilton but eventually chose Webster City Schools.

In 2012, partial day sharing began for NEH Middle and High School students. May 2015 saw the last class of seniors at NEH High School graduate and the district entered into a whole grade sharing agreement with Webster City in the fall of 2015.

At Tuesday’s meeting, Sigel presented a short tutorial on school funding.

“Schools are budget limited, not tax rate limited,” he explained.

The state legislature restricts ways districts can raise and spend funds, he continued. For instance, the state sets guidelines for General Fund and PPEL Fund spending.

Then there’s a school’s Spending Authority which is in essence, its credit card limit and that is determined by a combination of state aid and property taxes, said Sigel. The state aid portion of that equation is determined by student enrollment.

“Cash is not the problem,” said Sigel. “The Spending Authority is what is going to cause the problem. It is student (enrollment) driven and the district receives $6,664 for each student.”

The pressures of finance due to declining enrollment causes a decline in Spending Authority, he said.

In 2014, the district had $228,000 in unspent budget authority. Even though it will have $376,000 after the 2017 fiscal year and into 2018, the rate of decline will accelerate after that, said Sigel.

As in 2013, Sigel noted that NEH is not unique in dealing with this situation. Of the 333 school districts in Iowa today, only 25 schools, mostly in urban areas, are stable, he said.

Sigel told the assembly that the district has three options: start the discussion on reorganization; dissolution which takes control from the district and allows the AEA to redraw district boundaries; or run the district into the ground.

“I promise you that if you do that, the Department of Education will not leave one building in your district,” he said of the last option.

The district needs to take control of the situation, said Sigel.

“It is in the best interest to proceed in a thoughtful manner,” he suggested.

There are rigorous procedural steps that a district must take in order to make these decisions and the district has a timeline, said Sigel.

Asked what a benchmark for the district’s decision would be, Sigel suggested that when classes average less than 15 students, it makes operations difficult.  With only single digit numbers, the district is not covering teacher salaries.

Currently, most classes range from 13-18 students, said Principal Mike Kruger.

“This has happened sooner than we had hoped,” said board member Bruce Mark.

Board President Eric Patterson told the assembly that the Board hasn’t had many discussions regarding the future status of NEH.

“Our goal has been to have it look like it does today,” he said.

“We have tried to make the budget work, but it gets bleaker every year,” said Mark. “We have been hearing from the administration over the years, but to hear it from Larry (Sigel), it hits home.”

Patterson agreed.

“There is really nothing left for us to cut and still give our kids a quality education,” he said. “Even if we added ten students a year.”

“What we want is the best for our kids and to be fair and equitable to the taxpayer,” said Mark. “Kids are at our forefront.”

“Over time, there is just so much you can do,” said Superintendent Mike Sherwood.

Sherwood told the board that it is better to make a decision sooner than later. Currently, there is a window of opportunity for the district to make a decision due to the state offering financial incentives.

In addition, it is better for the district to have discussions while it still has bargaining leverage, he said.

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