Focus on finances: How the Lafayette Parish School Board improved bond ratings, built schools
Originally published November 20, 2020:
When a flock of new candidates were running for seats on the Lafayette Parish School Board in 2014 it was clear what voters wanted — financial stability and consensus on how to get there.
“It was one of the major campaign issues of 2014,” said Justin Centanni, who was elected to represent the part of the parish surrounding Lafayette High both in 2014 and 2019. “It was a goal that we didn’t have to talk about. It was a goal that the voters of each of our districts said was a priority for them.”
Centanni was one of seven new members elected to the nine-member board six years ago.
That wasn’t the only major shift for the school system at the time. Just days after the election, then-Superintendent Pat Cooper was fired with a little more than a year left on his contract due to alleged violations of state law and board policies.
Centanni said board members and the superintendent had “really been at odds on what the budget should look like.”
“The entire friction between Dr. Cooper and the board was about the budget,” Centanni said. “So as a result the money that Dr. Cooper had been spending was not in line with the budget the board eventually passed. So there were some real issues that had to be resolved.”
Voters were not only aware of it but also vocal about it, especially whether money that traditionally goes to teachers in an annual bonus check should instead be used to hire more teachers.
“You’d knock on someone’s door while campaigning and they’re not a teacher, they don’t work in the school system or anything like that, but they would ask you a question like ‘What is your stance on using that money to hire teachers?’” Centanni remembers.
“It was a major issue in the campaign that we need some people to get in there and get this straightened out so we can get back to the business of educating kids.”
So when the new board took office in January 2015 everyone seemed to be on the same page that finances were priority, he said. Starting in the middle of the fiscal year, the new board faced about a $17 million mid-year shortfall.
“So the very first budget cycle the board dealt with a lot of really tough decisions that needed to be made to close that kind of deficit,” Centanni said.
Step one: Get on solid financial footing
While it made major cuts, it did take them a little at a time over three years, using the some of the economic stabilization fund (sometimes called a rainy day fund) to fill any gaps.
“Over the next three years we chose to do the same thing, but each year we continued to make more cuts and more cuts,” Centanni said. “We chose to go that route to try to soften the blow. If you try to cut $17 million out of a budget in one year, it’s certainly doable, certainly possible, but you’re going to feel it. The parents are going to feel it, and the teachers are going to feel it.”
By 2017, after increasing pupil-teacher ratio, cutting bus routes and other tough decisions, the board adopted a budget that didn’t include transferring one-time money to plug a hole.
“That was the first step, really getting the system back on solid financial footing,” Centanni said. “It was difficult. … All of those decisions went into getting us onto sound footing so we didn’t start the budget cycle every year showing a deficit.”
Overall the school system was actually showing a surplus every year — and had been for years — thanks to years of high sales tax collections, making mid-year cuts and covering costs with the “rainy day fund” when necessary.
There was always money left over at the end of the fiscal year (a surplus), but there would be shortfalls to be addressed in the budgeting process. A shortfall is when the current year’s budget expenditures are rolled over into the new fiscal year and revenues aren’t anticipated to meet those expenditures.
The shortfalls used to be really big; now they’re smaller,” Centanni explained.
Billy Guidry, who joined LPSS as chief financial officer in 2007, said the school system has seen a surplus every year except in 2018, and even then it was a conscious decision to show a loss.
“The fund balance has increased on an annual basis since 2007,” Guidry said, adding that he couldn’t immediately speak to the years before he was in the district. “Even prior to 2014 we were experiencing surpluses. The system as a whole was being fiscally responsible.
“In 2015 there were a lot of new board members. They continued that fiscal responsibility, and to a certain extent, improved on it.”
The district’s “loss” in 2018 was strategic. The new board voted to redirect the economic stabilization fund from holding three months to 2.5 months of operating expenses.
“(They felt) that would give us at least a year to address a downturn in the economy without significant impact on operations or drastic changes to programming or services,” said Guidry, who became assistant superintendent of business services in 2018.
This fund, which is similar to a savings account or emergency fund, had been built up over several years to about $66 million, which is three months’ worth of expenses.
The board transferred $11 million to a capital fund to begin accumulating money and eventually pay for projects like the new classroom wings. It also voted to put 90% of each year’s surplus, minus 2.5 months’ expenses, into such projects.
“That gave us about $38 million to start looking at projects we hadn’t considered due to a lack of funding,” Guidry said. “The only way to get a fund balance is to have a loss. So really since 2007 we have had a surplus every year. That is an indication that the board is fiscally responsible.”
‘Relatively stable’ revenue has helped
The board also had the good fortune of an increase in revenue that is outpacing the increase of costs, which are always expected to rise due to growing insurance costs and teachers’ STEP increases.
Over the last six years the school system has seen a 9.7% increase in revenue and a nearly 7% increase in expenditures, netting about 2.21% going to the bottom line, Guidry said.
“The board has managed our expenditures well,” Guidry said. “They have been trying to keep expenditures down, recognizing we can only do our best. There are some that will always increase.”
Getting to solid financial footing required a combination of things, including cuts to transportation by shifting to 100% satellite stops for magnet academies and having to make either-or decisions like funding the school resource officer program rather than extending the French language program to start in a lower grade.
It also meant estimating sales tax collections more conservatively and getting out of the habit of monthly budget revisions.
Then there are the increases in revenue. One increase the board or district could not have anticipated was an increase in Minimum Foundation Fund Program, which is money the state provides per student. The formula is weighted differently for students that incur more costs to educate, like special education or career and technical education.
The state began offering its Jump Start program in 2015, allowing students to choose a career and technical diploma pathway and re-weighting a lot of students higher.
That generated a state funding increase of several million dollars, outweighing a drop in sales tax collections that began about the same time, Guidry said. Property taxes also have been relatively stable over the last several years.
What’s most important when it comes to budget revenue, or income, is that it hasn’t decreased. Stability is all you can really hope for when so many factors are out of the district’s control, from sales tax collections to MFP dollars.
“When you consider 9.1% increase over six years, that’s a little more than 1% increase each year,” Guidry said. “That’s not a significant increase each year, but it hasn’t decreased.
“I can work with stable. When revenue is stable it’s easier to balance a budget. Our expenditures could really care less about what revenues are doing. Expenditures are what they are — utilities, insurance, transportation. Certain things are fixed.”
Step two: Put money toward new projects
Another savings that would come their way was the expiration of debt service, much like finally paying off a house note.
Five schools were built in 1998 — J. Wallace James Elementary, Charles M. Burke Elementary, Ernest Gallet Elementary, Live Oak Elementary and N.P. Moss Middle (which became David Thibodaux STEM Magnet Academy) — using 20-year bonds.
The board found a way to start new construction projects to address growth in the southern part of the parish two years before these bonds would expire.
They chose a financial mechanism that essentially sold bonds in a manner that allowed the board to only pay the interest for two years and then roll that debt service that was coming free from paying off prior bonds to paying off these bonds, explained Centanni, who also is the enterprise data integration manager for First Horizons, formerly Iberia Bank. He has worked in the finance industry since 2004.
These bonds were used to build Southside High School in Youngsville, Martial F. Billeaud Elementary in Broussard, the performing arts building at Ovey Comeaux High School in Lafayette, and a wing addition to replace portable classroom buildings at Milton Elementary and Middle School.
Then the board wanted to address the more than 400 temporary classrooms, or “butler buildings,” at schools across the district. It proposed a 10-year, half-cent sales tax to raise money for permanent wings to several schools and the full replacement of three schools.
The tax failed on the April 2017 ballot, so the board had to pivot.
“I really learned a lot around the financing of Southside and started to try to come up with a plan in the wake of the tax failing of how are we going to solve this problem,” Centanni said. “The tax failing doesn’t change that it’s a priority. It just means that we have to use money that we could have used on something else on this.”
Then saving recurring revenue became the goal every year.
“In the 2017 budget cycle we started with a lot of cuts to the budget to move money into building those wings that you see,” he said.
While those “cuts were painful in instances,” it gave the board about $1.5 million or so in recurring revenue that we could sell bonds on.”
And each year the board would ask Guidry about other ways they could improve the system’s bond rating, which is comparable to a person’s credit score. They wanted to know, “What are things we can control that will allow us to do more?” Centanni said.
Step three: Saving for the future
That attitude of continually looking for improvement remains a priority of the board, including three new members elected in 2019.
“It’s a mindset that everyone has,” Centanni said. “We certainly don’t take the attitude that we don’t spend any money, but we take the attitude, I think, that we don’t spend money until we really think it’s a solid investment and achieves a goal for the school system.”
In recent years the board also has been able to sell bonds and save money in a pay-as-you-go fund, using both options to complete more construction projects, including cafeteria expansion, major renovations, new high school athletic tracks, air conditioning gyms and new permanent classroom wings at eight schools.
“It allowed us to do a significant number of projects using 100% internal funding sources,” Guidry said. “That, in my opinion, says a lot about the board’s fiscal responsibility.”
That fiscal responsibility has received state and global notice this year. In October the school system has earned a Certificate of Achievement for Excellence in Financial Reporting and the highest long-term bond rating for a school district in Louisiana.
The certificate of achievement is the highest form of recognition in the area of governmental accounting and financial reporting, and its attainment represents a significant accomplishment by a government and its management, according to a release.
The AA+ long-term rating from S&P Global Ratings “indicates LPSS’s creditworthiness and bond quality, which in turn results in lower interest rates and taxpayer savings,” according to the school system.
S&P Global Ratings sees this continuing, according to its report.
“Given the strength of the board’s finances as well as good management practices, we anticipate that it will maintain a very strong financial position over the outlook horizon,” reads the report.
On the horizon for this board are more construction projects, as it continues to set aside recurring revenue and sell bonds to replace multiple schools, along with continuing to make solid financial decisions, Centanni said.
“Now we’re in a situation where all we have to do as a board is budget the sales tax revenues conservatively, don’t get in the habit of mid-year spending, and then in September the money automatically shows up in the construction fund,” Centanni said.
He would like to see more recurring revenue set aside for school site renovations and construction. A little more than 2 mills is being put aside each year now, reflecting $4.5 million right now.
“I want to get to 5 mills total before my time on the board is up,” Centanni said. “That will be, I think, pretty close to $12 million in recurring revenue for school construction. You can do a lot of good with $12 million in recurring revenue and selling bonds to build schools.”
“If we get it up to 5 mills, like 15 years from now when I’m sitting in my house watching school board meetings on whatever streaming service we have in 15 years, they’re not going to be arguing about money to build schools; they’re just going to be arguing which schools get built. That’ll be a nice change.”