Resolution Requesting Special Legislation to Exempt Burke County from Minimal Funding Requirements Under Certain Conditions

WHEREAS, during the spring of 2011, Burke County School System staff told the new Burke County Manager that the School System was going to have a shortfall of $12,000,000 in the upcoming budget year; and WHEREAS, the Burke County Board of Commissioners adopted a budget for FY 201112 that actually reduced the Burke County School System appropriation $14,654,127 in FY 2010-11 to $13,921,425 in FY 2011-12; and WHEREAS, during a meeting with Burke County School System officials in November of 2011, the Burke County Manager asked the School System Finance Officer how the School System was doing financially and the Finance Officer indicated the School by 5% from

System was $12,000,000 short, but doing okay; and WHEREAS, the County Manager could not understand how the School System could truly be $12,000,000 short and doing okay and requested copies of the School System's five (5) most recent financial audits; and WHEREAS, upon receipt of the audits in January of 2012 and FY 2011-12 in December 2012, the County Manager and County Finance Officer reviewed the School System's audits and discovered information: Fiscal Year ending June Year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 the following School System Local Funds Fund Balance

so" Balance

Amount

Increase or Decrease N/A / base amount + $224,700 - $2,092,868 - $1,613,087 + $2,443,487 + $5,477,518 + $4,970,559

Fund Balance Amount $3,031,788 $3,256,488 $1,163,620 $(449,467) $1,994,020 $7,471,538 $12,442,097; and Commission sufficient expects county and to meet cash flow

WHEREAS, the North Carolina Local Government municipal governments to have a fund balance

Res. No. 2013-08 2

requirements

as well as unforeseen

emergencies

related to its operation

and the

financial support of entities it routinely funds; and WHEREAS, the North Carolina Local Government Commission fund balance expectation has no such similar

of the Public School Systems whose teachers are almost

exclusively paid by the state; and WHEREAS, during numerous meetings over the past several years the School System never informed the County Commissioners of their desire or purpose for accumulating a significant General Fund Fund Balance prior to the newspaper article on May 7, 2012; and WHEREAS, the School System's Local Funds Fund Balance is a combination of the General Fund Fund Balance and Special Revenue Fund Fund Balance; and WHEREAS, the School System's Local Funds Fund Balance can only increase if

available revenues exceed expenditures authorized by the School System; and WHEREAS, the FY 2011-12 increase of $4,970,559 in the School System's Local

Funds Fund Balance equaled 36% of the County's FY 2011-12 appropriation to the School System; and WHEREAS, the Board of Commissioners intend for its appropriation to the School

System to be used to provide for the actual educational needs of the children of Burke County and not for placement Commissioners' in the School System's saving account without the

knowledge and consent and the $4,970,559 increase came in a year

that the School System told the County Commissioners and County Manager that they were underfunded and would be $12,000,000 short; and WHEREAS, from FY 2009-10 through FY 2011-12 the School System has added a total of $12,891,564 to its Local Funds Fund Balance as documented in their annual audits and they claim to be underfunded; and

Res. No. 2013-08 3

WHEREAS, on February 25, 2013, the Burke County Board of Commissioners County Manager met with their NC legislative delegation, Representative

and Hugh

Blackwell and Senator Warren Daniel, and asked for a local bill to exempt Burke County from state minimal funding requirements in order for the School System to continue to

receive Low Wealth Funding in a year in which the School System increased its Local Funds Fund Balance by a significant amount without the County Commissioners'

knowledge and consent and during the discussion that ensued the County Manager asked Representative Blackwell and Senator Daniel what would the State Legislature's Leadership do if an entity they appropriated appropriation funds to actually placed 36% of the

into their savings account rather than use the funds to provide the

services they were there to provide and Representative Blackwell asked that the County adopt a Resolution for this request. Now, Therefore, Be It Resolved that the Burke County Board of Commissioners is

committed to good government and transparency in its appropriation of taxpayer dollars to the Burke County School System for the single and fixed purpose of expending those funds on activities, books, supplies and teacher interactions that actually result in the delivery of educational services that benefit the children of Burke County and hereby request that the Burke County delegation to the North Carolina General Assembly introduce and support legislation so that the Burke County Board of Commissioners will be exempt from any and all minimal county funding appropriation requirement(s) under certain conditions as further stated in the County's Petition to the North Carolina

General Assembly for the Introduction of Legislation on behalf of the Burke County Board of Commissioners and Citizens of Burke County.

Adopted this the 19th day of March, 2013.

airman of Commissioners

Petition to the North Carolina Legislature for Introduction and Enactment of Legislation to Exempt Burke County Commissioners from Minimal Funding Requirements for State Funding of the Burke County School System Under Certain Conditions. The Burke County Board of Commissioners make this petition to the NC Legislature as the result of the Burke County School System's multiple financial misrepresentations and efforts to conceal their true Local Funds Fund Balance, as noted in this petition, and the current state requirement for the county to provide a minimum funding level to the School System in order for them to receive Low Wealth Funding. As a result of a legal settlement, the Burke County Board of Commissioners and the Burke County Public School System have been required to establish a working group to meet, at least on a quarterly basis, discuss issues and keep the lines of communication open. A routine part of each meeting is a discussion of the current and future financial needs of the School System and the County's ability to meet those funding requests as well as any concerns the County may have related to the school system. Meeting notes are taken related to discussions in the meetings and activities that are to be completed. Between the meeting held September 22, 2010 and May 11, 2012, representatives of the School System never mentioned the School System was accumulating excess funds in their Local Funds Fund Balance, or any purpose for the accumulation, but they continually told the County they had taken significant steps to reduce cost, were under funded and facing a $12 million dollar budget deficit. In January of 2011, a new County Manager came to work for Burke County and he was continually told of the looming $12 million dollar budget deficit the School System was facing and this was recorded in the working group meeting notes of March 10, 2011 as well as in an article in the local newspaper. However, there was no mention by representatives of the School System that they were building fund balance, an increase of $2,443,487 during FY 2009-10 and the School System would add an additional $5,477,518 to their Local Funds Fund Balance as of June 30, 2011 as documented in their annual audits:
Fiscal Year ending June 30th 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Increase + I Decrease N/A / base amount +224,700 -2,092,868 -1,613,087 +2,443,487 +5,477,518 Fund Balance Amount 3,031,788 3,256,488 1,163,620

(449,467)
1,994,020 7,471,538*

Petition Page 2

*During FY 2010-11 the School System effectively concealed their true General Funds Fund Balance by establishing a Special Revenue Fund and moving $7,331,538 from their General Fund to their Special Revenue Fund leaving $140,000 shown as the School System's General Fund Fund Balance. It should be noted that the Local Funds Fund Balance is the total of the Fund Balance in the General Fund and Special Revenue Fund. In June of 2011, Burke County adopted a FY 2011-12 budget that reduced the School System's appropriation by 5% from the prior year and, according to the School System's FY 2011-12 audit, the School System increased their Fund Balance as of June 30, 2012 by an additional $4,970,559 while charging parents a fee for their children to play school system sports, had overcrowded classrooms and laid-off additional teachers while their student population continued to decline. Since 2009-10, while claiming to be underfunded by the County, the Burke County School Board made the conscious and intentional budget decisions to invest a total of approximately $12,891,464 of local county tax dollars that became available to them through the use of federal grant dollars to pay for expenditures normally paid with local tax dollars and they placed the local funds in their Local Funds Fund Balance rather than in the direct delivery of educational services to the students of Burke County. In November of 2011, the School System's Finance Officer was asked by the County Manager during a working group meeting how the School System was doing financially and he indicated they were $12,000,000 short but doing okay. This response caused the County Manager to request the School System provide a copy of its five most recent audits, as noted above. During January of 2012, the County Manager and County Finance Officer completed a review of the audits and, for the first time, became aware of the Burke County School System's true financial condition. A Local Funds Fund Balance of $7,471,538, while showing a General Fund Fund Balance of $140,000 as a result of the School System's intentional shifting of $7,331,538 from its General Fund to a Special Revenue Fund while the County was expending its General Fund Fund Balance to provide for the needs of Burke County School Students and avoiding a tax increase on the citizens of Burke County during an economic downturn. On May 2, 2012, the County Manager had his assistant transmit an email to the Burke County School Superintendent containing a working group meeting agenda with the Burke County School System's Fund Balance as an item of discussion. On May 6, 2012, the School System held a meeting and, as reported in the local newspaper on May 7, 2012, "School Board Chair, Catherine Thomas, said she realizes the county is struggling with revenue and she would be willing to ask for less money than ask for more and have commissioners deny the request. Thomas and Finance Director Keith Lawson said the difference can be made up from the school system's savings account.

Petition Page 3

'Our fund balance is higher than it has been probably in forever,' Thomas said." "Lawson estimates the fund balance [Local Funds Fund Balance] will reach $11,000,000 at the end of this fiscal year [June 30, 2012]." Their Local Funds Fund Balance actually increased by $4,970,559 to a total of $12,442,097, which equals 89% of the FY 2011-12 appropriation of $13,921,425. This was the first public acknowledgement of the School System's significant fund balance that the Commissioners received even though numerous meetings had been held with the working group. As a result of the audit information available during budget development and the known needs of the County, Burke County considered adoption of a FY 2012-13 budget that included a one-time reduction to the School System to enable the County to complete three (3) critical capital projects that benefitted both entities. The School System requested the County to find a creative solution whereby the School System would receive a total appropriation of $13,100,000, but the solution that was developed and offered prior to adoption of the budget was not acceptable to the School System. They later requested that the County petition the NC Local Government Commission (LGC) to allow for the use of $2,100,000 in Article 42 Funds and avoid a supposed loss of $3.5 million in Low Wealth Funds for FY 2015-16. The County accommodated the School System's request and this resulted in a detailed review of the Burke County School System's FY 2010-11 audit. Upon review by the LGC, it required the School System to properly state their true General Fund Fund Balance. The manner in which the School System had shifted funds to the Special Revenue Fund was not acceptable to the LGC and the required correction was reflected in the School System's FY 2011-12 audit. As a result of the School System's attempts to misrepresent their true financial conditions, the Burke County Board of Commissions and staff met with its NC legislative delegation on February 25, 2013. During that meeting, the Burke County Board of Commissioners and County Manager asked for a local bill to exempt Burke County from state minimal funding requirements in order for the School System to receive Low Wealth Funding in a year in which the School System increased its Local Funds Fund Balance by a significant amount without the County Commissioners' knowledge and consent and during the discussion that ensued the County Manager asked Representative Blackwell and Senator Daniel what would the State Legislature's Leadership do if an entity they provided funds to actually placed 36% of the appropriation into their savings account rather than use the funds in the actual provision of the services they were there to provide and further, that the Burke County Board of Commissioners appropriates county taxpayer dollars to departments and other entities for the purpose of the requestor actually providing the services they state are the reason for their request and not for placement of these funds into the entity's savings account. Representative Blackwell asked that the County adopt a Resolution for this request.

Petition Page 4

As noted above, there have been numerous misrepresentations of the Burke County School System's financial condition to the Burke County Board of Commissioners and county staff that have resulted in a subversion of the budget process and intentions of the elected body lawfully put into office to establish the county property tax rate and make budget appropriation decisions for the citizens of Burke County. The School System's misrepresentations coupled with a bureaucratic requirement for a minimal county appropriation to its school system in order for it to receive Low Wealth Funding are unacceptable to the Burke County Board of Commissioners. In the Board's efforts to fairly and efficiently meet the service needs of its citizens, the Board respectfully petitions our North Carolina Legislative Delegation to introduce, support and enact legislation to exempt the Board of County Commissioners from minimal funding requirements to the School System under certain conditions and consider utilizing the following text as a basis for the legislative bill for such purpose: "The Burke County Board of Commissioners will be exempt from any and all minimal county funding appropriation requirement(s) of any kind that may exist, be established or enacted by any and all departments or agencies of the State of North Carolina related to the provision of state funding of the Burke County School System, such as but not limited to, Low Wealth Funding if the Burke County School System increases its Local Funds Fund Balance which for the purposes of this legislation means the cumulative amount of all restricted and non-restricted fund balances contained in the Local Funds section of the Burke County School System's Budget and shown in its annual audit during a fiscal year by $250,000 or more upon each and every occurrence that would be subject to this exemption. This exemption shall also require a continuation of state funding to the Burke County School System in the amount it would otherwise qualify for during that fiscal year and shall relieve and exempt the Burke County Board of Commissioners of any and all such minimal funding requirements to the Burke County School System that may exist, be established or enacted by any and all departments or agencies of the State of North Carolina for the funding of any school system for a period of three (3) consecutive fiscal years following the fiscal year in which the Burke County School System's Local Funds Fund Balance increased by $250,000 or more as documented in the Burke County School System's annual audit unless the increase was accomplished with the prior knowledge and documented consent of the Burke County Board of Commissioners and such documentation shall be evidenced in the text of the adopted Burke County Budget Ordinance for the fiscal year in which the increase was to occur." Adopted and executed by the undersigned members of the Burke County Board of Commissioners this the 19th day of March, 2013.

Petition Page 5

Carswell, Vice Chairman

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Wayne

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F. Abele,

Sr., Commissioner

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