Norway schools audit recommends more funds in reserve

NORWAY — While Norway-Vulcan Area Schools has a healthier fund balance than others in Michigan, the district’s auditor has recommended it be significantly higher.

Scott Sternhagen, of Schenk SC of Iron Mountain, noted the fund balance for the year ending June 30 was $531,839, or about 8.25 percent of its general fund operating expenditures. It should be not less than 15 to 25 percent of its general fund, Sterhagen said.

The school district four years ago had a stronger fund balance of $841,128, but it dipped to $404,053 in 2015 and $336,413 in 2016.

When comparing the district’s budget from last year to what actually was spent, state revenues increased by $46,000 and expenditures decreased by $48,000, boosting the fund balance more than anticipated.

The Government Finance Officers Association recommends a reasonable amount of unassigned fund balance would be no less than two months of regular general fund operating expenses, Sternhagen said. Getting this optimal amount of fund balance is difficult, considering what’s been going on with state funding, but by maintaining a fund balance it would eliminate the need for short-term borrowing, he added.

With that in mind, he said the reasonable fund balance range for Norway district should be $967,290 to $1.6 million.

The audit recommends the district develop a policy to maintain an appropriate minimum fund balance.

“We believe that a policy can provide stability and consistency through change and turnover of elected officials and district personnel,” he said.

It’s up to the district’s board to set what percentage of the general fund to have in the fund balance.

Sternhagen told the board the audit turned up no problems with the district’s finances and it received the company’s highest opinion.

Board member Bill O’Brion wondered how the fund balance might affect the district’s credit rating. Superintendent Lou Steigerwald said he usually gets a call from Moody’s bond rating service about mid-year. It’s something they need to discuss if they go for a bond issue in May 2018.

“I am hoping that our rating stays stable,” Steigerwald added.

Sternhagen said the bond rating services looks at the fund balance and if there is a deficit. “Your (fund) balance isn’t gong to hurt you, even though it is still weak,” he said.

The rating agencies also look at the district’s unfunded liabilities, which for school districts in Michigan involves the pensions. Sternhagen said Norway’s unfunded liability is at $10 million.

All governmental entities have to report unfunded liability with their financial statements. They are working towards bringing that amount down, but it is a slow process.

In addition, Sternhagen said the state hasn’t kept up its commitment to the pension fund and Norway’s is 63 percent funded.

The unfunded liability isn’t going away anytime soon, officials said. In 2015, the unfunded liability for all school districts in the state was at $22 billion.

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