BISD refutes claims made in PAC advertising

Campaign advertising claiming that there was a large deficit in part of a recent BISD budget is not correct and represents a misreading of the financial reports, says Tony Fuller, chief financial officer for the Brownsville Independent School District.

Recent advertising said there was a $92 million deficit in the capital projects budget for 2008-2009, but the external audit for that period actually shows a $40.2 million fund balance.

Isolating the $92 million figure by itself leaves out a key part of the accounting for $135 million in school construction bonds that voters approved in 2006, Fuller said.

"It all begins with government fund accounting and how you present financial statements," Fuller said. "That negative $92,461,748 is a comparison of revenues to expenditures for the period ended June 30, 2009. The way you present government accounting is you cannot look at one period only and conclude there is a deficit for the program."

The figures at issue appear on Page 31 of BISD’s external audit for 2008-2009 in a section titled Statement of Revenues, Expenditures and Changes in Fund Balance.

The supposed $92 million deficit is referred to in an ad by the Defeat Zayas, Cortez and Powers PAC that appeared in the Herald on Oct. 15, titled "Rick Zayas, Shame on You."

BISD voters approved the bonds in May 2006 and they were sold that December. As a financial matter, the money is accounted for like this, Fuller said:

>> In the first year, BISD receives the whole $135 million, which when added to the district’s existing fund balance results in a total fund balance for capital projects of $141,114,577 as of June 30, 2007.

>> In the second year, the comparison of revenues to expenditures is a negative number because construction of the schools and other projects has started. There is revenue of $6,799,641 from bond interest and capital outlay of $12,961,597 for construction, resulting in a $6,161,696 reduction to the district’s capital projects fund balance, which as of as of June 30, 2008 stands at $134,952,621.

>> In the third year, expenditures far exceed revenues as construction moves ahead full tilt. There is revenue of $3,840,121 from bond interest and capital outlay of $96,301,869 for construction, resulting in a reduction of $92,461,748 to the district’s capital projects fund balance. The fund balance decreases by an additional $2,288,282 due to a positive arbitrage liability, and the fund balance on June 30, 2009, totals $40,202,59. (Arbitrage refers to money invested at a higher interest rate than the rate at which it was borrowed. BISD invested the bond proceeds and had to account for the earnings.)

To represent the $92,461,748 as a deficit is inaccurate, Fuller said. It is actually the amount BISD deducted from its fund balance to pay for capital projects that were already planned for and funded.

"We’re audited by the Texas Education Agency, we’re audited by external auditors and we’re audited by our own internal auditors," Fuller said, noting that for eight years running BISD has received TEA’s Superior Achievement award for financial accounting, the highest possible under the agency’s Financial Accountability Rating System of Texas or FIRST.

BISD’s external auditor is Patillo, Brown & Hill LLP of Waco, with local offices in Brownsville. The district’s 2009-2010 budget currently is being audited. Its 2010-2011 budget totals $505,317,622. Fuller noted that besides the TEA award BISD consistently wins financial accounting awards from the Government Finance Officers Association and the Association of School Business Officials International.

"These are our numbers," Fuller said. "People review them. Other entities review them — and they stand up."

The Oct. 15 ad by the PAC reads, "... The $38 million deficit we posted about the BISD is incorrect. The actual deficits are $26,542,109 for 2008-20009, $11,836,045 for 2009-2010 and $6,511,281 for 2010-2011. The total for these three years is more like $44,889,535 in the red. And that’s without the $92 million deficit in the capital projects budget documented in the independent audit June 2009. We stand corrected."

Fuller said the figures cited as "actual deficits" seem to be the amounts BISD designated for use from fund balances in each year’s budget. He said it is inaccurate to characterize the figures as deficits because by law BISD must operate under a balanced budget. Each year, revenues must match expenditures, so there can be no "deficit spending."

Noting that BISD is using less fund-balance money each year, Fuller said BISD needs to learn to live within its means, particularly in light of state reductions to education funding widely predicted in the next biennium.

He said the state is facing a "true deficit" of $18 billion to $21 billion, that the state already has cut TEA funding by 10 percent, and that if the state were to cut funding to BISD by 5 percent as some predict, it would cost the district $15 million.

"The use of fund balance was $6.5 million this year but we whittled it down from $11.8 million, Fuller said. "Going forward we’ve already created another cost-cutting committee comprised of department administrators, teachers and campus administrators."

Fuller said "one of the main, main reasons" for using $25.5 million in fund balances in the 2008-2009 budget was the construction of Raquel Peña Elementary. The school was built using district funds at the same time Pullam and Keller elementary schools were built using 2006 bond proceeds.

Additional factors in 2008-2009 and the subsequent two years were utility, furnishing and added personnel costs for the three elementary schools and Manzano Middle School and Veterans Memorial High School — costs that were not included in the bond issue.

Also, the district granted employee pay raises all three years, Fuller said, noting that the Board of Trustees approved all three budgets.

Meanwhile, critics have questioned the cost of Veterans Memorial, which was estimated at $50 million when the bonds were proposed in 2005 but ended up costing more than $60 million.

Fuller said the $50 million figure was based on an estimated construction cost of $150 per square foot for a 300,000-square-foot facility. However, the size was increased to 360,000 square feet and the bids came in at $164 per square foot.

BISD signed a construction contract for $59.16 million, but the price increased by $2.46 million when the district added a 5,000-seat football and soccer stadium with an all-weather track, 1,000-seat baseball and softball stadiums, as well as practice fields, tennis and basketball courts and a concession complex and lavatory facilities.

Former Superintendent Hector Gonzales signed the construction contract. The change orders to increase the size of the project and the cost were approved by the BISD Board of Trustees, he said.