Chapter Four

Regional School District Budget Process and Borrowing Authority

While budget development practices can vary widely in regional school districts, certain procedures are mandated by state statute. The principal distinguishing characteristic of the regional school district budgeting process is its reliance on direct interaction with district voters.

Specifically, Connecticut law specifies regional school district budgets be developed by the board, presented at a public meeting, and approved by voters at either an annual meeting, by ballot in member towns the day following the annual meeting, or by petitioning for a referendum on the day following the annual meeting.

The summary below identifies some of the discretionary activities that occur and outlines the statutory requirements relating to the budget development process in regional school districts. In addition, a review of regional districts' operating budget adoption experiences is provided that suggests districts are having a more difficult time passing their budgets than they did in earlier years. Finally, a discussion of regional school board's authority to borrow funds for short-term and long-term needs is presented.

Regional School District Budget Process

Preparation. Regional boards of education typically begin their budget process in the fall by working with the superintendent and fiscal staff to estimate revenues and prioritize expenditures. Usually a board budget or finance sub-committee is charged with examining the budget in detail and presenting it to the full board by January or February.

Local participation. While state law ensures the first selectman, as the town's chief elected officer, is a nonvoting, ex-officio member of all town boards and commissions, this standing does not apply to regional school boards. The level of participation depends on the region. Some boards do not permit local officials any more access or voice than is afforded to the general public; while other boards allow representatives from the towns' boards of finance to be regular but nonvoting members of the budget sub-committee.

Public district meeting. The next steps in the budget process, required by statute, are illustrated in Figure IV-1. First a public hearing must be held at least two weeks before the annual meeting to present the proposed budget for the next fiscal year. Anyone attending this public hearing may recommend additions or deletions to the proposed budget. Depending on the district, some boards of finance will take a public position on the proposed budget prior to the vote. Such action is not required nor is its outcome binding on the board. Next there is a vote on the budget by the region's voters either at an annual meeting or by referendum.

Annual meeting. The board prepares the proposed budget after considering public comments and submits copies of it to the town clerks of each town in the region at least five days before the annual meeting. The budget must contain:

• an estimate of receipts and expenditures for the current fiscal year and the next fiscal year;
• an estimate of any surplus or deficit;
• the amount of bonded or other debt;
• an estimate of per pupil expenses for the current and next fiscal year; and
• any other information the board believes is relevant.

Approval of budget. The regional school board can designate the procedure for budget adoption as either: 1) by a paper ballot vote at the annual meeting; or 2) by voting machines on the day following the annual meeting. However, 200 or more qualified voters may petition the board at least three days before the annual meeting and request any item on the agenda, including the budget, be submitted to a vote either by a paper ballot or machine.

If the budget is submitted to a referendum, a question may be included on the ballot for those who voted against the budget indicating whether the budget was too high or too low. The vote on such questions is advisory only and not binding upon the regional board.

If the budget is rejected, the board is required to call a district meeting no sooner than one week and no later than four weeks of the rejection to consider the same or an amended budget. The board must follow this process until the budget is approved. A simple majority vote of the electors in the region is required to pass a budget, not a majority vote in each member town.

Local share calculation. After the budget is approved, the board determines each member town's share of both the operating and capital expenses in the same ratio as the number of students in the town to the total number of students in the district. Municipalities then include their share for the regional school budget in the town budget that must go through the local approval process. Often this may mean another referendum.

The local share for regional school expenses cannot be reduced in the town budget. If a town fails to appropriate the required amount, the statutes provide for certain interested parties to petition the Superior Court to compel a town to pay.

Although school expenses are determined in the district as a whole, Connecticut's regional school districts do not have separate taxing authority. They depend upon the member towns to set the tax rate for the appropriate share, send the tax bill, and collect the revenue.

Current litigation. Taxpayers in the Town of Cannan (Falls Village) brought suit in May 2000, against Regional School District Number One (Gabriel Seymour, et al. vs. Region One Board of Education, et al., (Docket No. CV-00-0082467-S)). They claim the local share cost allocation formula unfairly burdens the smaller towns in the six-town region and should be based on each town's ability to pay. Even though Region No. 1 was created under a special act, its cost allocation formula is the same as other regional districts - a per pupil amount as described above. According to the lawsuit, Falls Village is the most property poor-town in the region, based on the value of the town's grand list. The comparable property value per student in Region No. 1 differs among the towns in the region. This means property-poor towns, like Falls Village, must levy a higher property tax rate for the same education. The plaintiffs claim this burden is "unreasonable and unconstitutional" and suggest a separate taxing district be created to pay for regional education costs with a uniform tax rate.

The Superior Court ruled in January 2001 that the matter was not an issue for the courts to decide but was a question that fell within the purview of the legislature. The decision was overturned on appeal to the state Supreme Court in August 2002. The Supreme Court, though, in returning the case to Superior Court, stated the plaintiffs must show they have standing, by proving they have suffered financially from the current system, before the case can proceed.

Miscellaneous practices. Outlined below are a number of miscellaneous practices and issues related to regional school district finances.

• Fiscal autonomy and transfer of funds. All boards of education, whether regional or local, have complete autonomy over expenditures. Boards are allowed to change budget priorities during the fiscal year and transfer funds between line items at their own discretion. The board is required to announce such transfers at the next regularly scheduled board meeting.
• Deficits and additional appropriations. In contrast to local boards of education, which are prohibited from spending in excess of their appropriation, regional districts are permitted to report a deficit in operating funds when presenting a budget for the next fiscal year. If a supplementary amount of money is needed to operate the district during the fiscal year, the district must use the same procedures used as in the regular budget process, described above. In addition, regional districts may authorize, through a board resolution, the borrowing of funds, in anticipation of payments to be made by the state or member towns for the operation of schools.
• Surplus. Regional school districts do not have any authority to carry a surplus, except in a special capital reserve fund (described below). At the end of the fiscal year, any budget appropriation that has not been expended must be used to reduce the net expenses of the district for the following year.
• Delay of budget adoption. It is not clearly or directly explained in statute what a member town's responsibility is to a regional school board if a regional budget has not been approved before the start of the fiscal year. The statutes only address this problem with regard to municipalities (C.G.S. Section 7-405). If a municipal budget has not been adopted by the beginning of the fiscal year, the budget-making body (e.g., board of finance, town council) may authorize necessary expenditures for the first 90 days. If the budget is not approved after the initial 90-day period, the budget-making body may approve payment of expenses on a monthly basis within the limits of line item appropriations of the previous fiscal year. The department of education has applied this interpretation to regional boards of education and are allowed to expend amounts equal to the monthly share of the previous years appropriation.

Budget Adoption Experience

The tables below summarize the results of a survey administered by the Connecticut Advisory Commission on Intergovernmental Relations on regional districts' operating budget adoption experiences. The tables provide trend information from 1996 through 2001 for budget approval by type of procedure used, the number of votes until the budget was adopted, and the dates of budget adoption for the 17 regional districts. The voting experience in 2001 (for fiscal year 2002 budget) and preliminary analysis for 2002 (for fiscal year 2003 budget), suggests regional school districts have had somewhat more difficulty in passing recent budgets than in the previous five years.

Table IV-1 below shows the final voting procedure used to approve the regional district budget. The last two years shows an increase in the number of regions going to referendum as compared to the previous two years.

Displayed in table IV-2 is the number of votes it took to pass each budget. While there was a slight decrease in the number of districts adopting their budget by referendum in 2001 compared to 2000, the number of multiple referenda needed increased from two regions having more than one vote (for a total of four referenda) to six regions (and a total of 20 referenda).

Finally, Table IV-3 shows the date of budget adoption for regional school districts. More districts have had their budgets approved after the start of the fiscal year than in the recent past - three in 2001 compared to one in 1997. This trend poses a problem because there is a lack of statutory guidance on how towns that belong to regional school districts should fund the region without an adopted budget, as described above.

Regional School Board's Borrowing Authority and Capital Financing

Regional school districts are permitted to borrow and reserve money to meet their various financing requirements. Described below is the statutory authority districts have to borrow or retain funds for both short-term and long term needs.

• Short-term borrowing (C.G.S. Sec.10-51(c)). Regional boards are authorized to temporarily borrow funds in anticipation of payments to be made to it by a member town or the state for the operation of its schools. Such obligations must be authorized by a resolution of the board and are general obligations of the regional school district and the member towns. The terms of the obligations are determined either by the board or any officer to whom the board delegates authority. While the notes may be renewed, they must be payable no later than the end of the fiscal year during which such member town or sate payments are payable.
• Capital reserve fund (C.G.S. Sec. 10-51(d)). Regional school boards may create a capital reserve fund to finance a specific capital improvement or piece of equipment. Annual appropriations may not exceed one percent of the district budget. The board is required to submit an annual report to the town detailing the condition of the fund.
• Bond issues (C.G.S. Sec. 10-56). Regional school boards may issue bonds and notes in support of capital improvements (e.g. buy land, purchase or construct buildings, and equip buildings). The bonds may only be issued after a public hearing and approval at a referendum. The question is determined by the majority of those voting in the district as a whole. These obligations are considered general obligations of the district and member towns.
• Borrowing in addition to bonds (C.G.S. Sec. 10-60). The board may also issue bonds, notes or other obligations for capital and operating expenses after securing approval through a majority vote at a regional school district meeting. The principal amount may not exceed $500,000 at any time. The term for such obligations may not exceed 10 years.