Finance Board Concern Prompts Pause Paying Off Security Camera Lease
Concerns expressed by Board of Finance members days before the end of the fiscal year prompted school district officials to delay pre-paying three remaining annual lease installments on a security camera system by using $374,796 from an unusually large 2019-20 budget surplus.
While updating her board July 7 about the planned lease payoff on Verkada security cameras previously approved in early June, Board of Education Chair Michelle Embree Ku said the payment had been put on hold following the finance board’s questioning of the decision.
As reported by The Newtown Bee last September, the recently installed cameras cost $484,886 with an added $79,200 for installation, and its lease was structured over five years at 2.65 percent interest with annual payments of $124,932.
According to school district Business Director Ron Bienkowski, the second annual payment was already made in the 2019-20 fiscal year and the Board of Education’s motion at its June 2 meeting authorized the remaining three payments to also be made in the same fiscal year. Bienkowski reported the Board of Education’s nonlapsing account is projected to have roughly $1.2 million after the close of the 2019-20 fiscal cycle, with grants and other balances included in that total.
School officials justified their decision to the finance board, saying that by clearing the outstanding lease using the current year surplus, the district would see an immediate and corresponding $124,932 impact on the 2020-21 fiscal year’s budget. That positive impact would presumably carry through the 2022 and 2023 budget cycles as well.
Ku said July 7 that she heard finance board members expressing concern regarding the state’s decision to reopen schools in the fall — and how related expenses could affect the 2020-21 budget. But some school board members voiced concern about having another board question its decision, including Vice Chair Dan Delia, who was the only vote against the June 2 vote on the lease payment.
“That decision was made, and it was made by a group of people who… debated on it and voted on it,” Delia said, adding that he feels it is important to set an example of standing by decisions. Delia previously told The Newtown Bee, “I was opposed to spending the money on the cameras without a clear financial benefit. I made that point in the subcommittee meeting discussion, and voted No when the motion was presented to the full BOE [in early June].”
After further discussion earlier this week, the school board voted to delay any further decision on whether to rescind the lease payoff until its next meeting, currently scheduled for July 21. The motion to delay passed 4-3 with Delia opposing along with school board members Rebekah Harriman-Stites and Debbie Leidlein.
Finance board Chair Sandy Roussas told The Newtown Bee she was inclined to add discussion on the lease decision to her board’s agenda after reading the article about the school board’s move to enact the payoff. Roussas said she wondered if it was the right move given the unknowns around reopening expenses following the months-long school closures ordered by Governor Ned Lamont to stem the transmission of COVID-19, and hoped to get her board members’ perspectives.
So she requested and received a motion to put discussion of the payoff onto the agenda, which was unanimously approved.
Benefit Or Poor Planning?
Superintendent of Schools Lorrie Rodrigue told the finance board that her team had looked at potential reopening costs critically, knew what would be required for PPE, and had a serious discussion along with the Board of Education regarding the lease payoff.
“This isn’t something we did randomly and without a lot of thought behind it,” Dr Rodrigue said. “We talked about... our surplus and what would be left, and it does open up some funding in our budget.
“We thought it would help a lot, especially given the landscape, and I can tell you that some things already have come through and it’s going to help us a lot in next year’s budget including new staffing that’s needed due to COVID, due to enrollment, and due to higher special education numbers,” the superintendent said.
Finance board members Matthew Mihalcik and Jonathan Madzula both went on record strongly opposing the payoff, and echoed their chairperson’s concerns about potential reopening expenses, with both finance officials going as far as suggesting the town and school district should be “hoarding cash” in the event reopening expenses escalated beyond expectations.
Mihalcik also pointed out that a full analysis of district financial needs for a possible fall opening could not have happened prior to earlier that day when state officials announced firm plans to reopen schools in the fall.
Upon questioning Bienkowski about the lease payoff status, the district business manager indicated it had already been paid. However, First Selectman Dan Rosenthal, who attended the finance meeting, said the purchase order tied to the payoff was still open, so the payment had not been finalized.
Finance board member Chris Gardner then asked Ku to explain the rationale of her board. Ku responded recommending the finance board members listen to audio from her board’s CIP meeting during which the lease payoff is discussed along with possible use of the school board’s non-lapsing fund.
“I would agree the non-lapsing fund was meant to encourage the Board of Ed to save money,” Ku said. “If you can ensure right now that the Board of Finance would deposit the entire amount of our surplus at the end of the year into the non-lapsing fund, that would give us some confidence.”
Ku added that disposing of the annual lease payments in one immediate payoff that would be otherwise tacked to the next three budget cycles “will benefit the taxpayers for the next three years.
“Part of that money will allow us the flexibility in our budget next year to pay for some of these COVID expenses,” she added. “The non-lapsing account benefits all of the town by encouraging good financial practices, and we have used it to try to mitigate variations in the [special education] costs, to pay for CIP items that would have otherwise been bonded, and to save educational money for educational purposes.
“But there has to be a trust that the Board of Finance will deposit that money into the account — and I have to be honest, I’m not sure that trust is there,” Ku said. “Otherwise the Board of Ed has little incentive to save the money, and that is money that was voted on for educational purposes — because it otherwise goes into the fund balance.”
The Trust Factor
Mihalcik argued that the trust factor works both ways. He said his concerns revolved around the district wanting to use surplus to pay down the lease with this year’s unanticipated surplus windfall.
“You said the non-lapsing fund is supposed to be for educational purposes, but cameras are not educational purchases, they’re capital purchases, they’re not going toward the education of our children — which I clearly support — I just don’t agree with poor financial decisions,” he said, adding that the lease payoff was the most glaring of poor financial decisions he has seen during his [seven month] tenure on the finance board.
Mihalcik said that based on previous conversations between finance and school officials, he felt very positive.
“I think we’re pretty open to discussion, and everybody supports you,” he said. “The question is fiscal responsibility, that’s all.”
Roussas agreed to close out the conversation reminding those attending the virtual meeting that the initial motion to discuss the payoff was out of concern for future financial needs tied to COVID-19 issues, and was not about matters related to the non-lapsing fund. She then pledged to invite school officials back when the fund was on the agenda for discussion or possible action.
When asked to expand on her concerns following the meeting, Ku responded with a written statement:
“We have welcomed, with enthusiasm, conversations between the Board of Education (BOE) and Board of Finance (BOF), and these discussions have been productive, going a long way toward defining policies and procedures that will benefit the community.
“As Dr. Rodrigue indicated at the onset of the discussion, planning for COVID-19 had been extensive, took into account different contingencies, and would continue to evolve, depending on the amount of community spread and regardless of any one plan. The assertion during the meeting that the BOE should look to amass cash (presumably to be able to address COVID expenses) must be balanced with demands that the BOE use a positive balance to address future obligations.
“The BOE’s recent action was done to reduce taxpayers’ burden in the coming years, similar to the recently approved use of $300,000 from the Education Non-Lapsing Fund to pay for a Capital Improvement Project,” the school board chair’s statement continued.
“Budgeting for the contract has been planned and would continue into future budgets. By definition, items within the BOE budget are education expenses, and we consider the security of the school campuses of paramount importance. The conversations that the Board of Education had prior to making the payment decision took place over two meetings and took into account both the costs and benefits. It was not a straightforward decision, and some of the concerns raised by the BOF had been considered by the BOE.
“The BOE has not previously been required to ask the BOF for input on line-item transfers nor year-end spending. However, to honor the Board of Finance chair’s request, we will entertain a discussion about the Verkada security camera payment at our next BOE meeting,” Ku concluded.
“The BOE is dedicated to continuing a positive relationship with the BOF, managing the budget with fiscally sound practices, finding savings where possible, and paying down future costs to lessen burden on taxpayers.”
When asked about his take on the lease payoff, the first selectman said, “I think cash is our friend right now — and while advance funding a contract may make sense if you can secure savings for the taxpayer in the form of a discount, unfortunately that was not the case here.”
Read more following the next school board meeting and their final action on the lease payoff in the July 24 edition of The Newtown Bee and at newtownbee.com.