Yesterday the Legislature closed session and settled on keeping the base state aid at $4012 for the 2010-2011 school year. This is both good and bad news for schools. The entire balancing act is based on an 1 cent sales increase in sales tax.  I do not want to be Dave downer. However, what happens if people are not buying. With no excess  discretionary money (unemployment up, pay cuts, no raises, etc)  money from taxes is not necessarily the answer. I am hopeful, but I have to believe Districts are still going to have to cut.  They are still going to have the conversations about what happens next. I have felt for a long time we are in the middle of the Hurricane.  The calm before the Storm. We need to be prepared….. Stay tuned.

The House released the proposal for state funding for next year.  The effect would be the following:

2010-11 Estimated computed general fund budget at BSAPP of $4,005
with the following adjustments in weightings.

• Eliminates high enrollment weighting
• Reduces low enrollment weighting
• Reduces vocational weighting from .5 to .4825
• Reduces bilingual weighting from .395 to .3812
• Reduces medium at-risk weighting from .06 to .0579
• Reduces high-density at-risk weighting from .10 to .0965
• Reduces at-risk weighting from .456 to .44

This  just got me to thinking. At ESSDACK our funding is different in many ways. For example we do not have Restricted use money or the spend or lose clause.  What would be the effect if the Legislature gave schools money without the limiting a carry-over.  If this had been in place would school boards been more frugal in preparation for the downfall in the economy. What I mean is we saw it coming.  It did not happen overnight. Would the Union’s have forced Schools to spend the excess on teacher salaries?  Could a school bank, and emergency fund of one year’s worth of salaries and expense. I am curious, if the financing of schools was more business like would we have been better prepared? I anticipate another 2-3 yrs until full recovery.  I know we will see a lot of change in that time.  I certainly do not have the answers but this whole topic does give you something to ponder. When things do turn around, can we not let the crisis pass without finding ways to prevent our schools from going through this again in the future.

The CLASS 2010 Group met today, March 9, 2010 at the ESSDACK office to learn about blogging and share information on district central office management day to day operations.  John Jones was our guest speaker and discussed ways we can get started and share our information with each other.

IRS rules that were to be effective 1/1/09 significantly changed the 403(b) world because they included a requirement for districts allowing 403(b) products for their employees’ use to serve as “plan sponsors” like 401k plans in the private sector, which inherently puts a greater fiduciary responsibility on the district offering the plan.  Since there are numerous 403(b) vendors who all historically offer different products and pricing models, the compliance obligations for district “plan sponsors” under these new IRS rules seemed almost insurmountable.  ESSDACK saw an opportunity to create a new model that assists Kansas school districts as “plan sponsors” in meeting this compliance need, and from this grew the ESSDACK 403(b) Consortium Plan. The foundation of the ESSDACK plan was built with the following five goals in mind.

1. Full Compliance with New IRS Rules for 403(b) plans
2. No Cost to the Districts
3. Full Disclosure of all Plan Costs
4. Maximize Return to Investors
5. Tool to Help Recruit and Retain Teachers
   

We believe we have constructed, with the help of Brian Johnston (Attorney with Polsinelli Firm), Ameritime (Independent Financial Advisors), and TPP (Independent Third Plan Administrator) a solid program to augment KPERS and Social Security as retirement vehicles. The plan uses an Asset Under Management model. Simply pooling numerous entities funds in a common program allows for us to reduce costs, and thereby maximize the return to the investor.  It also allows the elimination of all front-end or back-end “loads”, surrender fees and other termination costs that may prohibit the future use of other lower cost/higher performing investments.  How about 12b1 Fees, which normally return to the financial firm selling the investments, in this plan they are return directly to further offset costs. Moreover, the costs of the ESSDACK plan reduce as more money is contributed to the plan.

The program is structured with for actual break points in pricing.  They are as follows:

• $1,500,000
• $2,000,000
• $4,000,000
• $8,000,000

ESSDACK has had the program in place for 18 months and has already reached the 3rd tier of pricing. As illustrated in the following table.

Sample Fund Management Pricing at various levels shown in bps.

1. Fidelity Platform is waived if Fidelity funds are chosen.
2. ESSDACK Fee is for Startup and Maintenance expenses of the program and will reduce accordingly over time.
3. The investor has the freedom to purchase funds with high or low fees based on their investing goals. Ultimately, if an investor is fee conscious they can find funds in this program to reduce total fees below 1.5%.

The program currently has 24 participating districts, 1021 participants, and over 9 million in assets.

If you would like to find out more about the program or how it can benefit your K12, college or university, give me a  call 620-931-2588 or email me at finance@essdack.org.

Pete Lundrigan
CFO/CIO