What is an Excess and Deficiency Account?

I received a question from one of my new colleagues from the elementary system that I felt was important for everyone to understand. I have spoken about the Excess and Deficiency (E & D) account many times in our public meetings in which regionalization has been the topic of discussion. At our Regional Planning Meeting on August 11, 2011 I said, “Should Orange, Mahar, and Petersham regionalize the elementary schools and towns would be beneficiaries of an Excess and Deficiency Account.” So the question:

What is the E & D account and how is having it beneficial for our schools and our towns?

Every regional school district must maintain an Excess and Deficiency (E & D) Account. In cities or towns this fund is referred to as Free Cash and in business it is similar to retained earnings. At the end of every fiscal year, any surplus or deficit in the district’s general fund is placed in or taken from the E & D fund.

Every year and in every regional school district this fund is certified by the Massachusetts Department of Revenue. Failure to have this account certified may result in the state withholding all or part of the region’s state aid.

The regional school committee may use all or part of the certified balance in E & D as a revenue source for its next proposed budget. This fund may also be used at the discretion of the school committee for extraordinary or unanticipated expenditures. Up to 5% of the current year’s budget can be attributed to the E & D account.

So what does all of this mean????

For starters the assessments to the towns of New Salem, Orange, Petersham, and Wendell were reduced by $489,945.00 in the 2011 – 2012 school year. This amount came directly from the Ralph C. Mahar E & D fund. If we were to regionalize, we would be able to store close to $1,000,000.00 in a larger, combined E & D account. As has been the case for many years at Mahar, these funds would be used to reduce the assessments for Orange and Petersham Elementary as well.

Second and even more important, this fund can be used in a time of crisis. The over expenditure of funds at Orange Elementary in fiscal year 2011 is a perfect example of this. If Orange were a regional school the deficit at the end of fiscal year 2011 would not have been an issue for the Town of Orange. The best way to handle this deficit would have been to pull funds from the Excess and Deficiency Account.