QUESTION: So What Will This Merged District Cost?

The merged district will offer new sports, new music and language programs and more course options for students. How much will all of this cost ?

While there is no doubt that a primary concern of many people (not the least of which is our students themselves!) is the educational value that a merged district can offer, there is another concern, particularly to those paying taxes – What will the cost of this new merged district be like in comparison to what we presently have ?

In order to talk about the costs, let’s look at the basic component parts of any budget – expenditures and revenues.

EXPENDITURES - The expenditures are basically the costs of doing the business of educating our young people. Estimating the expenditures for the 2013-2014 school year, the three districts as they presently exist have a combined set of expenditures of around $63.3 million. That is the combined cost of all three districts operating separately.

In comparison, the merged district expenditures are projected to total about $63.9 million for the same school year. This is about $600,000 more than the districts separately. This is less than 1% more than is currently spent in each of the three districts.

But what about the revenue side of the equation ?

REVENUES - In terms of revenues, without getting into the morass of funding streams, basically the three districts operating as separate entities get roughly $41.3 million from the State of New York in “regular” state aid. This actually includes federal as well as state aid, and some miscellaneous aid but for the sake of discussion it will be referred to as “regular” state aid.

This amount of “regular” aid wouldn’t change in a merged district. So the usual state aid coming into the merged district would remain at about $41.3 million. But there is additional aid that will also be available to the merged district that wouldn’t be to the districts if they remain separate. This is state incentive aid. In total, the new district would have about $59 million made available to it in “incentive” aid over a 14 year period ! The study suggests that the money be allocated over that period of time at a clip of about $6.2 million each year. This money does decline in the 6^th year of the 14 year cycle, being reduced annually by about $620,000 each year. See this post about how the Study team proposes we manage this incentive aid.

BOTTOM LINE - So back to the question – how much does this cost us financially ? Well, the expenditures between the two possible arrangements (merged versus separate districts) are essentially the same - $63 million. The potential revenues are substantially different.

Expenditures, Revenues, and State Incentive Aid

Regardless of whether the districts merge, “regular” state aid will be the same - $41.3 million. It is ONLY if we merge that we get a financial boost – specifically $59 million in “incentive” aid spread across 14 years. So in terms of revenue, a merged district has (at least initially) a $6 million per year advantage over the present arrangement.

BUT WAIT, THERE’S MORE - So what happens when that aid runs out in 14 years ? Well, there are three answers to that.

The first is that the Study suggests placing some $10 million over the life of the incentive aid into the reserve fund of the new district. This will help stretch out the fiscal advantage of the merger even further.

Second, the Study suggest applying $10 million to paying off some of the district’s debt in order to free additional monies for the future as well. The less you pay in debt services, the more you have for other things. Again, this extends the impact of the incentive aid further into the future beyond the 14 year payout period.

Lastly, what happens is that the district is no worse off than the three are right now ! If in 14 years the incentive aid flat out ends, and we have done nothing else, we will still have a school system with expenditures almost identical to what we they would have been if no merge took place, and a stream of “regular” state aid that would also be the same. What we WILL have gotten is $59 million in the meantime that has helped us established a superior educational system to what we have presently, in light of the cuts to staffing and programs that we have had to endure.

In the end, the expenditures to teach our kids will be the same regardless of whether we merge; the regular state aid we receive will also be the same whether we combine the districts or not.

The real fiscal question is “Do we want to leave $59 million on the table ?”

QUESTION: What are the chances that the NYS Incentive Aid will be cut once we merge?

What are the chances that the incentive aid that the State of New York provides to districts will be cut or reduced once a merger of the three districts takes place ? 

While no one can predict the future, certainly we can look at the past and see how many times this has ever happened to get a sense of what the chances are it will happen to us now. State incentive aid has been around since the 1920s for districts that chose to merge. In the early 1980's the incentive aid actually doubled for districts that went through with a merger. Since 1983,  33 merged districts have been created, and all received state incentive aid.  

NOT ONE OF THE 33 NEWLY FORMED DISTRICTS LOST THEIR INCENTIVE AID, AND NONE HAD THEIR INCENTIVE AID REDUCED DURING THE TIME FRAME OVER WHICH THEY WERE SUPPOSED TO RECEIVE IT. NOT A SINGLE NEWLY FORMED DISTRICT LOST ANY OF THE INCENTIVE AID THEY HAD BEEN PROJECTED TO RECEIVE - NOT ONE !

So it seems pretty clear given the history of this specific aid, and given the increase in state monies for studying mergers, that the incentive funds that would be allocated to the Herkimer-Ilion-Mohawk School District will in fact be there for the entire period of time they are supposed to be, and in the full amount.

QUESTION: What will the $59 million in State Incentive Aid be used for?

 What will the incentive aid be used for and what will happen when it is gone after year 14 (or after 2026)?



Primarily the money will be used in order to accomplish four goals - reestablish fiscally strong reserved funds for the new district; enable the first year of the transportation portion of the merger plan to go forward with no new impacts; pay down some of the debt that the new district will inherit from the three old districts; and reduce the tax levy that comes with assimilating the three districts into one.

Before talking about each of those, it is important to recognize that State Incentive Aid is often a driving force in deciding whether or not to vote for a merger. In the case of the Herkimer-Ilion-Mohawk (H.I.M.) merger, almost $59 million are projected to be available in incentive monies for the new district. This money is paid out at a flat rate for five years, then at year six begins to be reduced annually by roughly $400,000 for each of the next nine years.

So how will the four goals mentioned above be accomplished? 

1.  Reserve Funds - Roughly $10 million dollars will be placed into the reserve fund of the H.I.M Schools over the 14 years that incentive aid comes to the district. This money will basically come (other than the first year) at a clip of $1.2 million for 4 years then a declining balance each year after that up until 2026. 
2. Aid to Transportation - For the first year of the merge only, about $784,000 will be used to address any first year costs to establishing the new transportation plan for the district. 
3. Debt Reduction of New District - $1 Million a year, for the first 10 years will be used to pay outstanding debt of the new district. While the total debt of the district is far greater than $10 million, any reduction of this debt helps free more money toward other costs in the district. 
4. Reduction of the Tax Levy - $4 million will be used annually for the first 5 years to keep tax levies at or below current amounts for residents of all three current districts. This will then be reduced proportionately over the next 9 years.

So what happens when the money from state aid is gone in 14 years? There are several things that should help to ease the transition from having this state incentive aid to NOT having it. First, more than $10 million will have been placed in reserve. Part of those monies could be used to continue to help mediate the tax levies to some extent. Second, as the district begins to gel, undoubtedly there will be savings due to improved coordination and efficiencies. Third, there are already savings built into the present plan, through efficiencies in teaching and class sizes etc.

But more importantly that any of those, is that we, as voters, have the right and the obligation to hold the new Board of Education of the H.I.M. District responsible for properly maintaining the interests of all of those that pay taxes. So IF for some reason when the 14 years of incentive money is depleted we are not in a fiscally sound environment, we can and should hold those on the H.I.M. Board of Education responsible.

If you have other questions or comments please let us know at friendsofthemerge@hotmail.com !