"MCPS should adopt formal policies governing long-term obligations and cash management."What did that recommendation mean? It meant that the Board of Education should establish policies to govern when leases are used, how much should be purchased using leases (how much of budget), and what type of investments should be used when cash is available.
In your own home these decisions would sound like this, "Should we buy a new car or used, should we pay cash or borrow money, should we put our money in a savings account or buy a lottery ticket?"
The bottom line is that the MCPS Board of Education does not have policies in place for governing these type of long-term debts or investments, and the State Auditor thinks they should.
This is of particular importance as Superintendent Weast is now increasing the annual lease payments, and expanding the use of leases to Promethean Boards and the artificial turf field for Walter Johnson High School.
In January, the MCPS Board of Education increased the amount of the master lease agreement to $133 million without any discussion.
Maybe it is time for a policy to address the ever increasing long term debt of MCPS?
Here is what the State Audit said:
Capital Lease and Cash Management Policies Need
to Be Established
MCPS had not adopted a policy to govern its use of long-term lease
obligations to finance operations. Long-term liability levels and their
related annual costs are important obligations that must be
managed within available resources. An effective policy should
provide guidelines to ensure MCPS manages its long-term liabilities
accordingly. By law, MCPS is not authorized to issue bonds or
similar debt instruments to finance capital or operational needs.
However, MCPS used a capital leases to purchase equipment such
as buses and computer hardware. According to MCPS audited
financial statements, capital lease payments through 2012 had a
present value of $45.9 million at June 30, 2007, with $19.5 million
due within one year.
Although MCPS had cash management policies for areas such as
the pension trust and student activity funds, it did not have a policy
for investing excess cash from routine operations. Cash and
investments from governmental activities totaled $50.2 million as
of June 30, 2007. The notes to the fiscal year 2007 audited
financial statements indicate that MCPS’ deposits had been
sufficiently collateralized so that the deposits were not subject to
custodial or credit risk.
Policies to govern the use of long-term obligations to finance
operations and manage cash and investments are recommended by
the Government Finance Officers Association.