Queen Liliuokalani Building
1390 Miller Street, Room 404
Honolulu, Hawaii 96813
Tuesday, August 16, 2016

Kenneth Uemura, Vice Chairperson
Brian De Lima, Esq.
Lance Mizumoto
Bruce Voss, Esq.
Margaret Cox, ex officio
Hubert Minn, ex officio
Jim Williams, ex officio

Grant Chun, Esq., Chairperson

Amy Kunz, Senior Assistant Superintendent and Chief Financial Officer, Office of Fiscal Services
Tracy Okumura, Executive Assistant, Office of School Facilities and Support Services
Alison Kunishige, Board Executive Director
Kenyon Tam, Board Analyst
Summer Jenkins

I. Call to Order

The Finance and Infrastructure Committee (“Committee”) meeting was called to order by Committee Vice Chairperson Kenneth Uemura at 12:00 p.m.

II. Public Testimony on Committee Agenda Items

Committee Vice Chairperson Uemura called for public testimony. The following people provided oral testimony.

Agenda Item
Vanessa OttMember of the public IV. C. Update on the Department of Education’s budget background and process for the 2017-2019 Fiscal BienniumComment

Vanessa Ott, member of the public, testified that it is difficult to convince the public that the Department of Education’s (“Department”) needs more money. Ott stated that financial information should be more than just line items but rather an explanation of how monies are spent. Ott asked the Committee to consider making a policy for a more transparent budgeting process.

III. Approval of Meeting Minutes of July 19, 2016

ACTION: Motion to approve the Finance and Infrastructure Committee minutes of July 19, 2016 (De Lima/Voss). The motion carried unanimously with all members present voting aye.

IV. Discussion Items
Amy Kunz, Senior Assistant Superintendent and Chief Financial Officer, Office of Fiscal Services, presented the fiscal reports. As of June 2016, the threshold variance for the Comparison to Budget report was changed from 10% to 5% and descriptions were added to each item. Kunz stated that the variance between 2015 and 2016 actuals is largely driven by collective bargaining adjustments. The variance in EDN 100 between 2016 actual and allocations is primarily carryover for the Weighted Student Formula (“WSF”).

Committee Member Lance Mizumoto asked if the actual budget for Fiscal Year (“FY”) 2016 could be compared to the budget. Kunz replied that this information is in the report. The Department refers to the budget as an “allocation” because restrictions are also factored in.

Committee Vice Chairperson Uemura asked if the WSF carryover has to be used within a specific period of time. Kunz stated that the carryover will be used within the first six months of the new fiscal year. Committee Vice Chairperson Uemura asked for explanation on the EDN 150 (special education) variance. Kunz replied that the Department had reinvested in special education support within EDN 150. Other carryover amounts were used in shortfall areas, such as EDN 400 (school support). Low oil prices could cover increased utility areas. Committee Vice Chairperson Uemura asked how carryover funds will be accounted for moving forward. Kunz stated that the carryover funds will be kept in cash so the Department can access cash reserves if needed. Committee Vice Chairperson Uemura asked for an explanation on the EDN 700 (early learning) variance. Kunz stated that the Department works with the Executive Office of Early Learning (“EOEL”) on its budget. The number in question is a savings from salaries. EOEL can only carryover 5% of its allocation, and therefore the rest lapsed back to the State. Kunz further explained that the Department worked with EOEL to fill positions. The Department monitored and provided information to help inform the budget. When funds lapse, they stay with the State.

Committee Member Brian De Lima stated he would like to better understand the funding remaining in the special education account, EDN 150, at the end of the year and the thought process on how the special education funds were reprogrammed. Committee Member De Lima stated he wants to make sure each complex was involved in providing input.

Kunz stated that the school food services fiscal report lines up with data from the prior year. FY 2015 was an anomaly with an extra month of receipts related to federal reimbursement.

Committee Member Bruce Voss stated that the expenditures have been relatively flat for the past four years and asked if the Department will be able to meet increasing demands. Kunz stated that the school food services area could use more staffing in comparison to other areas. The Department continues to manage food costs, but pilots with schools to get more local produce will drive costs. Kunz added that the area is operating very efficiently.

Committee Member Voss mentioned variations in special and federal funding and asked if the area needs more attention. Kunz replied that they maintain the allowable value of three months of operating cash reserves to address variations.

Committee Vice Chairperson Uemura asked how deficits are covered. Kunz explained that the Department tries to maintain the program within itself, and other programs have savings to offset the deficit. The area will continue to be monitored in the case of additional needed funds. Committee Vice Chairperson Uemura suggested keeping less than three months of cash reserves. Kunz stated it is possible to use operating funds in the current year as the Department goes through the legislative process to request additional funding. Kunz advised the committee on the need to stay between two and three months because the potential impact on students is so great. Committee Vice Chairperson Uemura asked how the budget ceiling is determined. Kunz explained that the ceiling of $58 million is based on prior expenditure information.

Kunz reviewed the student transportation fiscal report and highlighted that the area saw an expense reduction through route and efficiency measures put in place. The FY 2016 expenditures were slightly under the FY 2015 expenditures. Revenues were intentionally slightly lower due to reduced budget requests linked to new contracts. Kunz stated that the bus contracts have inflation clauses so costs are anticipated to increase.

Ex Officio Committee Member Jim Williams asked how the special fund operates in a deficit. Kunz explained that the area has an accumulated balance that was intentionally used. The year ended with a balance of $1.5 million but it has been as high as $4.8 million. The Department is leveraging funds to use them within the program. Ex Officio Committee Member Williams asked about accumulated funds before 2012 because the last five years add up to a negative. Kunz stated that the Department is trying to be careful about maintaining levels.

Ex Officio Committee Member Margaret Cox arrived at 12:19 p.m.

Committee Member Voss asked why payroll for student transportation had steadily increased in the past two years. Kunz stated that collective bargaining increases and providing transportation managers in the field increased costs. Kunz offered to provide an organizational chart for the student transportation office and transportation managers.

Kunz stated that the utilities fiscal report has several different pieces broken down by utility and vendor. The report includes electricity, gas, water, and sewer funds. Kunz stated that the report shows evidence of growing alternative energy use and noted that electricity usage has increased by 4% due to heat abatement efforts and additional technology in the schools and classrooms. Usage will continue to be monitored.

Committee Vice Chairperson Uemura stated that kilowatt values drive costs, and it would be good to see that in the report.

Kunz stated the Impact Aid report shows reimbursements from the federal government for federally impacted or military students.

Committee Member Mizumoto suggested adding an executive summary to point out the highlights in the fiscal reports.

Kunz stated that the capital improvement report shows projects that went out for bid in the fourth quarter and gives a comparison between the third and fourth quarter as adjustments.

Committee Member Mizumoto asked about major expenditure categories and asked if there are any that should be added to the report. Kunz stated that the original intent was to focus on high profile issues, but the Department can look a different way of reporting on areas. Committee Member Mizumoto used the example of travel as something that may possibly be one of the top expenditure areas. Kunz suggested a top ten listing of expenditures and seeing what might rise to the level of requiring a report to the Board.

Committee Vice Chairperson Uemura asked if “allotment” refers to projects in financial activity. Tracy Okumura, Executive Assistant, Office of School Facilities and Support Services, stated that allotments are the funds the State releases, and expenditures refer to the amounts spent on projects. Committee Vice Chairperson Uemura stated that $180 million has already been expended and asked for the total cost of projects to make sure the number is being managed. Okumura stated that he will provide the Committee with the information.

Committee Member De Lima asked for clarification on the process to receive additional funding for change orders. Okumura clarified that, for change orders, the contingencies are factored into the encumbrance of funds.

Okumura presented the update on the heat abatement program. Okumura reported that heat reflective coating had been installed on 15 additional portables on Maui, bringing the total of covered classrooms to 423. The Department met with pre-qualified contractors and design consultants regarding the scope and bid process to eliminate uncertainty. The Department gave a presentation to the contractors and consultants and had an informal discussion with productive feedback that resulted in project adjustments. Okumura stated that bids were awarded for four schools to include air conditioning. The Department plans to hold pre-construction meetings with the involved schools. The Campbell High School O Building project was awarded to CC Engineering & Construction, Inc. and will begin in the near future.

Committee Member Mizumoto asked how many classrooms had been cooled. Okumura replied that 423 classrooms have heat reflective coating, 139 have ceiling fans, and 21 schools have portable air conditioning installations. Additionally, seven schools have received upgrades to electrical systems.

Committee Member Mizumoto requested data reflecting the percentage of classrooms that have been cooled thus far and the number of schools that have received air conditioning since the last fiscal year. Okumura stated that the information will be provided.

Kunz presented an update on recent and future budgeting processes. Regarding the Executive Branch’s total general fund appropriations for FY 2017, Kunz stated that the Department’s appropriation makes up 22.3% of the overall general fund budget. The Departments of Health, Budget and Finance, and Human Services account for larger portions. As a portion of the Executive Branch’s total all means of finance appropriations, the Department drops to 14% of the overall budget. Kunz shared a chart showing the Department’s general fund appropriations categorized by EDN program. Kunz explained that 94% of EDN 100 (school-based budgeting) is dedicated to WSF. Kunz shared a chart showing general fund appropriation trends by EDN. Kunz reviewed the types and levels of appropriations, including general, federal, special, and trust funds. Kunz shared data on various major federal program funds.

Kunz presented the Department’s budget process. The Department developed a new web-based budget tool in May to make the process easier for program managers. The budget process was set up in June with the Superintendent and Department leadership, and the Department trained “Budget Friends Forever” who were to assist with the budgeting in their assigned areas. Management and the Budget Friends Forever worked on the budget process to evaluate additional resources needed to present current services and new requests. Kunz stated that the Department of Budget and Finance (B&F) will allow the Department to present the final budget to the Board of Education (“Board”) on October 4, 2016, which gives enough time for Board’s committees to review and make adjustments. Kunz stated that an additional Committee meeting may be needed, and the Department is waiting for instructions from B&F to begin the process.

Committee Member De Lima stated that the Department needs to leverage the Governor’s Every Student Succeeds Act (“ESSA”) Team’s town hall meetings and the Department and Board’s Joint Strategic Plan (“Strategic Plan”) community meetings to gain an understanding on how new visions of education should translate into the budget. Committee Member De Lima stated that the same budget adjustments will bring the same results instead of the additional funding needed. Kunz stated that the Department will go through the current services to utilize funds and tweak the programmatic mindset to help with student support. Committee Member De Lima suggested meeting with the Committee on Weights before requesting funds from the Legislature.

Ex Officio Committee Member Jim Williams entered at 12:57 p.m.

Kunz stated that the Department plans to present the list of potential requests at the September committee meetings to focus on relevant pieces for in depth feedback. Kunz stated that the Council on Revenues needs a balanced budget for tax collection projections, and the deadline will be moved up by one month. Kunz showed historical charts and projections. Kunz added that the Department is working through the process of dividing the capital improvement program budget into different categories. The repair and maintenance backlog continues to decrease. Kunz showed a capital improvement chart with funding over time and stated that the area continues to be monitored for implementation.

Committee Vice Chairperson Uemura referenced Plan B in the materials and stated that recommendations for changes to the Strategic Plan must be considered. Committee Vice Chairperson Uemura asked if the Board will have the Strategic Plan and ESSA Team recommendations before the budget comes before the Board. Kunz replied that those recommendations will not be available by the time the budget is presented but added that the Department will base the budget on the preliminary feedback provided on the Strategic Plan as much as possible.

Committee Member Mizumoto requested that Kunz work with Assistant Superintended Tammi Chun to make sure Strategic Plan input is utilized.

Committee Vice Chairperson Uemura asked for the gross change in the repair and maintenance backlog. Kunz replied that $150 million is needed to remain at a steady state. Kunz stated she will provide information on the year-to-year changes in the repair and maintenance backlog at a later time.

V. Adjournment

Committee Vice Chairperson Uemura adjourned the meeting at 1:08 p.m.