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Kiva’s use of emergency fund might be unconstitutional

TABOR restricts use of reserve to emergencies
Students from Children’s Kiva Montessori School pet draft horses during the 2017 Four States Ag Expo.

According to a financial audit of Children’s Kiva Montessori School’s elementary and middle school, in June, CKMS dipped into a fund designated by law for emergency use.

That action might have violated the Colorado Constitution.

The school’s action yielded a formal “notice of concern” from Montezuma-Cortez School District RE-1 on Sept. 28 that directed CKMS to restore the funds, according to RE-1 Superintendent Lori Haukeness.

The Colorado Taxpayer Bill of Rights, an amendment to the constitution in 1992, mandates that Colorado public schools designate a fund equivalent to at least 3 percent of annual school spending to remain unused each year except in an emergency.

These mandated savings, known as the TABOR restricted fund, cannot be used in response to “economic conditions, revenue shortfalls, or district salary or fringe benefit increases,” according to the TABOR text.

However, May Jackson Hendrick, LLC, an accounting firm based in Parker that audited CKMS, found that the school reallocated part of the fund because of a revenue shortfall.

“During the (2018-2019 school year), the School borrowed funds from the Tabor Restricted Fund Balance to meet cash flow needs when budgeted funding sources were not received as anticipated and expenditures exceeded budgeted expectations,” the audit report said.

According to statements by CKMS Financial Director Urulu Yazzie during the Nov. 8 meeting, the school’s Finance Committee likely approved the spending around June.

Yazzie, who was hired in May but did not begin work until June, said he was not directly party to the decision to dip into the emergency fund.

Responses from the state and district

Aaron Oberg, director of the School Finance Division of the Colorado Department of Education, said in an email Wednesday to The Journal that CDE “does not have the authority to determine the constitutionality of a use of TABOR (funds),” which would be a matter likely decided in court.

Colorado law requires that school districts that access the TABOR fund restore the reserve within 36 months of the first draw. Oberg said that it appears that CKMS will comply with the requirement, citing a part of the audit report that said the school would make “monthly transfer(s) of funds to ensure Tabor Restricted Funds are not utilized.”

Oberg said that because the school is likely to restore the fund on time, it was not likely to be considered “out of compliance” with CDE guidance by the department’s School Finance Division.

According to other guidance from CDE, some school districts maintain the 3 percent TABOR reserve on behalf of charter schools in the district. However, in Cortez, CKMS is required by its charter contract with RE-1 to maintain its own 3 percent reserve.

According to CKMS’ charter agreement with RE-1, “the School’s ending fund balance should comply with the emergency reserve requirements of (TABOR).”

Carol Mehesy, director of School Improvement and Grants for the RE-1 district, works closely with district charter schools including CKMS. She told The Journal on Tuesday that the district was working with the school on matters including its use of TABOR funds.

According to Mehesy, if CKMS’ use of TABOR restricted funds is found to be a breach of its charter contract, the RE-1 board would ultimately determine whether any formal actions were taken.