Considerations in Accounting For and Use of WRS Credits Provided By 1999 Act 11

School districts are required to record the entire 1999 Act 11 employer credit as refund revenue in WESSAS source account 971 for the year ended June 30, 2001. Each district was notified of their total credit amount prior to June 30, 2001. The DPI considers this transaction no different than a refund credit memo provided by any other payee prior to a fiscal year end. There has been some discussion that a portion of the credit should not be recognized prior to June 30, 2001, as it is measurable, but not "available". Authoritative standards only provide specific guidance as to what "available" means in the case of property taxes (the "60 day" rule). Source: Governmental Accounting, Auditing and Financial Reporting, 1994 edition, page 36.

The WRS in a June 22, 2001 Employer Bulletin identified that invoices providing for the use of the total Act 11 credit will be issued in three phases. Districts in June received a phase one invoice for the earned credit amount for calendar year 2000, the phase two invoice (expected to be issued August 10, 2001) for most employers will represent the credit amount applicable for the January through June 2001 period. Only if the district's total credit account has not been exhausted with the issuance of the phase two invoices will phase three invoices be issued. The WRS expects the typical employer to use all or most of their total Act 11 credit by the end of calendar year 2001. However, there is no requirement that employers apply any or all of their invoiced Act 11 credit in a particular time period.

School districts are required to record all payroll-related cost as expenditures of the fiscal year in which employee services are provided. For most districts, this means the Act 11 credit will be "matched" with the related WRS earnings reports when the phase two invoice is received. Use of the Act 11 credit against a required WRS payment will result in an increase in the district's cash balance, which will be available for other expenditures.

It is important to note that, because the uniform recording required by the DPI, the state aid effect on all districts will be the same, i.e. a reduction in shared cost. However, the aid effect of the Act 11 credit for a particular district cannot be determined by simply multiplying the district's ratio of current sharing against the credit amount. This is due to aid formula changes in property value guarantees and in the secondary cost ceiling that occur when there is a change in statewide shared cost.

Although the final statewide effect of required recording of the Act 11 credit is indeterminable at this time due to 2000 - 2001 actual costs and changes resulting from the new state budget not being available, a preliminary analysis of the aid effect shows it to be rather minimal for most districts. Only ten districts show a decline of aid eligibility greater that 1% when compared to the July 1, 2001 aid estimate. There are 187 districts with no change or an increase in aid eligibility.

The WRS credit represents an "outside the revenue limit" financial resource which is part of the district's fund balance until spent. Care should be taken in the use of this resource. If the credit is used in lieu of a cash disbursement for the district's monthly WRS payments, an equivalent cash asset will be made available for other district use. Use of this available asset for aid eligible expenditures will result in an increase in the district's shared cost in the fiscal year when used.

Like any use of fund balance, consideration should be given to the effect of recurring versus non-recurring use. Among the options for a non-recurring use is to make a voluntary payment against the district's unfunded liability balance. Under current WRS practices, doing so will result in a shortening of the prior service re-payment term, currently scheduled to end in the year 2029, not a reduction in required contribution rates. The district may decide using the Act 11credit for an additional voluntary payment will provide minimal benefits when compared to using this resource for other district needs. The DPI is makes no recommendation concerning the use of the Act 11 credit; however it does urge districts to carefully consider the financial effect of the various options available.

For questions about this information, contact dpifin@dpi.wi.gov (608) 267-9114

Last updated on 2/25/2008 11:56:27 AM