Capital works expenditure by boards of trustees of integrated schools

The Private Schools Conditional Integration Act 1975 ("the Act") and supporting integration agreements with individual proprietors require the proprietor to own or lease their school property and to be responsible for capital works. Proprietors cannot contract out of this responsibility to boards of trustees who are agents of the Crown for property purposes. Even if board funds are used to create capital works assets, those assets belong to the proprietor. These capital works assets will not be eligible for integration and the board will be responsible for ongoing maintenance.

This does not mean that boards cannot undertake capital works with the proprietor's and Ministry of Education's consent. Such work has produced benefits for state integrated schools in the past and is usually for projects the proprietor would not normally fund. However, it is important that the correct process is followed when boards undertake and fund capital works on land owned by the proprietor; and that the consequences are understood.

For more information see www.minedu.govt.nz/property

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Process for fundraising on behalf of proprietors

Boards can fundraise on behalf of their proprietor for capital works but must make the purpose of that fundraising clear to their community¹. Ideally money should be credited directly into the proprietor’s accounts. However it is permissible for funds to be banked by boards and then transferred to the proprietor along with attendance dues. In this situation a board must keep detailed records of these transactions and ensure that attendance dues and fundraised amounts are clearly distinguishable.

Process for applying for approval to use board funds for capital works

Boards can fundraise on behalf of their proprietor for capital works but must make the purpose of that fundraising clear to their community².

If a board wants to use any of its own funds (including locally raised funds) for capital works, it is legally required³ to get the Ministry of Education's approval. The step-by-step process to be followed for the application is as follows.

1. Obtain the proprietor's written approval as owner. The proprietor may decline if, for example, capital works of this nature are not included in the integration agreement.
2. Seek the approval of the expenditure concerned from the Ministry of Education's local office by providing the following information:
• confirmation that the board will not exceed the borrowing limits (annual repayments of capital and interest must be within 10 of annual operating grant) if it plans to borrow money for the capital works asset(s); and
• the purchase and operating costs of the capital works asset(s) will be met by the board without disadvantaging the school's operation; and
• the capital works asset(s) will not negatively impact on the school, for example they will not create significant upgrading costs; and
• the project will bring educational advantages to the school; and
• the board has sought legal and accounting advice, if required, to support the expenditure; and
• the work is not the proprietor's responsibility under the third schedule to the school's integration agreement⁴; and
• the completed capital work asset(s) are not eligible for integration⁵.

3. If the Ministry of Education gives approval, then those capital works assets must be included on the board’s balance sheet. If an equitable lease is already in place from the regularisation process at 31 December 2008 (see below) then Schedule A of these regularisation documents may need to be updated.

If approved, your board will receive a confirmation from the Ministry.  This confirmation should be shown to your board's auditor during the annual audit of the board's financial accounts.

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Regularisation at 31 December 2007

The Ministry and the Association of Proprietors of Integrated Schools agreed to a one-off opportunity to resolve breaches in process that occurred prior to 31 December 2007. Information about that regularisation process can be found in the Property Management section.

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Footnotes

^1. Section 2 of Schedule 6 to the Education Act 1989 provides that (quote): Every board is hereby deemed to be an agent of the Crown in respect of its property and the exercise of its functions.

^2. Section 38 of the Private Schools Conditional Integration Act 1975 permits schools to take part in fundraising conducted by proprietors.

^3. Section 67 of the Education Act 1989 imposes requirements on the level of board borrowings - boards can borrow without seeking the Ministry's approval if the annual repayments of principal and interest do not exceed 10% of the school's operating grant. Section 69 of the Education Act 1989 requires boards to obtain the Ministry of Education's approval to obtain an interest in property.

^4. The proprietor is legally committed by the integration agreement to complete a specified list of work required to upgrade the school to state standards in return for the Crown agreeing to integrate the school. Therefore, the board of trustees, as a Crown agent, cannot subsequently complete this work itself.

^5. This means that the board must subsequently maintain the asset itself from resources other than its maintenance grant as only integrated property attracts maintenance funding.