My Turn: Hanscom cost allocations

By Paul Blanchfield, Finance Committee chair

Preface: I am writing as an individual who happens to be the chair of the Lincoln Finance Committee and a member of the Collins Center Working Group.

For over 50 years, Lincoln Public Schools (LPS) has run the Hanscom K-8 school through contract with the Department of Defense Education Activity (DoDEA).

The town benefits by being able to:

• Educate the children of those that serve our country
• Operate as a larger district, allowing for more extensive resources for students and staff
• Share costs across Lincoln and Hanscom, which reduces overhead and Lincoln’s financial burden; and
• Receive payment for these services at a higher rate than alternative arrangements. Bedford, which does not have a contract with DoDEA, educates Hanscom’s ninth- to 12th-grade students but receives federal impact aid and state mitigation aid, at a fraction of the reimbursement rate received by Lincoln via DoDEA.

Contract structure

The LPS Committee (LPSC) is solely responsible for the oversight and management of the contract, working with the Superintendent of Schools and in collaboration with town staff and committees as appropriate.

Contracts are constructed as a base year plus four one-year options exercised at DoDEA’s discretion (i.e., FY26–30 is a FY26 contract with four one-year options). In contracts up to FY25, LPS had a single negotiated fixed price for services provided within a year, independent of actual expenses. DoDEA does not provide additional funding, regardless of expenses, beyond that which is negotiated in advance, with a few exceptions (e.g., capital projects). The FY26–30 contract is based on the number of enrolled students. LPSC plans to evaluate the financial results for the new contract at the end of FY26 and determine whether there are implications for future year budgets and reserve policy decisions.

Over the life of the arrangement, revenues exceeded costs and the Hanscom Reserve Fund was established to maintain surpluses. It remains available for Hanscom-associated costs and/or future liabilities. In each contract negotiation, DoDEA regularly requests reductions to LPS’s initial proposals.

The Hanscom Reserve Fund has a current balance of ~$10 million against ~$14 million in unfunded liabilities (OPEB or other post-employment benefits, pension, unemployment), per the Collins Center.

Cost allocation methodology and working group

In late 2022, David Cuetos inquired about the Hanscom contract among numerous other concerns.

In June 2023, LPSC requested a review of the contract, procured a grant, and engaged the Collins Center, which provided a final report in May 2024, which was subsequently used to support FY26-30 contract negotiations. The report recommended the establishment of formal cost allocation methodologies for Hanscom-related OPEB, indirect town admin costs, and non-teacher pension costs, among other items.

A Collins Center Working Group was established in June 2024, including two LPSC members (Matina Madrick and Kim Rajdev), a Select Board member (Jim Hutchinson), a Finance Committee member (myself, Paul Blanchfield), and a member of the public (David Cuetos).

The group met in the summer of 2024 with a charge to:

• Review the town’s indirect cost methodology and recommend an updated methodology
• Confirm the town’s method to allocate OPEB and pension liabilities and propose an appropriate method going forward
• Propose a plan to have disaggregated valuation statements for OPEB and MCRS pension liabilities across the Town of Lincoln, LPS, and Hanscom.

The working group recommended to:

• Adopt a revised indirect cost methodology approach (percent of budget vs. fixed approach), which would result in an additional ~$190,000 in FY24 Hanscom-related costs.
• Adopt a revised pension cost approach (disaggregated vs. fixed), which would result in an additional ~$215,000 in FY24 Hanscom-related costs.
• The new methodology resulted in ~$1.5 million in additional Hanscom-related costs identified from FY21–FY24 from the $67 million contract over the same period, or 1.8% of the total.

Hanscom Reserve Fund transfers

LPSC adopted the working group’s recommendations for FY26 and beyond, with additional adjustments for the FY24 and FY25 pension liabilities. This was in recognition that the prior methodology was in place up to the end of FY24, that disaggregated actuarial assessments were not in place prior to FY24, and that the prior indirect cost methodology was adopted for the FY21-25 contract.

In addition, the Hanscom Reserve Fund could be needed to cover future liabilities, including but not limited to unemployment, retirement/OPEB liabilities, contract non-renewal, and closure costs should Lincoln not be awarded a future contract and/or if the base were to close. Reassessing costs from periods prior to FY21 (i.e., past contracts) was deemed not feasible given the lack of disaggregated actuarial assessments.

Summary

The town benefited from David Cuetos raising the issue and the town engaged, albeit slower than some might like, in a thorough process that included researching and confirming the issue, engaging a third-party (Collins Center) for support, establishing a working group, and adopting new methodologies.

LPSC manages the DoDEA contract and the Hanscom Reserve Fund and balances the risk and rewards of transferring funds to the town’s General Fund with the sizable potential future liabilities as noted above.

If the updated methodologies developed by the Working Group were applied to the full FY21–25 period vs. just for pension in FY24–25, they would have resulted in an additional $1.5 million in expenses ($600,000 million in pension costs and $900,000 million in indirect costs) that have not been authorized by LPSC to be transferred from the Hanscom Reserve Fund to the General Fund.

The Hanscom Reserve Fund remains available to LPSC to pay for Hanscom-related expenses or to transfer to the General Fund, now and in the future. As a fixed price contract through 2025, DoDEA will not pay LPS more for newfound expenses, and the same is true for 2026-30, save for changes in enrollment.

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“My Turn” is a forum for readers to offer their letters to the editor or views on any subject of interest to other Lincolnians. Submissions must be signed with the writer’s name and street address and sent via email to lincolnsquirrelnews@gmail.com. Items will be edited for punctuation, spelling, style, etc., and will be published at the discretion of the editor. Submissions containing personal attacks, errors of fact, or other inappropriate material will not be published.