Podcast Summary: School Business Insider

Episode Title: Navigating Economic Uncertainty: What School Business Officials Need to Know
Host: John Brucato
Release Date: February 18, 2025
Guests:

• John Huber, SVP and Chief Investment Officer, PMI Financial Network
• Kendra Shelland, VP and Institutional Portfolio Manager, PMI Financial Network
• Michelle Weiberg, Chief Sales and Marketing Officer, PMI Financial Network

Introduction

In this episode of School Business Insider, host John Brucato engages with three experts from PMI Financial Network—John Huber, Kendra Shelland, and Michelle Weiberg—to delve into the economic landscape of 2025 and its implications for school business officials. The discussion centers on economic trends, inflation, federal policies, investment strategies, and proactive financial planning to navigate the uncertainties facing school districts today.

Economic Overview for 2025

John Huber opens the conversation by highlighting the resilience of the economy despite predictions of a recession. He states, “The economy's been super resilient and that resiliency continues through the fourth quarter... We saw growth increase in 2024 for the majority” (04:04). Huber projects continued growth in 2025, albeit at a slightly slower rate of 2-2.5%, emphasizing stable fundamentals such as a strong labor market and steady consumption driving economic growth.

Kendra Shelland adds context by noting the persistent strength in consumer spending, which has been a critical factor in sustaining economic growth. She remarks, “People continued to spend despite higher costs. And without that change, that kind of drove an economy that stayed positive and didn't send us into that recession” (10:44).

Inflation and the Labor Market

The conversation shifts to inflation, with John Huber addressing recent Consumer Price Index (CPI) data. He points out, “Headline CPI was up half a percent. The year-over-year number bounced back up to 3%... The super core number was up almost 0.8%” (04:04). Huber explains that while overall inflation has eased, core inflation remains elevated, posing challenges for the Federal Reserve (Fed) in managing monetary policy.

Michelle Weiberg echoes these concerns, emphasizing the direct impact of inflation on wages and the ongoing labor shortages, particularly in the teaching profession. She states, “Pressure on wages... has been significant... It's going to be incredibly hard to sustain over time” (07:13).

Federal Reserve Policy and Interest Rates

John Huber elaborates on the Fed’s role in influencing interest rates. He explains, “The Fed funds rate... impacts all other interest rates, including those for municipalities and school districts... The steep yield curve is very positive for the market” (14:25). Huber discusses how the Fed’s decisions on short-term rates ripple through the economy, affecting borrowing costs and investment income.

Kendra Shelland highlights the importance of aligning investment strategies with current interest rates. She advises, “Investing at these higher levels for that longer time horizon... could be really beneficial from an income interest perspective” (17:09). Shelland stresses the need for school districts to match their asset and liability timelines to optimize returns and manage costs effectively.

Impact on School Districts

The episode delves into how economic trends and Fed policies specifically impact school districts. John Brucato asks about the practical implications for managing payroll, transportation, and operational costs amidst inflationary pressures.

Michelle Weiberg emphasizes the importance of proactive financial planning. She advises, “Solid financial planning... allows you to develop processes... to keep you protected from changing whims of the political climate” (18:14). Weiberg underscores the necessity of long-range forecasts and short-term cash management to navigate inflation and wage pressures.

John Huber adds that higher borrowing costs can strain school budgets, stating, “Higher rates provide better earnings potential... but it also increases the cost of doing things” (04:04). He advises school districts to evaluate their investment policies and align them with their financial needs to mitigate the impact of fluctuating interest rates.

Investment Strategies

The discussion transitions to investment strategies for school districts in a volatile economic environment. John Huber explains the significance of the Fed funds rate and the yield curve in shaping investment decisions. He notes, “Short term rates are based off the overnight rate and forecasted overnight rates forever... It has a direct impact on earnings on liquidity” (14:25).

Kendra Shelland recommends leveraging long-term reserves by investing at higher interest rates to maximize income. She advises, “If you have the ability to align a long-dated liability with a long-dated asset, you can really take advantage of these higher rates” (17:09).

Michelle Weiberg reinforces the power of a well-structured financial plan, stating, “A good plan puts the power back in your hands and allows you to be proactive, not reactive” (49:24). She encourages school districts to utilize tools for cash flow analysis and to invest judiciously based on their liquidity needs.

Borrowing and Capital Projects

John Brucato raises concerns about borrowing strategies amid fluctuating interest rates. He shares experiences from his district, highlighting the challenges of managing bond issuance when rates become volatile.

John Huber discusses the relationship between bond issuance and interest rates, explaining, “More supply indicates to me probably higher borrowing costs here as debt rolls off and you have to refinance” (47:11). He cautions that increased bond supply can keep rates elevated, impacting future borrowing costs for school districts.

Michelle Weiberg suggests utilizing resources like the GFOA portal’s Built by Bonds tool to visualize the impact of tax-exempt bonds on projects. She emphasizes maintaining high credit ratings to secure lower borrowing costs and encourages districts to plan their capital projects strategically (21:20).

Policy Changes and Administration Impact

The conversation shifts to potential policy changes under a new White House administration and their implications for school districts.

John Huber addresses the uncertainty surrounding fiscal policies, particularly tax cuts and increased government spending. He remarks, “Spending continues to move higher... education is probably an area that is at some risk” (33:26). Huber advises school districts to manage risks by staying informed and aligning their financial strategies with potential policy shifts.

Michelle Weiberg highlights that lower-income school districts may face greater pressures compared to higher-income counterparts. She notes, “There may be more pressure on those lower income school districts parts of the country... the system will probably be under stress” (36:33).

Kendra Shelland adds that policies such as tariffs can directly impact the cost of capital projects by increasing the cost of imported goods. She states, “Higher inflationary numbers would hit that line of higher costs of things that need to get done” (38:54).

Proactive Financial Management and Strategies

As the episode progresses towards its conclusion, the experts stress the importance of proactive financial management.

John Huber advocates for disciplined financial planning, comparing it to maintaining a healthy lifestyle. He urges school districts to “stick to your plan” and align their assets with liabilities to minimize budget volatility (25:03).

Kendra Shelland recommends stress testing financial plans to assess how shifts in economic conditions could impact cash flows and reserves. She advises, “Looking at your cash flow and understanding where those low points are and if something were to shift, how does that low point shift” (44:17).

Michelle Weiberg encourages staying informed through selective news sources and utilizing summary reports for better understanding. She suggests, “Find sources that speak to you and make sure you're hitting those every day” (45:05).

Final Advice and Conclusions

In their closing remarks, the guests offer final pieces of advice to school business officials.

John Huber emphasizes the attractiveness of current interest rates and the importance of revisiting investment plans to ensure they align with financial goals. He advises, “It's a good time to revisit your plan and to invest with purpose and match, invest out the curve as possible” (48:31).

Michelle Weiberg reiterates the significance of proactive planning, stating, “A good plan puts the power back in your hands and allows you to be proactive, not reactive” (49:24).

Kendra Shelland encourages collaboration and open-mindedness in financial planning, adding, “Be open-minded about that plan... understand it and just really take in what's going on around you” (49:49).

John Brucato wraps up the episode by thanking the guests and reinforcing the importance of staying informed and proactive in financial management to navigate economic uncertainties effectively.

Key Takeaways

1. Economic Resilience: The U.S. economy has shown strong resilience, avoiding the predicted recession with steady growth expected to continue in 2025.
2. Inflation Management: Core inflation remains a concern, influencing Fed policies and impacting school district budgets through higher wages and operational costs.
3. Fed Policies Impact: Federal interest rate adjustments directly affect borrowing costs and investment returns for school districts, necessitating strategic financial planning.
4. Proactive Financial Planning: Emphasizing the importance of long-range forecasts, cash flow analysis, and aligning assets with liabilities to manage financial risks.
5. Investment Strategies: Leveraging higher interest rates for long-term investments while ensuring liquidity for immediate needs.
6. Policy Uncertainty: Navigating potential changes in federal fiscal policies requires vigilance and adaptability to sustain school district funding and operations.
7. Collaboration and Information: Encouraging the use of resources, collaboration with peers, and seeking professional advice to enhance financial decision-making.

Notable Quotes with Timestamps

• John Huber (04:04): “The economy's been super resilient and that resiliency continues through the fourth quarter... We saw growth increase in 2024 for the majority.”

• Kendra Shelland (10:44): “People continued to spend despite higher costs. And without that change, that kind of drove an economy that stayed positive and didn't send us into that recession.”

• Michelle Weiberg (07:13): “Pressure on wages... has been significant... It's going to be incredibly hard to sustain over time.”

• John Huber (14:25): “Short term rates are based off the overnight rate and forecasted overnight rates forever... It has a direct impact on earnings on liquidity.”

• Michelle Weiberg (18:14): “Solid financial planning... allows you to develop processes... to keep you protected from changing whims of the political climate.”

• Kendra Shelland (17:09): “If you have the ability to align a long-dated liability with a long-dated asset, you can really take advantage of these higher rates.”

• John Huber (47:11): “More supply indicates to me probably higher borrowing costs here as debt rolls off and you have to refinance.”

• Michelle Weiberg (21:20): “Use resources like the GFOA portal’s Built by Bonds tool to visualize the impact of tax-exempt bonds on projects.”

• John Huber (48:31): “It's a good time to revisit your plan and to invest with purpose and match, invest out the curve as possible.”

Conclusion

This episode of School Business Insider provides invaluable insights for school business officials navigating the complexities of the current economic environment. By understanding the interplay between economic trends, inflation, federal policies, and investment strategies, school districts can implement proactive financial planning to sustain and enhance their operations amidst uncertainty. The expert guests emphasize the importance of strategic alignment, disciplined investment, and continuous learning to effectively manage financial resources and mitigate risks.