Are School Districts Saving Too Much for a Rainy Day? (TX)
July 12, 2010
The state recommends that the Arlington school district have $45 million in its savings account, not the $70.5 million that it has. The district also has $18 million in a separate account from leasing property for gas drilling.
Facing their fourth consecutive budget deficit, Arlington officials plan to use some savings to cover a projected $8.4 million sho rtfall in the $437 million budget proposed for the upcoming year, said Cindy Powell, associate superintendent of finance.
Other school districts, from Keller to Fort Worth, also have fund balances, or savings accounts, with millions more than the state recommends.
District administrators and trustees say the accounts are important because of the economic climate and uncertainty about school funding. And officials say they are being good stewards of taxpayer money by maintaining healthy reserves.
"Given the current state of the school funding system in Texas, we are all living on fund balance and at the same time looking for ways to be more efficient," Powell said. "From our perspective, I would not want our fund balance to drop below optimum or even at optimum. We are likely going to rely on it for several years. We do not see any relief coming from the state."
But critics say holding back millions more than recommended under state formulas is tantamount to hoarding taxpayer dollars, especially when districts are slashing budgets and considering tax referendums.
"We feel like we’re right in the middle of a war. School districts are holding onto money for a rainy day. We tell them, ‘It’s pouring,’" said Larry Shaw, executive director of the 18,000-member United Educators Association. "We would like them to recognize they shouldn’t have such large fund balances."
More or less
School finance directors use a Texas Education Agency calculation to determine what the state considers the optimum amount to keep in reserve. According to the Financial Integrity Rating System of Texas, the rule of thumb is to keep tw o months of operating expenses in a fund balance.
Fort Worth schools have about $120 million in savings, $16 million more than what the state considers optimal. But those dollars are dwindling fast, Chief Financial Officer Hank Johnson said.
The 2010-11 budget that trustees adopted recently included a $31 million shortfall that will have to be made up from reserves. The shortfall could be significantly higher for 2011-12 as salary increases carry over and the district prepares to open new schools.
Keller schools have about $47 million in savings, about $16 million more than the state considers optimal. But officials say they adhere to a more conservative standard of 20 percent of annual expenses in savings, or about $40 million in the $210 million budget. They face a $2.5 million to $6.5 million deficit for fiscal 2011.
"We have decided as a board we needed to develop some kind of philosophy. We’re going to be very conservative until we find out what’s going on with the funding formula," said Cindy Lotton, school board president. "We can’t just keep spending the [reserve] money, because it is not being replaced. We can’t risk it. It sounds like an exorbitant amount of money, but it would last Keller about three months. At that rate, if we kept spending 5 percent of it every year we would only last four years."
Birdville schools have $9 million less in reserves than the state recommends. Calculations are under way on the district’s optimum fund balance amount, projected at $54 million. The district has designated about $12.5 million, or about one month’s operating expense, as the minimum needed in reserve for emergencies.
"We would rather be at optimum, but we are not distressed about the circumstances we’re in. We have been in that circumstance for some time, and we have learned to manage that reality," said Quentin Burnett, Birdville associate superintendent for finance.
‘Not easily replaced’
Some say that when budget tightening threatens services and pay raises, school districts shouldn’t try to keep millions of extra dollars off the table. But others say maintaining healthy reserves makes good financial sense.
Savings are needed for emergencies such as repairing a storm-damaged campus, and districts can designate portions of reserves for projects such as technology upgrades.
Of the $13.6 million in the Castleberry school district’s reserves, about $6 million is designated for long-term maintenance, including renovations, roofing, fine arts equipment and new buses. The optimum amount is $7.5 million, Superintendent Gary Jones said.
"It has taken 10 years to accumulate these funds. They are not easily replaced," he said. "It is not a rainy day account. We already know when it is going to be raining and where. Remove these funds, and we truly are a business that can fail at any time."
And many districts use reserves to cover operating expenses in the first months of the school year, before dollars from state funding and property tax payments come in. Without reserves, many districts would wind up borrowing to meet payroll and other expenses, paying interest on the loan instead of earning it for cash in the bank.
"If you continue to dip into fund balance, you can find yourself in financial straits. They need to be looking at their budgets and making cuts," said Rita Chase, director of th e Texas Education Agency’s financial audits division. "We tell districts to be careful about their budget. We’re just trying to get them to be prudent."
Fair and frugal
United Educators Association officials have expressed concern that the Legislature could balk at boosting funding for school districts that have excessive savings or could look at tapping into district savings to cover the state’s own $18 billion shortfall.
Johnson said school business officials have long worried that legislators will eventually try to use districts’ reserves for state budget woes. He remembers when the fund balances were a target in the late 1990s and the early 2000s.
"But the difficulty is, How do you tap the fund balance and make it fair to every district?" said Johnson, who was with the Grapevine-Colleyville district before coming to Fort Worth. "You have to look at the deficits each one has budgeted, because that’s where you need your fund balance to support your systems."
Legislators say they expect to discuss the fund balance issue in the next session.
"There’s a contradiction between those of us that sit on panels and are looking at the state using its rainy day fund [for school funding], then hearing from districts that have 25 percent of their annual budget in a reserve fund," said state Rep. Scott Hochberg of Houston, vice chairman of the House Public Education Committee. "That sounds excessive to us, and at the same time TEA is saying to them, ‘We’re going to ding you for poor financial accountability’ if they spend any of it."
State Sen. Wendy Davis said school districts that managed to save money and those experiencing financial problems because of rising operating costs and stagnant funding should not be penalized.
"How much [savings] is too much is subjective," said Davis, D-Fort Worth, a member of the Senate Education Committee. "What school districts have learned is they cannot depend on the Legislature to provide them with their needs. What prior leadership has demonstrated is that you better hold onto it. We taught them that they need to be frugal because they don’t know what’s coming around the corner."