Sitting on Cash they Can’t Use

Paul Soutar, an investigative journalist recently hired by the Flint Hills Center for Public Policy, has uncovered some interesting numbers that might be part of the solution to the concerns of school administrators and taxpayers alike.

Soutar looked at numbers on the KSDE web site. Each school district has to allocate its money into a variety of funds. The following numbers, taken from this link on the Flint Hills site, give the historical perspective on some of the largest unencumbered balances in the largest funds. (I believe the original data is here, though be ware that some links at KSDE do go bad after a while.)

Fiscal Year Capital Outlay Special Education Food Services Contingency Reserve Total Annual Change
2000-2001 236,838,411 86,131,293 31,018,006 40,112,012 394,099,722
2001-2002 231,072,221 88,718,083 31,704,918 60,256,269 411,751,491 4.5%
2002-3003 242,160,862 109,042,721 34,557,624 74,345,417 460,106,624 11.7%
2003-2004 306,060,049 130,346,929 33,259,172 80,118,210 549,784,360 19.5%
2004-2005 320,989,321 131,914,785 34,399,477 80,773,479 568,077,062 3.3%
2005-2006 363,830,181 127,419,601 33,854,143 96,626,234 621,730,159 9.4%
2006-2007 382,076,795 145,919,148 37,939,317 106,147,726 672,082,986 8.1%
2007-2008 449,291,653 163,666,930 36,928,843 119,016,020 768,903,446 14.4%
7-Year Change 89.7% 90.0% 19.1% 196.7% 95.1%

In other words, schools have a lot of funds that they could be tapping, and the amount of money has increased from year to year.  KSDE gives the following guidance, which I’ve formatted for easier reading:

* There are no definitive guidelines as to how much money is to be kept in the Capital Outlay Fund-it should be dependent on the size of the district, the age of the buildings, renovations needed, the status of equipment, and numerous other factors.

* There are no requirements for the Special Education Fund cash balance either.

* The Food Service Fund cash balance, however, must not exceed three months’ average expenditures and

* the balance in the Contingency Reserve Fund must not be greater than four percent of the General Fund for years to the 2005-06 school year. For the 2005-06 school year and thereafter, the limit was raised to six percent.

Consistent with these guidelines, the balances in the food service funds have increased the least of these commonly observed funds. The most growth has occurred in the category with the broadest latitude, the contingency reserve funds.

You can also download a spreadsheet file that gives the cash balances, for each fund, for each school district in the state, though only for the 2007-08 school year. The file contains not only the funds mentioned above, but many others, including professional development, summer school, and “extraordinary school.” It also lets you see how much each district has, on a per-FTE basis, when you add up all the funds. The amounts range from $321 per student in USD 438 Skyline to $19,469 in USD 442 Nehama. Actually, USD 422 Greensburg beats them all at $8…. but that’s largely due to the need to rebuild after the tornado. The average district (mean value) has $2,785 per student in reserves.

In a report that accompanies the files, Soutar sums up the total unencumbered balances at $1.36 billion (as of the latest numbers on July 1, 2008). He says that if the Legislature loosened some of the restrictions currently in place, districts could switch money from one fund to another, and thus address some of their financial needs.

He also points out that state law has a spend-it-or-lose-it provision that applies to general funds. This provision could lead to some unwise spending.

Two days after his initial report, Soutar reported that districts can in fact spend some of their unencumbered funds–though only in the contingency reserve funds. Here’s an e-mail on the subject:

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School Districts Permitted to Tap $119 Million in Contingency Funds
As the Kansas legislature continues to discuss options for balancing the 2010 budget, some members are taking a hard look at unencumbered cash balances held by school districts and asking whether districts are able to dip into those funds.

Total unencumbered cash balances totaled $1.36 billion scattered across 27 separate funds as of June 30, 2008. Most of the money in those funds can’t be tapped unless the Legislature revises the rules, but one of those funds is immediately accessible and portions of other funds may be as well.

Dale Dennis, Deputy Commissioner of the Kansas Department of Education, confirmed that district contingency reserve funds are available. According to Kansas statute 72-6426, district boards can use or transfer contingency reserve funds to meet financial contingencies as determined by the board. School districts statewide had $119 million in their contingency reserve funds as of July 1, 2008. Contingency reserve cash statewide has grown 197% since 2001.

School districts also have a special reserve fund which collectively held about $70 million as of June 30, 2008 but districts are limited in its use according to Dennis. Special reserve cash is a sort of self insurance fund set aside to pay claims, judgments, expenses related to health care, disability income benefits, group life insurance, uninsured losses, workers compensation insurance and workers compensation claims according to Kansas statute 72-8249.

The capital outlay fund statewide held $449 million but, according to Dennis, much of that also can’t be touched. According to state law once a tax is levied for a specific purpose the revenues can’t be diverted to a different purpose.

“When we make a levy for a fund like capital outlay we can’t use it for something else,” Dennis said. “We told the taxpayers what we were collecting it for and we’d be lying to them if we used it for something different.”

Some capital outlay funds, however, are not collected through a mil levy but transferred from the General Fund and can be transferred back before June 30, but such transfers are rare according to Dennis. Money left in a district’s general fund at the end of the fiscal year is subtracted from what the district receives from the state the next year. Districts are reluctant to leave money in the general fund and prefer to transfer it to other funds rather than lose the money. It’s unknown how much of the $1.36 billion came from such transfers and therefore likely eligible to be returned to the General Fund, but Legislators have a strong incentive to find the answer.
The legislature has in years past authorized specific transfers beyond what the law allows and some unencumbered cash funds may hold opportunities to meet budget shortfalls if the legislature is willing to write exceptions to current rules.

“The legislature can propose any legislation they want to,” said Mark Dick, executive vice president of Allen, Gibbs & Houlik, an accounting firm that audits state reports. “But there are probably going to be legal hurdles to overcome.”

Many funds were created so legislators can monitor spending for specific programs. These funds are like a fish trap. What swims in can’t swim out.   “Each session they seem to make it more complicated,” said Dennis. “We end up amending it slightly – a little here, a little there and eventually it’s extremely difficult to follow.”

State aid to schools has increased $959 million over the last five years while enrollment is essentially flat. Many legislators are sympathetic to taxpayers who will not accept tax increases on top of private sector layoffs and a worsening economy. With K-12 education accounting for 51% of state spending, legislators are hard pressed to balance the budget as required by the state’s constitution without cuts to education. Some legislators say it comes down to asking school districts to share in the solution to balance the budget or to raise taxes on an already stressed population.
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