Pattye Benson

Community Matters

teacher pensions

Reserve Funds Exceeding $3 Billion in PA Schools . . . But how Long Can School Districts Depend on Reserves to Balance Budgets?

There is an interesting report out this week about Pennsylvania schools, which states that schools across the state are holding more than $3 billion in reserve funds.

There is an ongoing debate about drawing from fund balances to balance school budgets, particularly in light of the current economic crisis. We have seen in the past 6 months of budget discussions that T/E School District is no different.

However, striking a balance between holding onto a buffer in the school district fund balance and increasing taxes doesn’t make for easy school board decisions. Some taxpayers have argued in the past, that the district fund balance in T/E is too large and that it represents past overtaxing of residents.

When looking at Gov. Corbett’s state education funding cuts and the rising costs to maintain teacher pensions, TESD finds itself in an enviable position — a school district that has a positive fund balance. Of course, when you look at the 5-year plan and pension costs, it is evident how quickly the funding buffer will disappear. So although TESD has a substantial fund balance, the pension contributions going forward will deplete the fund unless there is help from the state.

Question, should school districts be forced to use their fund balances to help make up the funding deficit from the state? Should the state be required to help school districts with the pension crisis or face the bankruptcy of school districts that cannot afford their contributions?

There are some interesting fund balance statistics from school districts around the state – here is the article in case you missed it.

Schools hold more than $3 billion in reserve funds — At least $1.7 billion may be set aside for pensions, bond ratings
By Darwyyn Deyo | PA Independent

HARRISBURG — Schools across Pennsylvania hold more than $2.8 billion in reserve funds, but legislators and school boards disagree about whether the money can be spent to buffer against proposed state government cuts this year.

The reserve funds are divided into two categories — designated and undesignated. The undesignated funds are not committed to any planned project. Designated funds and any other funds, such as capital reserves, are allocated to specific projects, such as new buildings.

School districts are required by state law to keep 5 percent of their annual spending in the undesignated reserve funds to preserve bond ratings. The Pennsylvania School Board Association, or PSBA, an association of school boards in the state, said that as recently as 2008-2009, 345 of the state’s 500 school districts had more than 10 percent of their spending in their reserve funds — more than double the expected amount.

Of those 345 districts, 223 districts held in excess of 15 percent. Out of the 500 school districts, 259 school districts saw their undesignated reserve funds increase in 2009-2010.

While many districts are holding plenty of cash in reserve, the number of districts with drained reserve funds is increasing. In 2008-2009, 14 school districts held a negative fund balance. The districts had overdrawn the undesignated funds for other purposes and had not repaid the money. In 2009-10, the number of overdrawn schools districts increased to 37.

The negative funds ranged from $64,217 at Farrell Area School District in Mercer County to more than $32.7 million at Philadelphia School District.

In undesignated reserve funds, the school districts – not including charter schools or other special programs – held more than $1.7 billion, which theoretically could be used for everything. In 2008-2009, school districts held $1.64 billion in undesignated reserve funds.

The data, said David Davare, director of research for the PSBA, is from this past year’s balance sheets, so there is no indication yet on whether school districts dipped into the reserve this year and further depleted the savings. “That number that was just released … was based on the school year that ended last June 30,” said Davare. “In 2008-2009, 156 districts consumed some portion of their fund balance as part of the school operations … so I don’t know how many districts planned on consuming (their) fund balance based on the current year.”

Blackhawk School District in Beaver County holds the least amount in undesignated reserve funds with $28,799. Delaware School District in Pike County held the most with more than $9 million.

State Rep. Paul Clymer, R-Bucks, chairman of the House Education Committee, said he would be open to school districts using undesignated reserve funds to help restore some of the funds that have been trimmed from the state’s education budget for the 2011-12 fiscal year. The state is proposing spending $10.19 billion on education, compared to the $10.77 billion it spent for fiscal year 2010-11.

“Yes, I would use it cautiously,” said Clymer. “Going to the limit — these dollars have to be held in reserve. Those that can do it and not risk the surplus they have accrued over the years, I would support that. It can only go so far and they will hit the required level as required by the school codes” for bond ratings.

State Rep. James Roebuck, D-Philadelphia, minority chairman of the House Education Committee, took the opposite view and argued that the state government still has to provide a “thorough and efficient” public education system, as outlined in the state constitution.

Using reserve funds “shouldn’t necessarily be predicated upon the individual districts coming up with money to do what the state is supposed to do,” said Roebuck. “The state has reduced, substantially, its commitment to public education and done away with significant initiatives that underwrite things like full-day kindergarten, dual enrollment to transition from basic to higher education,” he said.

Beth Winters, director of legislative services for the PSBA, pointed to the upcoming pension spike as a reason not to spend the reserve fund dollars now. By 2028, school districts face paying $30.6 million into the Public School Employees Retirement System, a contribution that will increase to $36 million by 2032.

“If you actually take a look at the public pension and special education costs, those fund balances will be depleted,” said Winters. “School districts are looking at this from a long-term basis, and if you look at the pension numbers, we’re going to have 20 years of double digit pension contributions (that) employers are going to make. … Those fund balances are to cover those costs.”

Erik Arneson, spokesman for Senate Republicans, said “school districts’ undesignated reserve funds will receive a good deal of focus during the ongoing budget discussions.”

The state Senate has opposed the education cuts proposed budget.

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