Despite their doom and gloom revenue pronouncements and threats of teacher furloughs/ layoffs, the amount of cash squirreled away by South Carolina public school districts shot up dramatically in 2008 – with several districts yet to report.
It’s the perpetuation of one of the most self-serving, hypocritical scams in the Palmetto State – not to mention one of the most costly – and it’s been completely ignored by the mainstream press.
Two months ago, FITS exclusively reported that South Carolina’s eighty-five school districts had stockpiled a whopping $700 million in carry-forward reserve funds for 2007.
We also promised to report back as soon as we had updated numbers for 2008.
Well, according to the most recent figures, the statewide carry-forward balance has now soared to more than $750 million, and four school districts – including one of the state’s largest – are months late in reporting their fund balances.
That means the statewide total could exceed $790 million, which would easily translate into another double-digit annual percentage increase in the money districts are pumping into these unrestricted reserve funds.
Amazing.
Once again, South Carolina school districts are steering millions of dollars into this growing mountain of cash – a mountain that’s nearly doubled over the last five years – while at the same time telling lawmakers, teachers and parents that they’re broke.
You can click on the link below to see exactly how much money each individual school district is squirreling away … and stay tuned to FITS for much, much more on this topic.
WEB EXTRA:
By Steve March 19, 2009 at 7:37 am
Sic,
Do you have any data on how much of that is legally required bond reserve and how much is truly undesignated fund balance? I see that the reserve amount for my home county of Lancaster shrank in 2008 but I would assume it is because the large building bond passed by the voters a few years back is being paid off.
By Frank Morgan March 19, 2009 at 7:47 am
I wanted to add some perspective that might be of some help to your readers. Any auditor will tell you that a school district should have approximately three months operating costs in reserve. For most districts, these funds are critical to making payroll between July and December, when state and local funds begin to come in. In the absence of an adequate operating reserve, districts have to borrow money (and pay interest, an additional cost) to make payroll. Also, the operating reserve is used to offset revenue shortfalls, as we are experiencing this year. Here in my district, Kershaw County, our reserve at the end of the 2007-08 fiscal year was $4.9 million. While this is a lot of money, it only represents about three weeks of operating costs for us, but this reserve does prevent us from borrowing money to make payroll. This year, because of the state budget situation, we have already cut $4.3 million from operations. The most recent budget cut announced this week, which will amount to another $1 million or so for us, will come from our operating reserve. While some districts have large reserves, many do not. I’m also not sure how constructive it is to give the total figure for operating reserves across all of the school districts in the state. It’s not like one district can access another’s reserve. I hope this information is useful to your readers.
Sincerely,
Dr. Frank Morgan, Superintendent
Kershaw County School District
By Larry March 19, 2009 at 10:30 am
Wow, this is a made-up story if I’ve ever seen one…
By JBV March 19, 2009 at 11:05 am
Now you see what dealing with the state legislature does to you!
By Nope March 19, 2009 at 11:08 am
“self serving scam” — as if administrators were using reserves to line their pockets instead of pay teachers and service construction debt.
“costly” — turns out it saves money.
“mountain of cash” — when, at least in Dr. Morgan’s district, it’s only three weeks worth of operating costs.
So typical of Fits News “reporting.”
By StupidShouldHurtMore (SSHM) March 19, 2009 at 11:48 am
… so we are back to this crap again, Willie?
Going after someone for … wait for it … saving and being fiscally responsible? Have you finally gone off the deep end or did Howie give you a jingle this morning, hmmm?
If you would actually break down the numbers and explain what they mean rather than muddle them with “large numbers” that simply “serve to fit your agenda,” rather than actually “speak to the real issue.”
Then again … you do have that disclaimer at the top of the page. Unfair and imbalanced … time to add “chronic data manipulator.”
- SSHM
By Another opinion March 19, 2009 at 11:57 am
If you are talking about fund balances increasing then you don’t know what you are talking about. I have told you once, fund balance does not mean cash! Show me the cash balances at 6/30/07 and 6/30/08 and we can have a conversation then. Better still, show me the average daily cash balances for 2007 and 2008 for each school district and then we can talk. Also show me all required bond covenents regarding these cash balances and two months worth of operating capiatl needs. This is crap about “swelling fund balances” is just that, crap. Any first year accounting student can blow your theory out of the water.
By Craig March 19, 2009 at 3:07 pm
Can any of you accountants shed any light on why the reserve funds are going UP (not down like you would expect)in a recession?
By BIN News Editorial Staff March 19, 2009 at 5:01 pm
To keep Howie’s carpetbugger money flowing to his sadly overdrawn little bank account, sic(k) is obligated to attack public education several times a month.
Even if he has to use the same worn out and discredited rhetoric over and over again. sic(k) willie really is a sprayed roach.
Bob, we see a t-shirt! http://www.gameshaper.net/kyonoki/images/cockroach_002.jpg
BIN News Editorial Staff
Flair and Balanced
By Mab March 19, 2009 at 6:57 pm
BIN —
Are you moving in for the kill?
This is the earliest you have come out of your crack in the slab during the daylight in a L-O-N-G time.
Maybe Sic is compelled to attack public education because he is a parent, a citizen of the great U.S. of A, a taxpayer, and…
the whole public school system is a failure since about 1963!
###
Go spread your propaganda some place where people will buy it.
By wayne March 19, 2009 at 11:46 pm
Mr. Superintendent, let’s be honest… it’s a slush fund. I’m sorry but I’d rather have my money back in my pocket rather than you have it in your bank account to spend at your will. And if you have to borrow money in anticipation of collecting tax revenue to make your payroll, so be it. I’ll be happy to pay my share of the interest expense.
By baker March 20, 2009 at 9:08 am
the whole public school system is a failure since about 1963!
Mab — what a dramatic and absurd over-statement!
Otherwise, this has been a pretty interesting discussion. I like the way the superintendent, Dr. Morgan, didn’t respond to the character attacks….just coolly gave his response. Interesting that Will has had nothing further to say.
I will say that I don’t fully understand this issue, and I’ve heard reasonable people question the need for such large fund balances within so many local government entities. I think it’s an issue worthy of a reasonable and fair discussion. Accounting standards, from what I understand, do recommend substantial reserves. And I figure that accusations such as “self-serving” and “slush fund” are out of line to me….likely just the standard propaganda. Accounting standards, from what I understand, do recommend substantial reserves.
By Another Opinion March 20, 2009 at 2:01 pm
Why the large fund balances these days? I think for many districts, they have have had big building projects. This could affect fund balances. Also tied to this are the bond covenents that go along with these building projects. Bond holders require a lot higher reserves, including cash to be held now. Once again, cash is cash and fund balance is the total of all assets less the total of all liabilities. The difference is either a positive or negative fund balance. You can have a large fund balnce and no cash. It is just that simple.
By Jeb March 20, 2009 at 2:22 pm
Baker – Many district’s establish a “fund balance” by over-budgeting expenses, therefore collecting more revenue than necessary. And Wayne is not far off when he calls it a slush fund because that additional “revenue” ends up being “un-budgeted” – meaning the school district can spend the excess funds on anything they deem necessary — new schools, district office – anything. Call it a slush fund or rainy day fund, whatever.
Some district’s will over-budget expenses for the sole purpose of having money left over at the end of the year — to put in the pot from previous years. During the development of the budget, districts will also under-value the mil (revenue) necessary to offset the expenditure. By doing so, they collect more money than necessary to meet the already over-budgeted expenses.
But it very misleading to tax taxpayers on the notion that the funds are being used to pay for “budgeted” operation expenses — budgeted expenditures that have been approved by the board and have gone through a public airing process, then turn around and use it build a new school or district office or for an expense that wasn’t budgeted.
Another issue is there are no requirements to spend fund balance, even in times like this. Maybe it would be valid to have a fund set up for shortfalls. Dr. Morgan’s post discusses the need for his district to utilize their operating reserve for budget cuts. In order to establish a shortfall reserve fund, the district would have to spell out in advance that fund would only be used for shortfalls and not to cover an expense that wasn’t already budgeted. Though I suppose if I were a superintendent, I would prefer to have funds available with no strings attached, too.
But district’s shouldn’t be able to accumulate money year after year, have no requirements to spend it, yet have the power to spend it on any thing they want.
Furthermore, districts can borrow in advance of receiving tax revenue — tax anticipation notes (TAN) — instead of creating a fund balance to cover expenses in advance of receiving that revenue. There’s usually only a short period of time that district’s might have to make payroll in advance of collecting the tax. Though borrowing the money through a TAN would result in a small amount of interest expense, districts would avoid collecting “reserve” funds” from the taxpayer which would allow the taxpayer to be the beneficiary of the interest income (or have the flexibility to spent it how they would like) instead of the district.
Now is the perfect time to have our legislature get a hold of this practice — before they dole any money out. $752 million is certainly not a drop in the bucket and is enough to be worthy of some serious consideration.
By TheCollective March 25, 2009 at 12:24 pm
Most of the people posting on this subject make a few moderate points, but then miss the mark. Consider the following: By using your own home budget as an example, most of you would agree that having some money in reserve (savings) is an absolute neccessity in order to operate with any sanity at all. This is needed if, for example, your refridgerator finally breaks, or if you need a new roof — you pay for these big ticket items from reserves. School districts operate the same way. What if a hurricane comes through and damages schools? The schools would need to fix things in order for children to return and be safe in the buildings. Then the fighting with the insurance companies, if any, would ensue. In the example of Tax Anticipation Notes for makeing payroll, some of you thing that’s fine — just pay simple interest. Well, I’m here to tell you that’s like jogging down the payday lending store every time you need to pay your light bill or car insurance in the days before you get your paycheck!! It’s borrowing money to pay for operations — bad idea.
Now, here’s my last point: Credit reporting agencies — the big three — use the status of a school district’s fund balance as a factor in establishing a school district’s credit rating. Districts with fund balances that exist at an appropriate level in relation to total budget (8 – 12 %)and the stability, or longitudinal flatness, of the fund balance play very favorably with the credit reporting agences. Now, why is this so important? It comes down to when school districts issue general obligation bonds. The a high credit rating, such as ‘AA’, a district saves big on the interest rates they get on the bonds. For big bond referendums, this translates to literally millions of dollars over the term of the bond. This literally saves the taxpayers money. In fact, it saves them the difference in the interest rates. So, if a district issues bonds at a lower rate, then the taxpayers repay less money. And the amount we’re talking about offsets the whining you all are making about fund balances.
One more thought: Just think of living your life exactly on the amount you get in your paycheck. No more, no less. You spend every penny you earn, and your bills are exactly the same amount as your paycheck. Nothing in the bank. Nada. How does is feel?
By Jeb March 30, 2009 at 9:53 am
TheCollective – A points for you…
First, I do agree with you… a small reserve IS acceptable and “law” allows for a “reasonable” fund balance. The state of SC has a 3% reserve. But we’re talking 10-15-20%+ of a school district’s budget. That’s ridiculous.
Secondly – You say “borrowing money to pay for operations — bad idea.” Well, if your payroll, an expense you have budgeted, is due November 30th for that month and you know like the back of your hand that your tax revenue, revenue you have budgeted, is going to be in your account December 15th, it makes more sense to borrow short term then keep my money in your bank account as fund balance. Now let me clarify that statement…
It’s how that money comes to be in the district’s bank account as fund balance and is accumulated, the fact that there are no requirements to utilize it for payroll that month or for any reason, and once that additional money collected becomes fund balance, it can be spent on anything the district desires — anything!
The two main methods a school district ends up with money at the end of the year (fund balance)is by over-budgeting expenses and/or under valuing the mil used to determine revenue, i.e. District A budgets $80 million for expenses (knowing that number is overstated) but actual expenses paid are only $70 million. The district ends up with $10 million in their account to be used as fund balance. Then more of our hard-earned money ends up in fund balance by under valuing the mil — the district says the value they use for the mil for revenue brings in $80 million. But, because the mil was under valued, the number of mils required to meet the budgeted expenses actually brings in $85 million instead of $80 million and the district picks up an additional $5 million. District A now has $15 million — again — to spend on anything they desire.
Another thing, school districts are not supposed to put fluff (mis-representing actual revenues and expenses)in their budgets in order to establish these huge fund balances — but they do.
Also, school districts don’t put up their fund balance for collateral when they borrow money so the amount left in fund balance has very little effect on the credit rating. That’s because the school district can do away with that fund balance with the swipe of a pen. School districts do have the full faith and credit of the state guaranteeing their bonds. (Maybe Sanford’s idea of applying stimulus money to the state’s debt to improve our credit rating isn’t so bad!)
The last point I would like to make is about your example of a hurricane damaging school buildings… School districts already have the power to borrow — without voter approval — 8% of the district’s assessed value to handle situations like that and for any other capital improvement. Unfortunately that taxpayer money source is also abused. Some school districts use that money to build new schools instead of first using it to maintain schools already built.
All in all, most school districts don’t use taxpayer money as if it were their own and too much of it does not make it to the classroom. The public would think differently of school districts if they would address those two things and the school choice people would have less of an arguement.