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.

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?

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.

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.

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!

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Go spread your propaganda some place where people will buy it.

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