Some Kansas lawmakers want school districts to tap reserves

Some lawmakers have been calling for school districts to tap their cash reserves to help cover the $28 million the governor plans to cut from the education budget.

But school officials dispute the notion that districts are overflowing with cash and say lawmakers need a better understanding of why districts build up savings in the first place.

“It’s wrong for money to be in savings accounts when it should be in the classroom,” said Rep. Pete DeGraaf, R-Mulvane.

“It doesn’t make any sense to me for schools to say they’re hurting for money when they keep putting more and more money in savings,” DeGraaf said. “The last four years we’ve been encouraging schools to use their unencumbered balances. …We may be a little more” direct this year.

The administration of Gov. Sam Brownback circulated a document last week among lawmakers and supporters that showed that school districts across the state had about $381 million in “flexible” funds as of July 1.

The Division of Budget arrived at $381 million by adding up the districts’ contingency funds and several other dedicated funds that are designated for specific purposes, such as virtual and bilingual education or summer school, but can be used for other purposes if necessary.

The agency, which is headed by Shawn Sullivan, Brownback’s budget director, also included one-third of the special-education and textbook funds. Statute allows school districts to use one-third of those funds for other purposes, while the rest must be used for the designated purposes.

Senate Majority Leader Terry Bruce, R-Hutchinson, said the cash balances in some districts’ savings “are just absurd.”

“It does no good to the taxpayer or the district to just have such a large amount … just sitting around,” Bruce said.

Wichita school district

Diane Gjerstad, lobbyist for the Wichita school district, said the administration’s numbers, which are 7 months old, overstate the amount in the district’s moveable reserves.

That’s partly because Wichita and other districts store special-education reserves each summer because state funding for special education is not distributed until October but districts need to pay for special education in August and September.

“We have the dollars in a couple of these funds to pay the bills until we receive state aid,” Gjerstad said. “Between Aug. 1 and Oct. 15, our salaries (for special-education teachers) are about $8 million. So it’s there for a reason. It’s there to be used.”

One-third of the district’s special-education reserve fund was $3.6 million in July. But as of Jan. 31, it was only $645.

Similarly, Maize school district had $2.3 million in its special-education fund in July, but as of the end of January, it had zero dollars, according to the district.

The administration lists the amount of flexible reserve funds for the Wichita school district as $21.5 million as of July 1.

But the district says that as of Jan. 31, that number, using the same methodology, has dropped to $16.7 million and will be less than $16.5 million by June 30 because the district has already planned to spend down its reserves.

Of that, $14.9 million is contingency reserves. Those are the funds that are supposed to be used in a budgetary emergency and could keep the district operating for about 10 days.

Districts are hesitant to tap their reserve funds to make up for Brownback’s reduction – which means a loss of $3 million for Wichita specifically – because they’re unsure whether future reductions may be on the way. Brownback’s cut came after the state missed revenue expectations by $47 million in January.

“We don’t know that this is the bottom yet,” Gjerstad said.

After the contingency fund is subtracted, the district will have $1.6 million left by June 30, but most of that is for textbooks. Excluding its contingency reserves, special education and textbook funds, the district plans to have only about $52,600 in reserves by the end of June.

Rep. Steve Brunk, R-Wichita, said that regardless of how districts frame it, the money in reserve dwarfs the money reduced in the governor’s recent budget moves. He said school officials should take advantage of their reserves.

“We don’t need legislation to tell them to spend their own money. We’ve already done that,” Brunk said.

“That money is already unencumbered. It’s up to them to be responsible and utilize those funds since they already have them rather than claiming that they’re cut and have been harmed when they have these funds available.”

Dave Trabert, president of the Kansas Policy Institute, a think tank that promotes free-market ideas, suggested that if districts don’t voluntarily use reserves, then lawmakers ought to consider legislation that compels districts to use them. He said that increases in reserve funds – apart from contingency funds – year to year should be deducted from districts’ state aid the following year.

“When those balances are growing, it’s an indication that they’ve received more money than they’ve needed in prior years,” Trabert said.

Rep. Melissa Rooker, R-Fairway, said that districts shouldn’t have to pay for daily operating expenses with reserves.

“We talk and talk and talk about running our schools more like a business, running our government more like a business. You keep money in reserves to protect for a rainy day,” Rooker said, noting that the state has spent down its reserves in the past year.

“Why in heaven’s name would we want to take that away from school districts and not give them a cushion to protect them?” she said.

Area school districts

During a budget update last week, Jim Freeman, finance director for Wichita public schools, said the district had already spent down some of its reserves and likely would tap into them again to make up for the estimated $3 million cut.

Wichita school board member Mike Rodee asked whether tapping into reserves could mean trouble later, when a new fiscal year begins but before state and federal funding for special-education students has been allotted.

“If we spend down those reserves, couldn’t we be in a position where we couldn’t open our doors July 1?” Rodee asked.

Technically, yes, Freeman answered. But probably not. In such an instance, the district likely would borrow against its self-funded health reserves until the state aid came through.

“We’re not going to bounce any checks,” Freeman said.

Don Adkisson, director of finance for the Derby school district, said that district has already spent nearly $1 million of the flexible reserves it had in July, which the Division of Budget lists as $3 million.

He said lawmakers overestimate the amount of money Derby and other districts have to spare.

“Even after looking at our books, we keep hearing them say districts have lots of money,” Adkisson said. “I think a lot of that they’re getting from lobbyists who that’s their whole goal is to say districts have too much money.”

The Derby district has more than $1 million in contingency reserves. When asked how long the district could operate on those reserves, Adkisson replied, “Not very long.”

“If we have absolutely no money from the state, it’s just a matter of days,” Adkisson said. “We can withstand the reductions. Next year it gets pretty dicey.”

Cory Gibson, superintendent for the Valley Center school district, said that district would burn through its contingency funds in 15 days based on daily operating costs.

The Maize school district has $2.1 million in contingency reserves and less than $1 million total in its textbook fund, a third of which could be used for other purposes. Other than that, it has about $125,000 in flexible reserves.

Superintendent Doug Powers said in an e-mail that “reserves have made it possible to continue to operate when the state was late or short in payment to the district. … If not for the reserves, checks would have bounced.”

He called Brownback’s recent reduction a “passive way to force districts” to spend reserves for a different purpose.

This story was originally published February 16, 2015 at 6:33 PM with the headline "Some Kansas lawmakers want school districts to tap reserves."