Kansas should tap school districts’ cash reserves beyond a set amount to help pay for future education spending, efficiency consultants for the state recommend.
Alvarez & Marsal, a consulting firm hired by the Legislature to review the state’s budget, recommended that the state set a cap on the amount of money school districts can build up beyond their operating expenses.
The firm, which released a 292-page final report to lawmakers Tuesday, said the state should require districts to have a minimum cash balance of 10 percent of their operating budget and a maximum of 15 percent. Any dollars beyond the maximum would be deducted from future funding under the firm’s recommendation.
The firm, which had a $2.6 million contract to conduct the study, estimates that this policy would save $193 million over five years – and would save $40 million if implemented for the next fiscal year, which begins in July.
The idea of tapping districts’ reserves has been considered in the Legislature before, but has always met with backlash from school officials, who say the cash reserves are needed to ensure schools can continue to operate in the face of a crisis, such as the one districts faced during the recession.
Rep. Ron Ryckman, R-Olathe, the House Appropriations chair, said the recommendation – unlike previous proposals to tap reserves – offers districts “a sweet zone” to aim for when building up reserves.
“I think that’s something that our school districts would appreciate that if we were to adopt something like that they would have a target,” Ryckman said. “I think we’ve been all over the place. In years past, we’ve said you need to build reserves and then we’ve said, hold on, you have too many reserves. If nothing else, this would provide stability.”
School districts’ concern
Mark Tallman, a lobbyist for the Kansas Association of School Boards, said school districts have concern about the state tapping reserves.
“I don’t think any districts just want to sit on money. But we’ve been through a period of great uncertainty financially in this state going back to the Great Recession,” Tallman said.
“School board members by and large tend to be fiscally conservative people. They really do,” he added. “And I think their tendency is if we’re in kind of a risky environment, that natural tendency of let’s save to be prepared because we don’t know what’s going to happen.”
If the state wants districts to lower balances, then many districts would look to spend those funds, Tallman said , adding that he doubted it would help the state’s overall cash balance.
Senate Minority Leader Anthony Hensley, D-Topeka, a public school teacher, balked at the idea of tapping districts’ reserves.
“I’m not sure we should be getting into the business of telling school districts of what they should do with their cash reserves inasmuch as we don’t have any reserves of our own,” Hensley said. “And they’ve been much more fiscally responsible than the state has been in a long time.”
One statewide health plan for districts
The Wichita school district had about $127 million in unencumbered cash balances as of July, which a district spokeswoman said was 17 percent of operational expenses, slightly above the efficiency study’s target.
One reason the district’s reserves go over the 15 percent mark is to ensure funding for its insurance plan, the spokeswoman said, noting that total reserves had fallen by $24 million since the previous year.
Alvarez & Marsal have also recommended consolidating school districts’ health plans into one statewide plan, which would save an estimated $360 million over five years. Individual schools districts currently have their own benefits plans.
Tallman raised concern about how this consolidation would work.
“What it comes down to like everything else in health insurance, some people love what they have and don’t want to lose it. Some people have a problem and want to see change, and so the question is how do you put together one big pool when you’re probably going to have winners and losers,” Tallman said.
Rep. Amanda Grosserode, R-Lenexa, expressed concern about whether rolling out a statewide health plan for school district employees by the start of the 2017 fiscal year in July – as Alvarez & Marsal recommends – would be feasible.
“I think you want to shoot for this timeline,” replied J.W. Rust, a consultant with the firm. “Otherwise, you're pushing it down another year.”
The firm has made more than 100 recommendations to the Legislature that it says could collectively save the state $2 billion over five years; 87 percent of those savings come from 21 recommendations, which Ryckman said lawmakers would prioritize.
Among the top recommendations: hire 54 more collection officers at the Department of Revenue and fill 14 vacant auditor positions. Together those recommendations are estimated to bring in $321.8 million in tax revenue over five years.
Ryckman said some of the recommendations can be in place by next fiscal year and that House members will begin working on crafting legislation.
“Right now we’re in the initial stage of gathering information, so that we can make better decisions,” Ryckman said. “Regardless of whether it’s one bill or multiple bills, I think we’ve always said that the decisions coming won’t be easy, but at least we’ll have some data to help us make those decisions.”