Schools keep an eye on reserves

Monday, March 1, 2004 | 12:00 a.m. CST; updated 6:33 a.m. CDT, Saturday, July 19, 2008

Stashed away in a school district’s annual budget is a fund that, ideally, should never be touched.

That fund, known as a district’s reserves, is designed to help a public school district survive a year, or maybe two or three, of financial difficulty.

But as time marches on and as those funds are used up, districts creep increasingly closer to a term that Missouri’s Department of Elementary and Secondary Education calls financially stressed.

The term is a technical equivalent to bankruptcy, and it means districts must cut services or raise taxes to continue school operations.

The complicated balance between taking money from and putting money into the reserve funds highlights another complicated component of Missouri’s school funding politics — sometimes, what a school district has left is just as important as what it receives.

Spending the reserves

Denise Pierce, director of finance for the department, studies and advises districts on managing funds. She said there were any number of reasons a district could spend its reserve money.

Maybe a school cafeteria boiler needs repair and the district needs to bear that cost. Maybe the state will be giving out less money than expected and the district needs to make up some of the difference.

“That’s what (the reserves) are designed to do,” Pierce said. “You need to have money on hand for those unexpected expenditures.”

Maintaining the money

Missouri law, in fact, requires that school districts maintain reserves that can fund two months of their operating expenses.

But problems begin when several years worth of budgets require deductions from the reserve funds — as is happening now. Though the funds are designed to help prevent an immediate emergency, they are not a long-term financial solution, Pierce said.

It’s a problem Rep. David Pearce, R-Warrensburg, is familiar with. Pearce, who sits on the House Education Appropriation Committee, also sits on the Warrensburg school board.

“Our district has been extremely proactive,” he said. “We passed a levy last year, and because of it, we’re in a pretty good situation. But we’re still taking $400,000 out of our reserves this year and $200,000 next year. We can’t do that forever.”

Low reserves

When reserve funding reaches a dangerously low percentage of total yearly expenditures — 3 percent is the figure mandated by the state — districts are faced with limited and unpleasant options under the financially stressed label. As a first option, they can raise taxes in the form of an operating levy to generate more money.

For a district with lower tax valuation, that option might not be as effective as the second equally difficult choice, which would be to cut staff.

Rep. D.J. Davis, D-Odessa, was on the receiving end of some of those difficult choices earlier in his career. Before taking up a career in state government, Davis was the principal of a high school in Odessa.

For 29 years, Davis weathered various administrative and scholastic challenges, but it's the act of cutting supplies from the classroom that he remembers acutely.

“I’ve handed in budgets where we’d like to order some more microscopes for a lab or textbooks,” he said. “But then there’s a surprise jump in (the district’s) enrollment, and the superintendent says ‘you’ll have to find another way to pay for it.’ ”

Davis said increases in enrollment and fluctuation in heating costs through the winter are two major reasons for a district to tap into its reserves.

“Those are things you just don’t have control over,” he said.

Districts also lack control over the economic picture dictating how much aid the state can supply in the first place. So, for districts fighting the slow, yet increasingly significant, financial leak from their reserve funds, the key word is hope.

“You know you won’t be in a downward spiral forever,” Pierce said. “You’re just hoping it turns around quickly.”

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