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Are Local Schools Sitting on Reserve Funds?
Many people may find themselves puzzled by such a seemingly vast amount of money sitting in school reserve funds while many districts decry cuts in funding and request tax increases, but not everything is as simple as it may seem.
While the term “reserve fund” is bandied about, the money being discussed in this case is actually what is reported to the state as a general fund balance, which is an accounting term for the difference between total assets and total liabilities.
One of the important things to understand about these “reserve funds” is that the amount reported in a school district’s general fund is not a cash amount. A school district’s assets will include money to be received within the 60 day period after the close of their fiscal year – while, on the other side of the accounting, a school district’s liabilities account for only current liabilities, not long-term liabilities like debt payment.
A Pennsylvania Department of Education report shows three distinct categories within these general funds: committed, assigned, and unassigned funds.
Committed funds are funds that are limited by board policy or board action.
Assigned funds are funds that are intended for a particular purpose, such as special revenue funds or funds for capital improvements.
Unassigned funds are funds that are available for general purposes, not limited in any manner.
Most people will understand the basic importance of schools having a certain amount of reserved funds. These funds are often seen as “rainy day” funds, in case there is a sudden need for emergency repairs, like the boiler repair at West Forest Elementary School last year, or to cover unforeseen interruptions or declines in revenues, like the decline resulting from the economic downturn when real estate and earned income tax revenues dropped.
However, the committed and assigned funds play an important role in our schools, as well.
In some cases, district officials may choose to build up a fund balance over time, with the intention of using the money for a major one-time expenditure rather than borrowing the necessary funds and repaying a bank with interest.
According to A.C. Valley Superintendent David McDeavitt, it is all about fiscal responsibility, as he compared reserved funds to a family’s savings account: some of that money is for emergencies and unforeseen circumstances, but some of it is being set aside for important purposes.
In the case of A.C. Valley, some of their general/reserved funds are currently being put toward an Act 39 Energy Efficiency Project.
The upgrades being installed as a part of the project will actually lead to an estimated $1.59 million in energy costs saved over the next 20 years. He also noted they have used reserved funds for other projects in the past, including parking lot upgrades and a new roof in 2014, as well as upgrades to playground equipment, according to McDeavitt.
While the capital projects and improvements certainly are a major part of the use of reserved funds, McDeavitt also stressed that concerns for the future, and those possible “rainy days” ahead, account for a lot, as well.
“It’s a tough time in education right now. There’s a lot going on out there that could have a negative impact on education,” McDeavitt said.
“Bills just continue to go up. Salary, benefits, and retirement continue to go up. Our reserves may have to be drawn upon more in the future. We’re having a harder and harder time making ends meet; state and federal funding just aren’t meeting our needs. It’s a struggle to lead an educational organization and maintain fiscal responsibility.”
Shawn Algoe, Superintendent of Keystone Area School District, noted, “You hope you’re actually benefitting the taxpayer.”
Algoe said one of his maxims for Keystone is, “If we can’t pay for it, we don’t do it,” also noting that they set aside what money they can for larger purposes.
“We also have attempted to save money for things like window and door replacement projects. The roof replacement is a line in the general fund. Money is being saved for those specific purposes, so large items can be paid for without borrowing and having to pay interest,” he said.
Oil City Superintendent Pat Gavin echoed that sentiment, saying, “You want to have funds set aside just like you would as a homeowner or parent for those unexpected things. If you don’t use it, it sits there and earns interest and you know you have it to fall back on. It’s like having a house and your furnace stops working. If you have a bit of money to tap into, it makes it a bit easier, and you don’t have to borrow. We don’t want to have to borrow because then we’re paying interest.”
Jackie Dutchcot, Business Manager and Board Secretary for Franklin Area School District, noted that in the case of necessary upgrades and renovations, schools can no longer depend on being reimbursed by the state. She said that schools have come to rely more and more on using general fund money for major capital projects and improvements.
“Everyone knows expenses are going up, but revenue is not,” she said.
Dutchcot also noted that compensated absences such as owed vacation time have to be paid for from the general fund balance.
According to Ellen Neyman, Brookville School District Business Administrator, another consideration when looking at these numbers is how they relate to a district’s overall budget. She pointed out that in many cases, while a district may show an increased dollar amount in the general fund balance from one year to the next, with rising costs, that amount may actually be lower in terms of a percentage of the district’s operating budget.
“While a certain balance may sound like a lot, it might only cover a couple of months of operating costs in an emergency,” she explained.
Many districts may be more aware of exactly how far their general funds would go in the case of another budget crisis after the historic state budget impasse in 2015.
Neyman stated that some schools used so much of their general fund balance during the budget impasse, they actually lost interest income that they would have had on investments, costing the taxpayers additional money further down the road.
General Fund Balances in Local School Districts
While many schools in Pennsylvania have been growing their general funds over the last few years, anticipating rising costs and budget shortfalls, our local school districts vary widely in the changes they’ve seen to their general fund balances in the last year.
Here are the current figures for the fund balances reported to the Pennsylvania Department of Education by some Clarion County School Districts:
- Clarion Area’s 2016-17 general fund balance is recorded as $1,990,834.00, of which $469,618.00 is committed, $730,000.00 assigned, and $982,951.00 unassigned. Their overall general fund balance has decreased by $191,735.00 from the preceding year.
- A.C. Valley School District’s 2016-17 general fund balance is recorded as $7,166,613.00, of which $5,631,660 is assigned and $1,534,953.00 is unassigned. Their overall general fund balance has increased by $432,673.00 from the preceding year.
- Keystone Area School District’s 2016-17 general fund balance is recorded as $4,254,058.00, of which $250,000.00 is committed, $2,504,058.00 is assigned, and $1,500,000.00 is unassigned. Their overall general fund balance has increased by $457,163.00 from the preceding year.
- Redbank Valley School District’s 2016-17 general fund balance is recorded as $6,943,542.00, of which $6,499,702.00 is assigned and $443,840.00 is unassigned. Their overall general fund balance has decreased by $1,104,194.00 from the preceding year.
- Clarion-Limestone School District’s 2016-17 general fund balance is recorded as $4,150,786.00, of which $2,648,352.00 is committed and $1,502,434.00 is unassigned. Their overall general fund balance has increased by $242,435.00 from the preceding year.
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