Managing schools in difficult times

Posted on 26. Jan, 2010 by Release in Schools, State Legislature

In recent meetings with school board members and district superintendents at Mounds View and Centennial School Districts, I was impressed once more with the commitment of these school leaders. They outlined in great detail the efforts they have made to maintain quality in their classrooms in spite of the economic downturn Minnesota and the country are experiencing. As one board member said, “Kids don’t get a second chance at learning just because there is a recession.”

A combination of prudent fiscal management and hard-earned local support for their schools has won these districts accolades both locally and nationally for their performance. As parents and taxpayers we should be pleased: these districts are grounded in good financial practices that enable them to provide stability for their students and programs.

In the above meetings with both school districts, board members expressed deep concern that the state may want to use school districts’ hard-earned reserves to assist with cash flow problems at the state level. This makes no sense.

Part of the financial stability of our school districts comes from maintaining adequate fund balances. School districts maintain fund balances for financial stability, to protect programs that are needed to serve children at times when revenues are uncertain. School districts depend heavily on state aid, and, unfortunately, state aid is sometimes an unstable revenue source. State revenues are highly sensitive to the business cycle, and when the economy is in recession, state aid does not keep up with inflation and can even be cut.

As a former business owner, I know how important a reserve is. Income from services rendered doesn’t always match payroll schedules, or payments due to vendors. In schools, cash flow problems are more acute during economic downturns. Both expenditures and revenue receipts are not evenly spread throughout the year, so districts often experience cash flow low points over the course of the year. To cover these cash flow low points, districts must maintain fund balances, engage in short-term borrowing, or both.

Fund balances also have an effect on school districts’ bond ratings. Rating agencies pay close attention to fund balances in determining underlying ratings. They are also regarded by taxpayers and other stakeholders as a measure of how well their school district is managed. Bond ratings also are used by other vendors, like property/casualty insurers, as a measure of stability and credit quality.

As the Minnesota Association of School Business officials explain, “Fund balances are also needed to comply with state law.” Minnesota law requires districts to maintain reserve accounts for a variety of revenue sources and programs: operating capital expenditures, staff development, compensatory revenue, area learning centers, health and safety, and many more. These balances are not available for spending for purposes other than those authorized in statute.

School districts have already taken a significant hit in the state’s effort to achieve a “balanced budget.” To date, the shift in school payments has caused approximately 126 school districts to borrow over $300 million dollars to maintain their own cash flow. Other districts have been forced to spend down their reserves and put their cash flow in jeopardy.

It is time for the legislature and the administration to bite the bullet and create a structurally balanced state budget. This is the first and most critical step to putting financial stability back into Minnesota’s future. I have no illusions that this will be very difficult to do this year. Nonetheless, it is the right thing to do.

Tags: Disctrict 53, Highlight, Sandy Rummel, State Senate