Each July, Kansas school boards receive reports from their superintendents on the unencumbered cash balance of specific funds as of July 1. As districts struggle with tough choices as budgets get adopted over the next month, questions are expected to be raised about whether cash balances are too high.
The facts are: school districts have actually been cutting
cash balances compared to budgets, school balances are actually lower than
comparable state balances, and districts continue to face uncertainty in state
Districts have cash balances for three major reasons. The
first is to have money on hand to pay expenses that come due before the income
to pay for those expenses arrives. This is called “cash flow.”
It is similar to individuals who need money in their
checking account at the end of the month to cover rent or a house payment due
at the first of the month before the next payday. That doesn’t mean the person
ended the month with “extra” money. Likewise, school districts need money on
hand in areas like special education and food service at the start of the year
to begin operating until state, federal and local revenues such as student fees
The second reason for cash balances is if income turns out
to be less than expected, or expenses run higher than budgeted. This is called
having money for contingencies.
For an individual, that means keeping extra money on hand in
case of working fewer hours or receiving smaller commissions than planned, or
having an unplanned expense. For school districts, it means state aid might be
reduced mid-year (as happened last Spring).
The third reason for cash balances is to allow for planned
expenses in the future without borrowing. For individuals, this might mean
saving for a vacation or home improvement. For school districts, it means
building up funds for a new school bus, roof repair or textbook purchase.
Critics of school district balances have noted the total
amount at the start of the year on July 1 has increased significantly, from
about $1.16 billion in 2006 to $1.71 billion last year. However, as a
percentage of total school district expenditures, cash balances increased from
approximately 25 percent of expenditures prior to 30 percent during and
following the economic recession of 2008 through 2010, and has been declining
since 2011. (Cash balances and total expenditures for 2015 have not yet been
released by the state.)
School district balances accelerated at exactly the time
when districts faced delays in state aid payments, reductions in state funding
levels and general uncertainty over future funding. In fact, the Kansas Senate
passed a resolution specifically encouraging districts to build up reserves to
address the revenue when federal economic stimulus funding ended in 2011. That
is exactly what happened statewide.
The Legislature has recognized much of the money in district
cash balances cannot be used for regular operating purposes. In fact, school
districts have about 30 different “funds” established by the Legislature to
allow tracking of how school districts spend their money and make sure it is
spent for appropriate purposes.
Over 70 percent of cash balances in school district funds
are essentially restricted because they are raised from special mill levies,
federal funds or student fees, or are required for special education programs
or insurance reserves.
However, in recent years the Legislature has given districts
more flexibility in shifting money from special funds to general operations,
beginning with Senate Bill 111 in 2012. The largest is the contingency reserve
fund, but there are about a dozen other “operating” funds where the Legislature
has allowed more flexible use.
Like total cash balances compared to total expenditures, the
money in these flexible funds increased as a percentage of state and local
operating budgets in the late 2000s, but has started to decline.
July 1 cash balances in school district flexible funds were
about 6 percent of the combined general and supplemental general (or local
option budget) fund budgets in 2006 through 2008, rose to around 10 percent in
2011 and 2012, and dropped back to 9 percent last year.
By comparison, the state of Kansas is supposed to have an
ending balance of 7.5 percent in the State General Fund, although this
requirement is frequently not followed. The ending balance acts as a kind of
contingency reserve for the state, but in order to manage its own cash flow
needs, the state each year has to borrow from other state funds using what are
called “certificates of indebtedness.” However, these certificates must be
repaid by the end of the fiscal year.
The combination of ending balance plus certificates of
indebtedness has never been less than 12 percent of the state general fund
since 2006, which means the state’s cash flow and contingency funds are higher
as a percentage of budget than school district flexible funds for the same
The current projection for the state general fund is it will
end the current fiscal year with a balance of $67 million, or 1.1 percent -
assuming the Governor makes an additional $50 million in spending cuts. This
means if revenues are just 1.1 percent below estimates, the state will face a
revenue shortfall which could require cuts in spending, including school
district state aid. Last year, state aid was reduced by $50 million in the
middle of the year.
The choice local school boards face: whether their budget
plans should reduce cash balances to avoid spending cuts now, or hold on to
those balances in case the state makes additional reductions.
Wednesday, July 29, 2015
Tuesday, July 21, 2015
As school boards across Kansas adopt budgets for the upcoming year, the media is reporting two different situations.
School administrators in some districts have laid off staff and are cutting programs for students while nearly all districts are making tough choices.
But others, such as Gov. Sam Brownback and legislative leaders, are saying that school funding is at an all-time high, and the new block grant system, they say, was designed to protect districts from cuts and provide stability.
Many parents, patrons and even school board members are likely confused by these different perspectives. The facts are really fairly simple. Although total funding is up, the part of school funding available for day-to-day operating costs is not keeping up with inflation and enrollment.
- Operating funding per pupil has not kept pace with inflation since 2009 even though total funding per pupil is at an all-time high.
School funding falls into several big categories. The money school boards can use for general educational purposes, from paying teacher salaries to heating, cooling and lighting buildings to busing students, comes from general state aid, special education state aid, and a local option budget. These are state and local operating funds, and they represent about two-thirds of total funding.
The remaining third is made up of federal funding for education programs, food service costs (funded by both federal aid and student meal fees), state contributions to the Kansas Public Employees Retirement System, costs of buildings and equipment approved by district voters or from local capital outlay tax levies, and other student fees for textbooks, etc. By law, none of these funds can be used for “general” operating costs.
Total school district funding is, in fact, at an all-time high, expected to top $6.1 billion this year. Following the Montoy school finance decision by the Kansas Supreme Court in 2005, funding increased rapidly, then declined following the Great Recession before beginning a slower rate of increase.
However, state and local operating budgets, which include each school district’s general fund, state special education aid and local option budgets, took a bigger hit following the recession, and recovered much more slowly. In fact, state and local operating budgets for the school year that just ended were at the same level as in 2009, although inflation has increased nearly 10 percent.
(Dollars in Thousands)
State and Local Operating Expenditures
Total funding does not take into account changes in student enrollment, which has been increasing. Total Kansas per pupil spending is at its highest point ever, projected to be over $13,000 in 2015. However, state and local operating funds per pupil is still below the 2009 level.
Total Expenditures Per Pupil
State and Local Operating Budgets
Finally, actual dollars do not show the impact of inflation. The following chart shows per pupil funding adjusted by the consumer price index to 2014 dollars. Total spending per pupil, when adjusted to 2014 dollars, is actually below 2007 levels. Operating dollars per pupil have actually declined when adjusted for inflation every year since 2009, and are projected to do so for the next two years under the block grants approved by the 2015 Legislature.
In short, Kansas school funding is like a family budget in which income may be increasing each year, but it has failed to keep pace with inflation and other extra costs. That family’s “real purchasing power” is actually dropping. Just like a family, when a school district’s expenses exceed income, the district must make cuts.
State and Local Operating Budgets
Total Expenditures Per Pupil
2. In the next two years, per pupil operating funding is projected to fall behind inflation under the block grant system.
The block grant bill passed by the 2015 Legislature basically did three things. First, it cut the state aid formula for local option budget and capital outlay state aid, so most districts did not receive as much funding as expected last year. This, in turn, required these districts to reduce their budgets during the year.
Second, it locked in most funding for school operating budgets for the next two years at the same level as the current year. In other words, it “froze” funding levels regardless of changes in student enrollment, special needs or inflation.
Third, it provided increased funding for KPERS pension contributions over the next two years - but districts can’t use these funds for any other purpose. KPERS aid is simply transferred to the district, then immediately transferred out.
When districts talk about budget cuts for the next two years under the block grants, it generally means they have rising fixed costs for salaries, insurance, utilities, and in many cases additional students. Because the block grant freezes operating funds, the district must find cuts in other parts of the budget to cover these additional expenses.
3. While total K-12 funding has increased over the past five years, most of the increase has not been available for regular educational operating costs.
School funding is not interchangeable. Districts have significant flexibility within some parts of their budget, and much less flexibility in others. Over the past five years, the flexible parts of school budgets have increased much less than restricted funding areas.
Since 2010, total funding for school districts increased by $510 million, but general operating funds from the state account for only $53 million, or about 10 percent of the total. Special education aid has barely changed. Local Option Budgets have increased by $127 million, or about one-quarter of the increase. The state legislature provided a large increase in LOB aid that took place last year (2015) to comply with a Supreme Court order. However, most of this increase had to be used to reduce local LOB mill levies, not to provide districts with additional spending power.
Over past five years, federal funding for education programs such Title I, special education federal aid and career and technical education aid has actually declined. However, federal meal support has increased due to the higher number of low income children. In fact, federal food aid accounted for more funding in the past five years than general state aid.
KPERS contributions for school employee retirement benefits increased by nearly $100 million, as the state has increased contributions to the underfunded pension system, but none of those dollars can be used for regular classroom expenses. In addition, state aid for bond payments and capital outlay expenditures - which can only be used for those purposes - increased nearly $90 million, because local voters have approved a number of school bond projects and the Legislature voted to restore capital outlay aid after another Supreme Court order.
It’s true that from the viewpoint of total dollars, funding for Kansas school districts is rising. However, the rate of increase is less than enrollment and inflation, especially for operating budgets, and the increased funds, such as pension obligations, are devoted to areas that cannot be used for classroom instruction. That means districts must cut positions, programs and services to cover expenses that are increasing faster than resources. This situation is projected to continue for the next two years under the block grant program.