Kansas school hold back millions in cash while threatening teacher layoffs

By: Dave Trabert
April 4, 2011
Word Count: 777

If someone told you public school districts are talking about closing schools and firing teachers because of funding challenges, but aren't using millions in cash they built up over the past few years, you'd probably say "That can't be true." But it's happening in Kansas.

And it might be happening in your local school district, too.

Here in Kansas, public school districts began this year with $1.6 billion in unencumbered carryover cash reserves. "Unencumbered" means the cash is not subject to any lien, encumbrance or other creditor claims.

Some cash comes from property tax levies and must be spent accordingly, such as for capital projects and debt service. But even subtracting that money, plus federal funds and a few small amounts that can't be touched according to state legal authorities, Kansas school districts still had $742 million in other operating funds.

That's an average of $1,633 per pupil in cash. Kansas Gov. Sam Brownback's proposed 2012 budget increases state aid but the loss of federal stimulus aid would result in a net loss per pupil of about $232, or 1.9 percent of combined state, federal and local funding.

With the average school district having seven times that amount in carryover reserves, one would think most districts would say they could cover the difference and still be able to increase spending by using a portion of their reserves. Some plan to do so. Many others, with more than adequate reserves, say they will be "forced" to lay off teachers and take other drastic steps.

The cash is held in dozens of funds, some of which have statutory restrictions on how fund balances can be used. Still, the Kansas State Department of Education says districts can access some restricted reserve balances by simply not transferring as much in as needs to be spent.

Legislators could and should lift transfer restrictions so schools can use their reserves as needed.

The vast majority of that $742 million represents state and local tax dollars given to schools in prior years for education purposes that instead were used to increase cash reserves. The total increased by $306 over the past five years, going from $436 million to $742 million.

School funds operate on a cash basis, just like your personal checkbook; the balances only increase if more is deposited than is spent. Since Kansas school districts added $306 million to their cash reserves over the past five years, one might ask if this would be a good time to use some of that money as originally intended.

The projected decline in total aid next year is about $106 million, so schools would only have to use about 14 percent of their carryover cash to hold funding steady. Using cash reserves isn't a long-term solution but there's plenty there to allow time to find other solutions, including operating more efficiently.

Independent audits have disclosed tremendous savings opportunities. Kansas public schools spent an average of $12,330 per pupil last year. That was down 2.6 percent from the previous year but still a 27 percent increase over the previous five years.

One legitimate reason schools give for holding cash is that Kansas has not always made school aid payments on time as a result of recession-driven revenue declines. The state is working to resolve that problem by trying to reduce spending.

Another reason is likely related to a new lawsuit filed by a group of school districts, contending the state is not meeting its constitutional funding obligation. A 2005 Kansas Supreme Court ruling in Montoy v. State of Kansas ordered the legislature to spend an additional $853 million on K-12 education.

The legislature complied with the court's ruling and that case was closed. But the recession forced state aid to decline in 2010. Total state aid has since increased but is not back to previously scheduled levels. So now some districts are using taxpayer money intended for educational purposes to sue the state again.

Here's the conundrum districts face regarding the use of their carryover-cash reserves. How can they contend they are underfunded if $306 million of the aid received since the last lawsuit was used to increase cash reserves? Holding on to their cash buildup might help their lawsuit, but it certainly doesn't help students or the teachers who are being laid off.

School districts need some degree of carryover reserves but it should be determined how much cash can be made available and they should take whatever steps are necessary to put it to work in schools. It makes no sense to raise taxes or let teachers go when there are tax dollars sitting the bank.

How much cash does your school district have?

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