Paying the bills is becoming harder for everyone under the current economic climate - and school districts are no exception.
Some school districts in New York state could face the possibility of failing to meet educational mandates sooner rather than later. A recent report released by the state Association of School Business Officials suggests that lower-wealth schools districts may lose their savings, or unrestricted funds, much sooner than average-wealth or higher-wealth school districts. According to the report, if current trends continue, 215 lower-wealth school districts could begin to lose their savings by 2015.
"Portions of the school fund balance may be restricted or assigned, therefore, limiting their ability for use other than for the reasons created, as reserve funds," said Dale Weatherlow, assistant superintendent for Jamestown Public Schools. "The assigned and unassigned fund balance can be used to manage taxes and balance the budget. Using funds for this purpose is a useful tool as long as everyone understands that the funds are eventually exhausted if used too aggressively."
According to the report, lower-wealth school districts such as Jamestown are more likely to utilize their savings, or unrestricted funds, than higher-wealth school districts. This could result in fiscal insolvency, leaving districts unable to pay their bills, and educational insolvency, in which schools find themselves unable to provide a sound education that complies with state mandates.
"The Foundation Aid formula created about six years ago attempted to correct the problems, but it has many flaws and has not been financed according to the original plan due to economic conditions," said Weatherlow.
According to Weatherlow, the state has now allowed some districts to receive more than their original Foundation Aid projection, while many others have been frozen at significantly less. For example, Jamestown is $19,115,458 short of the promised calculation. This is a problem because lower-wealth districts are dependent on state aid, and do not benefit as much as higher-wealth districts from modest tax increases.
"[Lower-wealth] schools are typically highly dependent upon state aid as a revenue source versus relying on property tax income for most of their revenue," explained Weatherlow. "A major factor is the tax base, or assessed value, and tax levy of the district. A school with a large tax base and levy can generate more revenue from a modest increase in taxes, whereas a school with a smaller tax base/levy generates less revenue from the same percentage increase in the tax levy."
According to Weatherlow, an example of this situation would be that if Jamestown increased the tax rate by 1 percent (about 20 cents per 1,000), it would generate approximately $140,000 in additional revenue. However, in a higher-income district, this same 1 percent increase in the tax rate would generate significantly more. For example, according to Weatherlow, in Syosset, N.Y., this same 1 percent increase would generate over $1.8 million in revenue.
"The larger property wealth school can more easily absorb expenditure increases and state aid decreases," said Weatherlow. "Since the tax levy in these 'smaller' schools may not generate adequate revenues without significant tax rate increases, these schools must wisely use their fund balance as another revenue source in order to balance the budget."
However, it may be difficult for schools to remain prudent as they face an unprecedented number of unfunded state educational mandates. Additionally, the options schools facing fiscal insolvency have are less than ideal. Schools may borrow money from the state for ongoing operational expenses, receive an advance of their scheduled state aid, accept a bailout of extra state aid in the current year, or submit to a state education department takeover.
According to Weatherlow, the best way to prevent insolvency is with thorough financial planning.
"The best way to try and avoid the problem is by forecasting budgets out three to five years in advance, including fund balance implications," he said. "You also need to reduce expenditures while using fund balance as it allows the fund balance to help buffer tax increases and help control program cuts. Albeit, this use of the fund balance is not infinite."
Of course, districts have expenditures that cannot be reliably predicted. According to Weatherlow, some of these expenses include employee and teacher retirement contribution rates, health insurance costs, fuel costs, utility costs, students with disabilities enrollment/costs, negotiated labor contracts, debt service rates and new state mandates. Larger revenue factors include state aid, Medicaid reimbursements, interest earnings, penalties on taxes, new payments in lieu of taxes, etc.
Weatherlow explained that the state could improve policies to combat the uneven distribution of state aid between lower-wealth and higher-wealth districts. He suggested that the state make changes to the way it calculates need.
"[State aid] needs to be distributed better based upon the needs of the school using factors such as income/wealth, property values, student demographics, free and reduced lunch percentages, English language learner population, students with disabilities population, geographical size, regional costs, etc.," he said.