PA school districts look to cash stash to balance budgets

HARRISBURG — As business manager for the Mercer Area School District, Mike Stabile has spent the last several years budgeting around a myriad of factors.

Among that list: a school board that won't raise taxes, state level cuts and increased future costs for charter school students and pension payments — and the district is down nine teachers from the last few budgets.

"The more cuts you make after the first two years, the larger impact it's going to have on the students," Stabile said

So this year, Mercer's proposed budget includes about $400,000 taken from reserve funds, money that will keep the district from laying off more staff or cutting programs. Reserves act as a rainy day fund for school districts, and for Mercer, the rainy day has arrived.

"That's what we have it for, to keep the school district moving on," he said.

Should the board pass the proposed budget in its current form, Mercer will have between $750,000 and $800,000 leftover in its reserve funds. That money can provide a cash flow cushion, or potentially fill future budget gaps down the road, as it manages a $16 million annual budget.

But that's just the story behind one fund balance. Altogether, Pennsylvania schools hold more than $3.8 billion in fund balances, according to newly released data from the state Department of Education. That's about $300 million more saved up than this time last year, when districts had some $3.5 billion in reserves.

Despite that financial cushion, state school districts and Democratic lawmakers are calling on Gov. Corbett and the Republican-controlled legislature to restore recent cuts to basic education funding.

Some districts may be sitting on this money, but more often than in the past, they're using it to fill budget gaps, like Mercer's proposal. A recent survey from the Pennsylvania Association of School Administrators and thePennsylvania Association of School Business Officials found seven out of 10 districts plan to use reserves to help balance their budgets.

DOE spokesman Tim Eller said it may be time for districts to dip in. Last year, some  lawmakers voiced their desire to see districts use reserves instead of asking the state for more money.

"These fund balances are made exactly for those purposes," he said. "A rainy day is when it's raining with the economy down and state, local and federal revenues down."

Eller said fund balance levels have consistently been on the rise the last few years.

"Obviously having a rainy day fund is a prudent way of budgeting," he said. But the fund balances increase at the same time districts are "voicing concerns they're having financial difficulties," he added.

At the 2012 budget year's end, about $1.7 billion of reserves sitting in school balances are considered unassigned and can be used for any purpose. That's down about $35 million from 2011.

The rest of the fund balances — about $2.1 billion — is designated for a specific use by school boards or administrators, which is where the year-over increase is. But, Eller noted, boards that earmark reserve spending for any reason can redirect that money elsewhere with a single vote.

Dwindling accounts

Those in charge of the recent PASA/PASBO survey said they're concerned by how often districts use reserves for budget filling. Jay Himes, executive director of PASBO, said 58 districts statewide will deplete their fund balances within five years if they continue this pattern, according to survey results.

"I don't think we've seen the extensive year after year use that we see now," he said.

The survey of 187 districts found that 34 reported using 20 percent or more of their reserve funds to balance budgets. Doing this consistently could lead to catastrophic results for schools, Himes said, because once that money is gone, it's not coming back.

"Ideally, you would use it on a one-time basis, but that's not what's happening now," he said. "Districts are using it for operating costs."

Himes said total fund balances may be higher because districts are squirreling away cash for long-term pension payments. They know they'll have to meet higher annual payments because of Act 120, the law that scheduled increased payments for the Public School Employees Retirement System after holding them flat for multiple years.

Next year, for example, districts statewide will pay $623 million into PSERS, with another $686 million increase the year after that, for a total of nearly $2.9 billion statewide.

In Pittsburgh Public Schools, there's no such savings designated for pension costs. But the district has used its fund balances to meet structural deficits in years when revenue is lacking.

The district operates its budget on a calendar year, meaning it's halfway through its budget year while most other schools are finishing theirs. So far, expenditures and revenues are on track, said Ronald Joseph, director of budget development and management.

But looking ahead, the district plans to use reserves to fill budget gaps the next four years. At times when expenditures outpace revenues, it becomes the way to balance the budget, Joseph said.

"It's not something that's sustainable," Joseph said. "We constantly look for ways we can make reductions."

Those reductions can come from inside the district, such as lowering personnel costs, and also from changes at the state level. That doesn't have to mean allocating more money.

The PASBO survey points to state laws that could be changed to help ease spending burdens. Those include charter school funding reform, ending prevailing wage on school construction projects and allowing furloughs, according to the "Mandate Relief" section of the final report.

PASA executive director Jim Buckheit said schools understand revenue is tight for all levels of government. Legislative changes to school financing, though, wouldn't necessarily cost the state even if they would help districts, he said.

"I think what we really need is some relief," he said, "and that is eliminating some of the mandates. We're still operating over the rules that districts operate like it's the 90s and early 2000s."

And as the balance sheets show, times have changed.

Contact Melissa Daniels at melissa@paindependent.com . Follow her on Twitter @melissamdaniels