May 14, 2012 | By | Posted in General News

PA school districts debate best use of $3.2B in reserve

Some reach into savings to balance budget; others see clouds on the horizon
By Eric Boehm | PA Independent
HARRISBURG — At East Stroudsburg School District, business manager Patricia Bader oversees a reserve fund balance — one of the largest among the 500 school districts in Pennsylvania.

But the district’s more than $34 million fund balance will not be tapped to help close an expected $10 million shortfall in a proposed $143 million budget.
Instead, residents of the district — which straddles the line between Monroe and Pike counties in the state’s northeast corner — face a possible 2.3 percent property tax hike, the highest allowed for school districts under state law. In addition, several vacant positions will not be filled.
Bader said the school board was unwilling to dip into the reserves to close the budget hole.
“We didn’t want to go into that, because the future looks as bleak as this year,” Bader said.
She was referring to growing pension costs for public school employees the district plans to cover with the reserves in coming years.
Districts must pay for half of the pension costs — with the state filling in the rest — which are forecast to nearly triple in the next four years and remain at that height for decades to come.
Gov. Tom Corbett‘s administration, meanwhile, is encouraging districts with large reserve funds — like East Stroudsburg — to dip into those accounts to cover operating expenses in a year when state education funding is increasing, but not as much as districts would like.
Eller said keeping a small amount of money in an emergency reserve fund is prudent, but many districts have stockpiled cash that could be used to close budget holes.
As of June 30 last year, school districts statewide were sitting on more than $3.2 billion above what was needed to pay expenses for the 2010-11 fiscal year, according to Department of Education statistics.

District Reserve Funds
Top 10 School District Reserve Funds
Pittsburgh $148 million
Downingtown $50 million
Abington $45 million
Lower Merion $43 million
Altoona $37 million
Reading $36 million
East Stroudsburg $34 million
Tredyffrin-Easttown $31 million
Bensalem $28 million
Council Rock $27 million
State Total
Source: PA Dept of Education
Click here for full list of all districts
Pittsburgh School District leads districts statewide with more than $168 million in reserve, but nine other districts have at least $25 million tucked away (see chart).
However, 13 districts have reserve funds that are overdrawn and are in the negative — led by Philadelphia City School District, with a negative balance of $118 million.
Another 13 districts have reserve funds with less than $500,000, mostly consisting of small or poor districts.
The median average for the state — the point at which 250 districts have larger funds and 250 districts have smaller funds — is about $5.1 million in budgetary reserves.
Facing another round of tough budget choices, some districts are tapping their reserve funds.
The school board in Downingtown Area School District in Chester County — which holds more than $50 million in reserve, the second largest total in the state — is doing just that.
Patricia McGlone, the district’s chief financial officer, said the decision to pull $10 million out of the savings account was not made easily, but reflects the difficulty of this year’s budget while maintaining some savings for future construction and pension costs.
“I think we’re respecting the decision of past school boards to put this money away for future generations, and we’re using it prudently,” she said.
The district’s preliminary budget for next year also includes a 1.96 percent property tax increase that McGlone said could shrink to 1.7 percent if state aid increases.
Oxford Area School District in Chester County — which has a reserve fund of $17 million, well above the state average — also plans to raise taxes by 1.7 percent and will drain about $2 million to close a shortfall in the district's $57 million budget.
Financial industry standards suggest that pulling more than 10 percent out of savings in a single year is not prudent.
The Pennsylvania School Boards Association’s “advice to districts is that reserve fund revenue is one-time revenue, so if you’re going to use it, use for one-time expenditures,” said Dave Devare, director of research services for PSBA.
About 70 percent of the state's 500 districts are tapping into their reserve funds in their preliminary budgets, according to a survey by the Pennsylvania Association of School Business Officers, a professional association that helps provide products and services for school business management.
Jay Himes, executive director of PASBO, said the administration is taking a different view on using reserve funds after being critical of districts that built federal stimulus dollars — another one-time revenue source into their budgets in recent years, creating a funding cliff.
"This is time to use it, but you have to be careful and selective in how you use it," Himes said of the reserve funds.
Districts also can classify their reserve funds differently. 
Committed and assigned funds have been earmarked for one purpose but have not been used. About $1.7 billion — a little more than half — of the total reserve funds districtwide fall into those categories.
The remaining $1.5 billion are unassigned reserve funds, which can be used for anything from filling budget holes to paying pension costs and constructing new facilities.
State law prevents districts from raising taxes if they have more than 8 percent of their overall budget in unassigned reserves, so districts will store money in the other types of funds to get around that restriction.
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