Short of Funds, State Eyes School Reserves

Pressed on using the Rainy Day Fund to help close of the state’s massive budget shortfall and avoid dramatic cuts, particularly to school funding, Gov. Rick Perry earlier this month pointed to another source of money he believes should be tapped first: the reserves held by many Texas school districts.

“It's about $12 billion in reserve accounts in our independent school districts, so should the state spend their Rainy Day Fund before those are accessed?” Perry said. “It's a good debate to have. My answer is no, I don't think so."

According to spreadsheets prepared for the governor and provided to the Tribune, the state’s 1,030 school districts have — in total — $10.2 billion in reserves and another $2.1 billion in unspent federal stimulus money. Facing a reduction in state education spending of between $4 billion and $10 billion, many school districts have said they will be forced to lay off teachers and other staff and even close schools. Can they use their reserve funds to avoid such draconian cutbacks? The answer is not as simple as the governor’s statement would imply.

First, they're required by the state to keep reserves to cover cash flow deficits and to be able to run for 60 days. Only $439.4 million of that total balance — less than 5 percent — exceeds the state standard. Second, the fact that one school district has a large reserve fund does nothing to help another district that has little or nothing in the bank. While 591 school districts have more money in reserve accounts than the state requires them to hold, 419 districts have less than they're supposed to have (20 were right on the mark as of the end of January). But that money can’t be shifted between districts.

"I don't think we will be using those funds in any way, shape or form," says Florence Shapiro, a Plano Republican who chairs the Senate Education Committee and also sits on the Finance Committee. But she makes it clear that the districts can use the funds to ease the burden — even if the state doesn't order them to do so. "There was a rumor we were going to raid them. … I think what we will ask is for them to be a partner with us. We dipped into our Rainy Day Fund, and you should dip into yours."

Shapiro says it makes sense for TEA to give the districts some flexibility on how much money they should hold in reserve. But she also acknowledges their need to keep some money on hand to handle cash flow issues, like the one that crops up when the state — as it's planning to do — balances its own budget by delaying payments to school districts. That's a small one — just a day's delay, from one budget to another one — but it's an example.

"We're operating a business. We educate kids, but we also have budgets," says Amy Beneski, director of government relations at the Texas Association of School Administrators. "We have to keep the lights on, and it's just sound business practice to have reserves on hand."

Beneski says the cash reserves allow districts to cover cash flow changes without borrowing from banks, and they play into bond ratings, too. And while some districts might find the reserves useful if the state cuts funding, she notes that many districts don't have even 60 days of reserves on hand. They have less flexibility if the state pulls back.

"The only way I would consider fund balances would be to see what kind of position the school district was in, what position we put them in," says Rep. Rob Eissler, R-The Woodlands. "We don't want to kill anybody."

The big numbers don't necessarily come from the big districts. Dallas ISD had $37.7 million on hand at the end of January — $96.6 million less than the optimum amount set by TEA. Other big districts had less in reserve than TEA would consider "optimum": Austin, Fort Worth, El Paso, Round Rock, Aldine, North East, Cypress-Fairbanks, Spring Branch, Carrollton-Farmers Branch, Plano, Garland, Richardson, Northside, Humble, Fort Bend and Pharr-San Juan-Alamo.

Other districts overshot the runway and have far more in their reserves than TEA's recommendation of enough money to run the districts for 60 days: Lewisville, Irving, Houston and Eanes are among those. The variances vary: Houston had 5 percent more than recommended, while Lewisville had 231 percent of what TEA considers a minimum.

That same thing is true for the districts with too little money on hand: Dallas was 72 percent below optimum, while Austin was 11 percent under.

Aides to the governor say they're not suggesting the districts should spend the money, but think the balances indicate that — in more than half the districts — the budget situation isn't as dire as some have said. Several Texas districts have declared "exigencies" based on their reading of the state's budget deliberations; those declarations allow them to lay off employees and take other measures to get ready for lean times.

In a spreadsheet listing the reserve balances for each district, they have also sorted the districts so that each lawmaker can look at the local ISDs and find out which ones are over and which are under. The sheet also includes, by district, the status of federal stimulus funds. Of the $5.5 billion available, districts had yet to draw $2.1 billion by the end of January. That money has to be used by the end of the fiscal year. According to TEA, must of it was already obligated but hadn't yet been sent to the districts. Some of it can be used for a wide variety of things within a district, but some of the federal money is targeted to particular programs and can't be used for anything else.

Eissler, a former school board member who now heads the House's Public Education Committee, says it "would be a strong reach" to try to get the school districts to throw their money into the pot to make the state budget work. He doesn't think it would be a smart thing to do. It's not the state's money, for one thing, and the districts aren't all in the same financial shape.

"Let's say School District A really watched their money and really got good results and has a healthy fund balance, and we're going to penalize them because School District B just spent everything they had and didn't pay attention to their finances and they're in the hole?" he says. "We're trying to reward productivity. That would not."