The dangers of spending down the Kent School District’s fund balance outweigh the benefits of dipping into it too deeply as a way to patch the budget, according to district officials who hosted a presentation Wednesday about the consequences of such a draw down.
With a budget hole that could approach an estimated $16 million, the district’s fund balance has been called into question during the process.
But according to school officials, using the money as a stopgap measure may end up creating more problems than it’s worth.
Because members of the community and the Kent Education Association, the union representing teachers in the Kent School District, have openly questioned the district’s numbers, the board this past week hosted a presentation during its meeting explaining the numbers and why they oppose using the money.
The fund balance is a combination of designated and undesignated funds, which at the end of the last fiscal year in August, was estimated at approximately $18.3 million.
Of that money, $5.9 million of those dollars are considered “designated” money, while $12.6 million is “undesignated,” meaning it is money that has yet to be targeted at specific costs.
Fund is a savings account
Kent School Board policy dictates a fund balance of 5 percent, or approximately $12.4 million, to act as a savings account for the district, as well as to provide investment income and to stabilize Kent’s bond rating.
The fund balance was built over over a several-year period when the economy was better, but in the past two years, expenditures have outpaced revenues, causing the district to dip into the fund to the tune of $6.7 million, bringing the fund balance down to its current level.
Not all of it is in actual dollars, either.
Of the designated funds, about $350,000 is actually the cash equivalent of food items.
“It’s more represented by the frozen peas and canned stuff we have at the food-service building,” Assistant Superintendent of Business Services Fred High told the board.
Another $1.3 million of the fund-balance pot sits in the district’s insurance reserves, in case of employee termination or an injury claim against the district.
According to High there would be little to no benefit in dipping into those funds, while spending the insurance money actually may cause the district to violate state regulations, which require the district to maintain a self-insured worker’s compensation reserve.
The insurance reserves also give the district an investment return of $13,000 every year, which would be lost, if those reserves were used elsewhere.
Money covers unfilled orders
The rest of the “undesignated” amount, approximately $4 million, is categorized as “carryover reserves.”
According to High, the money in those accounts falls into four categories: unfilled purchase orders, such as library books that may be on back order when the fiscal year ends; unfinished projects, including smaller maintenance projects that may not be complete by Aug. 31; school and district savings for big-ticket items that can’t be purchased with a single year’s funds, such as copiers or textbooks; and savings from schools that have not spent all of the money budgeted to them.
High said items on back order happens “more often than not on big orders,” and added that projects on which the money is spent are things that cannot wait for a bond measure, such as roof or boiler repairs.
In his presentation, High said he saw no advantage to spending the money, but noted several consequences, including that schools would spend their entire budgeted amount, simply to not lose the funding, as well as to prevent savings for larger items.
High further explained that if expenditures continue to outpace revenues, the balance would continue to drop, leaving the fund empty within a few years and the district unable to meet its funding obligations without cutting services and programs.
“It’s basically a temporary fix,” he said of carving into the fund balance. “As long as there’s no additional money you are constantly drawing down.”
Could affect bond rating
High also argued that the district’s high bond rating is predicated on a fund balance of 5 percent, meaning that reducing the balance would lead to higher interest rates for the district.
“It means either less construction or higher taxes,” he said.
High also addressed questions raised by a KEA handout from the February work session which stated the district’s fund balance at $23.3 million. While the number is an accurate accounting of the district’s December fund balance, High insisted that December’s number is always higher because of the way the district receives tax money from the state, but noting the money would be spent through the year.
“December is not a particularly good measure,” he said. “What we’re measured on is our performance on the year.
“We have an awful lot to pay for over the next eight months,” he said.
In an interview last week, KEA officials stood by their number, saying it was an accurate accounting of the money the district had in December, though the handout implies it is the district’s final number instead of a partial one.
“KEA uses the most current information posted by the district,” KEA Representative Mike McNett said. “In December, that number was $23.4 million.”
McNett said the association would now switch to January’s number of $22.8 million and said the numbers show the district is on track to end the year with at least the same amount of money with which it ended the 2007-2008 fiscal year.
The board will receive its final report on the budget March 25 and will make a final decision soon after.
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