School reserve funds are among the tea leaves on the Blue Ribbon K-12 panel’s agenda this week. Just how much money have our school districts socked away, and is there enough in those reserves to make an ongoing dent in teacher salaries?
The South Dakota Department of Education provides data on our schools’ annual cash balances. Last year, our 151 public school districts were sitting on about $236 million dollars in reserves, equal to about 28% of the total general fund expenditures for schools across South Dakota. The following table shows the annual change in that amount since 1998:
| Fiscal Year | Expenditures | End Balance | end balance as % of expenditures | new cash in reserve | new cash as % of expenditures |
| 1998 | 551,964,802 | 196,640,150 | 35.63% | ||
| 1999 | 577,563,043 | 196,988,198 | 34.11% | 348,048 | 0.06% |
| 2000 | 608,608,481 | 172,256,802 | 28.30% | -24,731,396 | -4.06% |
| 2001 | 652,114,667 | 144,202,559 | 22.11% | -28,054,243 | -4.30% |
| 2002 | 660,834,259 | 127,567,298 | 19.30% | -16,635,261 | -2.52% |
| 2003 | 678,794,975 | 123,104,947 | 18.14% | -4,462,351 | -0.66% |
| 2004 | 690,129,783 | 124,626,409 | 18.06% | 1,521,462 | 0.22% |
| 2005 | 705,754,779 | 138,576,584 | 19.64% | 13,950,175 | 1.98% |
| 2006 | 720,799,733 | 154,587,407 | 21.45% | 16,010,823 | 2.22% |
| 2007 | 744,298,100 | 170,789,661 | 22.95% | 16,202,254 | 2.18% |
| 2008 | 789,559,827 | 180,973,969 | 22.92% | 10,184,308 | 1.29% |
| 2009 | 818,207,108 | 183,915,769 | 22.48% | 2,941,800 | 0.36% |
| 2010 | 834,027,179 | 194,324,675 | 23.30% | 10,408,906 | 1.25% |
| 2011 | 837,761,421 | 197,603,725 | 23.59% | 3,279,050 | 0.39% |
| 2012 | 804,566,884 | 210,499,181 | 26.16% | 12,895,456 | 1.60% |
| 2013 | 814,322,119 | 244,634,946 | 30.04% | 34,135,765 | 4.19% |
| 2014 | 852,329,633 | 235,845,320 | 27.67% | -8,789,626 | -1.03% |
| averages: | 24.46% | 2,450,323 | 0.20% |
Over the last decade and a half, the K-12 budgets reserves statewide have averaged about 24.5% of annual expenditures, enough to keep schools open for nine weeks. (Think of it this way: if your school district started the year with nothing but its reserves to operate on, today, October 26, would probably be your kids’ last day of school.) The state’s budget reserve as of the end of FY2015 was 12.3% of general fund expenditures.
Governor Bill Janklow thought that raiding reserves would boost teacher pay back when he railed against schools’ savings and capped school reserves in 2001 at 20%. In the aftermath of Janklow’s anti-reserve tirade and cap, K-12 schools spent down their reserves by $74 million in four years, during which time teacher pay never budged from last in the nation. From 1995 to 2005, increases to teacher salaries actually slowed.
With Janklow out of Pierre, Governor M. Michael Rounds laid on schools for banking rainy-day funds. (The Janklow cap appears to have been formally repealed in 2007 Senate Bill 157.) Since 2004, schools have banked an average of $10,249,125 each year. If schools had diverted that same amount each year to teacher salaries, each of our 9,362 teachers could have gotten annual raises of just under $1,100.
That additional recurring raise each year for the last eleven years could have moved South Dakota teacher salaries from $40,023 to over $52,000, which would trade us places with Iowa and make us 25th in the nation for teacher pay.
On paper, it looks as if K-12 budget reserves could provide the cash we need to raise teacher pay and tackle the teacher shortage. But the last time we tried capping reserves, teacher pay didn’t catch up. Blue Ribboneers, look for an answer to that disconnect between spreadsheet and history at your final meeting Thursday.
Yup. About the only thing I agreed with Janklow on was that the reserves were too high. And districts did spend down the reserves. Some districts were able to save programs that were being cut because of Janklow’s other bad education priorities. That’s where the money went, rather than to staff salaries.
The reserves need to be spent down to something more reasonable. There is no excuse for that much in reserve. But each district is different, so don’t blame the districts who aren’t rat-holing money.
at least school districts are not corrupt, bleeding savings for personal fraud, except in the MCEC/MitchelL Superintendent arena (crickets), it appears
Are the fiscal year end balances high because that is the money needed to run the schools for 4 months, from July 1 until November 1, when the next property tax payments are due?
What about the massive surplus the state runs each year? Chronically wrong projections of sales tax revenue combined with state government agencies getting much more money than they need leads to huge excesses by the state. This was called “over-taxing the people” by ole Bill Janklow in one of his many tirades. Let’s call for effective management at the state level before criticizing schools, that are continuously cutting programs for unfunded mandates.
I wouldn’t say the state or local district is guilty of over-taxing. What they are guilty of is poor fiscal management which cheats students out of programs and teachers out of higher salaries that could be funded by these reserves, and legislators and board members out of being able to make important decisions on budgetary choices.
don, u enjoy hitting home runs during series season?
Nick is correct. Much of the reserves is not “extra” money. The June 30 snapshot that the State uses to track budget reserves does not take into account the fact that schools get a substantial portion of their funding twice per year when you pay your property taxes.
What is the total of all state reserves (including all “cookie jars”)? Five years ago when the 10% “across the board” cuts were made, more of the cost of education was shifted to property taxes and the state hoarded away more of the taxpayer’s dollars into “reserves”. Then the Governor makes the statement “I’m not going to raise taxes but you can raise your local property taxes”. That really rings hollow. These reserves are South Dakota taxpayers dollars and should be invested in our education system. Keep a reasonable level of reserves but invest in our young people.
Nick points out an issue that districts face that can make it seem like they have more money than they do at some times of the year. They are paying salaries throughout the year and money coming in just at certain times. Still, the district breakdown in this would be more interesting than just the sum that is in the above table. Back in the Janklow era there were some districts that really abused the reserve fund, having a year’s worth of reserves. Other districts had about 10 percent. The districts with the large reserves tended to have much lower staff salaries, which I think is what torqued Janklow off. Still, as Cory indicates, when districts spent down the funds, they didn’t necessary provide a raise to teachers.
I too would like to see the reserve numbers for each school district. I’m sure some run a much tighter ship than others.
You can find school district fund balances here http://doe.sd.gov/ofm/schfinance.aspx
Those reserves need to be considered one-time funds. Example: medium sized school with 40 staff members and a $1,000,000 reserves. If you raised salaries $5000 you would commit $200,000 per year. At the end of five years the million is gone. Now you need to reduce staff by 4 (SD laws do not allow you to reduce salaries). That gives you the $200000 for the next year. You again would need to reduce staff for the second year to get the salary money, and this continues for another year. At the end of 8 years you will have reduce staff by 25% and diminished educational opportunities for your students. An ongoing funding source needs to be approved. One-time funds are only a short term fix.
Nick, there is a great deal of difference. I didn’t plumb those differences since I’m just focusing on the broadest picture possible: total reserves available statewide to increase pay for all teachers. School by school, you will find all sorts of differences. Take a look at this DOE spreadsheet showing cash balances for FY 2014. Just looking at straight general funds (first column, in green), I see that Highmore-Harrold’s ending balance was 121% of general fund expenditures for the year. Hoven banked a 452% reserve. Other triple-digiters on that metric are Eureka, Iroquois, Elk Mountain, Scotland, and Selby. Aberdeen reserved 32%; Huron, 21%.
McIntosh had the lowest positive reserve, just under 1% of annual general fund expenditures. Sisseton, Shannon County, McLaughlin, Lemmon, and Douglas went in the red in FY2014.
Donald, thanks for that sensible explanation of why the Janklow reserve cap didn’t result in increased teacher pay. Schools were trying to protect their programs from the other pressures Janklow and the GOP Legislature were putting on them.
Suppose schools had decided that they wouldn’t build their reserves and would instead put every surplus penny into the general fund. By the numbers I offered above, that’s $10.2 million a year. How many schools would raise teacher pay, and how many would invest in hiring new staff to restore programs that have been cut? $10.2 million could give every teacher a $1,100 raise, or it could hire about 260 new teachers at the current dismal average pay. Which investment would produce a better return?
But Nick and Jack raise the useful point that the fiscal-year-end snapshot numbers I’m looking at may not tell us how much money is actually available to fund any wishlist. And as exschooladm notes, reserves are one-time funds. I tried to overcome that objection by looking at the long-term trend of how much new money schools have been putting into their reserves each year over the past several, but the fact remains that those ending cash balances are one-time money as surely as the budget surpluses (surpli! ;-) ) Governor Daugaard touts each summer. The Governor refuses to use those one-time state moneys to fund teacher pay; how can he or the Blue Ribbon panel expect schools to use their analogous reserve balances to fund what needs to be long-term salary policy?
I’m not so sure spending down the reserve should be considered “one-time money.” Large reserves are usually built up over 5-10 years. That isn’t one time money. I think the state should simply take back anything over “x” amount by reducing the district’s state aid over “y” years by the amount in the reserve over “x.” The money taken back could be put into a fund to increase teacher pay. But you still need to find a new and permanent funding source. This might give you 2-5 years to do that.
Donald, what is the standard for a sensible reserve? Could a school district (or any other level of government) responsibly choose not to maintain a reserve? Is there some ideal percentage a school board should reserve? Would that number be the same for other levels of government (like the state’s 12.3%)?
I think you have to have a reserve or rainy day fund. It does allow you to partly absorb shocks, like closing of a key business, utility, etc., that affects the property tax base or reduction in state aid, or some planned or unforeseen expense.
See, Cory, you’ve hit on a real problem with my idea. A one-size-fits-all number might not be possible. I’m sure many districts who are running a high reserve can give you some reason for it. If ag land values would crash like they did in the 1980s, a lot of small rural district might be hurting for property tax revenue after a few years, and they might like that high reserve to keep programs operating while the crisis passes.
But I don’t think there is a reason for that many districts to have more than 25-30 percent. My own preference is 15 percent.
15%—well, we’ve got to have some number to work with… but as you say, every district may have different unexpected needs. Every board and community may have different tolerances for uncertainty. Janklow imposed 20% as the one-reserve-fits-all solution; whatever number the state chooses to trump local control, the state needs to offer a compelling case for that number.