What should the Wake County school system do with $32 million that's built up over the past year in its rainy day fund?
During Tuesday's school board meeting, staff reported that the undesignated fund balance had been replenished much higher than expected, leaving $32 million available in the undesignated fund balance. Staff said that cost-cutting during the year helped raise the amount above the $20 million they expected to have.
Some school board members want to return part of the fund balance to the county. But some board members and staff say the money should be retained because they need to make up for the recurring expenses covered by using fund balance earlier this year and in case the country goes over the federal funding cliff.
Under school board policy, Wake is supposed to return to commissioners any undesignated fund balance that's more than 6 percent of the county appropriation. Earlier this year, the board followed staff's recommendation to waive policy to keep the money to apply it toward balancing the 2012-13 budget.
Wake used more than $28 million in fund balance to cover funding cuts, such as the loss of federal EduJobs money. It left Wake with about $5 million in the fund balance with staff saying in the spring it could rise to $20 million for use in the 2013-14 budget.
Fund balance is ideally supposed to be only used for one-time expenses and not recurring expenses. For next year's budget, Wake will have to cover the $28 million that was used for recurring expenses this fiscal year.
Jump ahead to Tuesday when Mark Winters, chief finance officer, presented the comprehensive annual financial report. Winters told the board that the undesignated fund balance was now at $32 million that could be used for the next budget.
The $32 million is close to 10 percent of the annual county appropriation of $318 million. Sticking with 6 percent would mean returning around $13 million to the county.
Board member John Tedesco said they're now "significantly in excess" of the 6 percent threshold in policy. He noted how they had told commissioners, in asking this year for an $8.8 million increase in funding, that "they were going to be in desperate times."
Board member Debra Goldman was more direct in her concerns about how much the fund balance had risen.
"I felt like we were sort of scared into preserving this fund balance and cutting down on so many services for our students, our teachers, our schools," Goldman said. "John mentioned one that’s a real biggie for me: cutting down on the custodial services and not shampooing carpets and dealing with biohazards and other things in the classrooms that I have great concerns over, especially this time of year when the kids are locked in there.
We’re at a shortage for textbooks. We’re constantly asking parents to send in more supplies and to do more. We’re asking our teachers to do more with less so I’m sitting here looking at this $32 million unassigned and I understand the six. But why as this is happening?
First of all, I guess there’s praise that’s due that somehow we have this. That means that we’ve managed money well so I’ll start by praising that. But as this is occurring through the year, why aren’t we looking at that and sort of morphing?
We always talk about the budget being fluid. We always talk about being able to change things and adapt as we need to. So when I see something like that at this point (where) we’re greeted with such a huge amount of money left over, I’m wondering along the way improvise, modify, adapt as we go.
I know that sometimes that you bring things forward, but this is a huge amount. We shouldn’t have to keep waiving our policy to hang on to this money when its taxpayer dollars that are coming forward and there are so many things we keep saying we wish we had more money for.”
Winters said that they're constantly revising the budget over the year, looking to shift funding from local dollars to state and federal dollars.
Chief Business Officer David Neter said he wanted to "remind" the board about why they put that $28 million to $29 million of fund balance into this year's budget.
“If that fund balance were not in place for the current year’s budget, we would have to make $28-29 million worth of cuts, which would be the equivalent of seeing me say, and I’m not suggesting we do it, about 1,000 TAs, 500 teachers, every single central services administrator position would be eliminated without that unassigned fund balance," Neter said.
As we begin preparing next year’s proposed budget, we face a similar challenge and there is no guarantee that these funds will replenish. The fact that they’re there however, and we haven’t finalized the proposed budget, we’re working on it now.
But we put ourselves in a precarious position a year ago as we proposed using $28-29 million out of at the time $34 million of unassigned fund balance, leaving about $5 million. Precarious because there’s no guarantee it will replenish. We did know some of it would replenish.”
Neter said they had built up the fund balance through things such as freezing central-services positions to use lapsed salaries and not having, as originally expected, to cover additional workers comp costs shifted over from the state.
“We’re not out of the woods," Neter said. "I’m glad that it did replenish. It’s not a total solution for next year."
Neter also pointed to the ongoing federal negotiations that could result in tax increases and deep spending cuts if Congress and the Administration don't reach a budget deal by the end of the year.
Neter said the automatic cuts could mean that 10 percent of Wake's $125 million in federal funding being cut. He asked the board to imagine cutting that amount out.
Board member Kevin Hill said that the district still faces a funding cliff like it did earlier this year when it used the fund balance to cover recurring expenses.
Temporary Superintendent Stephen Gainey said they need to be careful about using fund balance for recurring expenses.
“I’m sure we can use this funding," Gainey added.
But if the school board votes again to waive policy to keep the excess fund balance to use toward balancing the 2013-14 budget, county commissioners could use that against them.