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Schools watch reserve funds closely

March 01, 2004
By: Alex Yalen
State Capital Bureau

JEFFERSON CITY -- While Education advocates have been warning of dire consequences from near stand-still state fund for education, local schools have been able to tap into a fund that education advocates say should rarely be touched.

That fund, known as a district's "reserves," is designed to help a public school district survive a year, maybe two or three, of financial difficulty.

But as time marches on, and as those funds are used up, districts creep increasingly closer to a term that Missouri's Education Department calls "financially stressed."

The term is a technical equivalent to bankrupcy, and it means districts must either cut services or raise taxes to continue school operations.

The complicated balance between taking money from -- and putting money into -- the reserve funds highlights another complicated component of Missouri's school funding politics: Sometimes, what a school district has left is just as important as what it recieves.

Denise Pierce, director of financial operations for the Education Department, studies and advises districts on managing funds. She said there are any number of reasons a district could spend its reserve fund money.

Maybe a school cafeteria boiler needs repair, and the district needs to bear that cost. Maybe the state will be giving out less money than expected, and the district needs to make up some of the difference.

"That's what (the reserves) are designed to do," Pierce said. "You need to have money on hand for those unexpected expenditures."

Missouri law, in fact, requires that school districts maintain reserves that can fund two months of their operating expenses.

But problems begin when several years' worth of budgets require deductions from the reserve funds -- as is happening now. Though the funds are designed to help prevent an immediate emergency, Pierce said, their use is not a long-term financial solution.

It's a problem that Rep. David Pearce, R-Warrensburg, knows well. Pearce, who sits on the House Education Appropriations Committee, also sits on the Warrensburg school board.

He said he has seen the reserve fund drain.

"Our district has been extremely proactive," he said. "We passed a levy last year, and because of it we're in a pretty good situation. But we're still taking $400,000 out of our reserves this year, and $200,000 next year. We can't do that forever."

When forever becomes reality, and their funding reaches a dangerously low percentage of total yearly expenditure, districts are faced with limited, and unpleasant, options required by the state's "financially stressed" label. First, they can raise taxes, or an operating levy, to generate more money.

For a district with lower property tax valuation, that option might not be as effective as the second, equally difficult choice, which would be to cut staff.

"Different school districts take different approaches," Pierce said. "But when that balance comes down, and there's not a lot to draw on, they're going to have to make hard choices."

Rep. D.J. Davis, D-Odessa, was on the recieving end of some of those hard choices earlier in his career. Before taking up state government, Davis was a principal of a high school in Odessa.

For 29 years, Davis weathered various administrative and scholastic challenges, but it's the act of cutting supplies from the classroom that he remembers acutely.

"I've handed in budgets where we'd like to order some more microscopes for a lab, or textbooks," he said. "But there's a surprise jump in (the district's) enrollment, and the superintendent would say, 'you'll have to find another way."

Increases in enrollment, Davis said, as well as price fluxuation for heating costs during the winter, are two major reasons for a district to tap into its reserves.

"Those are things you just don't have control over," he said.

Districts also lack control over the entire economic picture that dictates the amount of aid the state can provide first place. So, for districts fighting the quiet, slow, yet increasingly significant financial leak from their reserve funds, the key word is hope.

"You know you won't be in a downward spiral forever," Pierce said. "You're just hoping it turns around quickly."