Rainy Day Fund

Why Shelby County Schools has $84 million sitting in a savings account

Say your home air conditioner dies, and it’s August in Memphis. You don’t have enough in your checking account to cover the cost of a new one, but you have just enough in savings. The problem: After you’ve cleaned out savings, what if your car breaks down too?

That’s part of the rationale behind Shelby County Schools’ $84 million “rainy day” fund.

“I look at it as, ‘What (amount) do you feel comfortable with, not only for the short-term risk but the long-term risk?’” Finance Chief Lin Johnson told school board members last month in explaining the rationale behind the district’s fund.

Still, the stockpiled cash has raised eyebrows in a district serving a large number of impoverished students — as its leaders complain of being woefully underfunded by the state. (The district’s funding lawsuit against the state continues to wind through the courts.)

As the district’s fiscal year ended on June 30, the stash actually could have been more than $84 million. But in May, the school board asked Superintendent Dorsey Hopson to begin shifting more savings to address a backlog of needs — for instance, hiring more school personnel and repairing aging buildings. His administration responded with $33 million in reallocations.

Johnson warned that the board should tread lightly when raiding the fund. Here are some frequently asked questions:

Why does Shelby County Schools have a rainy day fund?

The district needs some padding to cover expenses throughout the school year as it waits for revenue from dozens of sources ranging from federal Title I funding to various government and philanthropic grants. While the money flows in at different times, the district still needs cash to operate without interrupting services. This fund keeps everything running smoothly and also is available for emergencies.

Do similar school districts keep this level of cash?

Between 4 and 12 percent of a district’s operating budget is standard practice, according to the Council of Great City Schools, a group of urban school districts that share data on best practices in academics and operations. Shelby County Schools reserves about 8 percent. Johnson, who is considered a conservative budgeter, would like to see a rainy day fund of between 10 and 15 percent.

PHOTO: Caroline Bauman
Lin Johnson, finance chief of Shelby County Schools

“I am not comfortable with 8 percent,” he told board members. “If we’re over 15, I think the administration needs to provide a plan to spend that down so we’re not having an excessive fund balance.”

Still other government organizations are even more conservative about having savings on hand. The Government Finance Officer Association recommends no less than two months of operating expenses, or 16.7 percent. If Shelby County Schools followed that standard, its savings would stand at $164 million. (The association notes that large cities, counties or school districts need less cash on hand because they’re better able to predict risks.)

But shouldn’t that money go to schools and kids?

In some ways, it already does. Part of the purpose behind reserves is to support services for students. But if it’s excessive, then it takes away from kids in the classroom. It’s the job of school board members like Kevin Woods to determine how much is enough.

“If there are great things we need to be accomplished right now… then we probably should try to get those things done and not keep that money in the bank,” Woods said.

At the same time, Woods cites concerns about proposed federal budget cuts that could trickle down to districts.

That’s the tension.

How does the district figure out how much cash to stash?

Shelby County Schools weighs risks, some specific to the district and some that apply to any school system. Memphis leaders are closely watching the possibility of private school vouchers being introduced in Shelby County under a proposal in the legislature. The growth of the city’s charter sector and municipal districts, as well as the possibility of more school takeovers by the state-run Achievement School District, also have the potential of siphoning off funding from Shelby County Schools. Then there are the usual challenges such as changes in state and federal funding and increases in the share of students with disabilities.


Colorado schools are getting a major bump in the state’s 2018-19 budget

Students waiting to enter their sixth-grade classroom at Kearney Middle School in Commerce City. (Photo by Craig Walker, The Denver Post)

Colorado’s strong economy has opened the door for state lawmakers to send a major cash infusion to the state’s public schools.

As they finalized the recommended budget for 2018-19, the Joint Budget Committee set aside $150 million, an additional $50 million beyond what Democratic Gov. John Hickenlooper had asked for, to increase funding to schools.

“We believe this is the most significant reduction in what used to be called the negative factor since it was born,” said state Rep. Millie Hamner, the Dillon Democrat who chairs the Joint Budget Committee.

Colorado’s constitution calls for per pupil spending to increase at least by inflation every year, but the state hasn’t been able to meet that obligation since the Great Recession. The amount by which schools get shorted, officially called the budget stabilization factor, is $822 million in 2017-18. Under state law, this number isn’t supposed to get bigger from one year to the next, but in recent years, it hasn’t gotten much smaller either. 

But a booming economy coupled with more capacity in the state budget created by a historic compromise on hospital funding last year means Colorado has a lot more money to spend this year. In their March forecast, legislative economists told lawmakers they have an extra $1.3 billion to spend or save in 2018-19.

The recommended shortfall for next year is now just $672.4 million. That would bring average per-pupil spending above $8,100, compared to $7,662 this year.

Total program spending on K-12 education, after the budget stabilization factor is deducted, should be a little more than $7 billion, with the state picking up about $4.5 billion and the rest coming from local property taxes.

The budget debate this year has featured Republicans pressing for more ongoing money for transportation and Democrats resisting in the interest of spreading more money around to other needs. The positive March forecast reduced much of that tension, as a $500 million allocation for transportation allowed a compromise on roads funding in the Republican-controlled Senate. That compromise still needs the approval of the Democratic-controlled House, but suddenly a lot of things are seeming possible.

“We knew we were going to have more revenue than we’ve ever had to work with,” Hamner said of the status at the beginning of the session. But that presented its own challenges, as so many interest groups and constituencies sought to address long-standing needs.

“The fact that we’ve been able to reach such incredible compromises on transportation and K-12 funding, I think most members will be very pleased with this outcome,” Hamner said. “Where we ended up is a pretty good place.”

The big outstanding issue is proposed reforms to the Public Employees Retirement Association or PERA fund to address unfunded liabilities. A bill that is likely to see significant changes in the House is wending its way through the process. The Joint Budget Committee has set aside $225 million to deal with costs associated with that fix, which has major implications for teachers and school districts budgets.

The Joint Budget Committee has also set aside $30 million for rural schools, $10 million for programs to address teacher shortages, and $7 million for school safety grants.

The budget will be introduced in the House on Monday. Many of the school funding elements will appear in a separate school finance bill.

Going forward, there is a question about how sustainable these higher funding levels will be.

“It does put more pressure on the general fund,” Hamner said. “If we see a downturn in the economy, it’s going to be a challenge.”

What's fair

Colorado’s state-authorized charter schools could get more money next year

Students at The New America School in Thornton during an English class. (Photo by Nic Garcia)

Charter schools authorized at the state level by the Charter School Institute are likely to get more money in the 2018-19 budget year. That’s one year before most other charter schools will see benefits from last year’s charter school funding equity bill.

That bill was a major compromise out of the 2017 session, and it requires school districts to share money from voter-approved tax increases with the charter schools they’ve authorized, starting in 2019-20. The bill also created the mill levy equalization fund to distribute state money to the Charter School Institute’s 41 schools. Because no local school board approved these schools, they wouldn’t otherwise be eligible for revenue from these increases, known as mill levy overrides.

Charter School Institute administrators came calling for their money this year, though, with a request for $5.5 million from the general fund. They arrived at this number by identifying institute schools within the geographic boundaries of districts that already share some extra revenue with their local charters and assuming institute schools got a similar share.

Institute Executive Director Terry Croy Lewis called it a “first step” toward parity that would bring institute and district-authorized charter schools to the same level in advance of the new law going fully into effect in 2019. Lewis said it seemed like a fair approach because the parents at institute-authorized schools often live within the geographic boundary and pay taxes at the same rates as parents whose children go to traditional schools or district-authorized charters.

However, the charter equity bill says that extra money for institute schools has to be distributed on an equal per-pupil basis. The original approach, which created more equity among schools in the same geographic boundary, created more disparities among institute schools in different regions – and the law might not have allowed it.

“I don’t think you can define equity in this conversation because equity cuts a lot of different ways,” said state Sen. Dominick Moreno, a Commerce City Democrat and member of the Joint Budget Committee.

Budget analyst Craig Harper suggested to the Joint Budget Committee that separate legislation might be necessary to allow the distribution proposed by the Charter School Institute, something no lawmakers wanted to see after the bruising fight over the charter school equity bill.

Instead, the Charter School Institute revised its proposal to distribute the money among its schools on a per-pupil basis, regardless of geography and whether the local district already shares money.

What sort of difference does this make?

In the first distribution scenario, Early College of Arvada, located in the Westminster district, would have gotten nothing – because Westminster doesn’t currently share money with its own charters. Under the new proposal, the school would get $131,233 based on its pupil count. Meanwhile, Colorado Early College – Fort Collins, which would have gotten $621,357 because the Poudre district already shares money, would instead get just $374,952

Lingering confusion over the distribution question led JBC members to postpone a decision several times before they voted 4-2 this week to include the $5.5 million request in the 2018-19 budget.

It still has to survive the extended battle over the budget that takes place in the full House and Senate each year.