NOTE: For a 2009 update on the continued growth of school districts’ unencumbered funds go here.

As the debate rages over whether to cut K-12 education to balance the 2009 state budget, it appears that the Legislature may be able to have its cake and eat it, too.

Data obtained by the Flint Hills Center for Public Policy shows that local school districts’ unencumbered cash balances totaled $1.36 billion as of July 1, 2008. These balances represent money that has accumulated over time, mostly as a result of spending less money than they took in; ‘unencumbered’ means that the cash is not being held to meet specific obligations and is available for use.

But here’s the catch. Most of the money is not in districts’ General Fund but spread across as many as 26 special funds, and state law prohibits moving money out of  special funds and spending it for another purpose. If legislators changed the rules, the districts might be able to tap these special funds to help balance state and local budgets in a way that would minimize the impact on schools.

Governor Kathleen Sebelius has favored smaller cuts in school spending and larger tax increases than those proposed by the legislature. In January the legislature proposed a $66-per-student reduction in state aid as education’s contribution to balancing the 2009 budget. Sebelius rolled that back to a $33 cut and later eliminated it by using funds from the federal stimulus plan.

By comparison, school districts had an average of $3,045 per student in unencumbered cash at the end of the 2008 fiscal year. Greensburg USD 422 had the most with $81,788 per student and Skyline USD 438 had $321, the smallest amount of unencumbered cash per student.  Wichita USD 259 topped the list of total unencumbered cash balances with $133.3 million, followed by Blue Valley USD 229 with $106.8 million and Shawnee Mission USD 512 with $91.9 million.

In an April 13 press release Sebelius chided legislators. “Additional cuts to education and services the legislature has imposed in this bill give me pause, particularly when they chose to leave millions of dollars in revenue on the table that would have made these cuts unnecessary.” She wasn’t talking about unspent funds but rather additional taxes or suspended tax rollbacks.

School districts have faced questions about why large balances are carried in school accounts while citizens and businesses are asked to pay more in taxes to cover growing school expenses.   Administrators explain that state law places restrictions on what they can do with the money and it isn’t just sitting around.  They’re anxious to point out reasons for the large cash balances.

The largest infusions of money, distributions from the state, happen twice yearly; one in June just before the fiscal year ends. Districts need money in the bank to pay ongoing obligations such as salaries, utilities, transportation costs, etc. Some funds, like special taxes for building projects, are collected over several years but not spent until the work is completed.  Also, money left in a district’s general fund at the end of the fiscal year is subtracted from what the district receives from the state the next year. Districts are reluctant to leave money in the general fund and prefer to transfer it to other funds rather than lose the money.

Still, unencumbered cash balances have grown steadily.  Historical data for all 27 funds was not available by deadline but the Kansas State Department of Education (KSDE) posts it for four of the largest funds on their web page.  Since 2001 balances in capital outlay, special education, food services and contingency reserve have grown 95%, from $394 million in 2001 to $769 million in 2008.

Even though districts collect most of the money used to fund education, the state controls many aspects of school district budgeting. State legislators have required districts to set up special funds in order to track funding for specific programs.

“When they do that it does limit their flexibility. We like to see the minimal number of funds,“ said Mark Dick, executive vice president of Allen, Gibbs & Houlik, an accounting firm that audits state reports.

Last year the legislature required a new fund for virtual education. “So now we have another set of books to maintain,” said Linda Jones, chief financial officer for the Wichita’s USD 259. “We have many more funds than other states. It makes a bit more work. Unfortunately most of the funds came about from legislators who want to know how much a program costs.”

Mark Walker, superintendent of the Minneola school district, agrees. “There’s a lot of hoop jumping to do. I’ve been doing this for 15 years and it’s just gone astronomical.”

“There are things that would be easier if done differently,” Jones said, expressing frustration at unfunded state and federal mandates and the state’s budgeting timetable, which doesn’t allow districts time to carefully plan their budgets.

State payments to districts have also been late in recent years. “The state is not very dependable on paying their aid on time,” said Dale Dennis, Deputy Commissioner of KSDE, in a recent interview.

Kansas Board of Education member Walt Chappell says the current approach to school budgeting needs an overhaul. “Right now we’ve got a convoluted system that’s been developed over the years that has almost no correlation to what is needed to educate a child.  The amount of money we have in the pot, if we redistribute it based on the needs of the kids we’d have a much better chance of using the money we have more effectively.”

Regardless of how these unencumbered cash balances came about or how school officials justify their existence, it will be interesting to see if the Legislature is willing to consider changing the rules so districts are able to use some of the $1.36 billion to offset any reductions in state aid.

Unencumbered Cash at a Glance

As of July 1, 2008, for 294 Kansas school districts
Statewide total: $1.36 billion
Average district total: $4.6 million
Highest district total: Wichita, Sedgwick County, $133.4 million
Lowest district total: Skyline, Pratt County, $118,471
Statewide average per student: $3,045
Highest per student: Greensburg, Kiowa County, $81,788
Lowest per student: Skyline, Pratt County, $321

Top five districts total unencumbered cash as of July 1, 2008
Wichita USD 259     $133.3 million
Blue Valley USD 229    $106.8 million,
Shawnee Mission USD 512    $91.9 million,
Kansas City USD 500    $81.8 million
Olathe USD 233    $66.8 million.

Top five unencumbered cash funds as of July 1, 2008
Capital outlay    $449 million
Bond and interest #1    $301 million
Special education     $164 million
Contingency reserve    $119 million
Special reserve    $  71 million

Top five unencumbered cash per student as of July 1, 2008
Greensburg USD 422    $81,788
Nemaha Valley USD 442    $19,569
Rolla USD 217    $19,258
Lewis, USD 502    $16,041
Lakin USD 215    $10,578