AUGUSTA — School board members discussed an unusual financial problem Wednesday — having too much money in reserves, much more than allowed under state law, but worrying that spending it down within a few years will lead to dependence on that money and leave a hole in the budget that eventually could have to be filled with a tax increase or staff or program cuts.
The School Department has about $5.5 million in its fund balance, an account built up with money budgeted in previous years but unspent.
State law bans school systems from keeping balances of more than 3 percent of their annual operating budget in reserves from year to year. Augusta’s $5.5 million now in fund balance amounts to about 18.6 percent of this year’s proposed, $29.6 million budget. To get to 3 percent of the operating budget, the fund balance ultimately would need to be reduced to less than $900,000.
Superintendent James Anastasio said Augusta must spend that fund balance down to 3 percent over the next three years.
“Is it a positive? Yes,” Anastasio said of the large fund balance. “It’s a positive because we have it; we can do something with it. Spend it on one-time expenses such as infrastructure, debt, things to help us maintain and improve our facilities and lower expenses. Is it a negative? Yes. Because reliance on it (long-term) creates a problem when it is not available.”
Next year’s proposed school budget, which is expected to go to board members for a vote March 9, uses $3.4 million from fund balance.
Spending in the proposed $29.6 million budget is up by nearly $1.8 million over the current year’s budget, a 6.4 percent increase. But it is not expected to require a tax increase, because of the use of that $3.4 million from fund balance.
However, Anastasio warned that officials need to be careful to avoid becoming too dependent on fund balance to help balance the annual budget without seeking a tax increase. If the district does what is required by state law and spends down much of that balance, before too long it no longer will be available. That, he said, could leave a hole in the budget that would have to be filled by tax increases or staff or program cuts, or a combination of all those things.
He suggested a strategy of reducing the annual school budget by roughly $500,000 over two years.
About $1 million of the $3.4 million from fund balance included in next year’s proposed budget would fund one-time expenses, such as capital improvements including parking lot paving at multiple school sites, and to pay down debt, not on recurring annual expenses. Spending it on recurring annual costs, officials warned, is what could leave a hole in the budget when that reserve money has been spent.
“We do have to spend it down, but there is a difference between spending it down on one-time things and spending it on ongoing costs,” said Kim Martin, chairwoman of the school board.
The fund balance accumulated up to $5.5 million over the last several years. Martin said the state previously hasn’t enforced the 3 percent rule.
The fund balance account received an unexpected boost last year when the city’s schools ended up getting about $1 million more in state funding than local officials initially had anticipated. That money came because changes in state funding for schools were made after the local budget already had been approved.
Expenses also have come in under budget each of the last few years.
Laura Hamilton, an at-large board member, said the large fund balance can seem suspicious, given that numerous cuts have been made to the school budget in recent years. Many of those cuts were justified by officials by saying they needed to be made to avoid increasing taxes.
“It looked dishonest, quite frankly, from an outsider’s perspective,” Hamilton said.
Kathy Casparius, business manager, outlined several reasons the fund balance has accumulated in recent years, such as $320,000 in savings, compared to what was budgeted, for teacher salaries and benefits last year. She and Anastasio said they budget based upon past spending, and sometimes actual expenses for the year end up being less than budgeted.
“We’re really not hiding money. We’re trying to be responsible,” Casparius said.
The discussion of what to do, short- and long-term, about the fund balance issue dominated board members’ discussion at a workshop held to discuss next year’s proposed $29.6 million school budget.
No members of the public commented on the budget.
The city charter requires school officials to deliver the proposed school budget to the city by April 1. It then will be combined with the city budget, and the total budget is subject to approval by city councilors.
Projections of state school funding for next school year released by the state Department of Education indicate Augusta would get $12.5 million in funding from the state, which is about 0.2 percent less than the current year, or a $23,425 reduction.
Keith Edwards — 621-5647
Twitter: @kedwardskj
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