Payson schools’ bump in enrollment and the messy mucking about with state funding formulas has yielded a pleasant $600,000 surprise for the school district.
The extra $600,000 will for now bolster the district’s wafer-thin reserves in a $13 million budget, the board learned at a budget study session this week.
However, the good news spawned a board discussion about the sad state of the 2,400-student district’s financial reserves.
“We have no padding that we can look to for anything,” said board member Joanne Conlin.
“We’ve got a lot of other needs,” said board president Barbara Underwood.
“It’s crazy,” said Conlin.
The district has an operating budget of about $13 million. In years past, it had no more than a couple hundred thousand in unallocated reserves. This year, the district started the year with a reserve fund of around $1 million, roughly 7 percent.
However, things like hiring extra teachers to cope with the 100-student increase in enrollment, repairing broken down school buses and other unanticipated expenses has reduced the reserve to about $500,000 — about 3 percent of the budget.
Worse yet, the state has changed the way it funds school districts. In the past, state funding was based on the previous year’s enrollment. But that formula proved difficult for charter schools — with their constantly shifting enrollment. So the state now uses “current year funding,” which means district’s don’t know for sure how much money they’ll get until about four months into the school year, based on current enrollment.
This year, Payson’s rare increase in enrollment yielded a bonus. But if Payson had lost 100 students, the board would now be facing a $600,000 crisis.
Moreover, the state reporting system sometimes develops big glitches. For instance, at one point, bad advice from a consultant resulted in the state essentially not counting some 150 high school seniors. Not only would that have cost the district $800,000 if Chief Financial Officer Kathie Manning hadn’t caught it, the mistake would also have lowered the high school’s state rating to a D because the missing students would have counted as dropouts.
Conlin argued that the uncertainties of enrollment and state funding formulas means the district should shoot for a reserve fund of 10 percent, which is a standard for many businesses.
However, the district also has pressing needs. Arizona made the deepest cuts in the nation in school budgets during the recession. For instance, the state for years provided no money for capital improvements, which in Payson resulted in some $12 million in deferred capital needs. Last year, for the first time in many years, the Arizona Legislature provided two-thirds of the formula funding for capital needs.
As if to underscore the problem, at this week’s study session, the board also learned the district needs to increase the annual spending on new computers and technology from about $50,000 to $300,000 annually to replace out-of-date computers and servers.
The district would have to put the whole $600,000 windfall into reserves to get back to a 7 percent contingency fund — which would provide a hedge against a decline in enrollment next year.
Manning said she does not understand why the Average Daily Enrollment (ADE) rose this year. When the school year started, the enrollment was up by 130, but that declined to a gain of less than 100. “I did an analysis of ADE and the trend is that there is not a trend. It’s not like we have new housing developments to explain the increase. We just have a transient population and people move in and people move out.”
The district got through the recession by selling Frontier Elementary School for $1.25 million, which the district has now spent for various capital projects. It came at the cost of a significant increase in elementary school class sizes, which research shows can have a significant impact on student learning.
Conlin said the district must now build up an adequate reserve fund. “We have to look further than this year or next year — we have to be responsible for what happens in the next five years and start building up the reserves so we have money when those one-time things come up.”
“We have a lot of questions coming up,” said Underwood. “Right now we’ve talked about Payson Elementary School (K-2) being at capacity. But we have to start thinking long-term, I see what you’re saying.”
“But this is the most contingency we’ve had to work with in years,” said Manning.
“But now the contingency is all we have to fall back on,” said Conlin.
“You’re talking about building the contingency and you’re also talking about repairing facilities — so that’s where you’re going to have to balance how much contingency you’re going to use and how much you’re going to hold back,” said Manning.
“If we hadn’t sold Frontier — I don’t know where we’d be. That’s what got us through the recession,” said Underwood.
“And we could have another recession in the blink of an eye,” said Conlin.
“And the Legislature could do something you don’t expect,” added Manning. “If you carry forward large amounts — the Legislature could look at that and take it. They’ve done that before. So you have to be careful about carry-over.”
“I’m a person who fully believes in having reserves,” Conlin persisted. “One thing I’ve read is that best practices for schools is that they have a true reserve of 10 percent. That’s best practices.”
“Not in Arizona,” interjected Assistant Superintendent Brenda Case. “There’s no 10 percent to do that.” Arizona has among the largest class sizes, lowest teacher salaries and lowest per-student funding in the nation.
Board member Jolynn Schinstock said she’s worried the district has spent half its contingency fund already. “I see where Joanne is coming from. It gets nerve-wracking not knowing if you’re going to have enough.”
Manning said, “I agree with you. I feel the same way. We make a decision and then we have a swing on ADE and it costs us $500,000.”