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Health & Fitness

Putting the Fun Back in Fund Balances

The District 200 School Board has approved a fund balance policy to increase its cash reserves. Will it be a sensible savings account or a slush fund? Time will tell.

At the March 14 board meeting, the Wheaton-Warrenville District 200 School Board approved a new “fund balance policy,” Board Policy 4.22.  This sets a financial goal:  come June 30 of this year, the District wants to be sitting on a surplus pile of cash somewhere between $36.5 million and $58.6 million in “fund balances.”  Fund balances have a legitimate purpose IF they are not abused, and this policy is a worthy goal.  It can and should be attained without more borrowing.  Like anyone else, the District can maintain a reasonable level of reserves so long as it does not spend more than it takes in.

Of course, any cash held by District 200 comes primarily from local property taxes.  So homeowners may want to ask:  what is the function of the fund balance?  Is it a savings account, used by the District to smooth out the peaks and valleys of its revenue stream, and to sustain the District while waiting hopefully for millions in past-due state payments?  Or is it a slush fund of excess taxes, used to paper over millions in deficit spending and to fund other projects, all without the need for taxpayer approval?  In fact, it has served both functions in recent history.

By state law, District 200 maintains a number of different funds as part of its financial operations.  The largest is the education fund, which pays for most teaching activity.  There are also an operations and maintenance fund for building upkeep – a transportation fund for buses – a working cash fund to hold excess funds as an operating reserve – and others.  District bond debt is paid through a separate bond and interest fund that is not part of the operating budget, nor subject to the tax cap.

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The policy says that as of June 30 of each year, the District wants total cash on hand in these funds to equal between 25% and 40% of annual operating revenues.  That gives it a cushion, at a level suggested by its auditors and monitored by the Illinois State Board of Education (ISBE) for districts statewide, to make sure the District is not living “paycheck to paycheck.”  As is recommended for households, the District wants enough savings to cover 90 to 140 days of spending.  This would give the District a better financial rating from the ISBE.

There are good reasons for fund balances.  The District is funded primarily by property taxes, most of which arrive in two large chunks June 1 and September 1 of each year, when we pay our property tax bills.  However, the District spends money year round.  Without sufficient reserves, it would run out of money during the month of May, its historic financial low point, right before the first property tax payments arrive.  If that occurs – as has happened in the last couple years – the District must issue tax anticipation warrants, a sort of payday loan for local governments, to tide it over to June 1.  Sufficient fund balances avoid the need for such short term borrowing.

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But there is also a history of abuse.  In the 1990s, the District had ample reserves.  In the latter part of that decade, it elected to spend some of them to complete building projects, to avoid the need to obtain voter approval in a referendum.  During Dr. Gary Catalani’s time as superintendent in the 2000s, the Board used reserves to fund annual deficit spending that reached over $7 million by the end of the decade.  This depleted reserves, but the Board twice replenished the reserves, borrowing a total of $35 million. 

The Board did not have to get voter approval because it issued “working cash bonds,” then transferred the borrowed money to fund its deficit spending.  This left reserves again depleted, but increased tax funded debt, creating a rate increase without a referendum.  Some taxpayers in other districts believe that strategy violates the intent of the working cash bond law, but legal challenges to it have thus far been unsuccessful.

Fortunately, budget cuts implemented under superintendents Dr. Richard Drury and Dr. Charles Baker brought the District to an approximately a balanced budget, which continues this year.  IF fiscal discipline is maintained – always a challenge with the negotiation of union contracts – the District currently projects surplus budgets that will gradually build fund balances to the desired 25-40% level, without further borrowing.

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