School District Cash Balances

May 13, 2009

Transcript:

Ted Simons:
The budget fix, state lawmakers worked on today uses $300 million in school district cash balances to help erase this year's $650 million deficit. We'll hear why school districts are concerned about the plan in a moment, but first here what's legislative leaders had to say about it last night on Horizon.

Bob Burns:
What we're doing is giving the districts the authority to spend money they currently do not have the authority to spend. They are allowed to keep up to a 4% cushion, if you will, in their spending authority. If their tax rates are high enough they collect more than what they have the authorization to spend and that's what's happened in a number of districts. There's a number of districts that have these rather significant balances that are over and above their authorized spending limits and so what we have decided to do is to give them permission to spend that which means that its money collected from the district. It will be money that is spent in the district for the purpose of educating the students in that district. And so that would be used as an offset to our problem of the budget deficit that we have.

Kirk Adams:
We're facing in state government a massive deficit that has continued to grow. And we have to ask ourselves is it prudent to use existing balances, existing accounts, before we go the method of borrowing, and we think it is a more prudent method.

Ted Simons:
Joining me now is Chuck Essigs, director of government relations for the Arizona association of school business officials. Good to see you again, thanks for joining us.

Chuck Essigs:
Thanks for having me.

Ted Simons:
Why shouldn't the state use this excess cash?

Chuck Essigs:
Because it belongs to the school districts and the taxpayers in those communities. That was money raised not additional moneys the state paid school districts. It's money that was collected from property taxes.

Ted Simons:
And yet we hear that this is money that can't be spent without legislative authority. Is that a correct assessment?

Chuck Essigs:
That's correct, but those dollars are used in the next year to stabilize and reduce the tax rate.

Ted Simons:
So when the leadership says that, you know, the districts don't have the authority to spend this money, you're saying maybe not, but we carry it over to the next year.

Chuck Essigs:
It's carried over to the next year and its new tax dollars that don't have to be raised the next year. The impact of this will be in many districts across the state, property taxes will be higher than they would have been otherwise, because the state is adjusting the state payments to schools because of those balances.

Ted Simons:
And we keep hearing about a 4% level that school districts have to adhere to. Talk to us about that.

Chuck Essigs:
In the school district if you don't spend all of your budget capacity this year in operations, you can carry over you up to 4% of your budget limit into next year, so you don't have to rush around at the end of the year and spend all your money.

Ted Simons:
Are there estimates involved in this carry-over?

Chuck Essigs:
Yes, because they're using moneys that were in the balances at the end of last year, which the end of this year will be different.

Ted Simons:
Ok, so can it be said that some school districts are overestimating and thus collecting a lot of cash?

Chuck Essigs:
That very well may be, there's 230 school districts in the state. But what they're doing is going to impact every district in the state. It would be like photo radar, there's a few people that speed and you don't give a ticket to everybody who's driving on the freeway because a few people speed. You don't want to do something like this I believe that would impact all school districts because they may think some districts aren't doing it the way they'd like it to be done.

Ted Simons:
Last night speaker Adams we saw on tape saying the state is in a situation right now where this kind of excess, this kind of reserve, this kind of available money as they see it, has to be used. Is he wrong on that?

Chuck Essigs:
We're in terrible times. I've been doing this for a long time and I've never seen any year close to this. What they ought to do is it's going to be a property tax increase in many school districts because of the action and they ought to recognize that and admit to that.

Ted Simons:
When they say though that a property tax increase may happen, but getting this money means that perhaps less in the way of cuts will happen, again, that dynamic does not necessarily work for you?

Chuck Essigs:
Certainly by doing this they may have to cut schools less, but I wouldn't say property tax increases may happen. Property taxes increases will happen, not in every district. Every district is unique, but there are many districts across the state that will see property tax increases because of this.

Ted Simons:
Does this lead to maybe talk of a change in a formula in how school districts either accumulate money or just get the money in the first place?

Chuck Essigs:
I think all the time you should look for better ways of doing things, but there is some ground where the legislature and school districts should get together and look at this problem, so both sides understand what the other side is -- has a perception.

Ted Simons:
Last night speaking with president Burns I mentioned, you know, the idea of lawmakers taking this money for the general fund. And he took opposition to the word take. He took opposition to the word sweep, not a take, not a sweep, he says. Is he right?

Chuck Essigs:
No. Here's what they're going to do, they're rolling over $300 million in state aid, so if you're a district you're not going to get paid a million dollars that is owed to you. If you have cash in October through their calculation they're not going to give you that million dollars. So to me they're taking the million, depending on how you look at it, but in any case the district's going to lose that money because of the cash they have on hand.

Ted Simons:
And yet they will say the district doesn't have the authority to use that money.

Chuck Essigs:
They have the authority under the current law that money should be used and is used in many districts to reduce local property taxes, the budget limit's going to stay the same. They're going to have x amount of less dollars and they're going to have to balance that out with more property taxes in many districts.

Ted Simons:
Without getting too deep into the minutia here, I know that there are maintenance and operations funds and building renewal funds, how do these compare and contrast?

Chuck Essigs:
The only three funds they're touching are funds where there's property tax levees, that's maintenance and operation, called soft capital and unrestricted capital, the three funds where property tax comes into play.

Ted Simons:
That's money again you can use? But only with legislative authority, and if not, it rolls over.

Chuck Essigs:
In operations you can carry over up to 4%, in capital you can carry over any unexpended money which you need to, because many times you're saving up for a large capital expense over a many year period of time.

Ted Simons:
Do you think what the legislature wants to do here is legal?

Chuck Essigs:
May not be legal, but whether it's the fairest way of doing it is what would raise the question. Setting -- the school finance form is pretty complicated. Setting of tax rates is real simple. You determine how much you're going to spend, subtract out all the money you have from other sources which would include cash balances, and you set a tax rate to make up the difference. So if any of those non-tax funds are reduced, that part that has to be made up with property taxes becomes larger and that's what's going to happen in many districts.

Ted Simons:
Sounds like what you're saying is we're not raising taxes by doing x, you're saying by doing x we have to raise taxes.

Chuck Essigs:
Many districts will have to raise taxes to make up for the loss of that revenue.

Ted Simons:
Is there a way to keep up the 4% limit and not accumulate so much cash, which in bad times is a shiny object anyone who sees it is going to want to have some of it?

Chuck Essigs:
The only issue in this state there's probably about $100 million in districts that are on Indian lands and the way the federal government funds them and the way the state funds them, they get a lot more money than they're allowed to spend and they have very significant balances and it's almost their spending limit doesn't allow them to spend all their money. But in other cases most districts when you look at what their balances are, subtract out the money they're carrying over from one year to another to expend, I think their balances are reasonable. Because you do need -- you don't want to end up short at the end of the year where you have to run a deficit. You want to if anything want to have a little extra cash to cover your expenses.

Ted Simons:
Indeed. So what happens to school districts now, this thing gets signed by the governor, this money now is gone. What happens?

Chuck Essigs:
Districts will know early in July exactly what impact it's going to have on their tax rates, because they'll know what state money they're not going to be receiving they were entitled to receive when that October payment gets settled with districts.

Ted Simons:
All right, Chuck, thank you so much for joining us, we appreciate it.

Chuck Essigs:
Always glad to be here.