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East Penn not Alone in Debate About Budgetary Reserve

Districts statewide have large stores of cash in reserve funds and have differing opinions on whether it’s time to dip into those “rainy day” accounts.

in mirrors a debate going on statewide these days.

According to a report in the PA Independent, some Pennsylvania school districts are looking to their budgetary reserve funds to achieve a balanced budget for 2012-2013, while others, like East Penn, have voted to raise property taxes, keeping budgetary reserves intact.

Those districts say that even tougher economic times are coming and it’s prudent to keep those budgetary reserve accounts intact to cover looming expenditures like ever-increasing pension costs for public school employees.

The PA Independent report says that the rule of thumb offered to school districts by the Pennsylvania School Board’s Association is that reserve funds should be used to pay for one-time expenditures since they represent one-time revenue. It also sites prevailing financial wisdom, which suggests that pulling more than 10 percent from savings in a given year is a potentially dangerous move.

School director Lynn Donches Monday night presented three alternatives to the 2012-2013 budget prepared by the administration – each of which proposed to use what she termed the “budgetary excess” in the ending uncommitted fund balance to mitigate a property tax increase.

Under Donches’ plans East Penn taxpayers would see a “more substantial tax cut,” a “modest tax cut,” or a zero-tax budget. “These are monies taken from tax payers that are not needed to use in the budget,” she said.

It’s been the policy of the East Penn Board of School Directors to maintain a minimum of 5 percent of the operating budget as a budgetary reserve, which is about $5 to $6 million.

Donches said the district's budgetary reserve of $5.8 million would remain intact under each of her plans and that no programs would be cut under any of her three scenarios

School Board President Charles Ballard took issue with Donches' claim that she could avoid raising taxes and leave programs intact. "Proposals like this are window dressing, they are chicanery, they are snake oil sales," he said. "This is all bogus."

Board member Alan Earnshaw said that delving into the budgetary reserve to avoid a tax hike this year would ultimately leave taxpayers facing much larger tax increases in the future.

State law prevents districts from raising taxes if they have more than 8 percent of their overall budget in unassigned reserves, according to the PA Independent report.

truth seeker May 18, 2012 at 10:08 AM
Support responsible school board directors whlo have cut the budget while retaining educational quality and vote to retain the necessary funds to keep the next budget healthy. Reject political school board directors trying to convince the public they can have money back with no future consequences.
taxed-enough May 18, 2012 at 12:54 PM
Actually, the proposal was to keep property taxes at current property tax rates (which are pretty hefty) , since a property tax increase was not necessary. This was not a wild proposal to give money back. What article were you reading?
mark wood May 18, 2012 at 04:15 PM
Dump "no child left behind now". its all about billits filled by some slacker who could care less. For what?. a teacher who gets graded buy how the class performs overall, but the no child act in singular? Its mandate doesn't say "children". One child who is bringing down the grading overall will result in a downward growth of the student body grade. The board goes along with and extreme manority (and they keep screaming "Fairness, Fairness" BS. No child has brought higher taxes and lower grades, put that in your pipe and smoke it. This is not debatable, except by those who deem themself special in their mind and the closet friends of said body.(insert name here). Keep taking, history is NOT you experteese.(nor is my spelling). It will fall on you too. The " Comprehensive Annual Financial Report" of the state and county has all the info I need, the reported local is BS. Its a great read. It and It alone tells the facts, not the local media or the Board. (whom I am sure read said report) with that fact based report you make alterations in the monies that pour , like Niagra on a hot day, through the fingers of the uniformed. now back to sports......lol
Alan Earnshaw May 18, 2012 at 05:08 PM
Unfortunately, there are widespread misconceptions of the proposed 2012-13 budget. The district expects to end this fiscal year with $10-11 million in "fund balance." This came from higher-than-budgeted revenues and lower-than-budgeted expenditures over the years. The proposed budget takes over $4 million of those funds to balance the budget. In other words, projected revenues for 2012-13 are $4 million lower than budgeted expenditures. A $4 million budget gap is unsustainable in the medium term. Either revenues will have to increase or programs will have to be eliminated to reduce expenses over the next two years, or there will be no fund balance and no budgetary reserve left to close the gap. Although future budget years worry me, I agree with the Superintendent that this is the right thing to do. It leaves a tax increase at or below the inflation rate (the Superintendent has committed to a final budget with a tax increase of no more than 1.7%, hopefully less), uses fund balance to avoid a higher tax increase, and gives the district enough financial reserves for at least the next two years. Ms. Donches proposed having no tax increase by using an additional $1.45 million from the fund balance to balance the budget. That is *in addition* to the $4 million already being used. Although it certainly has some appeal, this would leave the district in a much more precarious financial state. It would simply not be fiscally prudent or responsible to adopt such a budget.
LoMac Res May 18, 2012 at 05:53 PM
$10 million to $12 million would be a responsible fund balance for East Penn. Schools average between 10 and 15 percent of total annual budget. I believe East Penn's total annual budget is $120.3M.
Giovanni Landi May 18, 2012 at 05:57 PM
Mr. Earnshaw – there are no misconceptions about the 2012-2013 budget. The budget presented by the administration does say that over $4 million is required to bridge the gap between expected revenues and expenditures. It makes claims like that every year. Have you looked at any of the historical data? It was included in the handouts distributed by Mrs. Donches. The 2010-2011 budget presented by the administration and approved by the board said that over $2.5 million would need to be taken from the fund balance to bridge the gap. However, when the year ended the actual ending fund balance went from $10 million at the end of 2009-2010 school year to $11.8 million at the end of the 2010-2011 school year. It increased $1.8 million, it didn't decrease $2.5 million as the budget stated. You need to look at the historical data to understand the budget. The historical data supports what Mrs. Donches proposed, not what you and Ballard proclaim. Did you look at the information Mrs. Donches presented you before you made your mind up? Also, there should be a correction in the opening paragraph of the article. The proposals voted down would not have dipped into the budgetary reserve fund balance. The proposals involved spending down the excess funds above the 5% budgetary reserve.
ted.dobracki May 21, 2012 at 10:39 PM
Both Giovanni and Alan are right, and the problem is that they are talking past each other! Alan is technically right that “projected revenues for 2012-13 are $4 million lower than budgeted expenditures.” Page III-16 of the “Proposed Final Budget”, at http://www.eastpenn.k12.pa.us/Budget/_docs/2012-2013Budget.pdf provides and excellent definition of budgetary reserve which basically states that it is an expenditure item for contingencies, UNLESS it is transferred to other spending items during the year, that it WILL become part of the ending fund balance. EPSD never plans to spend the reserve. And it rarely has at all during the 30 years that I’ve been following its budget. Thus, Giovanni is actually anticipating that what has always happened every year will happen again this year. Alan can’t assume it, since in his official capacity and by GAAP, the reserve is an expenditure until it’s not spent. I might add that, in my mind, the reserve is also the contingency for shortfalls in revenue. Obviously it’s not a revenue, but rather it’s an expenditure, that again was never intended to be spent, except in emergencies. Finally, EPSD has probably spent SMALL amounts of fund balance in other budgets, but that was usually offset by greater than planned revenues. EPSD has rarely ever planned to spend down a significant amount of the fund balance, but it did in the budgets passed in 1988 and 1989, the two years before I was elected to the board.
ted.dobracki June 11, 2012 at 12:17 AM
I didn't fully understand all of the implications of Alan's remarks posted above until I saw a replay of the May 14 school board meeting where he said something similar. Alan went into a long discourse about the recurring $4 million deficit that is built into the 2012-13 EPSD general fund budget and how the district would burn all of its $10 million fund balance in less than three years. On the face of it, that seems disastrous. It also seems that it would be imprudent for the school board to pass such a irresonsible budget,. This begs the question why aren't they doing more about this now? From Alan’s remarks, it seems that almost another 3 mils additional increase beyond the fraction of a mil already approved would be in needed IMMEDIATELY to avoid this calamity! Why isn’t the school board acting responsibly by raising raising taxes more today to cover this existing $4 million deficit and to avoid burning the entire fund balance? I think I have some answers, and will post them later, but I’d be curious if anyone else has any ideas.
ted.dobracki December 05, 2012 at 01:48 AM
Ending fund balance for EPSD in 2011-2012 is $15.04 million, adding $3.23 million 2011-12 operating surplus to its beginning fund balance of $11.81 million.

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