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State senator targets Michigan school districts with flush rainy day funds-

Detroit News article

State senator targets Michigan school districts with flush rainy day funds
Paul Egan / Detroit News Lansing Bureau
Lansing — Michigan school districts have amassed $1.6 billion in "rainy day funds" while complaining about too little state aid, records show.

As a result, one state senator wants to recapture $282 million of those surplus funds to help balance the state budget.


"For people to be holding that much in reserve, especially with everything that's going on in our economy today, is obscene," said Sen. Jack Brandenburg, R-Harrison Township.

Brandenburg, chairman of the Senate finance committee, said he will introduce a bill to cap rainy day funds at 15 percent of a school district's annual operating expenditures. The more than 300 districts with surpluses bigger than that would have to spend their excess savings before receiving another dime from taxpayers, he said.

School districts, which face state aid cuts of $471 perstudent in Gov. Rick Snyder's budget released Feb. 17, said the plan punishes the fiscally prudent.

"It's the most ludicrous thing I've ever heard," said John Krolewski, superintendent of Genesee County's Bendle Public Schools, which has a $4.6 million general fund surplus equal to 33.2 percent of its annual operating costs. "We've been very frugal," and now "we've got someone out there who says, 'You've got too much money.' "

A report this month by the Senate Fiscal Agency shows that of 789 regular and charter school districts in Michigan, 309 had 2010 fund balances greater than 15 percent of their annual operating costs. Looking only at Michigan's 546 traditional, noncharter school districts, 210 had surpluses beyond 15 percent of operating costs.

Michigan School Business Officials recommends school districts keep a fund balance equal to 15 percent to 20 percent of operating costs, said David Martell, the association's executive director. But every district's situation is different and "it rarely ever makes sense to treat every district the same," he said.

Brandenburg said the state depleted its rainy day fund during the lengthy recession and it's time for school districts to spend the surpluses. "It's pouring outside," he said. A 15-percent cap would allow flexibility, he added.

The biggest rainy day fund in percentage terms belonged to tiny Sigel Township School District No. 6 — a one-room schoolhouse in Huron County's Harbor Beach. Its fund balance of $273,220 is enough to run the district for more than three years if state aid was halted.

Taking funds called 'unjust'
The biggest surplus in dollar terms belonged to Utica Community Schools in Macomb County. But its fund balance of $32.1 million is only equal to 12.1 percent of its annual operating costs, meaning the district could keep all the extra money even if Brandenburg's bill became law.

The next four biggest rainy day funds were all in Oakland County and they all would be affected by Brandenburg's bill: Rochester Community Schools had a fund balance of $28.4 million, equal to 19.5 percent of its annual operating costs.

Birmingham City School District had a fund balance of $24.2 million, or 23.8 percent of its operating costs.

Farmington Public School District had a fund balance of $23.3 million, equal to 15.7 percent of its annual operating costs.

Bloomfield Hills School District had a fund balance of $22.2 million. That's 29.5 percent of its annual operating costs.

Rob Glass, superintendent of Bloomfield Hills Public Schools, said it would be "unjust" for the state to take back $10.9 million from his district.

Still, "I think it's better than the alternative, which is just taking the whole fund balance, which is something we worry about all the time," Glass said.

Glass and other superintendents said districts need a healthy balance to cover cash flow during the summer months when they don't receive payments from the state but must cover payroll. Otherwise, officials incur short-term borrowing costs.

Rainy day funds are intended to cover unexpected expenses or revenue shortfalls.

Many of the districts with fund balances far in excess of 15 percent of annual operating costs are charter schools, which also receive per-pupil state grants.

Joseph Rush, president of the Michigan Association of Charter School Boards, said charter schools are "forced to be more frugal" than traditional public schools and can't rely on voter-approved millages for capital improvements.

Brandenburg "doesn't need to balance the budget on the backs of the school systems," said Rush, who heads the Voyageur Academy in Detroit where the general fund balance is equal to 32.8 percent of its annual operating costs.

Rush said his $2.2 million general fund balance is earmarked for a new building.

Brandenburg said money set aside for capital projects should be in a separate fund.

He said he would introduce his bill soon because he wants the school fund money to partially offset Snyder's proposed pension tax, which Brandenburg opposes.

Senator, union share views
The fund balance issue is a rare instance when the teachers union agrees in principle with a Republican lawmaker.

"We're glad someone is talking about this," said Doug Pratt, a spokesman for the Michigan Education Association. "Those dollars should be spent on student learning."

State Sen. Steve Bieda, D-Warren, minority vice chairman of the finance committee, said he wants to hear more details about Brandenburg's plan but his initial concerns are similar to those voiced by school districts. "You're punishing them for being financially prudent," he said.

Snyder budget director John Nixon said he understands where Brandenburg is coming from and would like to see details about his proposal. But Nixon said he's concerned the plan could be a "one-time fix," which Snyder wants to avoid in future budget plans.

Theresa Ellis is founder and educational service provider for David Ellis Academy in Detroit and David Ellis Academy West in Redford Township — whose fund balances equal 86.8 percent and 96.6 percent of annual operating expenditures, respectively.

"We've been fortunate not to have to borrow money to tide us over from year to year," Ellis said. "We're careful and frugal."

Taking much of the surpluses would be "a terrible thing," and "a travesty," she said.

Brandenburg conceded his plan does not address the flip side of the fund balance issue — the 42 Michigan school districts with combined general fund deficits of nearly $442 million, with Detroit Public Schools accounting for most of the red ink.

Brad Biladeau, associate executive director of the Michigan Association of School Administrators, said the number of districts with deficits is expected to grow by 160 if Snyder's cuts take effect.

"It doesn't necessarily make the whole thing moot, but it highlights the fact school districts need fund balances to protect themselves from some of these ideas coming out of Lansing," Biladeau said. "It's ridiculous."

From The Detroit News:
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