Thursday, August 11, 2011


LAUSD maintains a reserve for economic uncertainty as required by state law. LAUSD district officials said they have not had to dip into this money, but they do plan to use all of the surplus funds from Fiscal Year 2011, rather than deposit them into reserves.

by REBECCA VEVEA and CRYSTAL YEDNAK | Chicago News Cooperative |

Reserve Fund an Answer for CPS, a Question for Others

Andrew A. Nelles - Tina Padilla, a CPS parent and teacher, expressing her concerns about teacher layoffs at a public hearing on the district budget at Lane Tech High School, August 10, 2011.

Aug 11, 2011 - When Chicago Public Schools officials started talking about the district’s 2012 budget, they repeatedly directed the public eye to one number: a $712 million deficit.

Officials cited the number when denying teachers a 4 percent contractual raise, making unpopular cuts to programming and, just last week, when announcing plans to increase property taxes to the maximum amount allowed by state law.

But a number that went unadvertised until the final budget details became public last Friday was the $470 million reserve fund that the district recently built up through the arrival of unanticipated state payments and other sources. The district plans to use a portion of the reserve to plug the budget gap.

CPS officials say the $712 million deficit figure was based on numbers known at the time, and that the district received unexpected money as recently as July, allowing it to start the fiscal year with the $470 million in reserve.

The district plans to use $181 million of its fiscal stabilization fund to balance the books this year, and to hold on to $289 million, or roughly one month’s payroll, according to CPS budget documents.

“It covers unforeseen shortfalls,” said Tim Cawley, the district’s chief administrative officer, when the budget was released. “It’s not exactly a cash hoard.”

Wendy Katten, a member of the parents group Raise Your Hand, said the district’s use of reserves “raises questions about the way we talk about the deficit,” she said. “It leads to some lack of credibility.”

Some experts say it is essential for the district to follow recommended practices and hold onto at least one month’s payroll so CPS has a buffer against delayed state payments and to help regulate cash flow. In the last few years, the district relied on the reserves to erase the deficit.

Other observers say that by holding the reserve fund as an untouchable pot of money for a rainy day, only to tap into it at the last minute each year, the district may be inflating the deficit.

Karen Lewis, president of the Chicago Teachers Union, said a large deficit gives the administration “an excuse not to provide us with our contractual raises.”

“This happens every single year. They start out with this doomsday, doomsday, doomsday projection,” she said. “We call it the press-release budget. There’s the press-release budget deficit, and the real deficit.”

CPS officials point to the fluid nature of the budget process. Projections fall short and bills come in higher than anticipated.

Laurence Msall, president of the Civic Federation, a budget watchdog group, said a budget is a “hopeful projection” of what the district expects to take in and spend over the course of a year. “It’s not an exact science,” he said. “You want to leave contingency funding so unexpected things like delays in state payments or changes in attendance can be incorporated.”

Msall said drawing down on reserves to balance the budget should not be a long-term strategy for managing government finances, but in the case of CPS, “drawing down the reserves to close a very large budget gap to maintain class size is a reasonable and responsible action, and it limits the burden on taxpayers.”

Taxpayers have their chance this week to weigh in during public hearings on the proposed budget, program cuts and the district’s decision to increase property taxes. The board is set to vote on the budget at its Aug. 24 meeting.

The district formally adopted a policy in its 2009 fiscal year to set aside 5 to 10 percent of the amount in the general and debt-service fund budgets as a reserve fund. The district has other reserves as well, but those dollars are restricted to specific uses, such as federal money earmarked for specific grant programs.

Then-CEO Arne Duncan, now U.S. education secretary, lamented the district’s need to draw heavily on the reserve fund, pulling out $100 million to avoid making more cuts. CPS had a significant amount remaining in reserves and designated $258 million as a “fiscal stabilization fund.”

The following year, in 2010, the initial deficit was projected to be $475 million. The administration made cuts and eventually drew down $61 million from the stabilization fund to present a balanced budget, with plans to make further reductions during the year to offset that action.

Fiscal year 2011 started off with then-CEO Ron Huberman taking employees, parents and stakeholders through Power Point presentations showing a projected deficit of nearly $1 billion. But legislative action in Springfield to temporarily reduce the district’s pension payments, combined with the influx of federal stimulus dollars, narrowed the gap. To balance the budget, Huberman said, the district would empty out its rainy day fund of $190 million.

Over the course of 2011, the district managed to replenish the drained reserves by cost-cutting, and additional grants added $91.8 million to the bottom line, according to CPS budget documents. A debt restructuring saved about $160 million. In July, the district received $123 million in unexpected surplus TIF funds and $76 million in unanticipated late payments from the state.

All those maneuvers, combined with some additional one-time revenues, meant that the district started off Fiscal Year 2012 with a reserve fund of $470.3 million. Of that, CPS proposes using $181.3 million to balance the budget, leaving a reserve of $289 million at the end of Fiscal Year 2012.

Yerik Kaslow, director of education and general policy analysis for the Center for Tax and Budget Accountability, said the purpose of a reserve fund is to keep it for a rainy day. “In a perfect world, you would never use it,” he said. “There’s no telling what the next year’s going to bring.”

But Kaslow said the omission of the reserves when talking about the deficit can cloud the issue. “To say ‘I’m in debt, but I have four grand in savings,’ then I guess I’m not in debt,” he said. You kind of begin to wonder, is it a rainy-day fund or a bucket of change?” Kaslow added.

CPS, of course, is not alone in facing significant deficits, though the use of reserve funds to reduce those deficits varies widely across the country. In New York City, the school system was able to avert layoffs after the mayor allocated roughly $2 billion from the city’s tax levy to the district, said district spokeswoman Barbara Morgan. Because the city’s school system is not a separate governing body, it does not hold its own rainy-day funds. However, Morgan said the city’s reserves have been reduced over the past four years, as officials try to avoid drastic cuts in any city agency, including the school system.

The Los Angeles Unified School District maintains a reserve for economic uncertainty as required by state law. LAUSD district officials said they have not had to dip into this money, but they do plan to use all of the surplus funds from Fiscal Year 2011, rather than deposit them into reserves.

Philadelphia Public Schools had roughly $53 million in their reserves at the start of Fiscal Year 2011, according to district spokeswoman Elizabeth Childs, but were forced to use $40 million and will have roughly $14 million left at the start of Fiscal Year 2012.

Future budget cycles do not appear much brighter for CPS. After receiving short-term pension relief from Springfield last year, the district is staring at significant increases in its pension obligations in a couple of years. Officials project the deficit to rise to nearly $1 billion again in two years.

“They figure out a way to plug the hole, then will come back the next year and say we have another cliffhanger here,” the CTU’s Lewis said.

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