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Fund Balance: A Double Edged Sword For The RCSD

Prom season and budget votes often coincide for school districts. But the glitz, glamor and hype of the prom was a far cry from the recent budget vote night at the city school district’s Central Office.

Instead of conversations about corsages, tuxedos and limousine rentals, words like fund balance, reserves, and appropriated funds, were tossed around among school board members. Those terms hold a lot of weight in a district’s budget.

“First of all, fund balance is for a school district, it's kinda like the retained profits or what's left after prior year budgets,” said Vern Connors, Acting Chief Financial Officer for the Rochester City School District.

Connors explained all the money that’s left at the end of the school year gets divvied up into different pots for the next budget cycle.

“You put it into 3 pots. You take your fund balance and you say okay we're setting these aside for specific items,” said Connors. “What's left is undesignated and then you make the determination of how much you'll take out of the there to use to help fund the coming budget.”

The district is taking out $15,000,000 from the third pot to help balance next year’s budget.

“We refer to it as a rainy day fund, and we hope the rainy day never comes,” said Connors. “You know it's kind of a double edge sword. It's always a concern when you do use fund balance to balance a budget.”

Using money from that pot means teaching positions and programs like art, music and library won’t be cut. But, it also means the rainy day fund, is left with about $12,000,000. That’s one of the lowest levels in over a decade.

“We would urge anyone who's appropriated a significant amount of fund balance to think carefully and plan carefully for the future,” said Steve Hancox, Deputy Comptroller of Local Government and School Accountability for Comptroller Tom DiNapoli’s Office.

Hancox said while school districts are using their fund balances to “weather the storm” right now, it’s imperative to beef up the fund for unexpected costs in the near future.

“It's kinda like your bank account, you can use it in you know you gotta big credit card bill you don't have any other cash you gotta use your bank account,” explained Hancox. “But when the next month's credit card bill comes in and you used up all your cash in your bank account, where do you go from there, that's always the question.”

Here’s the deal. Since the district is using the fund balance for the next school year, Vern Connors said they probably won’t be using it the year after that. Turns out for the 2013-14 school year the district is already projecting a $33,000,000 budget gap.

The last time the district decided not to use its fund balance to help close a deficit, about 650 positions were cut.

During the budget vote in May, School Commissioner Van White questioned if using the fund balance was a move to delay the inevitable.

“What happens next year assuming that the fund balance is $12,000,000, and you know we've got this proverbial funding cliff that everyone's always talking about,” White asked. “Health care and employee costs and let’s say hypothetically the Governor doesn't give us any money, what happens next? Do the Draconian cuts happen then, have we just staved off the pain?”

“If we can’t all have a grasp of that question the media will eat us up, that’s just the truth,” responded Commissioner Willa Powell.

Teachers union President, Dr. Adam Urbanski, said it’s too early to tell if teaching positions will be on the chopping block again.

“Much of it depends on how the economy does because that affects collection of taxes and the resources that the state has, said Urbanski.” “And the bulk of our budget does after all come from the state.”

He said if the district doesn’t use its fund balance during the 2013-14 school year, some layoffs could be avoided through attrition and union concessions.

“But we shouldn't build budgets long term on the expectation that it will be balanced only through teacher sacrifices,” Urbanski added.

Vern Connors said the district is looking for ways to rebuild the fund balance. He said running surpluses each year is one way to do that. And he said cutting programs that aren’t improving student performance is another option the district is pursuing.