Texas Budget Source

School districts in Texas have a common tie right now. Many are facing significant budget shortfalls and say they are in need of funds. But if you look at their reserve fund balances, that wouldn’t appear to be the case.

Within legislative circles, there has been significant discussion about whether or not school districts should utilize more of their reserve funds – rather than asking the state for new money – when the state is facing its own budget shortfall of potentially $18 billion.

Texas Budget Source examined the five largest school districts in Texas: Houston, Dallas, Cypress-Fairbanks, Northside, and Austin. Of those, three are facing budget shortfalls of at least $7 million. Houston ISD, the largest district in the state, is facing a $60 million budget shortfall, and expects to have a reserve fund balance of nearly $207 million. Austin ISD reported an expected budget shortfall of $7.1 million, and a reserve fund balance of $120.1 million.

The top five districts reported a combined reserve fund balance this fiscal year of $552,657,828.

Numbers like that bring into question how districts can have those budget shortfalls with millions of dollars in funds tucked away. Why not use those funds to balance their budgets, and should schools seek more state money when they have what appear to be stuffed piggy banks?

Texas Budget Source spoke with several school districts and House Public Education Chairman Rob Eissler (R-The Woodlands). All agree that the answer is complicated.
By recommendation of the Texas Education Agency, districts should have at least three months operational funds in their reserve fund.

Houston ISD chief financial officer Melinda Garrett says districts are working to do just that. She says they try not to use the reserve fund balance for continuing operations, such as payroll and bills.

“If we pay a $25 million salary increase out of the reserve fund balance, then we’ve committed to our employees to give them that every year, and more. At some point, it’s [reserve funds] going to be gone,” said Garrett. “But we need the money in the account for cash flow purposes.”

Garrett says the state does not provide a lot of revenue up front to school districts since the bulk of taxes is not collected until the last two weeks of December.

“We spend $130 million to $140 million a month of salaries and other non-salary items,” said Garrett. “We get some state money early but not all up front.”

So she says the district needs to use funds from the reserve fund to cover expenses until the state money does come in.
“We have to have cash. If we didn’t have it, we’d have to go out and borrow it,” said Garrett. “We have to use cash from the reserve fund balance to pay bills until we get the tax money.”

Karen Permetti, public information officer for Lewisville ISD, agrees. Lewisville is the 17th largest district in the state and reports a projected budget shortfall of $22 million, and a reserve fund balance of $103 million.
Schools have to pay recurring expenses such as payrolls and electric bills. Reserve funds would be depleted if used for those expenses. She also adds that bond ratings – which affect the amount of interest a school district must pay for its bonds – depend on the size of a district’s fund balance.

“Community members could end up paying a higher tax rate if a bond rating is low,” said Permetti.

Chairman Eissler says every business, including school districts, need reserve funds for unexpected occurrences. According to Eissler, public school districts in Texas have more than $7.1 billion in reserve funds. In the last five years, Eissler says reserve fund balances per student have risen from $1,000 to $1,500.

“When times get tough, or you find you really need something, you can dip into the reserve fund,” said Eissler. “School districts are no different.”
However, Eissler remembers last legislative session hearing a particular school district tell legislators if districts keep spending the money at the rate their going, they’ll be broke within five years.

“We’ve taught school districts, the state has, how to spend money. When they run out, they ask for more.”

And with dozens of school districts across the state reporting budget shortfalls, the time to ask for more money is once again here.

But with the state facing an estimated $18 billion budget shortfall and 29 percent of that going to public education, Eissler says it is time districts learn better spending practices.

“Most say spending more will give you better results,” said Eissler. “We’re working on that.” Eissler adds every year the state spends more on education but districts have trouble getting performance to rise accordingly.

“What that tells us is we’re probably spending money on the wrong thing. The only way we’ll be able to get a handle on that is to reallocate spending on things that work and less on things that don’t work,” said Eissler. “Rarely do we eliminate a program. We usually add them on. At some point in the financial future, we’re going to have to start replacing things more than we add things. We have to get this under control. Our future depends on it.”

(Editor’s note: Numerous open records requests and phone calls were made to accumulate the data from the state’s largest districts, but Fort Bend, El Paso, Aldine, Katy, Garland, and Brownsville ISD’s did not respond before publication time.)