With the North Carolina legislature’s war against public education, it may be time for Orange County to call out the reserves.
Not the military. I’m referring to Orange County’s fiscal safety net – money set-aside for a rainy day. As the legislature’s actions escalate, reserves could become part of the county’s arsenal to protect the classroom.
In their latest attack on public schools, the legislature has delayed the final state budget, an action that places schools in turmoil. School leaders sit in limbo waiting to hear whether teaching assistants, health-care benefits for new teachers, and other classroom essentials will be funded. School starts on Aug. 24.
County reserves can help shore up school finances, until state budgets are finalized. That doesn’t mean giving the schools more money. The county and schools discuss state funding when the local county and school budgets are set in June. The idea here is to assure schools that essentials will be funded, even if the state cuts funds unexpectedly at the last minute. The county can’t fund every contingency – but a fiscal safety net would go a long way to allow educators to focus on the new school year.
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The timing problem is not new. Last year, Orange County Schools (OCS) operated for three months without nurses or social workers because of delays in state funding. The situation could have been avoided if the schools relied on the county to fill the gap. Last year, even though the funds came through from the state, the classrooms paid a price. Maybe this year can be different.
The idea is appealing since the county has an impressive reserve surplus. That’s because over the last few years, revenues have been higher than budgeted and expenses have been lower. The resulting surpluses (or shortfalls) are not part of the budget. They show up in the county’s year-end accounting in December.
The state requires minimum reserves of 8 percent of expenses or roughly $16 million. The county prefers 17 percent or $34 million – enough to pay the bills for two months. A reserve balance above $34 million is a “surplus.”
The county’s 2014 fiscal year ended with $50 million in their available reserve account (called “available fund balance”), created from cumulative annual surpluses. That’s a $16 million surplus over policy, and $34 million above what’s required by law. The county uses the surplus at its own discretion. Maybe schools should be part of the conversation.
Of course, the real question is why are the surpluses growing so quickly. It’s probably a combination of a recovering economy, new development, aggressive tax policy, and conservative accounting (including a few hidden nest eggs). There are signs that the surplus is likely to continue to continue.
Then there’s the question of what happens to the money. Last year the county quickly moved part of the surplus into its employee reserves (another nest egg). Another $10 million was used to help fund the 2015-16 budget.
This is serious money. Ten million dollars in one year is more than 5 points (and over 5 percent) on the property tax rate. That’s more than enough for one full year’s payment on the entire $125 million school bond. Of course the county can’t rely on it year after year. Still, for now, given the continuing uncertainty around state funding, a safety net for schools seems like a legitimate use. In the long run the county needs to add transparency around managing its reserve surplus and how it’s used.
If the state continues its war on pubic education, reserve surpluses can help protect our schools. In the short term, Orange County could assure our schools that taxpayers have their back by using reserves as a safety net for unpredictable actions by the legislature.
The independent accounting report on Orange County’s 2014 reserves and discussion with the county commissioners can be found at http://nando.com/1vx . Click on the video from the Dec. 9, 2014, meeting, item 4a.
Bonnie Hauser can be reached at email@example.com