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Positive Fund Balance? Proceed With Caution

Joel Gerring

By Joel Gerring, MASB Assistant Legal Counsel

DashBoard, March 18, 2015

Now that bargaining season is upon us, it is time to start looking at where your district stands financially. It goes without saying that your bargaining team should have a handle on revenue, expense and fund balance projections for the coming school year, but are you paying close attention to your trends?

Bargaining units, in order to support their argument for a salary increases, will point to a positive fund balance proof of a district’s financial health. Districts, by contrast, must not only be cognizant of their current financial situation but must have a grasp of their financial status over time as well.

A 10 percent fund balance may look robust by today’s standards, but if that fund balance stood at 20 percent just five years ago, a serious financial crisis was on the horizon. If this is the situation in your district, now is the time to take definitive steps toward reigning in “built-in” costs such as steps and on-schedule raises that compound over time and serve to exacerbate the problem.

Single, “off-schedule” payments by contrast provide employees with additional income, but will not have to be included in every subsequent budget. While off-schedule salary increases are never popular with a bargaining unit, such agreements can go a long way toward preventing (or staving off) future salary cuts, which are usually even harder to negotiate. In short, off-schedule payments allow a district to remain flexible in these times of uncertain funding and are crucial to any district that is experiencing a consistent decline in fund balance over time.

It is no secret that current funding for Michigan’s public schools is inadequate. Compounding this problem is our state’s overall population loss, which has resulted in consistent declining enrollment for many districts. Given this reality, it is imperative for district bargaining teams to not only have an understanding of the past, but to make an honest assessment of the foreseeable future as well.

If your district has been reducing its fund balance by an average of 2 percent per year over the past five years, you have little choice but to budget as though this trend will continue. Your district should therefore project how much longer that fund balance will last. As noted above, steps and on-schedule raises will only serve to accelerate the decline.

Don’t wait until your district is a year or two away from finding itself on the deficit district list before you address the issue of built-in compensation costs. Districts that wait until they are a mere year or two away from deficit district status often find that even massive salary cuts (as much as 20 percent over two years!) are not enough. By beginning the process of controlling these built-in costs now, you may start to shift the odds in your favor.

Finally, share this information with your community. Posting a presentation to your district’s website that highlights revenue, expense and fund balance trends, as well as uses this trend data to project into the future, is vital to justifying a conservative position at the bargaining table.

The MASB Labor Relations staff is always available to provide on-site workshops, as well as manage the actual bargaining process. We can assist with everything from developing a presentation, contract analysis, background support, at-the-table bargaining, fact finding, mediation and beyond.

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