Financial stability is crucial for K-12 schools, and Dayton-area districts vary widely on the topic, with New Lebanon reporting a full year and a half of expenses in reserve, while Kettering’s June 2021 cash balance would barely cover one month of costs.
That data comes from the biannual five-year financial forecasts that each district had to file with the Ohio Department of Education last month. The forecasts are a way for the districts to project if a tax levy or budget cuts are needed, said Katie Johnson, deputy executive director for the Ohio Association of School Business Officials, which represents school treasurers.
“It’s everyone’s tool to understand the financial health of a district and also to help with planning for districts,” Johnson said.
The Dayton Daily News reviewed the forecasts filed by the two-dozen largest school districts in the region, as well as other districts that were outliers in some way.
Kettering reports low cash balance
The state lists it as a best practice to maintain “cash balances equivalent to a minimum of 30-60 days of district expenditures.” Local districts were achieving that as of June 2021, as Kettering’s balance, the equivalent of 37 days’ spending, was the lowest in the region by that metric.
Kettering schools had only 10.1% of a year’s spending in the bank at that point. According to ODE’s most recent full-state database (summer 2020), that would have put the district in the bottom 6% of the state’s 607 school districts. As of summer 2020, the average school district in Ohio had about 38% of a year’s expenses in the bank, or about four and a half months’ worth.
“Cash as a percentage of expenditures is a measure of a district’s financial solvency,” ODE’s guidance says. “The amount of cash ‘savings’ a district has may allow a district to more easily manage unplanned events or a short-term revenue loss. The nature of levy cycles may lead to high cash balances in some years and low cash balances in other years.”
Kettering Schools’ director of business services, Ken Lackey, cited those levy cycles.
“Since we have not had any additional funding since a levy passed in 2018, our cash balance is currently running fairly low,” Lackey said. “The Board of Education and administration will most likely make a determination sometime in 2022 about the need for and the timing of a levy request for additional funding.”
Many local districts have gone longer than three years since passing a levy. But Kettering’s fortunes are expected to change this year on a different front, as the district projects its general fund will be a whopping $9.9 million in the black for 2021-22 — a bigger one-year cushion than any other local district.
Lackey said that’s because the district is using millions of dollars in federal ESSER relief funds to cover some salaries normally paid out of the general fund.
Some schools flush with cash
At the other extreme, New Lebanon reported $18.72 million in the bank as of June 30. The district spent $12.41 million for the 20-21 school year, meaning they had about 150% of their annual expenses in the bank.
In June 2020, New Lebanon’s 142% cash balance as a percentage of annual expenditures was third-highest of Ohio’s 607 districts, according to ODE’s database.
New Lebanon Superintendent Greg Williams said the district has an intentionally conservative approach to spending, so the district can avoid going back to the community to request additional funding. The last time the district asked voters to approve a tax increase was 2006, Williams said.
But while New Lebanon has been at least $1.3 million in the black each of the past three years, the district is now projecting annual deficits this year and each of the next four years.
Williams said those projections are tied to inflation in health insurance and other costs, plus the expiration of federal ESSER funding, which will push expenses like Chromebook/hotspot loans and computer-based intervention programs back into the general fund budget.
Three other small outlying districts — Waynesville, Monroe and Tri-Village — also finished the 2020-21 school year with more than 100% of a year’s expenses in the bank, according to their financial documents.
A wide range of cash + why
The five-year forecast is not a full picture of the financial health of a school district, and there are multiple reasons why the districts have such a wide range of cash in the bank. Some of it has to do with when levy funds are collected, but individual schools also have wide latitude in what they want to do with their own funds.
Mandy Minick, a spokeswoman for the Ohio Department of Education, noted the Ohio budget also has a role in individual school districts’ cash balance, as do salary increases for staff, and businesses that move in or out of the district.
Minick said Ohio law does not authorize the department to establish cash balance standards for school districts.
“The five-year forecast encourages district management teams to examine future years’ projections and identify when challenges will arise,” Minick said. “This then helps district management to be proactive in meeting those challenges.”
Minick said ODE does offer recommendations for schools, including avoiding deficit spending, keeping 30 to 60 days of expenditures in cash in the bank, checking revenues and expenses every month and participating in a national program that promotes best practices in school budgeting.
Based on each district’s projections, Franklin would be the first of the 24 local districts the DDN studied to run out of money, during the 2023-24 school year.
That’s because Franklin’s cash balance percentage as of June was the second-lowest of those districts, with just 20% of a year’s expenses in the bank. And the district projects to operate $6.3 million in the red over this year and next year.
Franklin City Schools treasurer Kevin Hawley said Franklin had increased expenses this past year for positions that had been vacated and now needed to be replaced. While the district received additional COVID-related revenues, those sources will run out after this current fiscal year.
“The district is currently discussing ways to reduce expenses and looking at potential future operating revenue needs. There have not been any specific decisions made at the moment,” Hawley said.
Hawley noted it is not unusual for local districts to run deficits as they get further from previously passed operating levies, as the burden to fund schools increasingly falls on local communities.
Superintendent Michael Sander said the five-year forecast does not include the funds being used to build the new Franklin High School on East Sixth Street, the renovation of the current high school into a junior high school on East Fourth Street, and the new bus garage on East Sixth Street. Sander said those bond funds and the district’s operating funds are “completely separate.” Three new elementary schools are also planned to be constructed after the current building phase is completed.
Mad River is another district that has been spending into its reserves for the last three years and projects to continue that trend in the next five years. The district doesn’t project to run out of a cash reserve until the 2026 fiscal year.
Treasurer Jerry Ellender said Mad River is currently exploring budget cuts and expects reductions in personnel will be needed to balance the budget in future years.
He said a tax levy will also likely be part of the solution to future finances, and the district is currently discussing the timing of a new levy with the school board.
“We do not expect to run out of funds because we will make corrections before that happens,” Ellender said.
Does the financial forecast typically bear out?
Districts frequently project spending into cash reserves in future years, and sometimes project they will run out of money, but that doesn’t mean the districts will actually see a shortfall.
Huber Heights schools, which has not had a new levy in front of voters since 2005, anticipated spending a little less than $1.2 million over budget in 2021 when officials submitted a forecast in 2019. In reality, the district finished the 2020-21 school year about $3.2 million in the black, according to its recent five-year forecast.
Cassie Dietrich, a spokesman for Huber Heights schools, said it may appear that the district currently has a monetary surplus, but she argued the Ohio school funding model is flawed and the district expects it may have more expenses than revenue at the end of the fiscal year.
“Revenue never stays on pace with expenditures,” Dietrich said. “In the current inflationary market, our five-year forecast indicates revenue is flat while expenses continue to grow.”
In their fall 2018 five-year forecasts, the area’s five largest school districts — Dayton, Centerville, Beavercreek, Kettering and Huber Heights — all projected to be millions of dollars in the red for the 2020-21 school year. But, as of June 2021, all of them actually finished millions better than they had projected — some due in large part to levy passage, but others without levies.