9-12 Capital fund transfers

9-12 Capital fund transfers

Capital fund transfers: How long can districts rob Peter to pay Paul?

By Madelynn Coldiron
Staff Writer

Hard-pressed Kentucky school districts have been draining their previously restricted capital funding accounts in the past two years, using the money to pay for anything from insurance and salaries to the electric bill.

The legislature, in an effort to help out pinched school systems, loosened restrictions on the use of capital outlay funds in 2010 state budget bill language and did the same in the 2012 biennial budget.

The amount being transferred out of the capital accounts to pay for other items topped $52 million in the 2011-12 fiscal year, spread among 93 districts, according to a state education department report.

That compares with $42.7 million that was transferred by 102 districts in the first year the rule was relaxed.

“We’ve used it for I guess what you’d call ordinary expenses –things like insurance, small projects, different expenses,” said Bardstown Independent Finance Officer Patrick Hagan. “And if we couldn’t have done it, we’d have been in a hole. We haven’t had to lay off anybody or had to cancel any programs or services.”

Without this flexibility to draw on the capital funds, “it would have crippled (districts’) general funds. You’re talking about probably having to give a lot of pink slips, that kind of thing,” said Leigh Burke, finance officer for Whitley County Schools who just ended her term as president of the Kentucky Association of School Business Officials. She also serves on a finance officer advisory group to KDE.

Districts can’t unilaterally transfer the capital funds, but must receive approval from the state education department for each transfer. No requests have been turned down, though a few were withdrawn, said Kay Kennedy, director of KDE’s Division of District Support.

The uses for the funds are “all over the board,” she said.
Based on the 2011-12 report, among the more frequent uses were property and workers’ compensation insurance, diesel fuel, building repairs and maintenance, general supplies, electricity, construction services, asphalt paving, classified salaries and transportation.

Pike County Superintendent Roger Wagner called the transfers“kind of a juggling act, really.”

The district used $1.6 million from a capital fund to pay for electricity use – about half its total annual electric bill. In Fleming County, the district transferred money to cover the cost of salaries and new school buses, according to Finance Officer Blake Price.

Wagner said without the capital fund transfer, “We would have probably been sweating it.”

A warning
Bob Tarvin, executive director of the School Facilities Construction Commission, worries about the long-term impact of the transfer of funds meant for buildings.

“The pressure on the local school is to provide the best place to learn and that starts with teachers, so they’re not going to worry about a leaking roof,” he explained.

Once-restricted capital funding for buildings is being used operationally more than ever, he said, and “it catches up.”

That is a “reasonable thought to have because we normally escrow those balances in capital outlay and building funds in odd years so we can receive SFCC offers,” Burke said.

Tarvin said deferral or shortcutting maintenance takes about four years to make its effects felt.

“Within six or seven years we’ll see a drastic effect on our school buildings,” he said.“The buildings are going to be in bad repair again and then we’ll be in crisis mode.”

How long?
Because the transfer flexibility is not in permanent law but in language that lasts only as long as the two-year state budget bill, no one knows how long this option will be around.

“My guess is if SEEK is not funded any better than it is, (the legislature is) going to continue to let us do it,” Hagan said.

For some districts, the cutoff will be dictated not by budget language but by building projects. Bardstown Independent has plans to build a new school in 2014, which means after that, capital funding will be earmarked for bond payments and unable to be transferred to operational expenses.

“That’s where we’ll face a tight spot,” Hagan said.

Similarly, Fleming County has a couple of building projects authorized but bond payments won’t kick in until they are finished. After that, Price said, there will be no transfers to the general fund.

“We won’t have that luxury anymore – we’ll be paying off debt with it,” he said. “It’s kind of scary because down the road once we get through 12-13 and don’t have this option it’s going to be time to really put pencil to paper.”

Some uses for 2011-12 capital funds cited by districts

Classified salaries
Workers’ compensation
Portable classrooms
Architectural and engineering services
Building repairs and maintenance
Roof repairs
Contracted grounds services
Construction services
Asphalt resurfacing
Repair parts
Pupil transportation insurance
Property insurance
Fleet insurance
Legal liability insurance
General liability insurance
General supplies
Diesel fuel
Flooring supplies
Furniture and fixtures
Technology hardware
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