The following is an Op-Ed by Andrew Gideon, a Montclair father of two public school students.
Over the past few years, readers of Barista Kids, the Montclair Times and attendees at Board of Education meetings have fairly regularly heard that we should “spend the surplus.” As we learned this Monday at the Board Budget meeting, that’s what the district has been doing. And now we’re done; the surplus is spent.
Let’s first review what this surplus actually is. For something that is so often misunderstood, it is actually very simple. Every year, the district prepares a budget. The district is not permitted to go over the budget. Hitting the budget exactly, as anyone involved in serious budgeting knows, is unlikely. Therefore, it is almost guaranteed that the district will actually spend less money than it budgeted. That’s the surplus.
Districts in New Jersey are permitted to carry as much as 2% of their budgets as a “fund balance” from year to year. Above, I wrote that districts are not permitted to go over their budget. Yet unexpected events do occur. A “fund balance” is a buffer, or a “fudge factor”, which provides the district with money to be spent in case of some
Outside of unusual events or needs, the fund balance is carried from one budget year into the next. In a perfect world, a district would spend exactly what it budgeted. It would then end the school year with exactly the same fund balance that it had started. However, this requires that the district hit the budget exactly. This isn’t too likely.
It is possible for a district to spend less than is budgeted. One can argue that this is the desirable outcome; better to spend less than expected instead of more than expected. This money becomes “excess fund balance.” A school district is required to use this money as revenue for the budget two years later. It is used two years later rather than one because, at the time this money is identified, the next year’s budget is already approved by the county and state.
For those that like equations:
Revenue(n) = Taxes(n) + FundBalance(n-1) + ExcessFundBalance(n-2)
Revenue in year N consists of Taxes in year N plus Fund Balance carried from the previous year plus Excess Fund Balance from two years earlier. Every budget therefore has two additional sources of revenue beyond taxes: the fund balance from the previous year and the excess fund balance from two years ago.
This is normal. It is defined by law.
However, for a number of years, Montclair’s school budgets were excessively “conservative.” Line items in the budget were often assigned unrealistically high costs. This, combined with some good luck (such as unexpectedly low health care costs) and some good acts (such as bringing some Special Ed students back into the district), caused the district to spend much less than what was budgeted. While this is a good thing on one level, it is a problem on another. Every dollar the district is under budget is a dollar that either needn’t have been collected from the taxpayers or a dollar that could have been spent on something else. This also weakens the Board’s ability to exercise oversight over the district, as the presented budget does not accurately reflect reality. What does it matter if the Board demands a 10% cut in a line item if that item is 15% too high?
At the January Board of Education meeting, one person claimed that the surpluses had totaled around $40 million dollars. While this is unusually high even for some of the rhetoric we’ve heard, plenty of numbers used to describe the “surplus” have been either misunderstood or downright fictional.
The most dramatic number to use for surplus is the amount of money in the bank account on the final day of a school year. To cite this number as “extra money” is to ignore that, on the next day, more than $2 million of that will be in that next year’s budget as that year’s fund balance.
Even the excess fund balance isn’t “extra money.” By law, it becomes revenue for the budget two years later. In a way, it is money already spent.
Still, we’ve been hearing people shouting “spend the surplus” for a few years now. These people should be happy to learn that, over the past few years, we’ve been doing precisely that.
As is usual for a school district, over 80% of our costs are personnel. Most of those are teachers. And teachers have been getting raises over the past few years of between 2.5% and 3% as per their contract. Yet our school taxes have remained fixed over the past couple of years. It has been the surplus which has been funding this new spending.
In addition, there have been other changes. In the accompanying slides, you can see $4.7 million of the excess fund balance spent in the 2012-2013 budget on recurring costs such as Mandarin Teachers, SLCs, SACs, SPEDs, literacy and math coaches, etc. All this new hiring occurred with no new tax revenue. It was funded by previous years’ excess fund balance.
Today, that’s done. There is no more surplus to spend. Most accurately, there is some surplus coming from the 2012-2013 year but it’s not enough. We have staffing costs that have increased significantly as a result of those salary increases and new hires.
Without excess fund balance to pay for this, what is left is tax revenue.
On Monday, we saw the result. If no new programs are created, and with some cuts being made, we’re looking at a 4% increase in our taxes. If we do implement some of the wonderful ideas that we have been discussing as a town, that increase will grow to 6%.
This seems dramatic. It seems frightening. But it is a necessary consequence of the district spending the surplus on higher salaries and new hires. Those are costs that are paid year after year after year, and the excess fund balance couldn’t last forever. The people shouting that we should spend the surplus got precisely what they sought, and now the bill is coming due.
As dramatic as this seems, though, there is a more comfortable way to see it. Imagine that we hadn’t had that excess fund balance to spend. In that case, to pay for the increased costs over the past few years, we’d have seen school taxes go up. They’d have gone up a little each year. Instead of flat taxes over 2012-2013 and 2013-2014, taxes might have gone up 2% in each of those years. This would still yield a 2014-2015 budget 6% above 2011-2012, but it would only be 2% above 2013-2014.
In other words, we’d be in precisely the same situation we are today except we’d have reached that situation in a larger number of smaller steps.
I wrote above that the idea of “surplus” is a simple one. Another perspective is that “surplus” is simply tax money that is collected too early. We collected dollars in 2010-2011, for example, that didn’t get spent until 2012-2013. If we’d not done that, we’d simply have had to collect those dollars in 2012-2013.
There are two important points to take away from this. The first is to be wary of those shouting “spend the surplus” as if it were “found money.” It’s not. The law defines exactly how we’ll spend it. Either the shouters don’t know this, or they don’t want you to know it.
The second is that, for the 2014-2015 budget, it almost doesn’t matter how we paid for those additional costs in previous years. Given the salary increases and new hires, we’d have the same costs in this new budget whether we’d the excess fund balance in previous years or not. What does matter is what we’re looking to spend in 2014-2015. Do we want district funded Pre-K? There’s the cost. Do we want to enhance the World Language program in the elementary schools? There’s the cost.
That’s what we need to be discussing. Hopefully, without the shouting.