School Reserves Offer Pension Reform Opportunity

Despite the rhetoric of “billions of dollars” in cuts from education, school districts across Pennsylvania have been able to increase their reserve funds. School districts had a combined reserve fund balance of nearly $4 billion as of July 2013, a $445 million increase from the prior year.

Jan Murphy of the Patriot-News reports that several districts have fund balances equaling almost a third of their annual budgets. One district—Valley Grove School District—even has a fund reserve of more than 99 percent of its total budget.

As part of the story, the Patriot-News created a database for readers to look up school districts’ annual budget and reserve fund balances.

One school superintendent suggested that school fund balances be considered as a factor in state funding—that is, school districts with excessive reserve funds would receive fewer state dollars.

At the Commonwealth Foundation, we’ve pointed to the growth in school funding reserves, but also outlined a commonsense way to put those funds to use immediately.

Many school districts have built up funding reserves in anticipation of the coming pension crisis—and yes, there is a crisis, and it is getting worse for school districts. Putting money aside for future pension costs makes a lot of sense.

But it would be better to pay off pension obligations now and earn investment income on those fund reserves. If a school district turned their reserves over to the pension system now, however, it would simply be pooled with other funds, and that district would still have to pay the same contribution rate as other districts next year.

To help alleviate our looming pension crisis, lawmakers should look to change state law to allow districts to use reserves to prepay their pension obligations and receive a credit for doing so.