by Steve Anderson, OCPA Research Fellow
Oklahomans who have been told repeatedly that Oklahoma’s schools are underfunded may be very surprised to learn that the schools in fact have “savings accounts” that are full of cash sitting idle.
That’s one of the many things you’ll discover using OCPA’s new education finance data tool. The data, which were simply downloaded from the website of the Oklahoma State Department of Education, were compiled from the Oklahoma Cost Accounting System (OCAS). Would you believe that the schools’ largest revenue source for the 2015 school year was cash not spent in the prior year? The schools need to explain how they can be sitting on nearly $1.9 billion of unencumbered cash—cash that is not promised to any obligation currently—that they did not expend during the prior school year. (The table below looks at some specific school districts.)
In the 2015 school year, the difference between revenues and expenditures was a staggering 23.1 percent. This is the amount of revenues unspent, which explains how you get to such huge cash-forward balances.
The OCPA data tool also exposes another major inefficiency of the public K-12 establishment. The second and third largest expenses by function, which between them total nearly half of the amount spent on instruction, are “debt service” and “operation of buildings.” We continually hear about needing more money for teachers, but somehow the construction of expensive new buildings seems to continue unabated by diverting large amounts of education funding. The chart below shows that schools tie up huge amounts of funding in building-related funds.
Some school superintendents will trot out reasons and excuses for why they need to maintain such large cash-forward balances. And some of their explanations have merit. For example, holding a small amount of funding in certain accounts for unseen emergencies or missed billing payments is understandable.
But some of the excuses don’t hold water. For example, some administrators will say these balances are needed for cash-flow purposes. They don’t seem to understand that the accrual of those expenses incurred but not paid should have already been made. Moreover, where else but in a government agency can you know your funding for the next 12 months and also know that you will be funded again after the end of that 12 months? (What small business wouldn’t love that guarantee?) When I was the state budget director in Kansas, the chancellor of the state’s largest university questioned why I was interested in the university’s large cash balances. To which I responded, “Madam Chancellor, we give you funding for 12 months. If you don’t need all of it, let us know and we will find places where it is needed.”
Another excuse given by administrators is that some of their cash-forward funds are federal funds that they cannot spend. Or that the federal fiscal year is different from the state fiscal year, requiring them to hold funds to bridge that time period. I studied these claims while serving as the top fiscal officer for the State of Kansas. The explanations for why they don’t stand up to scrutiny are long and technical. Suffice it to say that, in an environment where you are provided 12 months of cash flow from both federal and state sources of funding, the rebalancing of the cash flow for their different fiscal years is not complicated. I am available to meet with any administrator to discuss these matters.
The chart on cash-forward balances shows that the largest amount of funding sitting idle in school cash accounts is in fact money that is in the general fund, which allows for a wide range of potential uses. But even when the funding is limited in type of expenditure allowed, that doesn’t mean that a well-managed school cannot spend those funds. In fact, if done properly, those expenditures could not only save the school money but also stimulate the local economy.
For example, a forward-looking school district administrator could help put more money in the pockets of the parents of the very children they are educating while providing a healthier and more appealing lunch menu to those children. In previous articles, I have shown how Oklahoma’s agricultural sector can, by producing high-value food crops, become more diversified. And the education establishment is perfectly positioned to be a purchaser of these crops via existing federal programs like Farm to School and the Children’s Nutrition Program—which in 2015 expended more than $500 million. Taxpayers should expect Oklahoma’s public schools to look at those programs to see where they could save money by participating and at the same time stimulate the state’s farm sector.
The state school superintendent and her staff have a key role to play in helping smaller districts coordinate purchases, storage, and logistics. To truly maximize savings and dollars returned to the state and local economy, the state superintendent should offer to perform this function for the entire public school system. Would this require another bureaucracy within the Oklahoma State Department of Education (OSDE)? No. OCPA has already pointed out the federal resources already available for this process. In today’s cyber-world, the staffing at school districts that manage inventory currently can be incorporated in a way that allows them to be a resource not just for information but also to be active participants in the process. As always, OCPA stands ready to assist OSDE in the initial plan set-up.
In sum, administrators who continually complain about not having enough of the taxpayers’ money need to explain to those taxpayers why they are sitting on so much cash. Before trotting out excuses, the tax consumers who run Oklahoma’s schools should walk a mile in the shoes of the tax payers who run Oklahoma’s small businesses.
In the long term, if school administrators are unable to do active management of cash flows then we may need to look to those with business experience to run our schools. Doing so could conceivably bring a more efficient operational approach to school districts—especially some of Oklahoma’s mega-districts. And though these unencumbered funds shouldn’t be used for pay raises, they do serve as a useful reminder: The simple truth, as OCPA president Jonathan Small has noted, “is that our preK-12 education system currently has plenty of money—$8.2 billion in total revenues last year, the most in state history. But in a bloated system that employs more non-teachers than teachers, that money’s simply not going to the right place: take-home pay for the many excellent teachers who have earned a raise.”