A recent "As I See It" piece argued that the Corvallis School District holds excessive reserve funds. The writer recommended that these reserve funds be substantially reduced and spent on programs.
While this sounds plausible — the school district always could use more money — there are three reasons why it’s a bad idea.
The first reason is recent history. In 2007-2008, when I joined the school board, the Corvallis School District faced a $4.5 million deficit. Had the board not created a substantial rainy day (reserve) fund, the district would have been forced to cut instructional days and lay off dozens of teachers. Thanks to the reserve fund, not a single program was cut and not a single teacher laid off.
The second reason is the unpredictability of state revenues and the state school fund, which pays nearly 90 percent of the Corvallis school district budget. Because Oregon is highly dependent on income taxes and refuses to tax consumption (sales tax), state revenues are subject to wide swings, as the economy booms or busts. Robust reserves are a prudent insurance policy when state revenues decline.
The third reason is PERS, the teacher retirement system. Due to inescapable demographics (the huge baby boom generation), and the political avoidance of reforms to make the system sustainable, the Corvallis School District is forced to pay ever-increasing contributions to PERS. Not only are these contributions remorselessly increasing (and the school district pays both its own and the teachers’ contributions), the rate of increase is accelerating. The rate increases for the current biennium (2017-2019) are costing the school district at least $2 million. The board set aside about that amount in anticipation of higher PERS rates. A set-aside (reserve) every biennium is prudent.
Education is expensive. Needs always exceed resources. Just about every state has cut funding for education, especially higher education. The current administration in Washington seems bent on abandoning public education. The tax bill emerging from Congress will almost certainly put additional pressure on state and local revenues. The state school fund has recently been increased, but still falls short of meeting educational needs.
It is tempting to reduce or zero-out school district reserves. Everyone can quickly think of 10 things to spend them on. Class size, for example (it costs upward of $800,000 to reduce average class size by one student). But to do so would be dangerously short-sighted.
Reserves seem a luxury when times are good, but they are desperately needed when times are bad. Unless you believe we will never have another recession, and that major PERS reforms are just around the corner, the current level of Corvallis School District reserves is a wise safeguard.