District 233’s having a healthy savings account is a good thing, but should it be a necessity?
Over the coming months, school board members will be debating whether to continue the policy of maintaining 10 months in reserves or adjust the policy and use some of that money for future expenses at Homewood-Flossmoor High School. The 2023-24 budget shows $57.9 million in reserves, equal to 9.6 months.
The board used the reserve fund to cover the $16.37 million cost of the Fine Arts wing constructed in 2019-2020, and the board is expected to draw from the reserve fund to cover some costs for the science wing under construction.
At the Aug. 15 board meeting, member Michelle Hoereth asked if the discussion on reserves would be parallel with the board’s adoption of the 2023-24 budget and levy.
Superintendent Scott Wakeley said, “They can be in parallel, but they don’t depend on each other.” He suggests the board decide by the end of the year if the reserve policy should remain or be adjusted to “allow some latitude to do other projects.”
The board’s 10-month reserve policy, in place for at least a decade, is meant to give the district enough money on hand to operate H-F for one school year. Should state funding be reduced or Cook County be late collecting taxes, District 233 would be able to pay its bills without interruption.
Several years ago, there also was a concern that the Illinois legislature would shift the burden for teacher pensions onto school districts. The reserve fund would have helped cover that expense.
The board also wanted a strong financial record to earn an excellent rating from Standard & Poors, the global credit rating company, so that the district would always be able to sell bonds on the market. District 233 had an AA+ rating from S&P in 2022 and had no problem selling $20 million in bonds to fund the new science wing and update the culinary and fashion student work areas.
During the February 2022 Finance Committee meeting, member Steve Anderson said, “They (S&P) really discussed how our policy on 10-month reserve was a big deal to them in giving us the AA+ rating.”
At the Aug. 15 board meeting, Anderson said he would ask Bloom Township School Treasurer Bob Grossi to discuss with the board how changing the 10-month reserve policy could affect the district’s bond rating.
Wakeley told the board that the business office surveyed 19 suburban Chicago school districts about their reserves. None had 10 months on hand, like District 233 does. One district had just three months, but generally districts held five, six or seven months in reserves, he said.
Several major expenses are on the horizon, said Chief School Business Official Lawrence Cook. The $20 million the district borrowed won’t cover the full cost of the science wing addition and the remodeling work for culinary and fashion. Cook expects about $7 million additional funding will come from reserves. He’s also anticipating a major expense for replacing the 30-year-old air conditioning units on the South Building.
Cook also shared with the school board a new Illinois State Board of Education policy for excess fund accumulation taking affect in the 2024-25 school year. It asks school districts to submit a spending reduction plan if the district holds reserves equal to a three-year average of 2.5 times the district’s average combined expenditures in three major funds – the educational fund which pays salaries and benefits; the operations and maintenance fund covering expenses for operating school buildings and maintaining them; and the transportation fund that primarily covering bus costs.
“We’re nowhere near that, and I don’t know any school district in America that carries 2.5 times its expenses,” Anderson said. Wakeley noted H-F would need to have $125 million in reserves to fall under the new law’s mandates. “It is unattainable for us.”
Cook explained that District 233’s fiscal years 2021, 2022 and 2023 combined fund balance for its education, operations and maintenance, and transportation was $45.5 million and the district’s total expenditures for those three years was averaged at $54.2 million. The ratio was 0.84, well below the ISBE mandate, he said.
