District 233 reserve policy change would free up resources for H-F capital projects

The Homewood-Flossmoor High School District 233 school board believes it’s time to spend down its reserves to six months on hand from the current 10-month policy. 

The district is in a strong financial position, said Superintendent Scott Wakeley, which is “why the district can free up money to do other things.” A change “wouldn’t put the district in a precarious place,” he stressed.

Board member Chris Riedel said the change will still put the district “at the top of the top” compared with other school districts. “We’re not talking about dropping down to two months. We’re still going to be at the top. Right now, we’re way over the top.”

For example, for the 2020-2021 school year, District 233 had $55.7 million in reserves. It received $62.2 million in revenues, and its expenditures were $60.4 million. The reserve fund grew to $57.7 million at the end of that fiscal year.

The board has a policy to maintain the equivalent of 10 months of expenses in reserves. No one knows why that policy was enacted, but it is believed it was to protect the district from changes in education funding by the state legislature. In the past decade districts have received less in funding than was promised. The legislature also talked about shifting pension costs onto school districts.

It also was believed that having a large amount of cash available would improve the district’s financial status in the bond market. For several years, the district earned a AAA rating from Standard & Poor’s.

At a District 233 Committee of the Whole meeting on Jan. 19, board members said looking at those reasons, the policy made sense. But the state now uses the Evidence Based Funding formula and District 233 has been a beneficiary, getting an extra dose of state cash. The change has allowed the board to abate some taxes.

There’s been no move by the legislature to shift pensions to schools.

Although the district’s bond rating is now AA+, it didn’t have a negative effect when the school board borrowed $20 million for the new South Building science wing under construction.

Having a healthy reserve fund allowed the district to build the $16.37 million Fine Arts Wing in 2019, essentially paying cash. 

The reserve fund also will be used to cover some of the costs of the remodeling work in the North Building for the culinary and fashion design programs as well as costs over budget for the science wing.

Board members discussed changing the reserves policy so that the equivalent of six months of expenses would be on hand. The board would put seven safeguards in place should the reserves fall below 50% of the district’s operating expenses. Those include alternative distributions of revenue; budgeting an annual surplus to restore the fund balance; a reduction in hiring or decrease or freeze in salary and benefits through collective bargaining; or going to a referendum.

Chief School Business Official Lawrence Cook surveyed more than a dozen north and west suburban districts with AA+ or AAA bond ratings. Most had four to six months cash on hand, none kept a 10-month reserve fund like H-F. 

“We have good policy and outstanding practices,” Cook said. Cook also has a list of major projects that the board will need to fund in the future, such as the HVAC system.

The board’s Finance Committee has been reviewing a change in the reserves policy for at least a year and has worked with the board’s attorney and Rob Grossi, Bloom Township school treasurer. 

Riedel suggested the board consider one change to the proposal. 

“If there ever is a surplus it goes to capital expense only, not operations,” he said. 

Gerald Pauling, board president, agreed saying, “If we’re wanting to direct future boards that might be something to include. It’s a procedural safeguard, but I think it’s an important one.”

The committee recommended Cook work with the Finance Committee to include that amendment to the proposal before the policy change comes to the full board for a vote.

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