GRAND RAPIDS, Mich. - State lawmakers are considering a plan to withhold state funding from public school districts that have set aside what lawmakers think is too much fund equity, according to The Grand Rapids Press. The legislation would withhold aid from any district in which general fund equity amounts to more than 15 percent of annual expenditures.

While supporters, including the Michigan Education Association, say the state should force districts to spend savings above that level, opponents say the plan would punish districts for being frugal and for having the foresight to set aside money during unstable economic times, The Press reported.

Intermediate school districts are under particular scrutiny, The Press reported. The Ottawa Area Intermediate School District had fund reserves totaling $6.3 million, amounting to 86 percent of its annual expenditures of $7.5 million, according to a House Fiscal Agency report, The Press reported. Superintendent Karen McPhee told The Press that the percentage already has dropped to 60 percent and will drop to 30 percent in the future, due to declining property tax revenue.

The state reduced funding to intermediate school districts by 22 percent a year ago, but, "There's a ton of money out there," said state Rep. Tim Melton, D-Pontiac, who sponsored the bill, according to The Press.

Statewide, public school reserves total $1.1 billion, with $154 million of that above the 15 percent threshold, according to The Press.

School administrators told The Press that fund equity provides cash flow in the time periods between state aid payments, allowing them to avoid borrowing money and paying interest.

SOURCE:
The Grand Rapids Press, "Michigan lawmakers consider penalties for school districts with big savings," March 25, 2010

FURTHER READING:
Mackinac Center for Public Policy, "A Michigan School Money Primer: Fund Balance," May 30, 2007

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