Midwest Democracy | Credit rating agencies keep watch on Kansas school funding debate

Credit rating agencies are keeping a close watch on the debate in the Kansas Legislature over funding for K-12 schools as it drags deep into this year's session.

Some school districts, such as Gardner-Edgerton, either have had their credit rating lowered or are in danger of that happening because they are spending down their reserves to offset cuts in aid by the state.

Sarah Smaardyk, an analyst for Standard & Poors in Dallas, said the amount of money districts have in their reserve funds is a major consideration for her company when it assigns credit ratings.

“Generally, what we've seen over the past couple years, the statewide school trend is that with all of the reductions in state funding – delayed payments and reductions – it's caused the majority of Kansas school districts to dip into their cash position,” she said. “Some have been able to manage that better than others. Unfortunately, in the case of Gardner-Edgerton, they've not had that flexibility.”

Conservative Republican leaders don't think there's a problem. House Speaker Mike O'Neal said Friday that data from the Kansas State Department of Education indicate that school district cash reserves are “growing, not shrinking.”

O'Neal noted that most of the state's 293 school districts didn't take advantage of a measure passed last year that allows more flexibility in using designated funds.

“We know the effect of SB 111 is that they had $158 million available we thought they would use,” he said. “Only 77 districts chose to use it.”

Mark Tallman, head of the Kansas Association of School Boards, said a study indicated the average Kansas district has only enough emergency cash on hand for one month's worth of payroll, while government accounting standards recommend a two-month cushion.

The sense of urgency on school funding differs greatly between the two chambers, with the Senate adding $77 million in its budget recently after talks with House members in a conference committee broke down.

“I think the Senate feels it's essential we provide more money to K-12 schools,” said Senate Vice President John Vratil, a Leawood Republican.

O'Neal had said several conditions should be attached to increases in school funding, including teacher evaluations and judicial changes intended to curb future funding lawsuits.

Vratil said it's not always easy for school districts to move their money around. “Too many people don't understand the difference between dedicated funds and nondedicated funds,” he said.

According to a report filed by Smaardyk, Gardner-Edgerton, a district of about 5,200 students in Johnson County, had its bond rating on general obligation debt lowered from AA- to A+ in late March because of “the deterioration of the district's nonrestrictive cash position to $0 from $3.3 million.”

The downgrade could prove expensive for Gardner, where voters recently approved a $75 million bond issue for new elementary and middle schools and additions to the high school. The interest on that debt now will be much higher than what it would be had the rating not dropped.

Smaardyk said Gardner is an extreme case, but it isn't the only district having difficulties with finances. “I would not say that it's limited to them entirely,” she said. “I would say they're one of the first we've downgraded. Their cash position going forward really limits their flexibility to respond to any additional reductions in state funding.”

Superintendent Bill Gilhaus said the district would have been able to keep Standard and Poors' recommended $2 million reserve if not for cuts from the state.

“People need to be aware there have been numerous occasions in which we have not received state aid on time,” Gilhaus said. “If not for our use of cash balances we would not have the ability to issue payroll to our employees.”

Rep. Mike Kiegerl, an Olathe Republican whose district includes Gardner and Edgerton, said school districts throughout the state have more than enough cash reserves. While acknowledging Gardner-Edgerton is “underwater,” he said it is “one of the more expensive districts in the state.”

“I've always encouraged the school board to do some saving,” he said. “It's not one of their favorite things to do.”

Information from: The Topeka Capital-Journal