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Report points to districts’ “potential fiscal strain”

A new state report spotlights the financial pressures that have prompted some school districts to tap their reserves in order to offset state budget cuts. Among them is Jefferson County, the state’s largest.

The annual “Fiscal Health Analysis of Colorado School Districts,” presented to the Legislative Audit Committee on Monday, found that nine of the state’s 178 school districts have two of the five “warning indicators” that state auditors look for when compiling the report. Another 39 districts had one warning indicator.

“The presence of one or more fiscal heath warning indicators may not mean that a school district is experiencing financial stress,” the report noted. Rather, indicators are “signs of potential fiscal strain,” Crystal Dorsey of the state auditor’s office told committee members.

The two largest districts with two indicators are Jefferson County, which joined the list with the 2013 report, and Adams 12-Five Star, which went on the list last year.

In many cases, the warnings were triggered by deliberate district actions, primarily drawing down reserves in order to soften the impact of state budget cuts.

The report said, “Districts have been spending down their fund balances for various planned expenditures, and districts have offset reductions in state school finance funding with reductions in fund balance rather than a corresponding decrease in expenditures.”

Leanne Emm, assistant state education commissioner for school finance, said the report demonstrates how some districts plan for financial downturns, not that districts are having problems.

“The prudent thing is to spend down fund balances slowly so you are not gutting programs,” Emm said.

Jeffco Superintendent Cindy Stevenson told the committee, “The spend-down in our reserves was planned. … We spent down our reserves over a period of three years to sustain the quality of our programs. … We are in the process of rebuilding those reserves.”

In a written response included in the report, Adams 12 officials said, “The underlying causes of the two negative indicators are a planned spend down of district fund balance due to declining state revenues. The district had budgeted to spend down fund balance in order to mitigate the reductions necessary to balance the budget.”

Colorado school districts have experienced four years of budget cuts because of declines in state revenues. It’s estimated districts have lost more than $1 billion in funding they would have received otherwise. With an improving economy, the 2013-14 state budget includes a 2.7 percent increase in K-12 spending, with a statewide average per-pupil spending of $6,652.

Looking ahead, Emm told the committee, “I also expect to see more districts have more indicators as we get the 2012-13 financial reports,” adding, “2013-14 may be a different story, with a little bit of extra funding going to schools.”

The other districts with two warning indicators are Bethune, Elizabeth, Liberty, Montezuma-Cortez, Park County, Trinidad and Walsh.

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