All Warrant Articles Should be Funded with New Taxation rather than with Unassigned Fund Balance
All Warrant Articles Should be Funded with New Taxation rather than with Unassigned Fund Balance
Voters are seeing numerous school district warrant articles that are being funded with unassigned fund balance. Most of these articles are for contributions to trust funds for items related to maintenance, special education, technology, etc. While it makes sense to have these trust funds in place and to properly fund them, the funds should be coming from new taxation, and not from unassigned fund balance.
Why? Because a portion of the unassigned fund balance is derived from excess revenue. Excess revenue is generated from over-taxation. Because it is derived from over-taxation, excess revenue should be returned so that it can be used to reduce future taxes. It should not be used for additional spending. To properly explain this, it’s important to understand what unassigned fund balance is, and how it is derived.
Unassigned fund balance is the money that is left over at the end of the school year. It is derived from two sources; expenditure savings (money that the district could have spent but chose not to spend), and from excess revenue (revenue that the district received that was above and beyond the budget). Understanding that unassigned fund balance comes from two sources is important because the district is allowed to spend up to the budget amount, but not beyond the budget. However, because unassigned fund balance is derived partially from excess revenue, the district often has more unassigned fund balance than it is technically allowed to spend for that year. As a result, the district can collect money that was intended for the current budget, and spend it on next year’s budget.
Why is funding these articles with new taxation better than funding them with unassigned fund balance? There are three reasons.
First, it is a funding method that is more transparent, and easier to understand. Remember, all of the items in these warrant articles are ultimately paid for via taxation, whether they are paid for with unassigned fund balance, or with new taxation. Here is the difference. Paying for these with unassigned fund balance requires over-taxing the residents up-front. The district then holds on to this money and uses it to fund items in the next fiscal year. While it is perfectly legal to do this, it is very confusing to many residents. Furthermore, many residents often go along with supporting these articles simply because they require no new taxation in order to fund them. But of course, no new taxes are required to fund them because taxpayers have already been overtaxed. Conversely, if these articles are funded with new taxation, all of the unassigned fund balance would be returned to taxpayers (thus reducing the tax burden), and the tax burden would only be increased by the warrant articles that are passed. This is more transparent, and easier for taxpayers to understand.
Second, and perhaps more importantly, the school districts would be discouraged from over-taxing the residents. It would also prevent the school boards from labeling the funding source of these articles as “no new taxation required”. Labeling a funding source as “no new taxation required” could be viewed as a marketing strategy. “Let’s describe the unassigned fund balance as ‘surplus’, and then design the funding structure in such a way that taxpayers won’t have to pay anything extra (because they’ve already paid for it.”) Again, the current funding method of using unassigned fund balance is perfectly legal. However, it can be viewed as a marketing scheme, as a way to garner support for these warrant articles, and to make them more palatable for voters to support.
Third, districts are only allowed to spend up to the budget amount. By funding these articles with unassigned fund balance however, the districts are allowed to spend every penny of the budget, and to spend additional money for next year’s budget as well. In other words, the district could have zero expenditure savings at the end of the year (every penny of the budget was spent), and then spend more money for next year from the excess revenue balance. Again, perfectly legal, but not obvious and transparent to taxpayers. Conversely, by funding these articles with new taxation, the district would return any unassigned fund balance to reduce taxes (in this case solely from excess revenue), and any trust fund warrant articles would be funded with new taxation. Again, this is more transparent, and it is easier for taxpayers to understand.
The result of changing the funding of these articles from unassigned fund balance to new taxation would be that it would incentivize districts to properly budget for revenue. Furthermore, it would be a harder sell to fund the trust funds because these articles would be funded with new taxation. Funding these articles using unassigned fund balance encourages the districts to ask for more tax revenue than they need, which generates a large unassigned fund balance at the end of the year. Then they can market the trust funds as being funded with no new taxation, which sounds a lot better than having the trust funds funded with new taxation. Either way, the residents are funding them with their taxpayer dollars. The difference is, the voters can better understand where the money comes from, and how their tax dollars are being spent.
Perhaps more of these articles will be voted down by asking voters to fund them with new taxation rather than with unassigned fund balance. That’s OK. It’s better than putting a marketing spin on these articles as a way to garner support for them. It’s also better to make the funding of these articles as clear and transparent as possible for taxpayers. It may also encourage the school boards to propose more reasonable operating budgets, as a way to reduce the overall tax burden on the warrant.