Healthy reserves are good budgeting

The contrast of two headlines in Thursday’s Daily Herald speaks volumes about responsible financial management. One: “School district reserves too high, watchdog group says.” The other: “Senate Democrats propose borrowing to pay bills.”

Obviously, these stories deal with vastly different levels of financial management — the first, local school districts and the second, state government. But they also have an important interrelationship, for the second shows what the first can surely lead to. Even conceding that the state’s deficit problems aren’t entirely related to a lack of reserves, it is painfully clear these days that among the many factors determining the state’s dismal financial condition is a failure to adequately prepare for unpredictable and significant declines in revenue.

So it is that a proposal from the tax watchdog group The Northwest Suburban Taxpayers United sounds tempting, but dangerously so. The group recommended this week that school districts reduce the amount of reserves they have on hand and return a portion to property taxpayers.

It’s an intriguing notion, but it’s built on a premise that is ever open to dispute. Is 20 percent of annual revenues — the figure recommended by the tax group as more in-line with usual business practices — adequate? Or is the higher percentage that many schools maintain based on past experience more reasonable?

Interestingly, reducing the reserves level is usually a tactic of employee groups or other special interests looking for funding in tough economic times. It’s rarely a good idea in those cases, either. That said, the tax watchdog’s research does identify some areas that may bear review. A couple of school districts had reserves on hand last June 30 as high as 71 percent and 93 percent, and several districts had reserves in the range of 33 percent.

But school districts point out that the funding picture on June 30, right about the time they’ve received tax revenues, looks very different in September and October when the bills are being paid. And we have to wonder what property tax payers would be saying and thinking if their money weren’t being managed with conservative foresight. They would rightly question school leaders’ stewardship — as well they must when districts, as happens more than just occasionally, have to float high-interest short-term tax anticipation warrants because of uneven cash flow.

The state’s borrowing and deficit spending issues aren’t directly connected to its budgeted reserves. But they do reflect a certain lack of respect for the kind of planning that ensures and protects a healthy financial outlook.

Whether it is for raises for teachers, a new football field, band uniforms or a small payout to taxpayers, government leaders need to proceed very carefully before deciding to dip into the money they may one day need to get them through a rainy day — or a prolonged economic storm.