The risks of having a rainy day fund

School district to weigh the benefits of having contingency fund against the possibility the province will just take it

The school board will need to determine during future budget processes if the risks of keeping a contingency fund outweigh the benefits.

If the School District 72 Board of Trustees uses that money for the benefit of students, they won’t have it for emergencies, but if they keep it for emergencies, there is a risk that the government could just come take it, leaving them with nothing to show for it.

Trustee John Kerr told last week’s public meeting of the board that they used approximately $850,000 of their $2.5-million contingency reserve last year to make up for funding shortfalls, and this year they will be using approximately the same amount to make up for unexpected expenses imposed on them by the Ministry of Education, such as the $155,000 technology infrastructure needed to implement the new province-wide “Next Generation Network” through Telus.

“We’re caught between a rock and a hard place, here,” Kerr said at the meeting in discussing the reserve. “If we keep a contingency reserve, the government may cast its eyes upon it and come and take it.

“The other side is that every year we’re drawing it down to address what I would call the chronic defunding of the public education system. I’m seeing a real conflict between trying to manage a contingency reserve level and the danger of keeping a reserve level.

“In an ideal world, we would manage our contingency reserve level … but that may also be a dangerous thing to do, because rather than us being able to use it for the benefit of the students of the district, if the government gets tight enough for cash, they could just take it, and the money we thought we’d have available for things that would benefit students would be gone.”

“It’s definitely a balancing act,” Secretary-Treasurer Kevin Patrick acknowledged. “We do know that the ministry and ministry staff are asking about district reserves and looking at them in greater detail than they ever have before.”

To make it a bit easier for the board to draw from that fund – should they wish to – the wording in the district’s guiding principles for developing future budgets was changed slightly at the meeting.

The line pertaining to the contingency fund in the guiding principles previously read, “we will plan annually to maintain the contingency reserve.”

It now reads, “we will plan annually to manage the contingency reserve.”

Patrick told the board last week that wording was changed because the term “maintain,” he said, “suggested the board shouldn’t draw from the reserve,” whereas the term “manage,” gives the board more flexibility in utilizing the fund.

Patrick did, however, have a word of caution for the board, saying that in weighing the risks of keeping the contingency, they should consider that any expenditures from the fund would be “one-time” gains.

“If the (entire) surplus were to be spent in a year, that’s a lot of extra resources for one year, and then nothing beyond that,” Patrick said, adding that staff recommends not drawing more than one-third of the fund per year, “which at least allows services to be maintained and committed to for at least three years before further reductions are required.”

 

Campbell River Mirror

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