Paradox of Thrift


Mark Twain said, “Get your facts first, then you can distort them as you please.” At least that’s what an internet site says he said and ought to be posted inside the offices of the OCPA to remind them of their mission.


Anyhow just can’t stop thinking about Mr. Anderson’s silliness I partly critiqued in my last post “Where to Begin?”. Gratefully I’m saved the trouble of addressing his concern about the 27% sitting in school district bond funds by the great comment written by my friend Kevin Berry of Choctaw-Nicoma Park Public Schools; as Kevin says:


“Great blog, Gary. To expand further, we don’t get the proceeds of our series bond issues until June of each year. Since most of it goes to pay the revenue-lease financing payment which is due the following fiscal year, we don’t encumber this bond money until July 1. So it looks like we have millions of dollars in bond fund carryover on June 30. The OCPA’s website says we had $13.5 million in total cash forward in all funds. If you actually look at the cash forward amounts by fund, nearly $9 million was bond funds, $7 million of which we received just prior to the end of the fiscal year. We had nearly $2 million in the Sinking Fund’s carryover. That left only $2.5 million in carryover in all the rest of our funds, including the General Fund. We were hardly sitting on a bunch of cash.”


Translated, each school district will have its own rhythm and reasons for the bond fund balances that are shown each June 30; same is true for the 11% that is in their building funds. What is important for the public to know, which is not disclosed by Mr. Anderson, is that these funds are restricted by law for the purposes of constructing, maintaining and repairing facilities and for the purchase of necessary equipment as determined by the voters who approve the issuance of the bonds and the elected school board members who approve the budgets. These funds are not available for teacher salaries and most of the other expenses necessary to operate our schools.


Now for another reason school districts must maintain fund balances for operations—the Paradox of Thrift. This is a well-established observation of behavior noted by economists since its early years as a discipline (I wonder does the OCPA employ any real economists?), namely that when individuals and businesses are uncertain about their future income they tend to save now at higher rates to prepare for the likelihood of having less in the future. The Paradox that economists worry about is that the increased savings by individuals and businesses in turn decreases demand and spending which can in fact reduce future income for individuals and businesses, i.e. a recession. The rational behavior of individuals and businesses can be exactly the opposite of what the economy as a whole requires for recovery—a self-fulfilling prophecy.


So what does this have to do with Mr. Anderson’s silliness? When school district revenues become highly uncertain (go to and compare how many “adjustments” were made to state aid in FY 2016 to the number in FY 2014) as they were last year and continue to be, then what rational school board would rely on the amount of state aid promised for FY 2017 to actually be paid? The effect of this uncertainty, caused in no small part by the fiscal policies promoted over the years by OCPA, is to cause rational school boards to plan for greater uncertainty by increasing their savings. This year though rational thought likely will butt into the reality of diminished resources so fund balances will diminish. However, the fact remains that one rational reason for Oklahoma school districts to maintain fund balances in their general fund greater than their cash flow needs is to guard against the kind of revenue uncertainty that has become the norm in Oklahoma school finance due to both economic fluctuations and to failed fiscal policies promoted by the OCPA.

The photo is not in San Diego; lunch on me if you guess where.

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