Last fall, when the Commonwealth of Pennsylvania was suffering through one of its worse budget stalemates in modern memory, one of the debates was how deep should the state dip into its “rainy day” fund to balance the current budget.  Do you completely deplete your reserves to get a budget many can live with?  Or do you hold back some of that rainy day fund, with the fear that 2010 or 2011 may not be particularly sunny either?

Ultimately, Pennsylvania (like a lot of states in similar situations) decided to tap the vast majority of those reserves to keep the state moving forward.  Such funds are established to help navigate those doomsday budget scenarios, and those dollars, along with the billions coming through the feds through the American Recovery and Reinvestment Act, help many a K-12 state school system stave off disaster.

With the federal stimulus money nearing sunset, we are starting to see those doomsday scenarios coming back to the forefront.  In Eduflack’s home state of Virginia, new Gov. Bob McDonnell is proposing a $731 million cut in K-12 education.  Details are still in the works, but it seems clear that most public school systems — urban, suburban, and rural — will face the butcher’s knife before the coming fiscal year’s budget is complete.  Many feared that cuts were coming, but few expected them to be as deep as McDonnell is currently proposing.

More interesting, though, is what is happening in New Jersey, where equally new Gov. Chris Christie has also declared that the public schools will face massive cuts.  In many ways, the Garden State is in an even more dire financial situation than the Old Dominion, with higher unemployment rates, a bigger budget deficit to overcome, and a generally dimmer light at the end of the tunnel.

For nearly two weeks, communities in New Jersey have been abuzz about the impact of the cuts.  The Christie Administration has told all districts to prepare for the possibility of at least 15 percent reductions, with virtually every school district now talking about $1 million-plus reductions to the money they receive from the state.  And it comes at a time when local taxes are also unable to pull out from their downward spiral.

But what makes New Jersey so thought provoking is what Christie is actually proposing.  If Eduflack is reading the proposals forward, New Jersey’s governor is particularly targeting those school districts that have established their own rainy day funds.  Those LEAs that have been reasonably good stewards of their tax dollars, and have established reserves to plan for their own Armageddon, are being asked to zero out those reserves and use them to fund the coming year’s operations.  Those districts that have no reserves, and essentially have always eaten what they killed, will be funded at levels comparable to what they typically receive from the state.

Honestly, Eduflack isn’t sure what to make of all this.  I was surprised to learn that so many school districts had more than a million dollars socked away in a coffee can in case the financial monsoons came.  Like many, I assumed that districts live (financially) from year to year, and spend every dollar they can get their hands on on their operating budget (particularly important since 80-90 percent of a school system budget can go to the salary and benefits one has to pay for each and every year).  So in these tough economic times, it seems it many be time for those saver school districts to dip into those accounts if they want to keep instruction and services at the levels we expect.

But at the same time, should we be penalizing school districts for being financial prudent?  And with so many districts in NJ following such a rainy day policy, should we be rewarding those school system “squirrels” who did not save their nuts for winter?

So which seems more reasonable, a Virginia approach where most districts are going to be asked to share the pain or a New Jersey approach where those who can most afford to sacrifice are the first to do so?  Definitely no winners here, but can one path make a school district less of a loser?   

UPDATE: For those looking for more info on the New Jersey debate, check out NJ Left Behind here for a discussion on the “surplus drill-down,” with a critique from Rutgers University’s Bruce Baker here on how such a policy actually hurts the poorest districts the most.