Roanoke considers upending years of school funding history amid tough budget talks

Amid an abnormally tight budget year, the Roanoke City Council is looking at breaking with years of tradition — and city policy — as it considers both reducing the level at which it funds city schools and taking over the school division’s unspent fund balance.

City staff has proposed a $3.5 million reduction in the city’s base budget and a 1.5% increase in the meals tax. The budget earmarks almost $10 million for pay increases, which City Manager Valmarie Turner has said is one of her biggest priorities in this budget, along with deferred maintenance on city buildings, for which the city will be spending $4 million to $6 million annually to catch up on.

The budget proposal presented by Turner — which the city council will discuss at 9 a.m. Monday in council chambers — includes flat funding for the school division: $106.9 million, compared to the $113.6 million that the division had requested to cover its needs. This deviates from the city’s longstanding policy that the division receives a 40% allocation of tax revenue as its yearly funding. 

The city also wants to take over some or all of the division’s $61.5 million unspent fund balance — which would also break with longstanding tradition but is in line with state code. 

Turner started as city manager in January, and the city elected four new council members last year. “With a fresh set of eyes on the school budget, we all had significant questions,” Turner wrote in a letter to Superintendent Verletta White, dated April 22 and first reported by the Roanoke Rambler.

Mayor Joe Cobb, who served as a council member for six years before being elected mayor in November, said the city’s historically high allocation of funding to the schools is not sustainable, especially this year.

The budget changes have stirred up bad blood between the district and Turner. In her recent letter to White, Turner said the city has “deep concerns” about school funding. White responded, saying the letter contained “several inaccuracies, unfounded accusations, erroneous assumptions, defamatory language, and veiled threats.”

School officials warn that the division is looking at cuts to instructional personnel, elementary Spanish education and facility maintenance spending, among a list of other possibilities.

Roanoke City Council changed its school funding policy last year. Now it’s likely to change again.  

Starting in 2011, the city school division received 40% of actual tax revenue collected by the city. The policy, Cobb said, worked for a number of years because the schools “knew what they could count on.”

In 2024, the city council voted to change the funding formula. Under the new method, the school division will get 40% of all budgeted tax revenue — so if the city collects more revenue than expected, the school division will no longer automatically receive that surplus. However, if the city brings in less tax revenue than expected, the division will only be entitled to 40% of the actual revenue and might have to pay back some of its funding.

The new method is set to take effect July 1. But the city now appears ready to scrap the policy by giving the school division the same amount it got last year, regardless of what the funding formula says. 

Cobb said he supports Turner’s plan for level funding in the division, and both he and Turner have said that education is a “top priority” for them.

There is value in the schools knowing what to expect from the policy, he said — but the city is in unprecedented times. 

“I don’t know how helpful [the policy] is when the economy becomes unstable, or there’s a recession … but I think the policy has to dwell within those realities and that’s where we find ourselves.”

Kathleen Jackson, the school division’s chief financial officer, wrote in a March 6 memo to the superintendent that having a policy that gets adjusted “misleads the public.”

“A policy that is changed every year is not really a policy, as it becomes meaningless if it cannot be relied upon,” she wrote.

Under state law, localities must provide enough school funding to maintain an educational program meeting the “standards of quality” for the state. 

Virginia defines these standards as offering salaries, benefits and a working environment that retains high-quality instructional personnel, an environment that promotes student achievement, and instruction that enables each student to be a “productive and educated” citizen.

The state provides a formula to determine a locality’s required contribution. During fiscal 2024, Roanoke was required to allocate $37.5 million to its schools; it provided $82.2 million.

The city is meeting state requirements, but the Joint Legislative Audit and Review Commission said in a 2023 report that this formula, in general, is “well below actual school division expenditures.”

Cobb maintains that the city has made “significant investments” to its schools over the years.

“The notion that by asking for level funding that we’re reducing or not prioritizing school funding is just not accurate,” he said in a recent interview. 

The city’s current school funding policy says that in the case of a year-end surplus, city administration and the school division can both submit proposals arguing why they might need the money.

The policy states that it should be reviewed every three years, starting in 2027. Cobb said the city began reviewing the policy about two years ago, after not having reviewed it for several years. There is no language in the document that legally forces the city to comply with its policy.

“The City Council adopted its School Funding Policy initially and retains full authority to amend or revoke it,” Jackson said by email.  

Cobb added that the city gives the division $5 million each year for capital improvements. 

For years, the division held onto its year-end surplus funds. The city now wants that money back. 

The future of the division’s $61.5 million fund balance — some of which school officials had planned to use to offset the reduced funding — has become a heated issue.

In her April 22 letter to White, obtained through the Virginia Freedom of Information Act, Turner stated that the school board had overspent its appropriation in fiscal years 2022 and 2023, adding that this is “grounds for removal from office as a School Board member or superintendent.”

A public finance lawyer has been retained by the city to review the budget, she wrote. He advised that the fund balance be returned to the city, in order to be reappropriated by the council “to be made available for future school use.” Turner also said in the letter that $26.2 million in “committed” capital projects funds should have been returned to the city. 

“Neither I nor council is taking anyone’s money; we are merely attempting to get the schools to follow the law,” Turner wrote. She requested a meeting with city and school division officials to discuss how much of the $61.5 million total fund balance “that will be turned in” would be reappropriated to the schools, and to work up a future policy. 

In an April 25 response, White disputed the allegation that the division had overspent its allocation. 

She also argued against the claim that the fund balance will be returned: “Suggesting that the School Board was wrong to maintain these fund balances at the end of each fiscal year — while the city continued making payments beyond the fiscal year’s end — is both factually incorrect and patently absurd.” 

Turner was not made available for an interview prior to this story or throughout the budget development process.

Virginia state code says that money left in a school division’s coffers at the end of the year goes back to the locality, but Jackson said that since at least 2011, the Roanoke school division has kept its year-end balance. 

Cobb said that historically, “there’s been some kind of an understanding that the schools have managed that,” and that the schools have a fund balance because of the city’s investment.

When it became clear in late March that the city would not increase its schools contribution for the next fiscal year, the school division began looking into covering the expected $6.7 million gap with its fund balance — a financial move that White said is not ideal for long-term financial planning, but one that would allow the division to temporarily lessen the gap in funding. 

A memo written by the executive board of the Roanoke City Council of PTAs, sent to RCPS families and PTA members, says that the fund balance isn’t “just money going unused.”

“Having fund balance allows the school division to move forward with normal business activities and pay employees and bills timely, even if revenue related to those expenditures has not yet been received,” the memo reads. “Each year, RCPS bank balances dip below the July 1 starting balance several times.”

Jackson explained in an April 22 presentation to the school board that over half of the $61.5 million fund balance must be used for predetermined purposes — such as transportation, post-pandemic transition, student organizations and capital projects — because it came from federal and state funding. 

The school board also requires that the division keep a minimum amount of reserves, which varies based on inflation and enrollment. In the next fiscal year, RCPS will be required to hold $13.3 million in reserves, a $500,000 increase from the previous year. 

As of June 30, 2024, $22.85 million remained in the general fund unassigned balance, but only $12.8 million is spendable after portioning out what must be left in reserves or used for post-pandemic relief. 

Turner earlier had suggested that the schools could use the $12.8 million to make up the difference left by the city’s level funding. “The General Fund unassigned fund balance provides flexibility for the schools to cover operational costs as a bridge,” she said during her March 24 council presentation.

How will the division handle level funding and potential loss of the fund balance amid rising costs?

In her April letter to White, Turner suggested that the division could regain some, but not all, of its fund balance. With the use of the $12.8 million in the fund balance, the division could reduce its deficit from $18.8 million — which factors in likely federal and state cuts — to $6 million. 

[See sidebar for a full list of potential cuts.]

Cuts in this scenario might include eliminating student support specialists, repurposing elementary Spanish teachers and discontinuing the after-school activity bus transportation.

A second scenario puts the division at a greater deficit, with both level funding and the loss of the fund balance. Without that option of using the fund balance, the division would need to look at further cuts to services and layoffs. 

The division would then be looking at all previously mentioned cuts, plus others, including no short-term fixes for high school overcrowding, no added teaching positions and the elimination of approximately 66 instructional positions.

A memo from the PTA association released before the city council’s April 21 public hearing on the budget cites close to 100 total positions that could be cut under the second scenario, leading to increased class sizes, reduced student support and reduced oversight.

“That’s a significant number of positions that would absolutely have an impact on our class sizes,” Jackson said. “I don’t think we could come up with that amount of a cut without touching our classrooms.”

She said if further cuts than planned need to be made, the division would start by looking at positions that are already vacant. Avoiding layoffs could mean moving teachers to a different school or grade level to fill gaps. 

School board member Michael Cherry said during the April 22 board meeting that he has a daughter with special needs, who he says has improved this year due to the support staff.

“I cannot imagine if we don’t have rainy-day funds, and the funds to pay staff, and my daughter has to figure out a way to have that support staff less. That hurts,” he said. 

He also said it was disappointing that city leaders hadn’t come to the division sooner to talk about the fund balance issue. As late as the April 22 school board meeting, the idea that the city would reclaim that money was just a rumor, he said — even White had said she was unsure where the idea had come from and had hoped that it was just a rumor. 

Cobb said he’s remained “clear and consistent” in his remarks that he supports Turner’s request for level funding and that the city wants to work “collaboratively” with the schools. 

School board Vice Chair Franny Apel pointed out that enrollment numbers are back to what they were pre-COVID, and are projected to continue to rise, though COVID-related grant money is dwindling. 

Claire Mitzel, director of communications and public relations for the division, said the student population is expected to slightly decline over the next five years at the elementary level but will remain steady or even increase at the secondary level — which is already over its capacity at both high schools. Currently, the division serves around 14,000 students.

“These are not things that are going to go away regardless of how the budget shakes out this year,” Apel said. 

Mark Cathey, who served on the school board for nine years previously, spoke before the council during its public hearing on the budget.

“This is as bad fiscally as COVID was, and we’re doing it to ourselves, apparently,” he said. “I just don’t want us to do anything drastic yet. Now’s not the time. We don’t know what’s around the corner.”

School board Chair Eli Jamison, teary-eyed with what she called “fury,” said at a recent board meeting that cuts like this would have ripple effects — RCPS is the fifth-largest employer in the Roanoke Valley, she said. 

She said these changes would be “catastrophic” for the division. On April 21, she addressed the council for her first time at their public hearing: “This crisis didn’t happen yesterday, and it cannot be solved on the backs of our children.”