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Strategic School Finance Training

CDE/CSFP

Feb 1-2, 2024

Fund Balance Basics

Glenn Gustafson & Mark Rydberg

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Topics/Agenda

Goals of Training

January 18 9-10:30 Fund Balance Training Link

Understanding Fund Balance

Recurring vs Non-Recurring
How it Grows/Declines
Cash Flows levels affect Fund Balance
Fund Balance and Reserves are not synonymous

COA of Fund Balance on Balance Sheet

Different classifications for different categories
Budgeting Appropriation Reserve in the Budget
Location 800 Program 9XXX Object 0840.

Levels of Fund Balance
Strategies-BOE Communication

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What is Fund Balance?

Technical Accounting Terms

Fund Balance is your cumulative net income since the beginning of time. Annually, revenue less is “closed” to Fund Balance.

Assets = Liabilities + Fund Balance

Categories of Fund Balance

Restricted - Other Entity Mandates
Committed - BOE resolution
Assigned - Supt./BM decide with BOE notice
Unassigned - Flexible, the “Reserve”

Audit Sample

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What is Fund Balance?

Non-Accounting Terms

Political
Misunderstood
Strategy/Philosophy needed

May want to codify in Policy

District Reserve are a part of Fund Balance.

Know District FB Categories
Reserve % = General Fund’s Unassigned 6770 divided by General Fund expenses.

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Government and Business Differences

Legal Structure
Political Process
Different mission/motive
Government Activities - resources driven by available resources
Business - resources driven by free market.

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Recurring Expense funded from Fund Balance

Non-Accounting & Accounting Terms

Fund Balance is non-recurring, once spent it is gone!

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What is the Correct amount of Reserves?

Non-Accounting Terms

Statute only requires 3% TABOR.

Good Rule of Thumb is Unassigned FB should be 3 months, or 25%, of General Fund Expenses. Gives District plenty of Operating Flexibility

OR what is needed for Cash Flow purposes to fund operations without outside funding.

You may have a Fund Balance policy. Review it, adjust if necessary.

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Fund Balance Characteristics

Fund Balance either increases or decreases each year based on the difference between revenues and expenditures.

Surplus (Rev>Exp) adds to fund balance.
Deficit (Rev<Exp) reduces from fund balance.

Fund Balance is Non-Recurring

Best Practice-Don’t spend non-recurring money on recurring expenses. OR have a multi-year plan on how it the expense will be funded with recurring revenue.

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Fund Balance Characteristics

Fund Balance is a combination of required & planned set asides & “Reserve” funds.

For some it allows for positive cash flows until March 10th property tax arrive.

Fund Balances MUST be positive, cannot be negative!

Negative Fund Balance triggers Office of State Auditor to notify Superintendent and BOE.

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Budgeting for Ending Fund Balance in the Budget

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Budgeting Fund Balance Categories

Appropriated Reserve Expense Accounts

Communicate all District’s available resources in the Budget, not what it is planning on being spent.
Ensures that the District’s Appropriation is statutorily correct.

It’s not an option to under appropriate the “Available” resources

No Expenses are ever booked to these accounts. Expense is booked to the proper Expenditure account.
If Appropriated Reserve(i.e. Ending Funding Balance) is less than Beginning Fund Balance,

Expenses are Higher than Revenue
Beginning Fund Balance Resolution is needed.

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Fund Balance Levels & Strategies

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Appropriate Level Considerations

Q: How much Fund Balance should a district have?

A: Depends, mainly based on Cash Flow

Q: Don’t we need it for a “rainy” day?

A: Yes, but how big of a Storm.

Q: Should it Grow(Revenue > Expense) every year?

A: It does NOT need to grow every year.

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Appropriate Level Considerations

How knowledgeable is your “Leadership” about the District’s Budget/Finances?

Are your Cash Bank Reconciliations done monthly, tying to the General Ledger?

What is your cash flow consideration?

How “Spendy” or “Thrifty” is your Superintendent and/or Board of Education?

Historical General Fund Net Income trend?

What is upcoming?

New Building? Bus Fleet? Other Major Items/Plans?

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Fund Balance Philosophy

Which students deserve these resources?

Does the BOE value having Fund Balance Growth?
Are you maximizing annual resources on the students that year?
Are District’s audited budget to actual variances usually favorable in both Revenue and Expense, thus growing Fund Balance?

How “Urgent” is your District’s Mission?

Does the BOE value Fund Balance Growth more than expending resources on today’s students?

Spending Down Fund Balance can be a key Strategic decision to release some stored up resources to improve current conditions.

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Questions to ask when considering fund balance

What is Student Count doing? (Growing/Declining/Steady)
What is my budget to actual variance for Revenues?

What is my budget to actual variance for Salaries & Benefits?

What is my budget to actual variance for other Expenses?

Are we saving up for major expenses (BEST/Construction)

Are certain schools/depts NOT spending their budget? Why?

Are certain departments regularly overspending their budget?

What is my budgeted recurring/non-recurring mismatch?

Do you know?
If spending FB items; Is there a plan for how deficit spending will end?
Do I have unusual non-recurring items included in my budget?

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Strategies to Deploy Fund Balance

If thinking about spending Fund Balance and have a High Reserve

Use more aggressive budgeting. Actual Revenues less than Actual Expenses will lower Fund Balance. Stop Growing it!

Need to understand historical actual to budget variances.

How up to date are the following replacement plan items:

Vehicle Fleet (yellow and white fleet)
Curriculum
Technology
Deferred Facility Maintenance

Other non-recurring items:

Staff Bonuses (with or without PERA)
Professional Development
Facilities always has needs (carpet, paint, mowers, plows, small equip, building improvements, etc)
Special projects or events

What is the plan to not have ongoing deficits if spending on recurring expenses?

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Strategies to Deploy Fund Balance

Annually “Assign” or “Commit” Fund Balance to plan for big ticket items/projects.

Vehicle Fleet (yellow and white fleet)
Curriculum
Technology
Deferred Facility Maintenance

May assist BOE, staff, community understanding that Fund Balance can be safely spent on non-recurring items.

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Strategies to Increase Fund Balance

If Fund Balance is less than 15%, including TABOR

If trying to increase Fund Balance

Revenues > Expenses will grow Fund Balance

Budget pupil count conservatively
Budget revenues conservatively
Make sure staffing budgets are accurate
Build cushion into expenditure budgets in order to mitigate surprises
Capture the savings from staffing vacancies

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Strategies to Increase Fund Balance

If Fund Balance is less than 15%, including TABOR

Make sure you use modeling for more accurate expenditure estimates
Consider leveraging alternative sources of revenue:

Indirects on Nutritional Services(only applicable if you are not transferring money from GF) & Grants
Investment Income
Maximize State categoricals
Capture General Fund savings from grant covered expenses-Supplanting issue-

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Current Levels

January Meeting Folder -Rifle FT webpage Information

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Wrap up & Conclusion

Use the Appropriation Reserve to accurately appropriate not only expected spending, but what is available to spend.

Communicate with Superintendent and BOE to determine Fund Balance levels. Consider “assigning” or “committing” unrestricted fund balance to cover replacement schedule items.

Role of Administration is to ALERT B.O.E. and district of consequences of using Beginning Fund Balance

22‑44‑105(1.5)(a)&(c).

Fine tune your budget to maximize resources on the students of today, while being prepared for the future.

After a January revised budget revenue variance can be +/- 1-2% range & expenses can be +/- 2-5% range.