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Strategic School Finance Training

CDE/CSFP

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Fund Balance Basics

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Glenn Gustafson

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Topics/Agenda

Goals of Training

January 16 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
    • Levels of Fund Balance
    • Strategies-BOE Communication

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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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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.

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  • Assets = Liabilities + Fund Balance

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

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  • Audit Sample

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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 current students?
    • 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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Fund Balance Characteristics

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  • 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.

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  • 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

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  • 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.

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  • 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 Appropriated Reserve

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Appropriation Calculation

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Appropriation meaning: Total Funds Available

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Budgeting Fund Balance Categories

Appropriated Reserve Expense Accounts

Example

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There are no expenses applied to the Appropriated Reserve. It is the mechanism to communicate how much resources the District has available, not planning on spending.

Assurance of Financial Accreditation 44-13 “Spending in excess of Appropriation.

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Budgeting Appropriated Reserve

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
    • AND, a Beginning Fund Balance Resolution is required.

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Budgeting Fund Balance Categories

Appropriated Reserve Expense Accounts

Budget Expense Account COA pgs 52-53

  • Reserve accounts are used in Budgeting ONLY. Actual expenses must be made in the proper expenditure account.

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  • Appropriated reserve =
    • Expected Ending Fund Balance (BFB+Revenue-Expense) + Budgeted Expense.
    • It communicates total “Available” resources, not what is planned to be expended.

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  • Example Account Segment
    • 10-800-00-9XXX-0840-000-0000
      • 800 location is District Wide
      • 0840 object is Contingency
      • 9XXX is specific program to specific categories

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Balance Sheet Example

Small District

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What does your Bolded Balance sheet look like? Does it match exactly? Did Revenue less Expenses “Close” to 6770(Apta Fund) or 6750 (SDS) for all funds?

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Fund Balance Levels & Strategies

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What is the Correct amount of Reserves?

Non-Accounting

  • Statute only requires 3% TABOR.

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

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

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  • Is there a Fund Balance policy? Not required, but if yes, then review it.

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Appropriate Level Considerations

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

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  • Are your Cash Bank Reconciliations done monthly, tying to the General Ledger?
    • What is your cash flow consideration?

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  • How “Spendy” or “Thrifty” is your Superintendent and/or Board of Education?
    • Historical General Fund Net Income trend?

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  • What is upcoming?
    • Construction? Bus Fleet? Other Major Items/Plans?

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  • What is District Budget Philosophy/Goal
    • Small Budget to Actual Variances OR Always better than budget?

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  • What is Student Count Doing?

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Appropriate Level Considerations

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Appropriate Level Considerations

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Appropriate Level Considerations

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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?

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

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  • What is my budget to actual variance for other Expenses?

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

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  • 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

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  • 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

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  • 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

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    • 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

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    • 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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Wrap up

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

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

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  • 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).

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  • 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.

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Wrap up

Final Thoughts

  • A plan & knowledge of trends takes out uncertainty.
    • If a trend of growing Fund Balance, be more aggressive.
  • Inform/make BOE more comfortable with spending annual resources on that year’s students.
    • What is the district saving for?

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