What is a fund balance?
Generally, a fund balance is the difference between a district’s assets and its liabilities. In addition to cash in the bank and investments, a fund balance also includes money owed to, or by, the district and the value of items in inventory that will be collected, paid and/or used in the current fiscal year.
Three types of fund balances are reported to the state:
How much money is in Keystone Oaks’ fund balance and what will that money be used for?
- Committed – funds that have been dedicated by the school board for a specific purpose
- Assigned – funds that are intended for a specific purpose by a committee of the school board or an individual authorized by the board
- Unassigned – funds that are available for any purpose
For the 2016-2017 school year, Keystone Oaks’ budgeted expenditures were approximately $39.3 million dollars. The district had a fund balance of approximately $5.79 million, or 6.6% of expenditures – well within both the district’s policy and financial industry guidelines.
Approximately $2.7 million of the district’s fund balance is unassigned and available for unexpected expenses.
The remaining $3.09 million is set aside for specific purposes, including employee pensions and post-retirement benefits, such as healthcare.
How much money should a school district have in its fund balance?
Financial industry experts recommend that school districts maintain a fund balance of between 5% and 10% of all expenditures. Keystone Oaks’ Board of School Directors Fund Balance Policy
states that the district will “strive to maintain a general unassigned fund balance of not less than 5% and not more than 8% of budgeted expenditures for that fiscal year.”
School districts will often commit or assign money in their fund balance to offset the cost of large expenditures, such as construction projects, renovations, or for expenses related to employee pensions, which have been increasing rapidly over the past decade.
Money that is unassigned is equivalent to a “rainy day” fund and is typically used for unexpected expenses, such as responding to an emergency or fulfilling a revenue shortfall, like the loss of a major employer in the district.
Are there any restrictions on what a fund balance can or cannot be used for?
No, there are not any restrictions on what a fund balance can be used for. However, Pennsylvania School Code restricts school districts from increasing property taxes unless their adopted budget contains an ending unassigned fund balance below a specified percentage of budgeted expenditures.
For example, if a school district’s budgeted expenditures were $20 million, it could not raise property taxes if the unassigned fund balance at the end of the year is projected to be more than 8% of those expenditures which, in this case, would be $1.6 million or more.
School district fund balances are often scrutinized by the public and the media because reports show that, across Pennsylvania, school districts have more than $4.4 billion in fund balances.
Districts are often portrayed as “stock piling” money, while continuing to raise property taxes and, at the same time, express concerns about stagnant state funding.
However, a 2017 report by the Pennsylvania School Boards Association, which reviewed school district expenses and fund balances for the 2015-2016 school year, found that 58% of the money in districts’ fund balances is designated for a specific purpose. The remaining $1.8 billion in unassigned fund balance represents only 6.5% of all school district expenses, which is well within industry guidelines.