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March10

School Finance Explained: Fund Balances

Each month in The Bulletin, ASBSD Chief Financial Officer Bill Lynch will explain a piece from the school finance puzzle.

Lynch

 

What is your district’s Fund Balance and why do you need it?

 

Can you answer those questions?

 

This is one of the questions floating around the Capitol again.  The amount of money districts have in fund balances has been below the legislature’s radar for a number of years.

 

Well, it’s Back.

 

When we talk to Leadership in the hopes of convincing them that districts need a larger Per-Student Allocation (i.e. $4,805) what we hear is “why?” when there are school districts with fund balances of over 60, 70 and even 100 percent of the previous year’s General Fund expenditures.

 

Now, that prevailing thought is not true for many schools districts, as the state wide General Fund average is 30 percent, but it only takes one or two as the saying goes.

 

The first answer that comes to mind is we need it for Cash Flow so we can pay our bills in a timely manner without borrowing.

 

My measure, with the flow of State funds as part of the PSA on a monthly basis to schools, is with a high percentage of the PSA coming from the State school districts should be able to cash flow at approximately 20 percent of the prior year’s expenditures on hand.

 

If you are a school district that depends solely on local property taxes, then you would need approximately 40 percent in fund balance for cash flow by June 30th.

 

Why does a district need a fund balance above what is necessary for cash flow?

 

The major reason given is it protects the district from down turns in revenue…right?

 

But, do we use it in these situations?

 

It is “one time money,” so you don’t want to use any great amount on reoccurring expenses, such as salary.

 

But, did we use fund balances in the down turn in revenue we experienced in 2011?

 

Districts probably use it as little as possible.

 

So, what good is a surplus in fund balance?

 

It is a rainy day fund, but, to my previous point, it seldom rains in South Dakota where we would use it.   Snow now that is another story!

 

Can you, or have you, explained to your legislators your need for cash flow and what your district’s plan is for the amount above that level in your fund balance?

 

It is hard to put these funds to work for a long term benefit to students without causing other long term financial problems as one time money causes if not used wisely.

 

I recently read an article about which “one-time expenditure” gets the biggest return on investment for the benefit of students. That one expenditure with the greatest return is a well-designed Professional Development program.  These programs can be a onetime expenditure that brings the benefits back to the classroom.

 

A benefit of having a fund balance in excess of your cash flow needs is you can provide your staff and the board with well-designed Professional Development programs, such as the training and implementation related to Common Core or ASBSD Board Development training, without taking funding away from other student programs.

 

I believe it would be a move in the right direction if districts would begin developing a plan for the use of their surplus fund balance above the needs of cash flow, like we do for the Capital Outlay Fund five-year plan.

 

Then we can be transparent and make sure the public and our legislatures know what and how these funds will be used.

 

Then, maybe, fund balance will again become less of an issue and the Legislatures will be more interested in increasing funding for schools.

 

Remember, we are all in this together.

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