The Dexter Leader
A Heritage Newspaper
Weekly Publication
Unreserved fund balance needed
Social Studies serious part of the curriculum
By Terry Jacoby, Heritage Newspapers
PUBLISHED: March 8, 2007
While school districts across the state complain about increasing financial problems, the balance sheet actually shows millions of dollars not spent from year to year. One lawmaker, State Rep. Jack Brandenburg (Harrison Township), would like to see a 15 percent cap on the unreserved fund balance districts maintain.
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Brandenburg and other state representatives on Monday called to fix to a problem that allowed three government departments to overspend their annual budgets by $70 million last year.
"This is a typical example of why we are in the condition we are in today," said Brandenburg. "This proves that deficits don't occur because we are taxing too little. Deficits occur because we are spending too much."
Brandenburg says a cap of 15 percent could result in another $357 million for use in the classrooms.
According to Sharon Raschke, executive director of finance for the Dexter schools, the Michigan School Business Officials association suggests that an appropriate unreserved fund balance for a Michigan public school be in therange of two months of budgeted operations of 15-20 percent of budgeted operations."Since most schools do not have as a sophisticated level of designations, I'd reflect that recommendation from MSBO could be interpreted as 15-20 percent fund balance," Raschke said.Dexter had planned for a smooth transition into the opening of the district's sixth building (the new high school) in February 2002. "Using the fund balance to smooth out the extra operational costs of a new building, we were able tokeep the programming in the district consistent in spite of the extra costs we were projecting," Raschke said. "As the student growth continued, we were once again able to break even. That worked exactly as planned."
But then the state cut funding to schools in the middle of the 02-03 school year.
"As a reaction to the state budget crisis, Dexter slashed up our district and made tremendous cuts in administration and custodial services to bring our revenue and expenditures back in balance," she said. "With continued uncertainty of state funding, we continued to operate in an overall conservative fashion."
In 2002-03, Dexter had an unreserved balance fund of 5.7 percent with nothing undesignated. The books have improved since, growing steadily (see chart) to 12.5 percent with 3.7 percent undesignated for 2005-06. Dexter Schools General Fund Balance for 2005-06 was $4,022,594.
The purpose of a fund balance is to provide sufficient resources to provide a high level of stability in the financial operations of a district.
"The board policy is that every reasonable effort will be made, while still maintaining short term and long term financial stability for the district, to maintain an amount in the range of 3 – 5 percent of its annual budgeted expenses as the undesignated fund balance," Raschke said.
The fund balance is segregated into four parts:1) Reserves legally required to be held (expenditures paid for in one year that are really an obligation of a future year).
2) Management designations that are defined in the board policy (health insurance claims in a self-funded program, carry forward of teaching supplies).
3) Management planned designations that are defined in the board policy (retirement/severance payments, instructional materials and equipment, facilities, other equipment, buses, etc.).
4) Undesignated and unreserved. While Dexter with a 12.5 percent unreserved fund balance would not be effected by a 15 percent cap, Chelsea would be. Chelsea has been above 15 percent for the past three years.
Teresa A. Zigman, executive director of business and operations for the Chelsea School District, says "We opt not to designate any portion of our fund balance given that the State has not perfected their 'crystal ball.' Some districts have policies which require different designations (such as capital outlay). I think you'll find all districts are a bit different. Our only designations at this time relate to prepaid expenditures."
Zigman compares fund equity to a personal savings account that one maintains for unexpected issues that come up. "For instance, a good financial planner will tell you that you should have six months of expenses set aside in savings in case something happens to you," she says.
When fund equity is not used, it does grow to the extent that revenues exceed expenditures for that year and the fund equity figure is carried forward for future use.
"For schools, our state organization supports a 15 percent fund equity (which means 15 percent of our total expenditures). Now, surprisingly enough, when you work the math on a 180 day school year, that 15 percent will only take us through 27 days of operations. This is the worse case scenario – no revenue coming in at all from the state. However, usually your fund equity is not going to be used up completely at one time (if it is theremay be some other financial/state/local underlying issues.)"
Zigman said most districts use a portion at a time - either to buy time until the state gets "settled" or as they are implementing change.
"The key is that you need to zero out any deficit that occurs in one year, because if not it compounds for future years - that is how your total fund equity (savings account) can disappear," she said.
Zigman says they do not take any excess funding and give it back to the state because "we have to provide for both local and state expenditures that are 'assessed' to us at all times of the year.
"For instance, utility increases, property tax adjustments, any mid-year proration(s) from the State (due to funds that were suppose to come to the schools get diverted/committed elsewhere), and health insurance costs that allhave to be provided from our end throughout the year, with a set amount per student to work with. I would think that if the State implemented a system that they received the excess, then they would have to also be willing to bail districts out of individual issues during the school year (give us more funds when needed).
"Giving us a per-pupil allocation allows us to define our parameters and work within them – we owe the State nothing and the State owes us nothing beyond the amount per pupil."
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