How Undesignated Fund Balance Changes Over Time

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Shannon Potter
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1 How Undesignated Fund Balance Changes Over Time It s just arithmetic: Prior End of Year Undesignated Fund Balance + Unused Prior Year Designations+ Operating Surplus (Variance of Actual Revenues and Expenditures to Budget) Supplemental Appropriation of Fund Balance Reserves and/or Designated Amounts for Future Expenditures or Other Purpose = End of Year Undesignated Fund Balance So Fund Balance is an Accumulation of Operating Surplus over Time

2 Seven Year History of Undesignated Fund Balance Fiscal Year Beginning of Year Undesignated Fund Balance + Unused Prior Year Designations + Current Year Operating Surplus Supplemental Appropriation Designated for Next Fiscal Year Expenditures Designated for Future Health Call = End of Year Undesignated Fund Balance FY01 158,845 2,106,667 1,955, ,493 FY02 310,493 1,284, , , ,000 FY03 500, , , ,000 1,005,838 FY04 1,005,838 1,321, ,697 2,078,959 FY05 2,078,959 2,765,060 2,778,942 2,065,077 FY06 2,065,077 1,045,000 5,077, ,000 1,848,278 1,225,166 4,727,463 FY07 4,727,463 50,000 4,120, ,140 3,931,285 4,783,642

3 Operating Surplus Last 7 Years Variances by Year % % % 98.91% % 98.85% % 99.13% 99.96% 99.65% % 99.65% % 99.55% 99.91% 99.42% 90.00% 80.00% 70.00% % 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% FY07 FY06 FY05 FY04 FY03 FY02 FY01 Fiscal Year Revenues Expenditures This chart is a good measure of accuracy of budgeting. An A+ by any standard.

4 Variances for FY07 Budget Actual YeartoDate Variance % Yearto Date to Budget Total Revenues 374,827, ,968, , % Administration 10,062,134 9,791, , % MidLevel Administration 23,890,797 23,604, , % Instructional Salaries 158,649, ,370, , % Textbooks 10,264,350 10,186,615 77, % Other Instructional Costs 2,369,527 2,358,584 10, % Special Education 31,826,657 31,821,434 5, % Student Personnel Services 1,543,666 1,522,541 21, % Student Health Services 3,033,499 3,018,759 14, % Student Transportation 23,126,649 22,622, , % Operation of Plant 26,935,329 26,054, , % Maintenance of Plant 10,591,899 9,894, , % Fixed Charges 71,494,901 70,495, , % Community Services 507, ,147 52, % Capital Outlay 531, , % Total Expenditures 374,827, ,727,505 4,100, % Total Variance 4,240,604 4,240, %* * The total variance % is calculated based on the budget to actual amount.

5 Fund Balance Policy Adopted 5/22/01 The Current Expense Fund budgetary basis undesignated fund balance target is to range between onetenth percent (0.1%) and onequarter percent (0.25%) of the ensuing year expenditures but not less than $500,000. Amounts in excess of the targeted onequarter percent (0.25%) of the ensuing year expenditures are to be used for onetime expenditures in the ensuing year (e.g., transfer to capital projects accounts, equipment purchases, and new program startup costs). Based on the FY08 Adopted Budget of $405,793,753 the target undesignated fund balance is between $405,794 and $1,014,484 but not less than $500,000.

6 Context: Content without Context is Devoid of Meaning Anthony Marchione, Former BCPS Superintendent The undesignated fund balance at June 30, 2007 of $4,783,642 is 1.17% of the Adopted Budget for FY08. This is equal to a family with $60,000 of annual income having $660 in total cash and savings. Budgets are built 2 years in advance of final audit results. Right now (November 2007) we are working on FY09 budget, audit will be released September The consequences of a budget deficit at yearend are too severe to contemplate. Legally Politically Fiscally

7 GFOA Recommended Practice Appropriate Level of Unreserved Fund Balance in the General Fund (2002) The adequacy of unreserved fund balance in the general fund should be assessed based upon a government s own specific circumstances. Nevertheless, GFOA recommends, at a minimum, that generalpurpose governments, regardless of size, maintain unreserved fund balance in their general fund of no less than five to 15 percent of regular general fund operating revenues, or of no less than one to two months of regular general fund operating expenditures. Approved by the Committee on Accounting, Auditing and Financial Reporting and the Committee on Governmental Budgeting and Management, January 30, 2002 Approved by the Executive Board, February 15, This recommended practice suggests that HCPS maintain an undesignated fund balance of $20,289,688 (5% of revenues) to $33,816,146 (one month of operating expenditures).

8 In establishing a policy governing the level of unreserved fund balance in the general fund, a government should consider a variety of factors, including: The predictability of it revenues and the volatility of its expenditures (i.e., higher levels of unreserved fund balance may be needed if significant revenue sources are subject to unpredictable fluctuations or if operating expenditures are highly volatile). The availability of resources in other funds as well as the potential drain upon general fund resources from other funds (i.e., the availability of resources in other funds may reduce the amount of unreserved fund balance needed in the general fund, just as deficits in other funds may require that a higher level of unreserved fund balance be maintained in the general fund). Liquidity (i.e., a disparity between when financial resources actually become available to make payments and the average maturity of related liabilities may require that a higher level of resources be maintained). Designations (i.e., governments may wish to maintain higher levels of unreserved fund balance to compensate for any portion of unreserved fund balance already designated for a specific purpose). Naturally, any policy addressing desirable levels of unreserved fund balance in the general fund should be in conformity with all applicable legal and regulatory constraints. In this case in particular, it is essential that differences between GAAP fund balance and budgetary fund balance be fully appreciated by all interested parties.

9 Other Uses of Fund Balance OPEB funding the unfunded staff will recommend that Fund Balance Policy be modified to include use of up to onehalf of undesignated fund balance to be transferred to OPEB Trust Fund OPEC Fuel/Oil uncertainty Cost per gallon Force Majeure clause exercised by vendors Severity of weather Fund Balance provides a temporary cushion OHEC Other Harford Education Costs to fund certain capital projects not funded by the County or the State or other unanticipated costs incurred during the year

10 So, What Is The Correct Fund Balance Amount? It s a trick question. There is no correct amount. Policy should be revised to set target at a more reasonable level perhaps 1% to 3%. We have predictability. We do not have availability of other resources. We do not have liquidity. We do not have significant designations.

Total Assets 4,945,738

Total Assets 4,945,738 Web-GAAP Training School District Initial Year Governmental Fund Trial Balance For the Fiscal Year Ended June 30, 2000 Balance Sheet Debit Credit Fund: General ASSETS: Equity in Pooled Cash and Cash Equivalents