What are school district assets, liabilities and fund balances?
What are school district assets, liabilities and fund balances? While our past editions have focused on aspects of fiscal stress through examination of school district expenditures (i.e. mandated cost growth for pensions, charter school tuition and special education) and school district revenues (i.e. funding sources to cover those growing mandated costs through state and local revenue), we now move toward a different aspect of fiscal stress: cash flow and fund balance.
It is important to understand what a school district fund balance actually represents. While a surplus or deficit can indicate the balance between year-ending expenditures and revenues, fund balance indicates the balance (or equity) between current assets and liabilities at a specific point in time. Since school districts submit annual financial reports for the fiscal year ending on June 30th, the annual fund balance reports capture the balance between assets and liabilities on that specific date.
Although occasionally, some might think of fund balance as simply cash or money sitting in a bank, fund balance is neither. The difference between assets and liabilities, fund balance represents the spendable (tangible) and non-spendable (intangible) resources available to meet future obligations. School district fund balances are distributed among 5 categories, each with different levels of spendable authority as illustrated by the image below.
Today, we will look at the least restricted type of fund balance, unassigned fund balance. We'll cover the narrower types in more detail tomorrow. By statute, school districts are capped at certain levels of unassigned fund balance if they are raising property taxes. Most districts are capped at 8%, which is just slightly less than one month of reserve.
Unassigned fund balance is the portion of spendable fund balance that has not been categorized as restricted, committed or assigned to a specific purpose. This portion of the fund balance is commonly used to meet cash flow needs or to finance monthly operating expenditures. Generally, school districts have little income during June, July and August and a lot of expenditures associated with the close of one year and the start of another. Thus, analyzing unassigned fund balance is an important indicator of the fiscal stress and financial condition of a school district. In measuring the ability of a school district to cover current obligations, unassigned fund balance can be compared to total operating expenditures for context and to evaluate available resources in terms of time.
Statewide, for example, school districts’ average monthly operating expenditures were $2.156 billion in 2016-17; unassigned fund balances totaled $1.9 billion on June 30, 2017. Comparing these two numbers together, school districts had 0.88 months of resources available to cover their operating expenditures--that's 3.82 weeks or 26.8 days. Individually, school districts vary substantially in terms of the length to which their unassigned fund balance could cover operating expenditures. For example, 48 school districts had less than 7 days available in unassigned fund balance.
In addition to considering the time and availability of unassigned fund balance compared to school district operating expenditures, an important consideration of fund balance is that a school district's assets include money DUE to the school district that have not yet been received. Money due to the school district includes funds due but not yet paid by other local, state and federal governments, as well as taxes owed to the school district that have not yet been received. At the end of 2016-17, the amounts due to but not yet received by school districts from other local, state and federal governments totaled $1.177 billion, and the amounts due to but not yet received by school districts for taxes totaled $1.070 billion.
This is important because in terms of cash flow, school districts’ assets designated as funds not yet received or paid to the school district from other governments were equivalent to 61.93% of the total $1.90 billion in unassigned fund balance on June 30, 2017. Similarly, the assets designated as taxes not yet paid to school districts were equivalent to 56.28% of the $1.90 billion in unassigned fund balance on June 30, 2017.
Click on the interactive map below to view the unassigned fund balance for each school district in terms of days of operating expenditures, as well as the funds due from other governments and taxes to be paid as days of operating expenditures. Additionally, the map shows the percentage of total unassigned fund balance represented by the total funds due from other governments and taxes to be paid. All data is based on unassigned fund balances in place on June 30, 2017.