Board Minute - Gauging Fiscal Health

When examining a school budget, it is important to understand two types of balances: fund balances and unassigned fund balances. These balances, along with net cash flow, provide a good general gauge of the financial health of a school district.

Fund balances are analogous to money in a bank account, representing the district's available cash. The most critical fund balance is the general fund balance, which covers teacher salaries, instructional supplies, and general school district operations. Other important balances in Minnesota include food service, community education, and debt service funds. While funds in these accounts cannot be transferred to the general fund, general fund dollars can be moved to these accounts. Other fund balances are construction and activity funds which do not receive local, state, or federal funding. Please note the types of funds and if or under what conditions they can transfer funds vary from state to state.

The unassigned fund balance consists of dollars that are not already designated for spending, providing flexibility for unforeseen expenses. It is possible to have a positive fund balance but a negative unassigned fund balance, indicating more expenses are committed than cash on hand. These two types of balances offer insight into the financial health of the district.

A recommended fund balance is 25-40% of operational expenses. This percentage varies based on a district's size but generally provides enough funds to sustain operations for three months. There isn't a set recommendation for your unassigned fund balance, as this can vary greatly from district to district. That being said, your fund balance can remain relatively steady while your unassigned fund balance shrinks, indicating a decreasing availability of funds for unexpected expenses.

Cash flow, the difference between expenses and revenue, plays a crucial role in budgeting. A negative cash flow means that spending is exceeding income, depleting the fund balance. Addressing negative cash flow promptly is essential unless it is caused by a planned expense. A large fund balance, with only a slight positive cash flow, is often depleted through one-time expenses such as building projects or supply and equipment purchases. These costs will dip into your fund balance but won't produce an ongoing negative cash flow. Sufficient cash on hand is also necessary to handle fluctuations in state and federal aid payments. This helps to provide protection from cash fluctuations that occur on a month-to-month basis.

Analyzing fund balances, unassigned fund balances, and cash flow over time offers insight into a district's fiscal health. A low fund balance necessitates a healthier projected cash flow compared to a district with a robust fund balance.? A low unassigned fund balance with a high fund balance indicates dollars are already committed to be spent.? A little knowledge can help you better quickly gauge the fiscal position of your school district.

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