DIA - School General Fund Balance
Book: D
Section: Fiscal Management
Title: School General Fund Balance
Code: DIA
Status: Active
Adopted: November 4, 2014
SCHOOL GENERAL FUND BALANCE
Purpose
It is the purpose of this policy to recognize the State requirements placed on school fund balances and establish a guideline for managing fund balances while ensuring compliance with State law. This policy is separate from but complementary to the City’s General Fund Balance Policy, and is specific to the School Department, whose fund balance contributes to the City’s General Fund balance. Public schools are governed by State laws, which include requirements for school fund balances. A key element of the financial stability of the City is not only the fund balance amount but also having a policy in place to set guidelines for the City’s General Fund balance. Unassigned fund balance is an important measure of economic stability. It is essential that the City and Schools maintain adequate levels of unassigned fund balance to mitigate financial risk that can occur from unforeseen revenue fluctuations, unanticipated expenditures and similar circumstances. It is also critical that they comply with State law requirements for school fund balances.
Governing Factors
Maine State Law, Title 20-A, MRS section 15689-B (6) states that:
“Notwithstanding any other law, general operating fund balances at the end of a school administrative unit's fiscal year must be carried forward to meet the unit's needs in the next year or over a period not to exceed 3 years. Unallocated balances in excess of 3% of the previous fiscal year's school budget must be used to reduce the state and local share of the total allocation for the purpose of computing state subsidy. School boards may carry forward unallocated balances in excess of 3% of the previous year's school budget and disburse these funds in the next year or over a period not to exceed 3 years. For fiscal years 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15 only, the carry-forward of a school administrative unit's unallocated balances is not limited to 3% of the previous fiscal year's school budget.”
20-A M.R.S. section 15004 states:
“The unexpended balance of all money raised by a school administrative unit, received from the State for general-purpose aid for for other educational programs; from the Federal Government directly or from the Federal Government through the State; from tuition payments made by other units, the State, or by individuals; and other receipts for school purposes shall be carried forward and credited to the unit for educational programs for the ensuing year.”
20-A M.R.S. section 15689-B(5) states:
“Notwithstanding any other law, money allocated for school purposes may be expended only for school purposes.”
20-A M.R.S. section 6052 establishes the requirements for the annual audit of School Department funds.
The intent of these laws is to ensure that public funds raised for education, including those provided by the State, are used for that purpose and are subject to independent audit, and additionally that school administrative units do not accumulate fund balances in excess of a reasonable amount without consideration for tax relief. The calculation of amounts that are covered by the 3% unallocated balance limitation would not include School Reserve funds, Adult Education funds, or Food Service funds.
The Portland School Department’s fund balance contributes to the City’s General Fund balance. Credit rating agencies determine the adequacy of the unassigned fund balance using a complex series of financial evaluations. The size of the City’s General Fund balance is an important, but not the only, consideration in the City’s rating. Other important factors are the reliability of a government’s revenue sources, economic conditions, community wealth factors, cash position, debt ratios, management performance, and fiscal decisions made by the legislative body. The Portland School Department’s fund balance, which contributes to the City’s General Fund balance, plays a significant role in how rating agencies view the City’s overall credit worthiness. Also, the School Department benefits from a favorable credit rating of the City as it issues debt for school projects.
The highest financial risk area for the School Department is loss of non-tax revenue, particularly from State funding. Historically there have been years when the State has reduced funding to schools during a fiscal year. Loss of revenue is difficult to manage when school is underway, due to the need to provide resources to support that academic year.
The financial management of the Portland School Department is vested in the Board of Public Education; the total appropriation for the school budget is subject to approval by the City Council and, so long as applicable under state law, budget validation referendum procedures.
Policy
It is the policy of the The Portland Board of Public Education:
To comply with State laws by accounting for school funds internally and through independent audit.
- To apply school funds only to school purposes.
- To apply any unallocated school general fund balances in excess of 3% of the previous year’s budget to support the operating budget over a period not to exceed the three succeeding years. This policy does not limit the authority of the Board of Public Education, with approval of the City Council, to establish and transfer school funds to school reserve funds.
It is also the goal of the Board to maintain enough fund balance to provide a resource to address losses of revenue or unforeseen expenditure events. To the extent consistent with the limit of 3% of the previous year’s budget, the Board will strive to achieve and maintain an unassigned School Fund Balance at least equal to 8% of the subsequent year’s estimated non-tax revenue. The Board’s view is that the fund balance should not be less than 4% of the subsequent year’s estimated non-tax revenue , and the School Department will work to restore the fund balance as soon as possible if it falls below that 4% threshold.
The Portland Board of Public Education
Legal References: 20-A M.R.S. §1001(1-A); 20-A M.R.S. §15689-B(6);20-A M.R.S. §15004;20-A M.R.S. §15689-B(5); 20-A M.R.S. §6052
Cross References: City of Portland General Fund Balance Policy
Adopted: November 4, 2014
Legal
Cross References
City of Portland General Fund Balance Policy
DIA - School General Fund Balance.pdf (14 KB)
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