Last updated on July 29th, 2024

As part of a school district’s financial management, maintaining a reasonable unassigned fund balance provides a safety buffer for unforeseen expenses or revenue shortfalls. This is vital as it helps ensure adequate cash flow to cover the ongoing cost of operations. Managing these funds entails a strong understanding of their purpose, limits, and use.

To start, an unassigned fund balance is what remains after expenditures are paid. Unlike reserve funds that have specific purposes and requirements as set forth in law, an unassigned fund balance is not committed, assigned, or restricted in any way. This flexibility allows school administrators to use the funds where they are most needed, especially during periods of financial uncertainty.

The Governmental Accounting Standards Board (GASB) has set specific guidelines for maintaining and reporting fund balances into five classifications under GASB #54. It’s crucial for school districts to be aware of these guidelines and implement them effectively as they aim to ensure transparency, accountability, and fiscal responsibility in managing public funds.

One of the most important things to understand about unassigned fund balances is their purpose. They are not meant to be a source of ongoing funding for regular expenses. Instead, they are designed to meet unexpected or emergency costs, such as unforeseen repairs, unexpected increases in student enrollment, or sudden reductions in revenue.

Strategic planning and forecasting are vital tools in managing unassigned fund balances. School districts should have a clear understanding of their financial stability, including potential risks and opportunities, to ensure they maintain an appropriate fund balance level. This includes regular reviews of financial performance and adjusting the fund balance accordingly.

In New York, the maximum amount of unassigned fund balance at the end of the school year cannot be more than 4% of the following year’s budget. However, a 2019 report from the Office of the State Comptroller (OSC) indicated 60% of districts had unassigned fund balances higher than 4%.

While bills have been crafted to increase the 4% limit to 6% and to require greater transparency around unassigned fund balance, they haven’t made it past the initial stages.

For now, it’s important to be aware of the facts that having a healthy unassigned fund balance can be beneficial, but excessively large balances can draw public criticism for over-taxation or poor fiscal management and is against the law (Section 1318 of the Real Property Tax Law). It’s important to strike a balance by maintaining a fund balance size that is sufficient to handle unexpected costs but not excessively large to invite unnecessary scrutiny and undermine public trust.

In the presentation, “School District Fund Practices: The Law and the Reality,” these best practices were shared for school district officials:

• Develop policies and procedures for fund balance and reserve funds.
• Develop multiyear financial and capital plans.
• Adopt budgets that reasonably reflect the district’s operating needs based on historical trends and other analyses.
• If over 4%, develop a plan to reduce the unexpended surplus fund balance.

If you’d like to discuss or analyze your district’s unassigned fund balance, we’d be glad to help. You can always count on RBT CPAs for accounting, audit, tax, and advisory services. Give us a call to see how we can be Remarkably Better Together.

RBT CPAs never offshores work outside of the U.S., so you always know who is handling your financial information.