Fund balance and reserves presentation delivered to the board

At the Jan. 16 board of education meeting, Assistant Superintendent for Business Dr. Andrew Van Alstyne gave a presentation about the district’s projected fund balance and reserves for the 2024-2025 school year. This topic is one that is considered early in the budget development process and is one of many areas that provide the framework for the first draft of the budget which will be presented to the board and community on March 5.

What is a fund balance?

The Jan. 16 presentation featured the district’s fund balance and reserves; the fund balance is the end-of-year surplus in the general fund. This surplus can be due to lower expenditures than anticipated and/or greater revenues than projected, which may accumulate over time, resulting in savings for the district. By New York state law, the maximum amount of unassigned fund balance in a given fiscal year cannot exceed 4% of the following year’s budget. Some or all of the previous year’s fund balance may be appropriated as a source of revenue in the development of the next school year’s annual budget.

There are four categories of fund balance, each with a specific use:

  • Assigned: budget fund balance is set aside to pay year-end bills
  • Appropriated: an amount of the fund balance is designated to lower property taxes
  • Restricted: the funds set aside to pay for legally allowed types of expenses (reserve funds)
  • Unassigned: subject to a 4% limit, this amount of the fund balance can be used as a contingency for emergencies. Unassigned fund balances are comparable to the personal finance scenario of maintaining an emergency fund to cover three to six months of expenses in the event of unforeseen job loss or another catastrophic event.

What are reserve funds?

Reserve funds are amounts of the year-end operating surpluses that may be set aside to fund one or more legally permissible, reasonably anticipated expenses, of which there are 13. Specific rules govern how each reserve fund is established, funded, spent and closed. In certain instances, such as capital reserve funds, voter approval is required. As stated above, the reserve fund from one school year’s budget may be appropriated as a source of revenue in the development of the annual budget for the subsequent school year. Reserve funds can be equated to saving over time for a specific purpose, such as an individual saving for retirement, a down payment when purchasing a home or for college.

Advantages of fund balance and reserve accounts

Fund balance and reserve accounts provide flexibility to school districts to weather short-term financial insecurity, while contributing to yearly budget and tax rate stability. These fiscal options can provide readily available cash to meet both unanticipated and likely needs, without the need to borrow funds and subsequently paying fees and interest. Large cash reserves result in a higher credit rating, which can lead to lower rates when borrowing. This may save a school district money, especially over the long term.

Potential downside to using fund balance and reserve accounts to balance a budget

Use of fund balance and reserves to balance the budget must be carefully managed in the short-term to avoid long-term negative consequences. Fund balance and reserve accounts should not be used as recurring sources of revenue; continued use over time will create revenue gaps that will eventually require cuts to balance the budget. If there are unanticipated increases in expenditures or loss of revenues, these gaps may need to be funded through borrowing or a budget freeze.

The importance of maintaining an adequate level of fund balance

There are several benefits to maintaining a sufficient fund balance level. First, the surplus gives a school district the ability to cover year-to-year budget fluctuations to sustain a strong, varied and robust educational program over time. Second, an adequate fund balance level provides stability, enabling school districts to avoid repeated cycles of budget and staffing reductions, class size increases, limited extracurriculars including music and the arts, field trips, sports, etc. Third, the extra capital gives a district flexibility to address the 2% or less NYS cap on tax levy increases, even as inflation persists and costs continue to rise. Lastly, maintaining a strong tax base enhances the community and can increase property values.

Current state of GCSD’s fund balance and reserves

To date, GCSD has an unassigned fund balance of approximately $4.8 million, which is the four percent maximum amount of unassigned fund balance a school district can have in a fiscal year. This is considered beneficial, as these funds can be used in the event of an unexpected cost or emergency.

This year, overall reserves are 10.1% of the budget, which is a year-over-year decline of 1.7 percentage points. Significant expenses related to tax certiorari claims are the primary factor behind this decline. Indeed, the tax certiorari reserve is currently at $0, which is a significant difference from past years. This is a reserve that allows school districts to set aside money in case of negative judgments and tax certiorari claims. If a property holder contests the assessed value of their property in court and wins, the district could be liable to pay back three years of what was overtaxed, therefore losing tax refunds. GCSD has faced this in the past and used this reserve to manage tax repayments.

What comes next

Administrative Budget Planning Meetings

GCSD administrators and supervisors continue to meet with district office leaders to share their recommendations for items to be included in the 2024-25 budget. These recommendations are based on their analysis of student needs and other operational considerations. These meetings provide an opportunity to consider what adjustments need to be made for the 2024-25 school year. The goal is to ensure that the proposed budget meets the needs of students and is as effective and efficient as possible.

Community Input

The district recently conducted a budget survey to gather feedback from the Guilderland school community. Those who were unable to participate, as well as all others, are welcome and encouraged to provide their input through public comment at board of education meetings. This valuable perspective helps district leaders know where and how the community believes resources should be directed.

NYS Executive Budget Proposal (Jan. 2024)

Released last week, the governor’s executive budget proposal provides GCSD more certain information about Foundation Aid and other aid categories, to inform the ongoing development of the spending plan. Dr. Van Alstyne will present more information about the governor’s proposal at the Jan. 30 board of education meeting.

Superintendents Draft Budget Proposal will be shared March 5

Once the governor’s proposed budget is thoroughly reviewed, GCSD administrators will refine their recommendations that will result in a draft budget, which Dr. Wiles will present at the Mar. 5 board of education meeting. This draft budget is subject to revision but will provide the board of education members with a document to work from before adopting a final budget at the April 16 meeting.

Important upcoming dates

March 5, 2024: Superintendent’s Budget Presentation
March 12, 2024: Budget Workshop Q & A
March 26, 2024: Budget Work Session
April 16, 2024: Board Action to Adopt the Proposed Budget
May 7, 2024: Budget Hearing
May 21, 2024: Budget Vote and Election

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