What is a School District “Fund Balance” and Why is it Important?

— from Orcas Island School District Staff —

A district’s fund balance is the amount left in the school district’s accounts, less any accounts payable, at the end of the fiscal year. In the case of OISD, the current balance has built up over time, after reaching a low point ten years ago.

First and foremost, a fund balance is in place to protect educational opportunities for the community’s children in the event of some type of financial disruption. It’s important to maintain adequate fund balances in order to:

• Provide sufficient cash flow for daily financial needs,
• Offset significant economic downturns or revenue shortfalls, and
• Provide funds for unforeseen expenditures related to emergencies.

Uncertainties affecting the fund balance (sometimes because of less revenue, and sometimes because of additional expenses) include:

• Enrollment fluctuations throughout the school year;
• Unexpected changes in tax appropriation levels by state and federal agencies;
• Unfunded legislative mandates;
• Passage or failure of voter referendums and levies;
• Financial impacts of labor agreements;
• Energy cost increases, weather related damages;

While currently Washington State law does not require school districts to maintain a minimum fund balance, the district recognizes the importance of maintaining one and the Board of Directors adopted a policy requiring a minimum equal to one month of the district’s operating expenses in 2016.

Our current fund balance is approximately $1 million. That sounds like a lot until you look at our monthly expenses. Our payroll expense is approximately $635,000 per month. Supplies, instructional resources, and other purchased services (maintenance, IT, testing, etc.) is an additional $210,000 per month. In order to balance the budget for the coming school year, we had to allocate over $400,000 of the existing Fund Balance, which will reduce the balance to below the minimum that the Board established.

We probably all have examples we can cite of the extra cost of living on the island. Although we attempt to use local vendors as often as possible, when we are forced to make purchases off-island
that extra “transportation” charge can sometimes double the actual cost of the item. This ‘island factor’ applies to many aspects of running the school district as well.

This information is provided to help put some of the financial numbers in perspective and be transparent to the community. Comparisons to a family budget were made in a previous article.

We encourage everyone to attend our school board meetings on the 4th Thursday of every month at 5 p.m. where we discuss our challenges, accomplishments, and budget-related decisions.