DIAA - Fund Balance Policy
File: DIAA
Acton School Department
Fund Balance Policy
Developed for GASB 54
Purpose
The School Committee recognizes that the maintenance of a fund balance is essential to the preservation of the financial integrity of the School Department and is fiscally advantageous for both the School Department and the taxpayer. This policy establishes goals and provides guidance concerning the desired level of fund balance maintained by the School Department to mitigate financial risk that can occur from unforeseen revenue fluctuations, unanticipated expenditures, and similar circumstances.
Definitions
Fund balance is a measurement of available financial resources and is the difference between total assets and total liabilities in each fund.
Government Accounting Standards Board Statement 54 identifies fund balance classifications based on the level of constraints that control the purposes for which specified amounts can be spent. Beginning with the most restrictive constraints, fund balance amounts will be reported in the following categories:
Nonspendable fund balance – amounts that are not in a spendable form (e.g., inventory) or are legally or contractually required to be maintained intact (e.g., permanent fund principal).
This type of fund balance is the most restrictive. Examples of this type of fund are trusts, fiduciary funds, scholarships, etc. This fund is created by a third party entity that leaves a specific amount of money to be invested. The revenues generated from the investment are allocated for specific expenditures that are determined by that entity.
Restricted fund balance – amounts that can be spent only for the specific purposes stipulated by external parties either constitutionally or through enabling legislation (e.g., grants or donations).
This type of fund balance is restricted to the purpose of the funds. Examples of these types of funds are grants given by the State of Maine or the Department of Education. The school applies for the grant, expends the funds as applied and provides the required documentation. Any balance should be expended in the fiscal year it was granted. Unused funds can be carried forward into the next current year; however, balances may affect the amount granted in the following fiscal year.
Committed fund balance – amounts that can be used only for the specific purposes determined by a formal action of the School Committee. Commitments may be changed or lifted only by referring to the formal action that imposed the constraint originally (e.g., the committee’s reserve funds designated for specific purposes).
This type of fund balance is a balance that can only be used for a specific purpose authorized by the Town. Examples of this type of fund are the Fuel fund, the Capital Repairs fund and the other reserve accounts. The School Committee submits an article to the Town that will set up the committed fund based on a potential need of the School. These balances stay in place and are carried forward into future fiscal years unless acted upon by the School Committee; they do not return to the unassigned fund balance if unused.
Assigned fund balance – amounts intended to be used by the school for specific purposes. Intent can be expressed by the School Department or by a designee to whom the governing body delegates the authority. In governmental funds other than the general fund, assigned fund balance represents the amount that is not restricted or committed. This indicates that resources in other governmental funds are, at a minimum, intended to be used for the purpose of that fund. (e.g., Operating articles submitted during the budget process voted on by the Town.)
This type of fund balance is the funds used to cover day to day operations of the school. The School Committee submits articles to the Town to show the intent of the School Committee to meet the day to day operations for the upcoming fiscal year. Each article is voted on by the Town and expended by the School Committee by Warrant submitted to the Town for approval. Any year-end balances on these articles are returned to the unassigned fund balance.
Unassigned fund balance – includes all amounts not contained in other classifications and is the residual classification of the general fund only. Unassigned amounts are available for any legal purpose. (e.g., Assets and liabilities, etc.)
This type of fund balance includes the balance of all assets less all liabilities for the school. The balance includes assets such as cash, inventory, accounts receivable, and amounts due from the Town of Acton and amounts due from grants. The Unassigned fund balance also includes all liabilities such as accounts payable, payroll taxes payable, accrued wages, benefits payable, etc. The balance amounts from the assigned fund balances are returned at the end of the fiscal year to the unassigned fund balance. Funds can only be expended or transferred from this fund balance by Town vote.
Policy
The responsibility for designating funds to specific classifications shall be as follows:
Committed Fund Balance – The School Committee is the school’s highest level of decision-making authority, and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the School Committee.
Assigned Fund Balance – The School Committee has authorized the Superintendent/Principal and the Finance & Personnel Director as officials authorized to assign fund balance to a specific purpose as approved by this fund balance policy.
Unassigned Fund Balance Calculations
Based on guidelines provided by the School’s auditor, the target balance for unassigned fund balance consists of the following levels:
Minimum Level: Funds equal to thirty (30) days of funds based on the current year’s approved expense budget.
Maximum Level: Funds equal to ninety (90) days of funds based on the current year’s approved expense budget.
The calculation of each level shall take place annually, and be reported to the School Committee. The target is determined by dividing the total of the approved School budget by the number of school days in that calendar year, and multiplied by the number of days in each level.
Restoration Plan to Maintain Minimum Level
The following actions shall be taken based upon the amount of the unassigned fund balance relative to the established levels:
1. Balance Is Below the Minimum Level: When the Unassigned fund balance is below the minimum level, steps shall be taken to recommend to the voters to increase fund balance level, bringing it closer, or to, the minimum level. Funds should not be used to offset budgetary impact on the mil rate or for other non-emergency uses.
2. Balance Is in Excess of the Maximum Level: Amounts in excess of the maximum level shall be recommended to be used to offset the budgetary impact on the mil rate, or for other valid purposes which benefit students and/or taxpayers. However, said actions should not result in a depletion of the unassigned fund balance below the target level.
Order of Expenditure of Funds
When multiple categories of fund balance are available for expenditure (e.g., a project is being funded partly by a grant, funds set aside by the School Committee, and Unassigned fund balance), the School will start with the most restricted category and spend those funds first before moving down to the next category with available funds.
Department of Education Allowable Balance
The School will maintain a level of unassigned fund balance that is in compliance with Department of Education statute 20-A MRSA, Section 15689-B, Chapter 606-B subsection 6 which states:
Balance of allocations. Notwithstanding any other law, general operating fund balances at the end of a school administrative unit 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 5% 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 5% 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 2021-22, 2022-23, 2023-24 and 2024-25 only, unallocated balances in excess of 9% of the previous fiscal year’s school budget and disburse these funds in the next year or over a period not to exceed 3 years.
Emergency Actions Permitted
Notwithstanding any provision of this Policy, the School Committee may vote at any time to use unassigned fund balance funds to respond to emergency funding needs with Town approval.
Legal Reference: Title 20-A: Education Part 2: School Organization, Chapter 111 Municipal Schools, Subchapter 1 School Committee, §2307 School Budgets
Title 20-A: Education Part 7: School Finance, Chapter 601 General Provisions, §15006 School Money, Finance Committees
Title 20-A: Education Part 7: School Finance, Chapter 606-B Essential Programs and Services, §15690 Local Appropriations
Adopted: November 12, 2014
Revised: December 8, 2022