In March, EdNC published a 10-year look at school district fund balances, which essentially operate like savings accounts for public school districts.

In the face of school choice expansion, the federal funding cliff, and more, fund balances are playing a key role in budget planning for districts in the 2024-25 school year.

Following our report, we received a lot of questions from district and school leaders about fund balance data. Given the anticipated importance of the funds this year, we’ve compiled a list of questions and answers on the topic — including what fund balances are, where the data comes from, and more.

What are fund balances?

Fund balances consist of local money that school districts get from their county commissioners. Districts can put money in their fund balance when there is a surplus of county funds. At that point, the money is under the control of a district’s school board.

Fund balances do not include the cash school districts get from the state or federal government.

However, money districts get from the state or federal government can impact how much districts can save in their fund balance. For example, the unprecedented influx of federal dollars during the pandemic provided cash districts could use, which helped many increase their fund balances.

Available fund balances are like “a savings account that schools can use” in the event of unanticipated expenses or opportunities, the Local Government Commission (LGC) told EdNC in 2020.

Districts also rely on fund balances when there is budget uncertainty ahead of the start of the new school year.

“It’s not something that you want to use,” Kendra Boyle, director of the Fiscal Management Section of the State and Local Government Finance Division, told EdNC earlier this year. “You want to have that (fund) for emergencies.”

Where does the data come from?

The LGC, a commission within the state treasurer’s office, annually collects fund balance data for North Carolina’s 115 school districts. The data is self-reported, with LGC pulling data from each district’s audited financial statements.

Here is the data we are using. Our spreadsheet includes data for 2013, 2019, 2022, and 2023.

The LGC’s annual report includes three data points for each school district:

• General Fund – Total Fund Balance as of June 30, 2023
• Fund Balance Available in Dollars as of June 30, 2023
• FBA as a Percentage of Expenditures as of June 30, 2023

The LGC uses a complicated, statutorily required formula to calculate fund balance available for appropriation, and the percent of expenditures used as a measure of fiscal health.

“It is important to distinguish between the statutory calculation of fund balance available for appropriation and the fund balance that is reported on a unit’s General Fund Balance Sheet,” according to a LGC document on the two data points.

General and available fund balances can be confused but are not the same. Both are reported on yearly financial statements to the LGC.

The General Fund, according to the LGC document, “is used to account for and report all financial resources not accounted for and reported in another fund.”

The categories of fund balance that may be reported by a district are: Non-spendable, restricted, committed, assigned, and unassigned.

You can view the LGC’s data, which includes the total fund balance data point, here.

Note that EdNC has not reported on the general fund, since that money is already appropriated. The “fund balance available” data point reflects what a school district has in savings that is not already accounted for.

Data is not available for six districts in 2023.

What does ‘fund balance available’ mean?

Fund balance available “represents the maximum amount that is legally available for appropriation in the next year,” according to the LGC document.

Fund balance available is the statutory concept that describes the amount of funds local governments have available at the end of a fiscal year to be appropriated in the next fiscal year. The calculation was introduced as a way to prevent units of government from appropriating funds that they have not yet received in cash form and to maintain an adequate amount of fund balance available to meet their cash flow needs during the months in their revenue cycles when outflows exceed inflows.

Explainer from the Local Government Commission

Boyle said available fund balances should go toward one-time, nonrecurring expenses.

“Maybe the simplest way to think about it is if there were no source of income, how much of their expenditures could they cover?” Boyle said. “How many months’ worth is kind of how we look at it, without any source of income.”

How much is enough?

There is no minimum fund balance requirement for North Carolina local government agencies, according to the LGC’s website.

It is important to note that unlike county and municipal governments, school districts are not able to levy taxes.

Philip Price, the former long-time chief financial officer for the State Department of Public Instruction, previously said that good practice is to keep a minimum of 8% of yearly expenditures in a school district’s available fund balance. That’s about one month’s worth of expenses. 

However, the LGC says that isn’t necessarily true.

“Sufficient fund balance available is essential to strong fiscal health and viability,” according to a 2022 LGC article.

The article, “The Myth of 8% (LGC Staff Guidance on Fund Balance Available),” includes LGC recommendations regarding fund balances, and memos with comparisons to peer group fund averages.

However, fund balance available is just one of several factors used by the LGC to assess the fiscal health of tax-levying units.

“Fund balance available is just one of many factors that can be used to determine a unit’s fiscal health,” the webpage says. “There are few units that can operate in a fiscally sound manner with only 8% fund balance available. … Finally, fund balance available is not used as a measure of fiscal health for local governments that do not have the ability to levy taxes.”

Instead, the LGC recommends that local governing boards “develop a fund balance policy that requires they maintain a fund balance that is consistent with that of their peers. The policy should include corrective action should the fund balance fall below the intended targets.”

For school districts, the LGC said such a policy might include an agreement with their county, taking into account how much the county is willing and able to help in the case of emergencies.

A negative available fund balance usually means that liabilities in the local current expense fund outweigh cash on hand. The total fund balance, however, includes assets other than cash. So even if the available fund balance is negative, the total fund balance could still be positive, according to the Local Government Commission. But a negative available fund balance means that a district doesn’t have that extra savings they can spend in the event of an emergency.

EdNC’s 2020 report on fund balances

What about the expenditures data?

The third column in LGC’s annual fund balance report, “FBA as a % of Expenditures as of June 30, 2023,” is a LGC calculation of numbers from each district’s audited financial report.

This number is meant to provide an estimate of how much of a district’s expenditures its available fund balance would cover.

In the most recent data, 15 of 115 districts have fund balances that are less than 8% of expenditures.

As we reported in March, “If the state budget is late this year, then along with the loss of ADM due to school choice expansion and the federal funding cliff, districts could be facing more financial pressure than even healthy fund balances could address.”

Why would a district’s data not match up with LGC data?

Since the data the LGC reports is provided by school districts, the data should not be different, said LGC Secretary Debbie Tomasko. Tomasko is also interim deputy treasurer of the State and Local Government Finance Division.

Because EdNC reports on available fund balance, Tomasko said school districts could look at that number and expect it to be higher — due to confusing it with the general fund balance.

A reporting error at the time of submitting annual financials could also be reason for any mismatch, she said.

Additionally, districts might expect the fund balance number to be higher if they are looking at their current fund. The LGC’s report provides a snapshot in time, at the end of each fiscal year.

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What other questions do you have, about fund balances or other school-related topics? Email me at hmcclellan@ednc.org for our next Ask & Answer post.