2007-08 Adopted Plan - Wake County Public School System

Fund BalanceQuestions and Answers about Fund BalanceWhat is a fund balance? What are the different categories of afund balance? Why does the Wake County Public School System(WCPSS) need a fund balance?Fund balance is created from excess revenues over expenditures. Thiscan be a combination of collections/revenues being higher than budgetand actual expenditures being lower than budget.Fund balance is comprised of several different categories:Reserved Fund Balance – The portion of fund balance that refl ects fi nancialassets that are not available for spending. Reserved Fund Balancecategories include:o Reserves required for special projectso Reserves required for self insuranceo Reserves required for encumbranceso Reserves required by state statuteo Reserves required for inventoriesUnreserved Fund Balance – That portion of fund balance that refl ectsexpendable, available fi nancial resources. Unreserved Fund Balancecategories include:o Designated for fl exible benefi ts plano Designated amounts used to balance the annual budgeto Undesignated Fund Balance – operating and capital componentsIt is the Undesignated Fund Balance contained within the UnreservedFund Balance that can be utilized by the Board of Education during theyear. Categories of Board of Education usage of the Undesignated FundBalance typically include:o Emergency situations requiring cash fl owo Funding of one time costs not included in the annual budget(e.g. curriculum audit).The Board of Education is required to discuss and vote on any use ofUndesignated Fund Balance during the public portion of its meetings.How much of an Unreserved Undesignated Fund Balance is necessary?Opinions vary. Two years ago, then Superintendent McNeal establisheda Finance Advisory Committee that included business professionals fromWake County and Wake County Government management staff. Thecommittee discussed WCPSS maintaining a six percent UndesignatedFund balance of the following year’s county appropriation.The University of North Carolina at Chapel Hill Institute of Governmentproduced a document in the late 1980’s with information on fund balancefor local governments and school systems. The article states thatschool systems do not need Unreserved Undesignated Fund balancesas large as local governments because the school systems are not taxingauthorities. The article states smaller school systems should havean Undesignated Fund balance of eight percent of general expenditures.The article further states that larger school systems such as WCPSSshould maintain Undesignated Fund balances in the range of six percentof total general expenditures.Currently, WCPSS targets maintenance of an Undesignated Fund Balanceof six percent of the following year’s county appropriation. This isin line with the Finance Advisory Committee consensus from two yearsago, and materially less than the Institute of Government recommendationof six percent of total general expenditures.Do other school systems have Unreserved Undesignated Fund Balance?Yes, other school systems have Unreserved Undesignated Fund balances.Outside of North Carolina, the Unreserved Undesignated Fund balancesmay be maintained at a higher rate as a result of most non-NorthCarolina school systems having taxing authority.In North Carolina, the Unreserved Undesignated Fund balances vary dependingon the school system. A comparison of four systems within thestate showed Unreserved Undesignated Fund balance ranging from onepercent of total local funding to 27 percent of total local funding.87 FY 2007-08 Plan for Student Success