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Home My WebLink About060905 Attachment summaryJune 8, 2005 Orange County Board of County Commissioners June 9, 2005 Budget Work Session Supplemental Data List of Attachments Attachment Attachments /References Comments Number School fund Balance Policy Memo from 1. Ken Chavious Provided on lavender paper Chapel Hill - Carrboro City Schools Fund 1 A. Balance History Provided on lavender paper Orange County Schools Fund Balance 1 B. History Provided on lavender paper 2' Chapel Hill- Carrboro City Schools Provided on white paper Current Expense Appropriation 3 Orange County Schools Current Provided on white paper Expense Appropriation 4 Annual General Fund Budgeted Provided on white, legal size paper Appropriations for Education Alternative Scenarios for Possible 5. Modifications to the Fy 2005 -06 Provided on light pink paper Manager's Recommended Budget Recommended Communications 6' Infrastructure for Commissioners Provided on light yellow paper (previously issued with April 20, 2005 work session materials) Orange County FinanCe Department Commifted to Fiscal Excellence 208 South Cameron Street Post Office Box 8181 Hillsborough, NC 27278 ORANGECOUNTY I - 3}IE z ,. 002 NORTH CAROLINA CELEBRATING 150 YEARS Kenneth T. Chavious, Finance Director MEMORANDUM TO: Board of County Commissioners FROM: Ken Chavious, Finance Director DATE: September 24, 2004 SUBJECT: School Fund Balance Policy Tel (919) 245 -2450 Fax (919) 644 -3324 www.co.orange.nc.us The Board has asked for a review of the school fund balance policy adopted in 1986. 1 recently met with the Finance Directors of both school districts to discuss current fund balance issues and the applicability of the 1986 policy in the current financial environment. The 1986 policy establishes percentages of fund balance at 5.5% of expenditures for the Chapel Hill Carrboro City Schools ( CHCCS) and 2.7% of expenditures for the Orange County Schools (OCS). Attached is a copy of the memo from Gordon Baker, County Finance Director in 1986. The Baker memo states that the aforementioned percentages represent fund balance available but unappropriated." "Fund balance available" is defined as the sum of cash and investments minus liabilities, encumbrances and deferred revenue arising from cash receipts as those figures stand at the end of the fiscal year. This is the calculation used by the Local Government Commission in calculating a city or county's fund balance relative to their 8% guideline. There is no similar guideline for school districts. Orange County uses a more conservative approach by also deducting the amount of fund balance appropriated for the subsequent year's budget, prior to calculating the percentage. Using a similar analysis to the Baker approach, which remains a valid approach as it relates to fund balance as a cash flow or working capital tool, the 1986 percentage for CHCCS could remain as this system's fund balance target. During the past several years the CHCCS fund balance has been in the 2% to 3% range and the district has experienced cash flow difficulties sometimes to the degree that the district has requested and the County has advanced monthly allocations. On the other hand, the OCS fund balance percentage target should be adjusted upward slightly in t range of 3 to 3.5% mainly for increased cash needs above the monthly County appropriation. The OCS receives approximately $2.1 million annually in revenues from other sources ncome usldelayy fund balance that they may have appropriated. If receipt of some balance available. It is OCS could experience cash flow challenges with insufficient fund important to note that the fund balance levels mentioned above and in the Baker memo are relative to cash flow only. An Equal Opportunity /Affirmative Action Employer Aside from the significant dollar increase in County current expense funding allocated to the school systems, the major difference between'! 986 and the current fiscal environment is funding for capital projects. From the late 1970s up to the 1988 bond referendum there were no concerns related to funding start up costs for new facilities. Capital Investment Programming was a new concept for Orange County government. This issue is significant because fund balance has been the major source of start up costs for new facilities for OCS. The CHCCS has used the district tax as a source for start up costs related to new facilities. This practice could also become an issue if the move toward funding equity gains momentum. The Finance Directors have identified three major issues related to fund balance policy that must be given consideration prior to setting and maintaining concrete fund balance targets. Funding for Start up costs — As mentioned above, OCS has historically used fund balance as a source to pay the one time costs associated with opening new schools and the CHCCS has mainly used district taxes. If concrete fund balance targets are established and adhered to, an alternative source for start up costs would have to be identified for the OCS. Likewise, if the district tax is frozen or reduced and /or eventually eliminated in the pursuit of equity funding, other funding sources would need to be identified. • Emergencies- and- Unforeseen_Events — In addition to cash flow considerations, units of government also use fund balance to handle emergency situations and /or unforeseen events. If fund balance targets are established and followed, a clear statement should be made regarding response to emergencies or unforeseen events. • Use of Fund Balance for Operating Expenditures — This is another policy issue related to use of fund balance. Both school systems have used fund balance to pay for recurring operational initiatives in the past. The most recent example of this is the OCS use of $1.2 million in fund balance in their 2004 -2005 budget to fund several operational initiatives. In addition CHCCS appropriated $1.6 million. Use of fund balance to pay for ongoing operating costs could present funding challenges for these types of expenditures in future years as reserves become scarce. A sound fund balance policy should also address when and under what circumstances fund balance should be considered for funding ongoing operational expenditures As mentioned above, the 1986 memo from Gordon Baker that resulted in the current policy only addressed fund balance as a cash flow tool. The Finance Directors agreed that a sound fund balance policy should be more comprehensive and include not only percentage targets related to the levels required to meet cash flow needs, but also address issues involving the how and when it can be accumulated and used. CHAPEL HILL - CARRBORO CITY SCHOOLS FUND BALANCE HISTORY Projected 1999 -00 2000 -01 2001 -02 2002 -03 2003 -04 2004 -05 Total Revenues 31,256,331 36,109,951 40,182,176 39,504,108 41,807,142 43,000,000 Total Expenditures 30,058,939 36,414,938 40,611,848 39,916,819 42,334,459 42,700,000 Revenues Less Exp 1,197,392 (304,987) (429,672) (412,711) (527,317) 300,000 Beginning Fund Balance 3,322,244 4,519,636 4,138,486 3,671,027. 3,192,909 2,591,887 Less Operating transfers (11,761) (37,787) (65,407) (73,705) (216,573) Less Prior Year Adjustment (64,402) Ending Fund Balance 4,519,636 4,138,486 3,671,027 3,192,909 2,591,887 2,675,314 Fund Balance Reserved 1,157,139 1,821,253 919,266 601,646 1,425,638 500,000 Fund Balance Designated for Subseq. Yr. 900,000 1,500,000 1,500,000 1,500,000 1,140,736 1,000,000 Undesignated Fund Balance 2,462,497 817,233 1,251,761 1,091,263 25,513 1,175,314 Undesi nated Fund Balance - % of Expenditures 8.19%1 2.24%1 3.08%1 2.73% 0.06% 2.75% q r. 75 Orange County Schools General Fund - Fund Balance Historical Comparison L. c� r' n J fi 4- �JJ 2003 -2004 Projected 2004 -2005 1999 -00 2000 -01 2001 -02 2002 -2003 18,856,169 20,058,630 Total Revenues 15,323,719 16,907,497 17,141,327 17,704,823 Total Expenditures 15,058,164 16,953,231 17,369,318 18,145,980 18,364,855 491,314 3,184,565 3,675,879 326,483 21,347,574 (1,288,944) 3,675,879 2,386,935 342,087 Revenues Less Exp 265,555 (45,734) (227,991) (441,157) Beginning Fund Balance 3,578,028 3,843,583 3,797,849 3,569,858 Transfers in (out) Ending Fund Balance 3,843,583 3,797,849 3,569,858 55,864 3,184,565 Fund Balance Reserved 309,284 825,027 697,804 99,436 Fund Balance Designated for Subsequent Yr. 2,089,580 2,044,027 1,764,705 679,744 1,724,609 410,616 Undesignated Fund Balance 1,444,719 928,795 1,107,349 2,405,385 13.26% 1,624,787 1,634,232 Fund Balance % of Expenditures 9.59% 5.48% 6.38% 8.85% 7.66% L. c� r' n J fi 4- �JJ