Policy 6053: Fund Balance Policy
The Board of Education recognizes that the maintenance of a fund balance is essential to the preservation of the financial integrity of the school district and is fiscally advantageous for both the District and the Taxpayer in that it helps mitigate current and future risks (e.g., revenue shortfalls and unanticipated expenditures) and assists in ensuring stable tax rates. This policy establishes goals and provides guidance concerning the desired level of year-end fund balance to be maintained by the District.
The Governmental Accounting Standards Board (GASB) issued GASB Statement Number 54, Fund Balance Reporting and Governmental Fund Type Definitions. Statement 54 abandons the reserved and unreserved classifications of fund balance and replaces them with five new classifications for Governmental Funds: non-spendable, restricted, committed, assigned and unassigned. The statement goes into effect for financial statements ending June 30, 2011.
Fund balance is a measurement of available financial resources and represents the difference between total assets and total liabilities in each fund.
Governmental Accounting Standards Board ("GASB") Statement No. 54 distinguishes fund balance classifications based on the relative strength of the constraints that control the purposes for which specific amounts can be spent. Beginning with the most binding constraints, fund balance amounts will be reported by the following classifications:
Non-spendable - amounts that cannot be spent because they are in a non-spendable form (e.g., inventory) or legally or contractually required to be maintained intact (e.g., principal of a permanent fund).
Restricted - amounts limited by external parties, or legislation (e.g., grants or donations).
Committed - amounts constrained to specific purposes by a government itself using its highest level of decision-making authority (i.e.: Board of Education): to be reported as committed, amounts cannot be used for any other purpose unless the District takes the same highest-level action to remove or change the constraint.
Assigned - amount intended to be used for a specific purpose; intent can be expressed by the Board of Education or by an official or body to which the Board delegates the authority.
Unassigned - amounts available for consumption or not restricted in any manner. These amounts are reported only in the General Fund.
The fund balance of the District's General Fund has been accumulated to provide stability and flexibility and to respond to unexpected adversity and/or opportunities.
In accordance with the limits imposed by New York State Real Property Tax Law §1318, the Board of Education will strive to maintain an unassigned general fund balance of not more than 4 percent of the budgeted expenditures for the ensuing fiscal year. The decision to retain an unrestricted fund balance of 4 percent of the expected expenditures stems from the need to support normal operating costs for the District and provide fiscal stability.
If the unassigned portion of the fund balance exceed 4 percent, the Board of Education will evaluate current reserves and designations in order to determine the final distribution of fund balance in any fiscal year in consideration of estimated liabilities of the District and sound financial planning.
Fund Balance Classifications - Governmental Funds:
The following is a listing of the new classifications for the District's current Reserves and Designations.
Non-spendable Fund Balance:
Reserve for Inventory - is used to restrict that portion of fund balance, which is not available for appropriation. The reserve is accounted for in the school lunch fund.
Restricted Fund Balance:
Reserved for Tax Certiorari (Education Law §3651.1-a) - is used to establish a reserve fund for tax certiorari. The monies held in the reserve shall not exceed the amount that might reasonably be deemed necessary to meet anticipated judgments and claims arising out of tax certiorari proceedings. This reserve is evaluated by legal counsel and the Business Office on an annual basis. The reserve is accounted for in the general fund.
Reserved for Unemployment (GML § 6-m) - is used to pay the cost of reimbursement to the State Unemployment Insurance Fund for payments made to claimants where the employer has elected to use the benefit reimbursement method (self-funded). This reserve is evaluated by the Business Office on an annual basis based on anticipated claims. The reserve is accounted for in the general fund.
Reserved for Employee Benefit Accrued Liability (GML § 6-p) - is used to reserve funds for the payment of accrued employee benefit due to an employee upon termination of the employee's service. This reserve is evaluated by the Business Office on an annual basis based on reports provided by the financial accounting system. The reserve is accounted for in the general fund.
Reserved for Capital Expenditures (Education Law §3651) - is used to pay the cost of any object or purpose for which bonds may be issued. The creation of a capital reserve fund requires authorization by a majority of the voters establishing the purpose of the reserve; the ultimate amount, its probable term and the source of the funds. This reserve is evaluated on the status of capital projects and the completion of studies by third parties as to the state of the District's facilities. The reserve is accounted for in the general fund.
Reserved for Retirement Contributions (GML § 6-r) - is used to pay for increases in the Civil Service Employees' Retirement Pension Contributions. This reserve is evaluated by the Business Office on an annual basis by reports received from New York State Employees' Retirement System. The reserve is accounted for in the general fund.
Reserved for Debt Service (GML § 6-1) - is used to establish a reserve for the purpose of retiring the outstanding obligations upon the sale of District property or capital improvement that was financed by obligations that remain outstanding at the time of sale. The funding of the reserve is from the proceeds of the sale of District property or capital improvement plus applicable interest earnings. The reserve is evaluated by the Business Office on an annual basis. The reserve is accounted for in the debt service fund.
Assigned Fund Balance:
Designated for Subsequent Year's Expenditures - the planned use of resources in the subsequent years' budget.
Reserved for Liability - In-service Credits - is used to reserve funds for the payment of in-service credit earned by members of the Education Association of Chappaqua Central School District in accordance with their bargaining unit agreement. Any resources deposited to the reserve which are not expended for in-service credits must be returned to the General Fund on June 30, 2013. This reserve is evaluated by the Business Office on an annual basis based on anticipated submissions of in-service credits. The reserve is accounted for in the general fund.
Reserved for Encumbrances - represents the amount of outstanding encumbrances at the end of the fiscal year.
Unassigned Fund Balance:
Unreserved and Undesignated Fund Balance - remaining fund balance that has not been designated or reserved. NYS Real Property Tax Law 1318 restricts the unreserved, undesignated fund balance of the General Fund to an amount not greater than 4% of the District's budget for the ensuing fiscal year.
See Exhibit E-1 for other Fund Balance Classifications
Delegation of Responsibility
The Superintendent or Business Official shall be responsible for the enforcement of this policy.
Adopted by the Board of Education: August 9, 2011