Key facts about school district cash balances

Key facts about school district cash balances

As final school district financial reports for the 2017-18 school year and budget year are being posted by the Kansas State Department of Education, KASB is updating information as well. Here is an update on school district cash balances.

Key Points:

July 1 statewide cash balances dropped this year as a percent of school district expenditures.

Almost all of the increase in cash balances in 2018 was in restricted school district funds, not available for general operations.

Statewide July 1 cash balances are at levels experts say is appropriate for moderate financial risk.

School district operating balance percentages are similar to the ending balances and internal borrowing for the State General Fund, approved by the Legislature and Governor.
School district cash balances vary significantly by month because of cash flow issues.


In Depth:

July 1 statewide cash balances dropped this year as a percent of school district expenditures

The statewide July 1, 2018, total of cash on hand in all funds increased this year, but total school expenditures increased even more. As a result, total cash balances dropped from 33.1 percent to 32.5 percent. The largest share of school district balances is in restricted funds, particularly bond and interest funds to pay for bond payments, and in capital outlay funds, in which districts accumulate cash to pay for capital projects like construction, remodeling and equipment without debt.

Other restricted funds include federal funds, gift and grant funds such as scholarship endowments, insurance reserves and student materials.

The remaining funds have fewer restrictions and are used to support general school district operations. These generally unrestricted funds dropped from 11.3 percent to 10.8 percent of total expenditures, the lowest since 2014 and approaching levels prior to the Great Recession in 2008.

Almost all of the increase in cash balances in 2018 was in restricted school district funds, not available for general operations

Total school districts cash balances increased from $2.016 billion to $2.109 bill from July 1, 2017 to July 2, 2018, but almost of that $93 million was in restricted funds that cannot general education purposes. Cash balances in unrestricted funds changed little and dropped as a percentage of expenditures because school funding increased.

Here the major changes in school district balances from 2017 to 2018:

Overall total, all funds: up $93 million (4.6%)

Capital Outlay: up $36 million (7.3%). Partially due to higher assessed valuation, which meant capital outlay levies raised more revenue than expected. State law limits these funds to building, equipment and maintenance costs, and certain limited building operating costs. Capital outlay levies are subject to voter protest petition.

Bond and Interest: up $26 million (4.6%). These funds are levied to pay for school construction bonds issue approved by local voters, which have increased.

Federal Funds: up $6.1 million (14.5%). These are primarily federal programs to assist disadvantaged students and improve teaching. Cash balances in these funds follow federal requirements.

Gifts and Grants: up $8.5 million (21.5%). These are funds received outside of the school finance formula, such as scholarship endowments and bequests, which are usually tied to specific programs.
Special Reserves: up $6.6 million (5.4%). These funds are reserve for self-insured school district insurance programs, based on actuarial needs.

All other funds: up $9.8 million (2.1%).

Increase in total expenditures: $408.1 million (6.7%).

Statewide July 1 cash balances are at levels experts say is appropriate for moderate financial risk

Unrestricted fund balances are about 11 percent of total expenditures, but a more appropriate comparison is to operating expenditures. From 2017 to 2018, unrestricted cash balances dropped from 16.6 to 16.1 percent of general operating budgets (general fund, local option budget and special education aid). The highest level was 17.5 percent in 2012.

A state efficiency report commissioned by the Kansas Legislature cited a report from the Governmental Finance Officers Association recommending operating reserve levels of 10 percent or less for low economic risk; 10-15 percent for low to moderate risk; 15-25 percent for moderate to high risk and 25 percent of more for high risk. At 16.1 percent, July 1 district cash reserves were 1.1 percent above the line between low to moderate and moderate to high risk.

School district operating balance percentages are similar to the ending balances and internal borrowing for the State General Fund, approved by the Legislature and Governor

While school district July 1 cash balances in operating budgets dropped from 16.6 to 16.1 percent general operating expenditures in 2018, the state general fund ending balance increased from 1.7 to 6.7 percent, and the state used $900 million in internal borrowing through “certificates of indebtedness” for total of 20 percent.

Total school district ending balances in operating funds are comparable to the state general fund ending balance plus certificates that borrow from other state funds. Both provide for contingencies such as reductions in revenue or unexpected expenses and to manage cash flow.

In fact, since 2011 school districts have generally maintained a similar level of cash balances as the state general fund:

School district cash balances vary significantly by month because of cash flow issues

July 1 cash balances are somewhat misleading because they are a “one-time snapshot.” Balances fluctuate significantly through the year because school districts receive revenue in certain months but must pay bills throughout the year. As a result, some funds have high balances when revenue is received but districts must make those funds last over the following months until additional revenue arrives, or to cover shortfall in other funds.

Some examples:
To manage the state’s cash flow, districts are required to account for the final state aid payment each year as if it were received in June, but the state does not actually send the money until after July 1. This amount fluctuates between $200 million and $300 million each year.

School districts must provide special education programs from the beginning of the school year, but state special education aid payments do not begin until October. As a result, districts have high balances in the special education fund to start the year (around $175 million), but those balances fall below $40 million during the year. Districts maintain some reserves for unexpected high cost for students, which can exceed tens of thousands of dollars per year.

Districts have almost $300 million in local option budget funds in March after receiving property tax distributions and state aid, but those balances are almost entirely spent down to zero at other points in the year.

Note:
KASB considers restricted funds to include: capital outlay, bond and interest, special liability, no fund warrants, special assessment and adult education (each of which is funded by restricted mill levies), plus federal funds, gifts and grants, school retirement, special reserve (insurance) and the student materials revolving fund.

Unrestricted funds are: special education, special education cooperatives, summer school, food service, contingency reserve, general fund, supplemental general fund (local option budget), virtual education, declining enrollment, cost of living, ancillary, professional development, activities, at-risk four-year-old, at-risk K-12, bilingual, extraordinary school programs, vocational education, parent education, adult supplemental education and driver training.