School district fund balances: How much is enough

Published 9:33 am Sunday, March 20, 2011

As state legislators try to balance a projected $27 biennium budget shortfall without raising taxes or significantly dipping into the rainy day fund, local school districts are making preparations for deep cuts in state funding.

Gov. Rick Perry has said districts in Texas should spend down their fund balances, money district have that is beyond planned expenditures for the year. The possibility using fund balances to make ends meet is fast becoming a very real possibility. Typically, district’s fund balances are spent on unexpected expenses, but a state-wide budget crisis would qualify.

  • Port Arthur ISD

Port Arthur ISD has a fund balance of $35,889,124 according to the district’s August Audit Report.

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The district’s audited fund for the last few years has grown slightly, Phyllis D. Geans, PAISD finance director, said.

“The district has been working hard to manage its costs so that additional dollars could be added to the fund balance.

For example, Geans said, in 2008 the fund balance was $26,901, 811; at the end of 2009 it had increased to $33,631,284.

Geans said spending any money from the fund balance requires school board approval. In the past, the board has approved purchases for: Financial and student information systems; scoreboard and turf for the football field; unanticipated construction expenses due to changes in regulations or new business requirements; band equipment for a new elementary program; and repair/replacement of equipment after an extraordinary event such as hurricane or fire.

In order to ensure that the school district can be reopened on a timely basis after an extraordinary event such as a hurricane, a school district must utilize its fund balance while reimbursements are requested from its insurance company and/or FEMA.

PAISD spent approximately $20 million for Hurricane Rita recovery expenditures while waiting for reimbursements. The impact on the district’s fund balance has been minimal.

Geans said the state requires the district to maintain adequate funds for at least 60 days to pay its operational expenses. Expenses incurred through Aug. 31, 2010 were $82.7 million. Based on these expenses, the district would need to maintain a fund balance of $14 million.

Today, the Texas Education Agency is beginning the process of modifying indicators in the 2010-2011 School Financial Integrity Rating System of Texas that require school districts and charter schools to maintain approximately 60 days operating expenses in their general fund account. In other words, the state requirement may be changed. However, the school board maintains separate guidelines and/or policies on fund balance requirements, Geans said.

PAISD is monitoring the 82nd Legislative Session closely in anticipation of budget cuts to school funding. At this point, it is difficult to know what impact will be made on the district’s fund balance, Geans said.

  • Sabine Pass ISD

The much smaller Sabine Pass ISD has a fund balance of $3,577,774.

Superintendent Malcolm Nash said the figure is about typical for what the district normally has in its fund balance.

In the last six school years, Sabine Pass has suffered catastrophic damage from Hurricanes Ike and Rita. The district had to spend into its fund balance to aid the recovery process while waiting for reimbursements from insurance, FEMA and State disaster funds. The recovery is still in progress.

The district has also spent fund balance money on prior year value adjustments and economic uncertainty, Nash said.

Sabine Pass, like other school districts in the state, is required to keep enough in it’s fund balance to pay for at least two month’s operating expenses.


PN-GISD’s recent audit report, performed by Gary Davis of West, Davis & Co. LLP, indicated that the district ended the 2009-10 school year with almost a $17.5 million fund balance. Out of all the districts he audits PN-G is one of two that has a policy that stipulates maintaining a three month fund balance.

The district has a monthly operating expense is approximately $3 million. 

“A ratio that financial advisors and bond markets use to determine the financial strength of a school district is the ratio of fund balance to general fund expenditures.  The standard of 20-25 percent is considered very good and anything over 15 percent is good,” according to information from the district. “We ended the year at 43 percent and this is the strongest he is aware of for any district in east and south Texas.”

A school district’s fund balance is used to fund payroll costs until tax collections are received and to fund the deficit in order to have a balanced budget. The district is looking at ways to cut expenditures to keep from dipping into the fund balance to cover the deficit.

  • NISD

Nederland ISD currently has a fund balance of $6.7 million, which is used to help fund the districts operating expenditures in the fall prior to receiving tax revenue, support a deficit budget and in emergency situations.

Wong said the Rule of Thumb is the computation of the optimum fund balance which is the estimated amount to cover the cash flow deficits in the fall of the following year plus one month’s average operating expenditures. NISD’s average fund balance would be two to three months of operating expenditures or $6 to 9 million.

Business Manager Melissa Wong said NISD spend approximately $10.6 million on Hurricane Rita and Hurricane Ike.

“The fund balance supported expenditures of approximately $3.2 million prior to receiving insurance and/or Federal Emergency Management Agency (FEMA) payments decreasing our fund balance significantly.”