Ed Management Services

Budgeting Handbook

Fund Balance

Year-end fund balances of school districts are the result of the recognition of revenues in excess of amounts estimated and expenditures that are less than the total amount of appropriations. It should be noted that there is no provision in the law or regulations for deficit or negative fund balances.

The total fund balance of a school district's general fund is made up of two parts: Reserved Fund Balance and Unreserved Fund Balance.

The reserved portion of the fund balance is made up of moneys that may be used only for very specific purposes and is, therefore, not available to be used for tax reduction in the next subsequent fiscal year. Examples of these specific reserves are discussed in Section VII of this handbook.

The unreserved portion of the fund balance is the amount which is uncommitted and is, therefore, available to be used to reduce real property taxes in the next fiscal year. It should be noted, however, that a part of this unreserved fund balance may be retained by the district and not used for tax reduction in the next upcoming year. This retained portion is called the unappropriated fund balance and is limited by ยง1318 of the Real Property Tax Law to an amount equal to 4% of the upcoming year's budget. The remaining portion of the unreserved fund balance that is used for tax reduction, is known as the appropriated fund balance.

The legally retained unappropriated fund balance provides cash flow and could be available to meet unanticipated ordinary contingent expenditures without voter approval. This fund balance may also be appropriated, with voter approval, for unanticipated non-contingent expenditures or the funding of certain reserve funds.

Since the term fund balance could apply to the total fund balance or any part of it, school district officials should be certain that any discussion of disposition of balances begins with a clear statement as to the nature of the balance being discussed.

Managing fund balances can be one of the most difficult tasks of the budgeting process, since budgets are estimates of expenditures and anticipated revenues for a future fiscal period.

Reasonably accurate estimates of year-end fund balances are essential to the budget preparation process since the amount available can have a material effect upon the estimated real property tax rates.

Last Updated: December 10, 2010