(This week’s column is written by Chad
Smurawa, Director of Business Services for the School District of River
Falls. Chad has been in his position in
this district since 2004.)
As the Director of Finance and Facilities at the School District of River
Falls, I wanted to take some time to share facts and insights into the benefits
of maintaining an appropriate fund balance.
What is a Fund Balance?
According to the Wisconsin
Department of Public Instruction (DPI), a fund balance is: “The difference
between the district’s assets and liabilities.”
In essence, a fund balance is the district’s reserve – the funds we can
draw upon in the future to make educational investments and the cushion that
enables us to react to budgetary challenges in a thoughtful, strategic
manner. It is also a critical component
of how we demonstrate good financial management to the financial markets that
fund our bonds and other capital improvements.
It is important to note that a
fund balance is not actually cash in the bank.
Cash is one asset, but not the district’s only asset. Additionally, cash balances may decrease as the
district pays off liabilities, such as payroll or amounts due to a supplier.
Why does the district maintain a
Fund Balance?
A district like River Falls, with
an appropriate fund balance, can avoid costs associated with expensive short
term borrowing, can accumulate sufficient assets to make planned purchases or
cover unforeseen events, and demonstrates the financial stability necessary to
secure lower debt issuance costs through a solid bond rating.
How does the School District of
River Falls manage its Fund Balance?
River Falls’ board policy is to
maintain an appropriate fund balance that directly benefits students and
taxpayers. Here’s how:
- We do
not short term borrow so we are able to avoid interest expense. Our students and taxpayers win because
more of our limited dollars are invested directly in the classroom, not
paid out as bank interest.
- Recently,
we experienced an unexpected heating boiler breakdown. The fund balance provided the dollars
needed to immediately replace the $100,000 boiler. Our families won because we did not have
to cut educational programs to fund the boiler replacement. Our taxpayers won because we were able
to avoid borrowing the funds and paying interest to fund the boiler
replacement.
- As part
of our recent referendum project, the community approved bonding for
almost $20 million in safety, security, and mechanical updates to our
schools. Banks were eager and
competing to lend the funds to us because of our solid, conservative
financial management track record.
As a result, we were able to borrow for substantially less than
what we communicated to you before the referendum. The taxpayers win because we were able
to borrow for a lower rate and pay far less in interest expense than
originally promised, and students benefit from improved educational facilities.
How large should a Fund Balance
be?
What the DPI says…that fund
balance should be "an amount sufficient that short term borrowing for cash
flow could be avoided and would also allow the district to set aside sufficient
assets to realize its longer range goals."
How the School District of River
Falls puts this into practice…The Board and Administration annually approve a
budget that allows us to maintain the fund balance necessary to avoid short
term borrowing and to plan for future spending.
Because we do not need to borrow funds to pay for ongoing direct
operations, we pay zero interest expense to outside banks. This allows us to direct more of your tax and
state aid dollars directly into the classroom providing more teachers, smaller
class sizes and safer schools.
What is the Fund Balance
philosophy at the School District of River Falls?
Simply stated, our fund balance
philosophy is to offer the best education possible by maintaining the minimum
amount of funds necessary to: 1) avoid borrowing and related interest expenses
to pay for operations, 2) have funds available to make needed emergency repairs
or purchases, and 3) maintain a strong bond rating for times when our district
needs to bond for remodeling or building schools. We understand that offering our students and
community the best education possible with the funds entrusted to us is Every
One’s Business!