How should Idaho Charter Schools think about Fund Balances?

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by Matt Kuzio, Board Chair, Future Public School

One of the most important jobs of a board of directors is to ensure the long-term financial sustainability of its school.   This is not an easy task and is commonly the steepest learning curve for a board.  How does the State funding formula work?  Are we insured correctly?  Is our five-year forecast correct? How do we balance program costs with long-term facilities needs?  The number of important but nuanced questions seems endless.  One of those questions that commonly comes up in budgeting discussions is, “What is an appropriate fund balance?”

A fund balance is the total of all unrestricted funds that a school has on hand.  In budgeting, it is traditionally measured against the operating budget of the school and most often thought of in percentage terms to determine the fund’s overall health.  In Idaho, charters average fund balances of 30%.

The purpose of a fund balance is to help maintain school operations during an economic downturn or other unplanned financial hardships (fire, lawsuit, etc).  These unforeseen circumstances are not predictable but should be planned for.  As a publicly funded organization, a charter school is subject to the local and global economic forces around it.  For example, in response to the “Great Recession,” K-12 inflation-adjusted budgets decreased by 13% between 2010 and 2013 and then took another three years to return to above pre-recession levels.   A charter school with a $2 million annual budget would have needed $1.2 million in reserve funds (60%) to maintain operations during this seven-year period.

The following presentation is a 12-slide resource to help charter boards think about their fund balances.  It highlights the State’s sources of education revenues, provides a brief analysis of the last recession, and makes suggestions around what an appropriate fund balance strategy might be for a new school.

The views expressed by guest authors do not necessarily reflect those of Bluum.