Fund balance reserve reporting

A school district’s fund balance consists of unused revenues from previous or current fiscal year(s) that can be used in future years if budget capacity allows. A school district’s reserve is the specific amount of its fund balance that it is maintaining for either specific purposes or as a contingency for risks such as revenue shortfalls, emergencies, and/or other unforeseen circumstances. 

While it is not required, it is a recommended best practice that all school districts have a governing board-approved fund balance reserve policy to provide transparency and accountability to decision-makers, stakeholders, and the public. However, even an informal process is a beneficial tool for a district to use in budgeting and financial decision-making processes.  

Each district will need to analyze its own circumstances and risks to determine the appropriate amount of fund balance reserve to maintain. It is recommended that school districts describe the specific risks and circumstances considered in their fund balance reserve processes or policies.  

The Government Finance Officers Association (GFOA), an association of over 20,000 public finance officials whose mission is to advance excellence in public finance, published Fund Balance Guidelines for the General Fund. Additionally, the GFOA has published the following resources districts may consider reviewing when establishing their own policies or processes:

• General Fund Reserve Calculation Worksheet —This is a detailed worksheet that walks through many different circumstances to consider when developing a reserve policy, such as extreme events, revenue stability, expenditure volatility, growth, and capital projects.
• Example government financial reserve policies —These are reserve policies submitted to GFOA by various local governments around the country. GFOA has not reviewed the policies for consistency with their best practice guidance.  
• Should we rethink reserves? —A paper that describes new opportunities for local governments to get the best value from their reserve strategies. 

A fund balance reserve policy or process is meant to guide a district in its financial decision making. School districts should evaluate their fund balances annually. If their established targeted reserve levels are not met (exceeded or falls short), school districts should evaluate what that means for their circumstances and whether their process/policy needs changes, and develop planned actions, accordingly. 

The AFR fund balance reserve tab, section A, presents details to clarify how a school district plans to use fund balances remaining at the end of a fiscal year. Section B provides information on the process or policy a district uses to establish targeted (goal) fund balance reserves. A school district may choose not to include certain funds in those policies for targeted fund balances. For example, a district may choose to not include the Debt Service or Bond Building Funds in its fund balance reserve policy since those funds have dedicated revenue sources and specific allowable uses.  

Yes, school districts will be required to complete section B of the fund balance reserve tab in the FY 2024 AFR to describe any fund balance reserve processes or policies it currently has.  

Yes, while our Special report on school districts’ and charter schools’ COVID-19 relief spending highlighted a need for the fund balance reserve reporting, it provides school district decision-makers, stakeholders, and the public more complete financial information that will still be needed when COVID-19 relief monies are no longer available. 

We have made a recording of 1 of the virtual meetings available here. A PDF version of the PowerPoint slides presented in the virtual meetings is available here. The draft fund balance reserve tab from the FY 2025 budget is available here. 

Yes, please send any feedback or suggested changes to asd@azauditor.gov. Information related to the FY 2025 budget forms must be submitted no later than Monday, April 8, 2024. Information related to the FY 2024 AFR must be submitted no later than Tuesday, April 30, 2024.