Project balance reserve reporting

A charter school’s project balance consists of unused revenues from previous or current fiscal year(s) that can be used in future years. A charter school’s reserve is the specific amount of its project 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 charter schools have a governing board-approved project 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 charter to use in budgeting and financial decision-making processes.  

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

The National Council of Nonprofits is one of the nation’s largest sector-wide networks of nonprofit organizations and has been established for more than 30 years. The Council published Operating Reserves for Nonprofits, guidance that includes basic considerations charters may consider when establishing reserve policies. The guidance also includes links to more detailed tool kits and examples that charters may consider reviewing when establishing their own policies or processes.

Additionally, 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. While the GFOA’s guidance and resources will include some topics that don’t apply to charters such as fund balance categories, they include concepts that charters can consider when establishing project balance reserve policies. Additionally, the GFOA has published the following resources charters 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 project balance reserve policy or process is meant to guide a charter school in its financial decision making. Charter schools should evaluate their project balances annually. If their established targeted reserve levels are not met (exceeded or falls short), charter schools should evaluate what that means for their circumstances and whether their process/policy needs changes, and develop planned actions, accordingly. 

The AFR project balance reserve tab, section A, presents details to clarify how a charter school plans to use project balances remaining at the end of a fiscal year. Section B provides information on the process or policy a charter uses to establish targeted (goal) project balance reserves. A charter school may choose not to include certain projects in those policies for targeted project balances. For example, a charter school may choose to not include a bond proceeds or debt service project in its project balance reserve policy since those funds have dedicated revenue sources and uses. 

Yes, charter schools will be required to complete section B of the project balance reserve tab in the FY 2024 AFR to describe any project 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 project balance reserve reporting, it provides charter school 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 are collecting information and feedback on what changes will be necessary to allow charter schools operated under a CMO to report their project balance reserve information. 

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 project balance reserve tab in 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.