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Orange County FinanCe Department Commifted to Fiscal Excellence 208 South Cameron Street Post Office Box 8181 Hillsborough, NC 27278 ORANGECOUNTY I - 3}IE z ,. 002 NORTH CAROLINA CELEBRATING 150 YEARS Kenneth T. Chavious, Finance Director MEMORANDUM TO: Board of County Commissioners FROM: Ken Chavious, Finance Director DATE: September 24, 2004 SUBJECT: School Fund Balance Policy Tel (919) 245 -2450 Fax (919) 644 -3324 www.co.orange.nc.us The Board has asked for a review of the school fund balance policy adopted in 1986. 1 recently met with the Finance Directors of both school districts to discuss current fund balance issues and the applicability of the 1986 policy in the current financial environment. The 1986 policy establishes percentages of fund balance at 5.5% of expenditures for the Chapel Hill Carrboro City Schools ( CHCCS) and 2.7% of expenditures for the Orange County Schools (OCS). Attached is a copy of the memo from Gordon Baker, County Finance Director in 1986. The Baker memo states that the aforementioned percentages represent fund balance available but unappropriated." "Fund balance available" is defined as the sum of cash and investments minus liabilities, encumbrances and deferred revenue arising from cash receipts as those figures stand at the end of the fiscal year. This is the calculation used by the Local Government Commission in calculating a city or county's fund balance relative to their 8% guideline. There is no similar guideline for school districts. Orange County uses a more conservative approach by also deducting the amount of fund balance appropriated for the subsequent year's budget, prior to calculating the percentage. Using a similar analysis to the Baker approach, which remains a valid approach as it relates to fund balance as a cash flow or working capital tool, the 1986 percentage for CHCCS could remain as this system's fund balance target. During the past several years the CHCCS fund balance has been in the 2% to 3% range and the district has experienced cash flow difficulties sometimes to the degree that the district has requested and the County has advanced monthly allocations. On the other hand, the OCS fund balance percentage target should be adjusted upward slightly in t range of 3 to 3.5% mainly for increased cash needs above the monthly County appropriation. The OCS receives approximately $2.1 million annually in revenues from other sources ncome usldelayy fund balance that they may have appropriated. If receipt of some balance available. It is OCS could experience cash flow challenges with insufficient fund important to note that the fund balance levels mentioned above and in the Baker memo are relative to cash flow only. An Equal Opportunity /Affirmative Action Employer