Agenda - 09-27-2004-2 - Laserfiche WebLink

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Aside from the significant dollar increase in County current expense funding allocated to the school systems, the major difference between1986 and the current fiscal environment is funding for capital projects. From the late 1970s up to the 1988 bond referendum there were no concerns related to funding start up costs for new facilities. Capital Investment Programming was a new concept for Orange County government. This issue is significant because fund balance has been the major source of start up costs for new facilities for OCS. The CHCCS has used the district tax as a source for start up costs related to new facilities. This practice could also become an issue if the move toward funding equity gains momentum. The Finance Directors have identified three major issues related to fund balance policy that must be given consideration prior to setting and maintaining concrete fund balance targets. • Funding for Start up costs —As mentioned above, OCS has historically used fund balance as a source to pay the one time costs associated with opening new schools and the CHCCS has mainly used district taxes. If concrete fund balance targets are established and adhered to, an alternative source for start up costs would have to be identified for OCS. Likewise, if the district tax is frozen or reduced and/or eventually eliminated in the pursuit of equity funding, other funding sources would need to be identified. • Emergencies and Unforeseen Events— In addition to cash flow considerations, units of government also use fund balance to handle emergency situations and/or unforeseen events. If fund balance targets are established and followed, a clear statement should be made regarding response to emergencies or unforeseen events. • Use of Fund Balance for Operating Expenditures—This is another policy issue related to use of fund balance. Both school systems have used fund balance to pay for recurring operational initiatives in the past. The most recent example of this is the OCS use of$1.2 million in fund balance in their 2004-2005 budget to fund several operational initiatives. In addition, CHCCS appropriated $1.6 million. Use of fund balance to pay for ongoing operating costs could present funding challenges for these types of expenditures in future years as reserves become scarce (note the last full paragraph in Superintendent Carraway's September 22, 2004 memo on school fund balance). A sound fund balance policy should also address when and under what circumstances fund balance should be considered for funding ongoing operational expenditures As mentioned above, the 1986 memo from Gordon Baker that resulted in the current policy only addressed fund balance as a cash flow tool, The Finance Directors agreed that a sound fund balance policy should be more comprehensive and include not only percentage targets related to the levels required to meet cash flow needs, but also address issues involving the how and when it can be accumulated and used.