Based on Michigan Department of Education (MDE) data, the statewide average for Fund Balances declined from 13.01% to 11.81% from 2005-06 to 2006-07, a 9.2% reduction. This represents a spend-down of approximately $150 million.
MSBO and many accounting firms recommend that school districts maintain a Fund Balance of at least 15% of general operating funds. The main reason schools need a Fund Balance of this magnitude is cash flow.
You may need to remind your Board and community that since the state pays schools 11 months out of the year, skipping September, schools have a 60-day period once a year during which they receive no revenue from the state. Schools can borrow money to get through that period - incurring borrowing costs - or build up enough reserves to get through without borrowing by reducing costs and allowing more dollars for educational programs.
Additionally, schools need Fund Balances to help soften financial losses from volatile state funding, enrollment declines and potential emergencies. All this means that the decline in Fund Balances is of real concern, although, given the ongoing funding problems it is surprising the overall picture isn't worse.
Michigan Department of Education data reflects a drop in the statewide average for Fund Balances of 9.2% in just the past year.