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OASBO - OSBA - BASA Recommendation: Adopt a Cash Balance Policy

By Katie Johnson posted 22 days ago

  

In many districts, general revenue fund cash balances serve as a safeguard against budgetary uncertainties and allow districts to address various financial exigencies. Recently, our associations have observed a heightened level of scrutiny regarding district general reserve fund cash balances, with some viewing cash reserves as indications of overtaxation or inefficient use  of public funds. In light of this, we wanted to remind districts of the resources that are available to help determine these balances, transparently explain the rationale behind reserve levels, and foster trust and confidence in financial decision-making processes.

Review the cash balance amount for your district. School officials must monitor district cash flow reserves as they practice responsible stewardship of the public tax dollars. Both school administrators and board members should know the percentage of operating expenses that their cash reserve balances represent, and should familiarize themselves with how this number compares to other similarly-situated districts and the other districts in their counties. You can find this information on the Ohio Department of Education and Workforce website

Know your “why.” Sources of revenue, spending needs and circumstances vary widely among districts, so the need for cash balance reserves also varies from district to district. The adequacy of a district’s budget reserve balance should consider the unique circumstances of the district and the community it serves and factors such as the district’s revenue predictability, expenditure volatility, exposure to significant one-time outlays, the potential drain upon general fund resources from other funds, the availability of resources from other funds, the district’s bond rating, and the district’s exposure to other commitments and assignments. 

In 2022, the Ohio Association of School Business Officials (OASBO) published its General Revenue Fund Cash Balances – Management, Guidance, and Best Practices whitepaper, which provides guidance for evaluating the fiscal responsibilities and obligations of a district as it relates to a district’s cash balance practices. The whitepaper encourages districts to walk through a series of questions designed to help the district achieve a fund balance that is necessary to protect taxpayers and employees from unexpected changes in the financial conditions of the district.
Both school administrators and school board members should know and understand the district’s rationale for the current level of the district’s reserve balance account.

Establish reserve policies. School boards are encouraged to establish a formal policy on the level of cash fund balance that should be maintained in the general fund. Having a board policy in place formalizes the district’s “why” and communicates the district’s rationale to both internal and external stakeholders.

OASBO’s white paper includes sample school board cash balance policies for the board’s consideration. Among other considerations, this policy should include language that defines the minimum and maximum levels of fund balances to be maintained annually, appropriate uses of fund balance reserves, individuals authorized to use fund balance reserves, and guidance on how to replenish minimum level balances. 

School boards are encouraged to review any existing policies to ensure they explain the rationale for the district’s fund balances and align with the district’s current practices. Please reach out to your policy provider if you need to make updates or edits to your policies.

The scrutiny of school district general reserve cash balances is a critical component of sound financial management. If you have questions about best practices in this area, or need assistance as you develop, update or communicate your practices and policies, please reach out to your state associations.

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