Fund balance refers to the accumulation over time of any differences (positive or negative) between budgeted revenue and expenses. At the end of any fiscal year, if actual revenue exceeds the amount budgeted, or if expenses fall below the amount budgeted, that difference is added to the fund balance. If revenues are lower than expected or expenses higher, that difference is subtracted. The term “fund balance” refers to the sum total of these additions and subtractions over the entire period that the district has been in existence. A positive fund balance may include assets other than available cash. For example, some portion of it is likely to be in the form of uncollected taxes carried on the district books as receivables.
Legal limits on fund balance amounts
Pennsylvania Act No. 2003-48 prohibits a school district from increasing real property taxes for the school year 2005-2006 or any subsequent school year, as long as its estimated ending unreserved undesignated fund balance is larger than a specified percentage of budgeted expenditures. The idea is that districts should not "squirrel away" taxpayer money.
The formula allows districts with small budgets to have a fund balance as high as 12% but restricts districts whose budgets exceed $18 million to fund balances of 8.0% or less. The entire sliding scale is shown below:
- Less than or equal to $11,999,999 12.0%
- Between $12,000,000 and $12,999,999 11.5%
- Between $13,000,000 and $13,999,999 11.0%
- Between $14,000,000 and $14,999,999 10.5%
- Between $15,000,000 and $15,999,999 10.0%
- Between $16,000,000 and $16,999,999 9.5%
- Between $19,000,000 and $17,999,999 9.0%
- Between $18,000,000 and $18,999,999 8.5%
- Greater than or equal to $19,000,000 8.0%