Chicago Public Schools Fiscal Year 2013 Amended Budget

Fund Balance Statement

Fund Balance Statement

Maintaining a minimum fund balance, or financial reserve, enhances financial stability for any individual or organization. Just as individuals keep a certain minimum balance in their checking accounts in case of emergencies, Chicago Public Schools (CPS) needs to maintain a minimum amount of funds within its operating account to ensure smooth day-to-day operations. Additionally, financial reserves provide a cushion for year-to-year fluctuations in financial performance. External stakeholders consider a minimum fund balance as a hallmark of prudent financial management and a best practice for governmental organizations.

CPS adopted the Fund Balance and Budget Management policy (Board Report 08-0827-PO6) in August 2008. The goals of this policy are to maintain adequate fund balances in the various funds to provide sufficient cash flow for daily financial needs, to offset significant economic downturns or revenue shortfalls, to provide funds for unforeseen expenditures related to emergencies, and to secure and maintain strong credit ratings. The definition of fund balances in this context is assets in excess of liabilities that can be spent in times of need. As a practical measure to achieve these goals in the General Fund, the Board established the Stabilization Fund, which should carry a minimum 5 percent of the operating and debt-service total budget in the following year's budget. The stabilization fund is equivalent to an assigned fund balance under Governmental Accounting Standard Board Statement No. 54.

It is important to note that 5 percent is a minimum level of reserves as determined by external stakeholders, such as government watchdog groups and rating agencies. Rating agencies commonly view fund balances in excess of 5 percent as appropriate, and the Government Finance Officers Association recommends fund-balance levels between 5 percent and 15 percent of spending. While CPS acknowledges the importance of maintaining a minimum level, it must balance this importance with advancing its core mission of ensuring that every child graduates college and career ready. Accordingly, as described fully in the next section, CPS will exhaust those reserves and will develop a plan to replenish them.

FY2013 Estimated Beginning-Year Fund Balance and its Targets

The General Fund carried $475.6 million of unrestricted fund balance as of June 30, 2011, and the FY2012 adopted budget was balanced with the use of $181.3 million out of $475.6 million for the General Fund. CPS currently estimates that we will use only $113.8 million due to several favorable events.

Property taxes are estimated to generate $16.6 million higher than budget due to the growth in new property. The Personal Property Replacement taxes are expected to generate $18.1 million higher than the budget. Because of the timing with new bond issues and debt restructuring, state revenues are forecast to come in higher than budget by $35.1 million. Finally, due to the state's processing of retroactive rate adjustments, Medicaid reimbursement is projected to come in higher than budget by $23.7 million. Offsetting these positive events, the state changed federal grant payment from pre-payment to the reimbursement. Reimbursement will delay federal reimbursement by two months beyond June 30, resulting in a one-time revenue reduction of $53 million in FY2012.

As a result of these events, the fund balance at the beginning of FY2013 is projected at $349.0 million or 6.2 percent of operating funds and debt service appropriations. The FY2013 budget projects using all $349.0 million.

The table below summarizes the fund-balance targets in the policy and estimated fund balances for relevant funds for FY2013. The General Fund will not meet the fund-balance targets at the end of FY2013. CPS will ask the Board to extend the deadline to replenish the fund balance for FY2013 and FY2014 while it prepares a long-term plan to return financial stability to the district.

Appropriable Fund Balance Status at June 30, 2012 (in millions)

Fund Type

FY2013
Fund Balance
Target

Estimated Balance
at 6/30/2012

Estimated Balance
at 6/30/2013

General Fund-Stabilization

$277.8  (5%)

$349.0

$0.0

Workers' Comp/Tort Fund

$51.6  (1% - 2%)

$85.5

$60.5

Debt Service Funds

Enough to cover risks

$223.4

$223.4

State Payment Delay Status at the end of FY2012

CPS recognizes revenues when cash is collected within 30 days after a fiscal year ends. As of June 20, 2012, the state's overdue payments are projected at $164.9 million, slightly lower than $176.1 million as of July 30, 2011. Currently, the state owes CPS about three months of payments. The FY2013 budget assumes the same three months of delay as in the previous year.

History of State Year-End Obligation to CPS

 ( In Millions)

2004

2005

2006

2007

2008

2009

2010

2011

2012

Amount Owed on 6/30

3.1

21.5

7.0

19.0

23.3

173.0

369.4

327.5

164.9

Amount Owed on 7/31

2.7

5.2

6.9

3.7

1.2

173.0

236.2

176.1

 

Amount Owed on 8/31

0.0

0.0

0.0

0.0

0.0

0.0

102.2

70.0

 

 

Historically, the state paid its prior-year obligations to CPS within 60 days (lapse period) after the start of the new fiscal year. For FY2012 obligations, the state's lapse period is again extended to December 2012. Therefore, the state payment of $164.9 million could be delayed until December 31, 2012.

FY2013 Plans for Replenishing the Fiscal Stabilization Fund

In addition to developing a long-term strategic plan to restore fiscal stability, CPS will implement the following policies in FY2013:

  • Freeze hiring on non-instructional employees at the Central Office, effective July 1, 2012.
  • Encourage the state to resume a regular payment schedule.
  • Perform the 20th day position adjustment and monitor quota positions carefully.
  • Execute debt restructuring, if economically beneficial.
  • Minimize capital investment, consistent with the proposed FY2013-2017 Capital Improvement Program and seek outside sources of funding wherever feasible.
  • Secure private foundation grants to pay for enrichment programs as much as possible.
  • Work with the Chicago Teachers Union, the Chicago Teachers Pension Fund, the governor and the General Assembly to develop and implement pension reform to reduce the prospective pension obligations of CPS.

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Page Last Modified on Wednesday, August 27, 2014