Maintaining a baseline level of fund balance, otherwise known as a financial reserve, enhances financial stability for any individual or organization. Just as people keep emergency funds in their checking accounts, Chicago Public Schools (CPS) seeks to maintain a baseline 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.
In FY2022, CPS projects an additional $229 million in the District’s fund balance due to end-of-year revenues exceeding expenditures by that amount. The District’s projected financial performance is driven by local revenue outperformance, including a significant one-time increase in Personal Property Replacement Taxes (PPRT).
CPS adopted its Fund Balance and Budget Management policy1 in August 2008 and passed an amended version in January 2021.2 The amended policy increases the target unrestricted fund balance to 15 percent (from a minimum of 5 percent previously) of CPS’ operating and debt service budget, net of certain non-cash expenditures. The updated policy reflects best practices recommended by the Government Finance Officers’ Association (GFOA) and reflects CPS commitment to continue to strengthen its financial position. The goals of this policy are to maintain adequate fund balances in various funds to provide sufficient cash flow for daily financial needs, offset significant economic downturns or revenue shortfalls, provide funds for unforeseen emergency expenditures, and secure and maintain strong credit ratings. The definition of fund balances in this context is assets plus deferred outflows in excess of liabilities plus deferred inflows that have no external restrictions.
Use of Fund Balance
The Chicago Board of Education’s fund balance consists of both restricted and unrestricted amounts. Due to the availability of funding from the Elementary and Secondary School Emergency Relief (ESSER) fund, the District’s budget will not rely on any reserves or prior year revenues to cover FY2023 expenses. Last year, $10 million of the District’s $7.8 billion operating budget was covered through fund balances.
Debt service funds and capital funds are recorded separately and used for their own restricted purposes. These funds are described more fully in the capital and debt chapters.
| FY2022 Budget | FY2022 Estimated Year-End | FY2023 Proposed Budget | |
|---|---|---|---|
| Fund Balance, Beginning of Period | $803.8 | $803.8 | $1,032.6 |
| Total Revenue | 7,811.6 | 7,940.1 | 7,993.7 |
| Total Expenditures | (7,821.6) | (7,711.3) | 7,993.7) |
| Operating Surplus/(Deficit) | (10.0) | 228.8 | - |
| Transfers In | - | - | - |
| Net Change in Fund Balance | (10.0) | 228.8 | - |
| Fund Balance, End of Period | 793.8 | (1,032.6 | 1,032.6 |
Fund Balance Targets
The fund balance targets established in the Fund Balance policy address the General Fund, Workers’ Compensation/Tort Fund, Debt Service Funds, and Capital Projects Funds. For the General Fund, the fund balance target is set at 15 percent of the total operating and debt service budgets. For the Workers’ Compensation/Tort Fund, the fund balance target is between one and two percent of the operating budget. For the Debt Service Funds, the amount should be sufficient to cover potential risks, as determined by the Office of Treasury and Risk Management. All Capital Projects Funds are re-appropriated for capital projects.
Given these targets and the fund balance estimates above, Table 2 below summarizes the fund balance targets.
| Fund Type | FY2022 Fund Balance Target |
|---|---|
| General Fund | $1,200.8 (15%) |
| Workers’ Compensation/Tort Fund | $80.1 (1%) |
| Debt Service Stabilization Fund | Enough to cover risks |
While CPS projects that it will increase its fund balance at the end of FY2022, continuing the trend of growth in overall reserves, CPS will likely remain short of the updated general fund target. CPS is confident that its strengthened financial position and the availability of new federal resources will allow it to meet the revised target in coming years.
As the District has replaced its variable rate debt with fixed rate debt, and since the District has fully exited from swaps, there is a minimal need for the Debt Service Stabilization Fund.
- Board Report 08-0827-PO8
- Board Report 21-0127-PO2