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Fund Balance Statement 2021

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 FY2020, CPS projects an additional $52 million in the district fund balance due to end-of-year revenues exceeding expenditures by $41 million and $11 million of transfers into the operating fund. The district’s projected financial performance is driven by lower-than-budgeted-expenses from school closures due to COVID-19 in spring 2020 and the additional federal Coronavirus Aid, Relief, and Economic Security (CARES) Act revenues that offset expenses related to COVID-19.

CPS adopted its Fund Balance and Budget Management policy1 in August 2008. 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 can be spent in times of need. 

Use of Fund Balance

The Chicago Board of Education’s fund balance consists of both restricted and unrestricted amounts. The appropriated portion of fund balance comprises the unspent restricted prior year fund balance. Due to the nature of these funds—which include federal nutrition funding, state funding for early childhood, and school-generated revenue—they can only be spent on the intended use and not for general expenses. As a result, even with a balanced budget, the district will still appropriate a general operating fund balance. In FY2021, $22 million of the $6.9 billion operating budget is funded by restricted fund balance.

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.

Table 1: Estimated Beginning and End-of-Year Fund Balance in the Operating Funds (in millions)
  FY2020 Budget FY2020 Estimated Year-End FY2021 Proposed Budget
Fund Balance, beginning of period $471.8 $471.8 $523.6
Total Revenue 6,263.3 6,223.4 6,894.0
Total Expenditures (6,319.3) (6,182.3) (6,916.0)
Operating Surplus/(Deficit) (56.0) 41.1 (22.0)
Transfers In - 10.7 -
Net Change in Fund Balance (56.0) 51.8 (22.0)
Fund Balance, end of period 415.8 523.6 501.6

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 between five and 10 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 Treasury Department. 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.

Table 2: Fund Balance Targets (in millions)
Fund Type FY2020 Fund Balance Target
General Fund $329.5 (5%)
Workers’ Comp/Tort Fund $59.8 (1%)
Debt Service Stabilization Fund Enough to cover risks

CPS projects that it will meet its fund balance target again in FY2021, as it did in FY2020 for the first time in five years. The Workers’ Compensation/Tort Fund will meet fund balance targets at the end of FY2020, and the district believes that its improved financial outlook will allow it to meet all of its fund balance targets in the foreseeable future.

As the district has replaced its variable rate debt with fixed rate debt, and after fully exiting from swaps, there is a minimal need for the Debt Service Stabilization Fund. 

The Board is in the process of updating its fund balance policy to better align itself with the Government Finance Officers Association (GFOA) recommendations.

  1. Board Report 08-0827-PO8

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