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Your Schools: Finances: The 411 on the 1,2,3s

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As the director of finance and facilities at the School District of River Falls, I wanted to take some time to share facts and insights into the benefits of maintaining an appropriate fund balance.

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What is a fund balance?

According to the Wisconsin Department of Public Instruction (DPI), a fund balance is: "The difference between the district's assets and liabilities." In essence, a fund balance is the district's reserve -- the funds we can draw upon in the future to make educational investments and the cushion that enables us to react to budgetary challenges in a thoughtful, strategic manner.

It is also a critical component of how we demonstrate good financial management to the financial markets that fund our bonds and other capital improvements.

It is important to note that a fund balance is not actually cash in the bank. Cash is one asset, but not the district's only asset. Additionally, cash balances may decrease as the district pays off liabilities, such as payroll or amounts due to a supplier.

Why does the district maintain a fund balance?

A district like River Falls, with an appropriate fund balance, can avoid costs associated with expensive short term borrowing, can accumulate sufficient assets to make planned purchases or cover unforeseen events, and demonstrates the financial stability necessary to secure lower debt issuance costs through a solid bond rating.

How does the School District of River Falls manage its fund balance?

River Falls' board policy is to maintain an appropriate fund balance that directly benefits students and taxpayers. Here's how:

n We do not short term borrow so we are able to avoid interest expense. Our students and taxpayers win because more of our limited dollars are invested directly in the classroom, not paid out as bank interest.

n Recently, we experienced an unexpected heating boiler breakdown. The fund balance provided the dollars needed to immediately replace the $100,000 boiler. Our families won because we did not have to cut educational programs to fund the boiler replacement. Our taxpayers won because we were able to avoid borrowing the funds and paying interest to fund the boiler replacement.

n As part of our recent referendum project, the community approved bonding for almost $20 million in safety, security, and mechanical updates to our schools. Banks were eager and competing to lend the funds to us because of our solid, conservative financial management track record. As a result, we were able to borrow for substantially less than what we communicated to you before the referendum. The taxpayers win because we were able to borrow for a lower rate and pay far less in interest expense than originally promised, and students benefit from improved educational facilities.

How large should a fund balance be?

What the DPI says...that fund balance should be "an amount sufficient that short term borrowing for cash flow could be avoided and would also allow the district to set aside sufficient assets to realize its longer range goals."

How the School District of River Falls puts this into practice...the board and administration annually approve a budget that allows us to maintain the fund balance necessary to avoid short term borrowing and to plan for future spending. Because we do not need to borrow funds to pay for ongoing direct operations, we pay zero interest expense to outside banks. This allows us to direct more of your tax and state aid dollars directly into the classroom providing more teachers, smaller class sizes and safer schools.

What is the fund balance philosophy at the School District of River Falls?

Simply stated, our fund balance philosophy is to offer the best education possible by maintaining the minimum amount of funds necessary to: 1) avoid borrowing and related interest expenses to pay for operations; 2) have funds available to make needed emergency repairs or purchases; and 3) maintain a strong bond rating for times when our district needs to bond for remodeling or building schools.

We understand that offering our students and community the best education possible with the funds entrusted to us is Everyone's Business!

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