Ending Fund Balances: What they are, and what they are not…that is the question

When we develop our personal budgets, we consider cash flow either knowingly or unknowingly. The timing of a pay check is often known, the expenses addressed from that paycheck are also known, and ideally, we reserve a portion of the check to cover those expenses. What is left gets us through to the next pay check and the cycle continues.

The same concepts hold true for our city’s unappropriated ending fund balances. Municipal budgets are planned by fund and each has an ending fund balance. Funds themselves are an interesting topic and will be covered in a future post. Ashland’s fiscal year goes from July 1st through June 30th. As of this post Ashland is one month into the 2021 fiscal year. However, the city does not receive the bulk of its’ revenues, also known as our property taxes, until November.  Enter the unappropriated ending fund balance. In the case of an ending fund balance, unappropriated means just as you would expect, that the funds are not assigned or designated for specific expenses within the fund category. The express goal of an unappropriated ending fund balance is to cover expenditures from the end of the prior fiscal year until the property tax revenues (or other revenue sources) come available in November.

Therefore, it follows that unappropriated ending fund balances are calculated by determining the cash requirements from July 1 (the beginning of a new fiscal year) through the time where sufficient revenues become available to meet cash flow requirements. For example, let us say the fictional city of Elsinore spends $10,000 per month, $120,000 per year. Tax revenues are not received until five months into the new fiscal year.

5 months x $10,000 monthly expenditures = $50,000 unappropriated ending fund balance

 Now it is important to define what an unappropriated ending fund balance is not.

  • Unappropriated ending fund balances are not vehicles to hold excess funds.
  • Unappropriated ending fund balances are not savings accounts.

Also, no expenditures may be made from the unappropriated ending fund balance within the budget year for which the moneys are defined as an ending fund balance.  Said another way, if a fund requires an ending fund balance of $50,000 at the end of Fiscal Year 2020, the entity cannot spend that $50,000 in Fiscal Year 2020. The funds are specifically budgeted for the ending balance and are required to cover the expenses for the first months of Fiscal Year 2021.

There are exceptions to every rule. In an emergency, as defined in ORS 294.455, unappropriated ending fund balances may be used. Use of the funds requires an appropriation with either a resolution or ordinance, or through a supplemental budget. Such appropriations may only be made AFTER the emergency event takes place.

Likewise, a revenue shortfall during the budgeted year may require spending be curtailed to maintain the budgeted unappropriated ending fund balance. If the expenses are necessary, and spending cannot be reduced, then it follows that the unappropriated ending fund balance will be less than budgeted. Is this allowed? In short, yes. However, the following conditions must exist:

  • Expenses must remain within the fund’s budgeted appropriation authority (there is permission to spend).
  • There is in fact a shortfall in revenue.

Hopefully this helps clarify unappropriated ending fund balances, what they are, what they are not…and answers some questions. In future posts I will discuss Ashland’s fund balances and what this means to our budget.

Sources:

https://www.oregonlaws.org/ors/294.398

https://www.oregon.gov/dor/forms/FormsPubs/local-budgeting-manual_504-420.pdf

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