There were some earlier postings and questions about the Equity Fund that I believe need to be answered. First equity in this case is similar to the equity you have in your house as you pay down your mortgage.
The Equity Fund is a consequence of the fact that, by state law, the district operates on a fiscal year budget (July 1-June 30) but the taxes are collected on a calendar year basis. So the 2006-07 year is paid for partially from last year’s tax levy and partially from the 2007 taxes that will be collected in January 2007.
Furthermore, about 75% of total taxes come in by January 31 – the rest come in by July 31. So when the district closes its books at the end of the fiscal year (June 30th) it has some tax funds set aside to pay for the July-Jan portion of the year and bookkeepers and accountants require a label/category for all funds – this is the Equity Fund. It is the funds that (with the additional July collections) are intended to cover the expenses of the district for the July-Jan months.
Another piece of the funding puzzle is that the state funds (both equalized aid and categorical aid) are sent in December, March and June – for expenses incurred from September to June. So there is a cash flow problem which the district solves (as almost all others do) by engaging in short term borrowing. Usually this borrowing pays for itself (through interest earned).
I realize this is fairly complex (and archane) – so I will try to answer whatever questions any reader might have.
Carol
Carol Carstensen
Madison School Board
“Until lions have their own historians, the hunters will always be glorified.” – African
Proverb
Thank you for providing an answer, Carol. Your information is helpful.
My understanding is that various reports are done for different time periods that do not match when the revenue comes in and expenditures are made. The District’s Equity Fund is similar to the equity in my home with one exception – my home equity is not “committed” to identified future expenditures. I’m assuming that the equity in the district’s Equity Fund is “committed” to identified and approved budgeted expenditures that will take place after June 30th? Or, is any of the equity in the District’s Equity Fund on June 30th not “committed” to expenditures after June 30th and is unallocated cash? I think this is part of the question people were asking.
Is that the case for the Food Services Account? As of June 30th, the revenues had not come in to match the expenses; or, did expenses exceed expected revenues for those expenditures? If the latter, how are these dollars covered?
Are there any other accounts that exceeded their expected budgeted reveneus for the last budget year for which we have actuals? If cash is in the Equity Fund on June 30th, MMSD uses the Equity Fund to balance the books; but, how does this affect what we can budget for and expend in the future – or is that handled through borrowing?
Example, if the budget for X is $200,000 over the budgeted expenditures on June 30th, and the revenues a) are not yet in for the account or b) no additional revenue dollars will be coming in for this account, the district will borrow money from their Equity Fund to balance the books on June 30th.
If there are expected revenue dollars that come in after July 1, I’m assuming we pay back the Equity Fund and charge the revenues to the appropriate account. However, what if there are no expected additional revenues to cover these expenditures – how is that handled? The District borrows the money to cover the expenses? How much has the District borrowed for these over-budget expenditures (no revenue coming in) over the past several years, if any?
Does the School Board explicitly review/approve the borrowing for each account that might be overspent without expected future revenues? I’m assuming the School Board would need to give their approval, but it might be done as part of other business. I can think of a couple of reasons this might be worthwhile to discuss expenditures that exceed expected revenues, especially if borrowing is necessary: provide public with answers to a) why there were overexpenditures and b) what might be done about such instances in the future.
Thank you for getting this information.
Barb
Thanks for the post, Carol. Your posts always give everyone a better understanding of the budget and policies of the MMSD.
You offered earlier to check on a couple of other issues — success rate for Reading Recovery and plans for reading next year — and post what you found out. Have you had a chance to check on those items yet?
I’d also like to thank Tim Schell, who has provided information re the Equity Fund in another area on the blog. He pointed out that DPI has a web page on equity funds.
Tim also raised the issue of a long-term financial plan for the District. Through such a plan the School Board could determine how they want to have the Equity Fund managed and approve the purposes for this. I think these are great ideas, and I would like to see our School Board undertake this in the future.