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Residents leading the charge for an independent Caledonia school district have alleged Racine Unified has a budget surplus of tens of millions of dollars, and they want to know why the district is asking for a multi-million dollar referendum.

The allegations have appeared in comments on Racine County Eye stories and Facebook posts, so we decided it was time to dig a little deeper.

We asked for some clarification about terms, fund balances and surpluses from municipal clerks and finance directors in our area as well as from Racine Unified’s Chief Financial Officer Dave Hazen.

Taxing bodies like municipalities and school districts typically have a fund balance that (hopefully) carries over year-after-year in their budgets. The amount of that fund balance will vary depending on the size of the organization, but the audit standard, we were told by one clerk, is between 25 and 30 percent of the annual budget.

A local finance director, though, said between 20 and 25 percent is a “darn good mark;” so a $10 million operating budget would mean about $2 million in the general fund.

In Racine Unified, the amount of the general fund balance reflects anywhere from 15 to 20 percent of the annual budget and is used to bridge the gap between state aid and collected property taxes.

“The Board of Education has a policy that fund balance should be between 15 and 20 percent of the annual budget,” Hazen said. “The fund balance is needed to cover cash needs for operations between state aid payments and property tax receipts.”

Racine Unified general fund balances since 2012 have looked like this:

  • 2011 – 2012: $33,118,439 (12% of $271 million budget)
  • 2012 – 2013: $46,797,496 (19% of $240 million budget)
  • 2013 – 2014: $41,325,536 (14% of $301 million budget)
  • 2014 – 2015 (projected): $37,719,233 (13% of $288 million – depending on referendum vote)

General fund balances are described as the “in case” fund, separate from contingency monies, and are not typically spent. A contingency fund is a budget line item with funds purposely put away for unexpected costs like covering a spike in costs for salt or fuel, for example.

An organization’s credit rating can hinge on the balance in its general fund; too low and borrowing for capital improvements gets more expensive because the credit rating goes down. On the other hand, a fund balance that meets or exceeds 20 to 25 percent of the overall operating budget can then mean a higher credit rating and lower interest rates.

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