NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

The LFC is only preparing FIRs on bills referred to the Senate Finance Committee, the Senate Ways and Means Committee, the House Appropriations and Finance Committee and the House Taxation and Revenue Committee. The chief clerks are responsible for preparing and issuing all other bill analyses.

Only the most recent FIR version, excluding attachments, is available on the Intranet. Previously issued FIRs and attachments may be obtained from the LFC office in Room 416 of the State Capitol Building.

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates/Conflicts with/Companion to/Relates to Relates to SB 22

SOURCES OF INFORMATION

State Department of Public Education (SDE)

SUMMARY

Synopsis of Bill

Senate Bill 18 amends the Public School Finance Act to require school districts to use accrual basis accounting, to make quarterly reports comparing actual revenues and expenditures with budgeted revenues and expenditures and prohibits school districts from using cash balances for recurring expenses.

Significant Issues

This bill would require SDE to provide training on accrual basis accounting to school districts. The majority of school districts would have to be trained on accrual basis accounting.

Currently, school districts may also budget operational fund cash balances carried forward from the previous fiscal year for operational expenditures exclusive of salaries and upon specific approval of the State Superintendent. This bill would no longer allow school districts to carry forward cash balance from the previous fiscal year for operational expenditures. The balances remaining at the end of the year would revert to the general fund. School districts would still be able to carry forward cash balances from the previous fiscal year, not to exceed five percent for emergencies.

SDE indicates that school districts are already required to prepare quarterly comparison reports of actual revenue and expenditures with budgeted revenues and expenditures. These reports must be submitted to SDE and the local school board.

The State Board of Education currently requires school districts to prepare annual financial statements on a modified accrual basis of accounting and cash basis of accounting for budgeting and reporting.

FISCAL IMPLICATIONS

SDE indicates that school districts would not be able to absorb the reduction to their budgets if cash balances would revert.

Information provided by SDE indicates that in 1996-97 school districts budgeted $48,347.0 of cash balance for operational use. In 1997-98 this amount was $59,784.2 and 1998-99 districts budgeted $47,345.5 of prior year funds for current year operational use. Thus, it is estimated if districts are required to revert cash balances at the end of the year, the result may be an additional $40.0 million dollars to the general fund. This estimate may be somewhat on the high end and could actually be lower if districts no longer have the ability to carry cash balance over from one year to the next, they may rush to expend funds prior to the end of the fiscal year.

SDE also raises the possibility that bond ratings of school districts may be affected by eliminating the ability of school districts to carry forward prior year cash balances.

ADMINISTRATIVE IMPLICATIONS

According to SDE, additional staff would be need to train district personnel on accrual basis accounting and budgeting however, the agency does not provide an estimate of the additional cost.

CONFLICT/DUPLICATION/COMPANIONSHIP/RELATIONSHIP

Senate Bill 18 relates to and partly conflicts with Senate Bill 22 which removes the requirement that SDE approve school district budgets.

TECHNICAL ISSUES

According to SDE, this bill mandates full accrual accounting, however, the standard for governmental accounting is modified accrual.

SDE also indicates that the emergency reserve account is included in the operational fund. An amendment to clarify the intent of this bill may be necessary, if the intent was to allow school districts to carry forward not more than 5 percent of its proposed operational fund expenditures for the ensuing fiscal year as an emergency account.

OTHER SUBSTANTIVE ISSUES

The Statewide Accounting Task Force is reviewing the budget oversight functions of all state agencies including public school districts. In the future, the task force will discuss issues related to public school district cash balances and provide recommendations to the Legislature.

CTF/jsp