
CAROLINA BEACH — The term ‘fund balance’ is one that is frequently used in governmental financial reporting to signal positive or negative changes to local entities fiscal positions — but a fund balance is not the same thing as keeping cash in a checking account.
Unlike a personal bank account, a general fund balance is not a ‘cash-account,’ instead, it is a measure of equity between revenues and expenditures.
On Tuesday, the Town of Carolina Beach’s Town Council heard a presentation from Finance Director Debbie Hall explaining the ins-and-outs of fund balance.
“One of the common misconceptions is that fund balance is a cash account thereby, associated with or correlates with our government bank account balance. But what it truly is is the difference between your assets and your liabilities, which in the public sector would be your equity, but in the governmental funds that is called your fund balance,” Hall said.
The town and its elected leaders had come under some scrutiny towards the end of 2018 by the state. A letter was issued by the Local Government Commission to the town stating some concern for the fund balance.
The town’s fund balance had continued to decrease over the past three years from 54.18 percent to 31.24 percent.
And while that is a significant percentile decrease, there is an explanation for the drop — mainly an increase in capital projects.
So what is the purpose of a fund balance? Well, according to Hall, it is, “intended to serve as a measure of the financial resources available in a governmental fund. It’s the measure of financial health of an individual fund.”
It is also a driving factor behind maintaining tax rates.
“It is essential to keep a high level of fund balance (or as much as you can) to mitigate your current risk, future risk, and to ensure that you have a stable tax base,” Hall said.
Who can spend the fund balance?
There are several different subcategories when it comes to the fund balance including restricted, assigned, and unassigned.
According to Hall’s presentation, the fund balance is reported based on how constrained it is.
- Restricted means external legal restrictions or stabilization by state statute, Powell Bill or grant funds.
- Assigned funds are internally assigned and less formal than restricted funds. These include funds earmarked for capital projects or the storm damage prevention fund.
- Unassigned funds are available reserve funds that can be used or spent in the upcoming budget year.
To find the percentage of fund balance available you divide the total unassigned fund balance by the total expenditures. In the case of Hall’s presentation that would be $3.1 million (unassigned balance) divided by $14.5 million (expenditures) giving a 21-percent available balance.
Overall, fund balances can be a confusing matter especially considering they do not operate the same way as a normal cash account, but regardless of its true definition, a fund balance does show a snapshot of the towns financial position.
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