This measure shows the percent of General Fund monies held in reserve for future spending (i.e., fund balance) compared to total spending from the prior year. A negative operating reserve ratio indicates a negative fund balance, which means the district must use monies received in the following year to cover prior-year spending. This results in higher financial risk as districts with negative fund balances may incur borrowing costs to continue spending or may need to make spending cuts to operate within available resources. Delaying necessary spending cuts when revenues begin to decline can require larger spending cuts later unless revenues increase. Districts with frozen tax rates

have even greater financial risk from negative operating reserves as they may not be able to generate enough revenues to bring reserves back to a positive position without substantial spending cuts.

If a district's operating reserve ratio is 16 percent, the district has enough reserve in its General Fund to continue typical spending for approximately 2 months

with no additional revenues, or the district could afford an urgent necessary expenditure equal to about 16 percent of the prior year's General Fund spending. For example, a district will have a higher ratio if its fund balance reflects prepayment of future expenditures or planned savings for anticipated or unanticipated spending in future years. Likewise, a district will have a lower ratio when it intentionally or unexpectedly uses up prepaid balances from prior years or spends monies saved in prior years for current operations.

A district's General Fund balance could be negative due to misallocation of State or local tax revenues between funds or budgetary overspending

. Districts with negative operating reserves that do not have frozen tax rates

may be able to work with their counties to levy additional taxes

.

All districts with a negative operating reserve ratio in either of the most recent 2 years were considered high risk for this measure.

Districts were also considered high risk for this measure if they received an adverse opinion or disclaimer of opinion

on their FY 2024 audited financial statements or did not submit or submitted an incomplete and unreliable unaudited annual financial report

to the Arizona Department of Education and we were unable to determine a reliable measure result.

General Fund amounts were obtained from districts' audited financial statements or unaudited annual financial reports

(AFR) as indicated below. Districts that are not required by State law to receive an annual audit

generally do not prepare annual financial statements. However, all school districts are required to prepare AFRs each year. To analyze similar data when AFR data was used, we summed the applicable General Fund amounts from all funds each individual district designated as part of its General Fund in the AFR. However, financial statement and AFR amounts may not be consistent for the same funds if auditors identify adjustments that are reflected in financial statement amounts to correct errors or meet governmental financial statement reporting requirements. To avoid distorting the measure ratios based on reporting inconsistencies between unaudited AFR data and audited financial statement data, we did not compare data across those sources.

• Fiscal year 2025: Amounts were obtained from unaudited district AFRs submitted to Arizona Department of Education (ADE) as of November 24, 2025.
• Fiscal year 2024: Amounts were obtained from district-submitted audited financial statements, if available. Otherwise, amounts were obtained from district AFRs submitted to ADE as of November 24, 2025.