Budget limit reserves – Capital budget limit reserves
For our analysis, we look at 2 different measures to assess a district’s budget limit reserves and its spending within its budget limits. Every Arizona school district annually adopts statutorily prescribed Maintenance and Operation (M&O) and Unrestricted Capital Outlay (UCO) Fund budget limits that are, in part, based on the number of students attending its district. At the end of each fiscal year, any unspent operating or capital budget capacity is carried forward as a reserve in the applicable fund and increases the following years’ total operating or capital budget limit. A negative reserve amount indicates a district spent beyond its budget limit in the current year or has not reduced spending enough to compensate for overspending in a prior year.
The M&O and UCO Funds’ budget limit reserves do not include COVID-19 federal relief monies districts received beginning in fiscal year (FY) 2020. Districts account for those federal relief monies in separate federal grant funds. However, some districts’ operating and capital budget limit reserves may have increased when they used federal relief monies for allowable M&O- and UCO-type spending. In total, State-wide district operating and capital budget limit reserves continued to increase in FY 2022, increasing 38.4 percent and 82.1 percent, respectively, since FY 2020. In FYs 2020 through 2022, nearly half of Arizona school districts reported using at least some of their federal relief monies for allowable grant purposes in place of available State and local monies (see the District, charter, and ADE COVID-19 spending special report).
Arizona school districts may be required to reduce their FY 2023 budgeted spending from local revenues by approximately 17.5 percent as current district budgets indicate they have exceeded the State-wide aggregate expenditure limitation. A.R.S. §15-911 allows the Arizona Legislature to authorize spending in excess of the limitation for the current fiscal year by March 1. State-wide, not including any other budgetary impacts, this potential budget reduction could result in proportional FY 2023 operating and capital budget limit reserve decreases.
What is this measure telling me, and why is it important?
This measure shows how a district’s UCO Fund budget limit reserve has changed over a 1- and 4-year period. Additionally, a district with a negative capital budget reserve overspent its statutory capital budget limit in that year and had future years’ budget limits reduced to compensate for the overspending. Substantially declining, negative, or unfunded reserves indicate higher financial risk as less resources remain available for future capital spending needs.
Tell me more about capital budget limit reserve.
Districts with little or no budget reserves are more financially impacted by unexpected capital spending needs when they arise. Although districts may have the ability to sell bonds or access special funding from the Arizona School Facilities Board for certain capital needs, those funding sources are not always available or allowed to be used depending on the districts’ capital needs. Often, districts with little or no UCO Fund budget limit reserves need to allocate more of their current-year annual budget capacity to the UCO Fund to meet immediate capital needs. Doing so reduces the district’s resources available for operational spending in that year and may require operational spending cuts if adequate M&O Fund budget reserves are also not available to avoid overspending.
Decreases in a district’s UCO Fund budget limit reserve may result from a district’s long-term spending plan, and therefore represent less financial risk than unplanned reserve decreases. However, planned or unplanned, substantial decreases in budget reserves leave fewer resources available for future needs and therefore increase a district’s financial risk.
In some instances, districts can report positive budget reserves, based on unspent budget capacity, even when they lack the cash to fully support spending that budget capacity (i.e., unfunded reserves). Districts with unfunded reserves may be able to work with their counties to increase future property taxes , or when unfunded reserves are caused by substantial property taxes owed to the district remaining unpaid, supplemental State aid may be requested to fund the existing budget capacity. A district with a frozen tax rate cannot increase its tax rate to generate monies for an unfunded reserve, and it only increases its unfunded reserve if it uses legal budgetary increases, such as small school adjustments , to set its budget limit beyond the resources it can generate through State and local taxes.
How were districts identified as high risk for this measure?
Districts were considered high risk for this measure if any of the following was true:
- The district overspent its budget limit in the most recently completed fiscal year and in total overspent its operating and capital budget limit by more than .5 percent of the applicable years’ total budget limit.
- The district’s budget limit reserve decreased by 25 percent or more in the most recent year, or by 50 percent or more over the last 4 years.
- The district reported an unfunded budget limit reserve (i.e., budget capacity exceeds available resources at fiscal year-end) of at least 10 percent in the most recently completed fiscal year, has a frozen tax rate, and has a per pupil ending fund balance less than the State-wide average.
How was this measure calculated?
The applicable UCO Fund budget limit reserve amounts from the last 5 years were used to calculate the 1- and 4-year change.
Budget limit reserves were obtained from the Arizona Department of Education (ADE), as of December 19, 2022, from BUDG75 reports for each district and fiscal year.
Frozen tax rate data was obtained from the Property Tax Oversight Commission’s report, 2022 Review of School Districts that Exceed the 1 Percent State Constitutional Limit.
Fiscal year 2022 M&O and UCO Fund ending fund balances were obtained from ADE as of December 19, 2022, from district-submitted unaudited annual financial reports (AFR).
Districts at high risk for this measure
|District||Among the highest-risk districts||County||1-year change||4-year change||Additional information|
|Baboquivari USD||Pima County||N/R||-100.0%||No additional information|
|Bagdad USD||Yavapai County||-63.0%||-87.4%||No additional information|
|Beaver Creek ESD||Yavapai County||-68.6%||-44.1%||No additional information|
|Bonita ESD||Graham County||-44.9%||-42.9%||No additional information|
|Canon ESD||Yavapai County||-35.2%||27.3%||No additional information|
|Cave Creek USD||Maricopa County||-17.7%||-58.6%||No additional information|
|Chinle USD||Apache County||-100.0%||100.0%||No additional information|
|Cochise ESD||Cochise County||-61.3%||-55.7%||No additional information|
|Colorado River UHSD||Mohave County||-95.7%||-13.2%||No additional information|
|Congress ESD||Yavapai County||-42.2%||N/R||Risk reduced as total operating and capital overspending less than .5 percent.|
|Continental ESD||Pima County||-68.0%||-63.6%||No additional information|
|Coolidge USD||Pinal County||100.0%||-53.7%||No additional information|
|Crown King ESD||Yavapai County||-2.1%||-51.7%||No additional information|
|Eloy ESD||Pinal County||-88.4%||-92.2%||No additional information|
|Fredonia-Moccasin USD||Coconino County||-100.0%||-100.0%||No additional information|
|Gila Bend USD||Maricopa County||76.5%||-83.7%||No additional information|
|Globe USD||Gila County||55.8%||-64.7%||No additional information|
|Grand Canyon USD||Coconino County||-15.1%||-64.4%||No additional information|
|Kingman USD||Mohave County||-100.0%||-100.0%||See data for overspending amounts.|
|Maine Consolidated SD||Coconino County||-35.0%||100.0%||No additional information|
|McNary ESD||Apache County||-100.0%||-100.0%||No additional information|
|Mesa USD||Maricopa County||-50.0%||16.0%||No additional information|
|Morristown ESD||Maricopa County||-31.6%||-87.9%||No additional information|
|Nadaburg USD||Maricopa County||-93.2%||-95.8%||No additional information|
|Phoenix ESD||Maricopa County||-21.8%||-53.9%||No additional information|
|Picacho ESD||Pinal County||-26.4%||100.0%||No additional information|
|Red Rock ESD||Pinal County||-48.3%||9.2%||No additional information|
|Santa Cruz ESD||Santa Cruz County||-28.0%||-72.5%||No additional information|
|Santa Cruz Valley UHSD||Pinal County||-28.7%||-59.9%||No additional information|
|Sedona-Oak Creek JUSD||Yavapai County||-60.4%||23.3%||No additional information|
|Skull Valley ESD||Yavapai County||-88.6%||-95.5%||No additional information|
|St. David USD||Cochise County||-95.6%||100.0%||No additional information|
|Stanfield ESD||Pinal County||4.5%||-57.0%||No additional information|
|Tolleson UHSD||Maricopa County||-63.0%||-44.2%||No additional information|
|Toltec ESD||Pinal County||-20.2%||-73.5%||No additional information|
|Tonto Basin ESD||Gila County||-100.0%||-100.0%||Risk reduced as total operating and capital overspending less than .5 percent.|
|Wenden ESD||La Paz County||-19.1%||-62.7%||No additional information|
|Willcox USD||Cochise County||-86.8%||100.0%||No additional information|
|Window Rock USD||Apache County||-100.0%||-100.0%||No additional information|
|Yarnell ESD||Yavapai County||100.0%||-60.0%||No additional information|
|Young ESD||Gila County||-100.0%||-100.0%||No additional information|