Budget limit reserves – Operating budget limit reserve
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 M&O Fund budget limit reserve has changed over a 1- and 4-year period. Additionally, a district with a negative M&O Fund budget reserve overspent its statutory 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 spending needs.
Tell me more about operating budget limit reserve.
Districts with little or no budget reserves are more financially impacted by substantial decreases in student counts, which cause decreases in districts’ budget limits and revenues. Decreasing operational spending mid-year, when employment and vendor contracts are already in place, can be difficult, but districts with little or no budget reserves must reduce spending immediately when they lose students to avoid overspending.
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 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 0.5 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 M&O 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 Exceeds 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 unaudite 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|
|Amphitheater USD||Pima County||-37.1%||100.0%||No additional information|
|Antelope UHSD||Yuma County||-100.0%||-100.0%||See data for overspending amounts.|
|Apache Junction USD||Pinal County||-82.4%||-41.2%||No additional information|
|Benson USD||Cochise County||-35.1%||100.0%||No additional information|
|Bicentennial UHSD||La Paz County||100.0%||-69.7%||No additional information|
|Blue Ridge USD||Navajo County||-27.1%||100.0%||No additional information|
|Canon ESD||Yavapai County||-49.5%||-25.1%||No additional information|
1 of 3
|Navajo County||-23.5%||-73.3%||No additional information|
|Continental ESD||Pima County||-52.1%||100.0%||No additional information|
|Double Adobe ESD||
1 of 3
|Cochise County||100.0%||100.0%||Frozen tax rate; FY 2022 reserve at least 10 percent unfunded.|
|Elfrida ESD||Cochise County||82.3%||100.0%||Frozen tax rate; FY 2022 reserve at least 10 percent unfunded.|
|Flagstaff USD||Coconino County||21.8%||-88.7%||No additional information|
|Fredonia-Moccasin USD||Coconino County||-100.0%||-100.0%||No additional information|
|Ganado USD||Apache County||-27.9%||73.2%||No additional information|
|Globe USD||Gila County||-43.4%||-0.2%||No additional information|
|Hackberry ESD||Mohave County||-83.3%||-68.7%||No additional information|
|Hayden-Winkelman USD||Gila County||-32.1%||100.0%||Frozen tax rate; FY 2022 reserve at least 10 percent unfunded.|
|Hyder ESD||Yuma County||-100.0%||-100.0%||Risk reduced as total operating and capital overspending less than .5 percent.|
1 of 3
|Maricopa County||100.0%||100.0%||Frozen tax rate; FY 2022 reserve at least 10 percent unfunded.|
|Kingman USD||Mohave County||-37.3%||-42.0%||No additional information|
|Kyrene ESD||Maricopa County||-53.5%||-42.1%||District is working with ADE to resolve FY 2022 budget reserve discrepancy.|
|Maricopa USD||Pinal County||-64.1%||-24.4%||No additional information|
|McNary ESD||Apache County||-100.0%||-100.0%||No additional information|
|Mobile ESD||Maricopa County||-57.9%||-53.3%||No additional information|
|Nadaburg USD||Maricopa County||-58.3%||49.3%||No additional information|
|Paloma ESD||Maricopa County||-97.6%||-97.7%||No additional information|
|Payson USD||Gila County||-32.1%||100.0%||No additional information|
|Pearce ESD||Cochise County||-73.1%||100.0%||No additional information|
|Roosevelt ESD||Maricopa County||-30.2%||98.3%||No additional information|
|San Simon USD||Cochise County||-31.2%||100.0%||No additional information|
|Sedona-Oak Creek JUSD||Yavapai County||-49.5%||100.0%||No additional information|
|Solomon ESD||Graham County||-88.9%||-92.9%||No additional information|
|Somerton ESD||Yuma County||-33.6%||33.0%||No additional information|
|Tonto Basin ESD||Gila County||26.3%||100.0%||Frozen tax rate; FY 2022 reserve at least 10 percent unfunded.|
|Valentine ESD||Mohave County||-15.2%||-84.0%||No additional information|
|Valley UHSD||Cochise County||-25.5%||16.6%||No additional information|
|Wellton ESD||Yuma County||-50.9%||-39.3%||No additional information|
|Window Rock USD||Apache County||-100.0%||-100.0%||No additional information|
|Young ESD||Gila County||-100.0%||-100.0%||No additional information|