For our analysis, we look at 3 different measures to determine a district’s financial position: change in fund balance, operating margin ratio, and operating reserve ratio. Each of the 3 measures analyzes components of a district’s General Fund The General Fund is a district’s primary operating fund. It accounts for all financial resources used for maintenance and operations, except those required to be accounted for and reported in another fund. For example, teacher and administrator salaries and benefits are normally paid from a district’s General Fund, but some salaries and benefits are paid from other more restricted funds, such as federal or State grant funds. revenues, expenditures, and ending balances to identify potential risk related to General Fund resources. Although each of these measures looks at similar financial data, they focus on different relationships in that data. We assessed each measure individually to ensure that concerns present in 1 or 2 of the measures were not overlooked based on less concerning results for another measure.

Beginning in FY 2020, districts received COVID-19 federal relief grants with less restricted allowable uses COVID-19 federal relief grants are likely included in the General Fund in districts’ audited financial statements, based on their relatively unrestricted allowable uses. However, these grants are not included in the unaudited annual financial report (AFR) General Fund amounts used in this analysis. District financial statements use accrual accounting, reporting COVID-19 federal relief reimbursement grant revenues equal to spending and therefore limiting the distorting impact on these financial position measures. However, many districts report all reimbursement grants in their AFR on a cash basis, causing revenues to be reported only once reimbursement is received, sometimes the fiscal year after the related spending was reported. Such cash basis reporting would distort our analysis by understating revenues and fund balances if these grants were included from AFRs. than most other federal or State grants. Some districts’ financial position measures may have improved when they used federal relief monies for allowable spending, including maintaining operations Maintaining operations includes payments to continue employing existing staff and payments for planned operating costs. , that might have otherwise been paid from the General Fund, contributing to larger General Fund balances than they likely would have without these federal relief grants. In total, State-wide district General Fund balances continued to increase in FY 2022, increasing 32 percent 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).