The Key Takeaway
A school district does not have one large bank account.
It maintains several major funds, and many of those funds contain additional restricted balances. The rules attached to each revenue source determine where the money can be used.
That explains how SoWashCo can simultaneously have:
- A General Fund operating deficit
- A positive Food Service balance
- Negative balances within portions of Community Service
- A large but declining construction balance
- Money reserved for debt payments and retiree benefits
When someone asks, “Why can’t the district take money from this area and spend it over there?” the answer often begins with another question:
Which fund is the money in, and what rules govern its use?
In Part 1, we examined where the district’s revenue comes from. Now we need to understand where that money goes after the district receives it.
One of the most common misunderstandings about school finance is that the district can freely move money from one part of the budget to another. It generally cannot.
School districts use separate accounting funds to track money designated for different purposes. State law, voter authorization, grant requirements, and accounting rules determine how much of that money may be used.
For example, the district cannot issue bonds meant to construct or renovate schools and then use the proceeds to increase employee wages. Likewise, federal nutrition funding cannot ordinarily be redirected to cover an unrelated classroom expense.
This is why one district fund can accumulate money while another is running a deficit. A healthy balance in one restricted fund does not necessarily provide a solution for a shortfall somewhere else.
The District’s Major Funds
SoWashCo’s 2026–27 preliminary budget contains seven major accounting funds:
| Fund | Revenue | Expenditures |
|---|---|---|
| General Fund | $359.1 million | $367.1 million |
| Food Service Fund | $16.4 million | $16.2 million |
| Community Service Fund | $17.8 million | $18.1 million |
| Building Construction Fund* | $3.7 million* | $102.8 million* |
| Debt Service Fund | $46.4 million | $46.0 million |
| Custodial Fund | $20,500 | $20,500 |
| OPEB Trust Fund | $200,000 | $270,000 |
| Total | $443.7 million* | $550.5 million* |
* The large difference between total revenue and expenditures is primarily caused by construction spending. The district received the bond proceeds in an earlier year and is now spending that accumulated balance on the projects voters approved.
Let’s look at what each fund does.
General Fund
The General Fund supports most of the district’s regular K–12 operations, including:
- Classroom instruction
- Special education
- Transportation
- School and district administration
- Facilities and maintenance
- Technology
- Media centers
- Athletics and activities
- Staff development
The General Fund accounts for approximately $367.1 million, or about 67% of all district expenditures in 2026–27. It is therefore the fund most closely associated with the district’s ongoing operating position.
The district expects the General Fund to receive approximately $359.1 million and spend approximately $367.1 million, producing a projected deficit of about $8.0 million.
Its fund balance is projected to decline from approximately $56.3 million to $48.2 million or 13.8% of general fund annual expenses. This does not meet the district’s target of maintaining a fund balance of 16.6% of annual expenses by the end of each fiscal year (Fund Balance Policy 701.2). In fact, without any adjustments, the fund is projected to be fully depleted sometime in the 2028-29 school year:
Source: South Washington County Schools, Budget Adjustment Update presentation dated July 16, 2026.
Even the General Fund is not one unrestricted pot
The word “general” can make this fund sound completely flexible, but portions of it are restricted or reserved for particular purposes.
These include:
- Long-term facilities maintenance
- Operating capital
- Staff development
- Safe schools
- Basic skills
- State-approved alternative programs
- Student activities
- Achievement and integration
- Gifted and talented programming
- Vocational education
The district’s General Fund therefore contains both more flexible operating resources and money that must be tracked or used for designated purposes.
When evaluating the district’s financial health, it is important to distinguish the total General Fund balance from the portion that is genuinely available for general operations.
Food Service Fund
The Food Service Fund accounts for school meals, nutrition programs, catering, and related operations.
For 2026–27, the district expects approximately:
- $16.4 million in revenue
- $16.2 million in expenditures
- A year-end fund balance of approximately $6.3 million
Nutrition Services is intended to operate as a self-sustaining program. It also reimburses the General Fund for certain administrative services, including payroll, accounts payable, and technology support.
Much of the Food Service Fund’s revenue is legally or programmatically tied to nutrition services. A positive balance here does not mean the money can simply be moved into the General Fund to cover an operating deficit.
The balance also helps pay for future replacement and upgrades of kitchen equipment.
Community Service Fund
The Community Service Fund accounts for educational and community programs primarily serving residents before kindergarten and after grade 12.
For 2026–27, it includes approximately:
- $17.8 million in revenue
- $18.1 million in expenditures
- A projected year-end balance of approximately negative $447,000
The Community Service Fund reimburses the General Fund for certain overhead expenses and for its use of district space.
Within this fund, the district separately tracks several programs and restricted balances.
Community Education
Community Education includes enrichment, recreation, childcare, and other community-based services.
This area is projected to end 2026–27 with a positive balance of approximately $6.6 million.
Early Childhood Family Education
Early Childhood Family Education, commonly called ECFE, provides classes and resources for parents, caregivers, and young children from birth through kindergarten entry.
It is projected to receive approximately $1.6 million, spend approximately $1.6 million, and end the year with a negative accumulated balance of approximately $493,000.
School Readiness
School Readiness includes early-childhood programming intended to prepare children for kindergarten, including support for district preschool programming and scholarships.
It is projected to receive approximately $2.0 million and spend approximately $3.1 million during 2026–27.
Its accumulated balance is projected to decline to approximately negative $5.3 million.
Adult Basic Education
Adult Basic Education provides learning opportunities for people age 17 and older who are not enrolled in an elementary or secondary school. Services include basic academic skills, high-school completion, and English-language instruction.
It is projected to receive approximately $841,000, spend approximately $826,000, and end the year with a positive balance of approximately $336,000.
Why these distinctions matter
These programs are reported within the same major Community Service Fund, but their balances are tracked separately because the underlying revenue may have different restrictions.
A large positive Community Education balance does not automatically erase a negative School Readiness balance. Understanding the financial condition of the overall fund therefore requires examining its individual program balances (not just the combined total).
Building Construction Fund
The Building Construction Fund pays for construction, additions, renovations, safety improvements, capacity projects, and other approved capital work.
When the district issues bonds, the proceeds are recorded in this fund. Those proceeds are then held and spent as construction progresses.
For 2026–27, the fund is projected to:
- Begin with approximately $165.3 million
- Receive approximately $3.7 million in current-year revenue
- Spend approximately $102.8 million
- End with approximately $66.1 million
The resulting $99.1 million reduction in fund balance is not an operating deficit. It represents the planned use of money received in an earlier year for construction projects that are now underway.
Bond proceeds can only be used for the purposes for which they were issued. The district cannot ordinarily redirect the remaining construction balance to cover a General Fund deficit.
Debt Service Fund
The Debt Service Fund accounts for principal and interest payments on the district’s long-term debt.
For 2026–27, the fund includes approximately:
- $46.4 million in revenue
- $46.0 million in expenditures
- A projected year-end balance of approximately $8.9 million
State law generally requires debt-service property-tax levies to provide slightly more than the scheduled debt payments. This creates a cushion for late or delinquent property-tax payments and helps ensure that the district can meet its debt obligations on time.
The Minnesota Department of Education monitors these balances. If the district accumulates more than is needed, future property-tax levies may be reduced.
Debt Service Fund money is reserved for repaying debt and is not available for general operating expenses.
Custodial Fund
Despite the name, the Custodial Fund has nothing to do with cleaning district buildings.
This small fund is used when the district serves as the custodian of money belonging to or designated by another party. One example is donor-directed money intended for student scholarships.
For 2026–27, the fund contains approximately $20,500 in both revenue and expenditures.
Because the district holds this money for a designated third-party purpose, it cannot use it for regular operations.
OPEB Trust Fund
OPEB stands for “Other Post-Employment Benefits.”
The district created this irrevocable trust in 2018 using money previously set aside to pay post-retirement insurance costs. Because the trust is irrevocable, its assets are protected for that purpose.
For 2026–27, the fund is projected to:
- Receive approximately $200,000
- Spend approximately $270,000
- End with approximately $3.2 million
This money is reserved for post-employment benefit obligations and cannot be used to cover unrelated district expenses.