School board members are entrusted with the resources a community has for the education of its children. They are expected to oversee the use of these resources, ensuring that they are used wisely, effectively and efficiently for the future of the community. Budgeting is the mechanism by which districts plan for the best use of their resources. The resources are, of course, financial resources—both real property and the revenue that flows into the district. These revenues are used to keep the district running, purchase instructional materials, pay staff, provide support services and cover the district’s debt. While managing the district’s financial welfare is always important to the leadership team, the financial fallout from the COVID-19 response brings this into sharper focus.
Who Is Involved in the District Budgeting Process?
Essentially, a school budget describes a district’s plan for the upcoming year as it relates to anticipated revenues and expenditures. Board members, typically with little background in financial dealings outside a personal or household budget, are not expected to develop this plan alone…or really at all. The district typically charges the superintendent with developing a draft budget, presenting it to the board and administering it throughout the year. However, this does not excuse the board from having an awareness of the budget. In fact, having a working knowledge of the budget and following a schedule institutionalizes for the board basic practices that allow board members to keep a careful eye on the overall financial situation of the district. The National School Board Association’s Center for Public Education has examined the work of school boards for nearly 20 years and created Eight Characteristics of Effective School Boards. One of the characteristics included states: “Effective boards are data savvy; they embrace and monitor data, even when the information is negative, and use it to drive continuous improvement.”
A school district budget involves many different individuals and entities across several levels of government. Budget discussions will involve school administrators—superintendents as well as business officials, school boards and school employees, with the opportunity for input available to community members. Again, the importance of this collaboration has been noted by the Center for Public Education: Effective school boards lead as a united team along with the superintendent, each from their respective roles, with strong collaboration and mutual trust.
Since the 2008 recession, U.S. schools overall have been struggling, with 29 states providing less funding than they did prior to 2008. Combined with the fact that costs have risen along with the student population, this creates a near-crisis state for schools when it comes to wisely leveraging resources. With the current financial situation that faces everyone due to the COVID-19 crisis, predictions for school funding cuts range from 10-20%, placing an even greater burden on leadership teams. On average, between 80% and 85% of a school district’s budget is tied to staff salaries and benefits. This makes it particularly crucial that district leadership makes the best decisions about how to use the remaining funds.
When Should Budget Development Begin?
While the fiscal year has a defined beginning and end date, and intense budget preparation will align closely with those dates, the reality is that budget preparation is an ongoing process all year. For the purposes of this discussion, we will assume a summer/early fall start to the fiscal year. In this case, during the winter months, the board needs to discuss its goals for the following year (short term) or series of years (long term). Once these goals have been decided on, priorities can be set and administrators can begin an analysis of the resources needed to make progress toward these goals. This goal-setting process is now more important than ever before. Looking at the cuts that are sure to come over the next couple of years, a board’s priorities must be set to ensure that funds are maximized toward progress on the goals—even if they can’t be fully realized yet.
In his book, Financial Health for School Districts, Dr. Jess Butler suggests a year-round cycle of planning, preparation and evaluation, to be outlined on a financial planning calendar. He suggests a series of reports that will assist board members and administrators in looking at trends across time to make the best decisions for the ongoing financial health of a district. Once goals are developed and adopted, and a calendar or timeline developed to have the budget completed and adopted by the deadline for the new fiscal year, the leadership team can look at reports and data that will guide decisions.
Data Needed for Budget Development
While specific budget lines and items vary from district to district and from state to state, there are broad general categories that apply to most schools. These categories include, but are not limited to:
- Transportation – buses and drivers to transport students
- Facilities – to ensure that students attend schools that are clean and well maintained
- Energy – to ensure that the school is lit during the day, heated during the winter and cooled during the summer
- Health and Safety – provides for the school nurse, who cares for ill students, and security measures to keep staff and students safe
- Instruction – provides for students to have qualified teachers, teachers to have instructional aides and classrooms to have supplies
- Curriculum and Staff Development – provides curriculum, training and instructional support to ensure teachers are able to provide students with necessary knowledge and skills
- Food Services – provides for nutritious, affordable breakfasts and lunches
- Library Services – provides for the library and librarian/staff, who provide research assistance and resources
- Counseling Services – provides counselors for testing prep, college prep, drug/alcohol abuse programs, and supporting family needs in seeking outside counseling
- School Leadership and Support – provides for the principal, assistant principals and administrative support staff
Having a good idea in advance about what is needed for these areas is essential to planning. In order to understand whether the best decisions are being made, district leadership needs to look at trends within their own district. Snapshots of current year data are helpful, but there are times when looking at trends can help make educated predictions of resources that will be needed.
The first report to look at is a five-year trend line of revenues and expenditures for the general fund. A list of all revenue from federal, state and local sources can be compiled and examined for the most recent five years. Many districts only look at data for the prior year, and slight increases or decreases may be explained away. A visual representation of the expenditure trend overlaid with the revenue trend gives a truer picture of where the district is headed. While slight upticks or downturns in a single year may not matter, expenditures continuing to exceed revenue will put the district on a collision course with disaster. If this trend emerges when looking at data, the district needs to design a budget reduction plan. This does not take into account planned expenditures in the short term for specific projects or responses to emergencies. A plan is needed when the lines cross, showing ongoing expenditures outstripping revenues.
Another report that closely parallels the expenditure/revenue history is a trend line on fund balance. Fund balances affect bond ratings and allow for responses to emergencies. It is recommended that districts maintain a minimum of two months’ operating expenditures to be kept in the fund balance as best practice. Both reports, the expenditure/revenue history and the fund balance trend line, can be obtained from the district auditors. It should be noted that historical trend lines are important, but forecasts of expenditures vs. revenue and the corresponding fund balance should be developed as well. The historical trend is the starting point, but some time should be spent on future plans as well.
Another crucial report to examine is a 10-year trend line comparing the total number of district employees to student enrollment. The general public tends to think smaller schools can operate less expensively. While this is not always the case, stagnant or decreasing enrollment without changes to staffing could lead a district into dire financial straits quickly if it is not curtailed. No one likes to be faced with a RIF, so an eye on the historical trends can help a district plan for reduced staffing through attrition should the need occur.
Analysis of comparable districts in terms of revenue, expenditures and student figures could be helpful. Looking at peer districts is important because the demographics affect both expenditures and revenue. Sometimes looking at peer districts can be useful in learning ways to expand revenue. For example, if one district spends more on school lunches, but in turn, brings in more revenue due to more students eating in the cafeteria, then that is something of note for a district. While this data may be more difficult to obtain, salary, staffing and cost per pupil should be available publicly. A report like this may be informative when looking at ways to maximize revenue and to spot potential warning signs.
While many of the aforementioned reports can be garnered from in-house data, sometimes it is beneficial to contract with external entities to look at some data. A school district should have in hand a recent facilities study with plans for recommended maintenance and upgrades and a schedule for when those need to be written into the budget. If a district maintains a bus fleet, they should also keep a schedule of maintenance and upgrade/replacement. This is helpful for any district-owned vehicles, but crucial if a bus fleet is used to transport students to and from school. Additionally, an external demographic study with projections can help a district plan for shifts in needed services for future student populations.
Since the primary purpose of a school district is to educate children, the reports linking student success and failure in state-required assessments and/or local measures are of utmost importance. Again, looking at trends over time, the leadership team can get a good sense of what might be an anomaly (e.g., a one-year dip in scores due to absence or other factors), as opposed to what might require attention (e.g., a long-term dip in scores of certain areas or grades). In addition to results on bigger assessments, it is also important to look at local classroom or grade-level failures as well as dropout figures. An additional investment in dropout prevention, academic labs, tutors or support staff may be needed to address situations that will lead to a drop in revenue, but more importantly, a failure on the part of a child. This report should lead to an examination of classroom staffing ratios—not only total staffing, but what support staff are needed in different areas as well as student attendance reports.
Ongoing Information to Guide Budget Discussions
While all of this information can seem overwhelming, information is the key to making needed adjustments on an ongoing basis. Most boards receive monthly financial reports at board meetings and in their board materials. Looking at data within the context of ongoing planning is needed so that it does not become overwhelming all at once during budget season. A general balance sheet, cash flow projection, investment report and enrollment/attendance figures are all needed in incremental reports throughout the year. Budget amendments can be viewed in the broader context when the need arises.
Today’s digital landscape allows for easy data storage and access, and provides the means to maintain historical data. Comparisons and month-to-month numbers can be charted and maintained with quick retrieval. New board members and administrators just joining the district will not be subject to tracking down needed information and depending on someone else’s filing system if the data is housed in a web-based system with open accessibility.
Managing district resources is the starting point for every other job a board member or administrator has. Any information that helps guide decision-making is good information. The district governance and management are dependent on good data for the ongoing life of the district and its educational services. Boards can examine the list of reports to determine which are most needed in their district. These reports can then serve as the basis of discussions in budget workshops.