1/30/14  

1  

School District Budgets Small School Perspective Randi Johnson Director of Finance and Human Resources

North Branch Area Public Schools

�  3,100 students and declining �  45 miles north of Twin Cities �  Three traditional school buildings �  No operating referendum

�  Challenges of funding inequalities �   Four day week

�  Survival

1

Small school district �  Business manager typically fills many roles

�   Finance, HR, Maintenance, Grounds, Food Service, Technology, Transportation, etc.

�   Limited support staff �   Struggle with separation of duties �  May be the only person in district with any

depth of understanding of school finance �  Limited amount of time to devote to

budget development and monitoring

2

1/30/14  

2  

Today �  Learning to budget will take more than 45

minutes �  Some tips

�  Where to start, things to look for

�  Sharing my perspective and opinions �  Decades of budget development �  Decades of budget reductions �   Surviving and thriving

3

Your most important task! �   Sets levels of staffing

�   Your numbers determine other people’s livelihoods and whether they will have jobs

�   Determines the programs kids in your district will have access to �   What is more important to your families than their kids?

�   Drives bargaining �   Emotions run high

�   Guides decisions about elections �   People have to vote to raise taxes?

�   Superintendent’s career depends on it almost as much as yours does

4

Under the spotlight �  People pay attention to budgets

�  When you are bargaining �  Employees

�  When you need to cut budgets �  Employees and parents

�  When you have elections �  Community members

�  Can be very lonely when people are challenging

5

1/30/14  

3  

Credibility �   Budget work will impact credibility

�   Superintendent �   Must have confidence in your work

�   School board �   Will need to defend your work

�   Employee groups �   Very helpful if you can get it, but it is fleeting

�   Public �   Very difficult to get in highly political environment

�   You �   Believe in yourself and have confidence in your

numbers, because everyone else is depending on you

6

Developing a budget �  Make it a priority to figure it out and do it well!

�   Work to understand funding formulas �   Work to identify the nuances of your district �   Share accountability

�   Budget is collection of assumptions �   No right or wrong answers, just guesses �   Allocation of resources reflects priorities

�   Be conservative, to a point �   Ending the year with extra funds is far more

acceptable than coming up short

7

Before you start �  Try to understand the priorities of the district

to guide your work �  Mission, vision and/or strategic plan

�   Identifies direction for the school district �   Should reflect shared values �   Should guide budget priorities

�  Every district has a unique identity �   Traditions, strengths, community pride

8

1/30/14  

4  

Creating a budget �   Find a process that you will have confidence in

�   Spreadsheets or financial information system �   Final result needs to be a line item budget

�   Project multiple years �   Only to show trends

�  Helps to see what to expect in the future �   Shows the strengths and weaknesses of your

assumptions

�   Impact of one-time versus ongoing expenses

9

Creating a budget �   Use consistent methodology from year to year

�   Continually reflect on what you have done and what can be improved

�   You will gain more confidence in your projections �   Consistency will help you gain credibility

�   Don’t operate in isolation �   Superintendent should be in agreement with all

assumptions �   Involve administrators and supervisors in decisions

about their functional areas �   Don’t hesitate to ask for help:

�   MASBO, peers in other districts, MDE staff

10

�   Two seasons �   Budget time (winter/spring) �   Audit time (summer/fall) �   One revision to current year approved with next year adoption

�   Always embed reasonableness checks �   Don’t assume spreadsheets are perfect �   Do the numbers make sense given what you know? �   Project out five years

�   Creates the expected values for the next year �   Accept variances

�   If I had time to do more frequent revisions, I would, but I don’t �   Focus energy where it will have the biggest impact

My budget process

11

1/30/14  

5  

Where to begin?

12

General fund revenues

13

�  State aid/property taxes = 90% of general fund revenues

�  Learn how the formulas work!

Estimating state revenues �   Enrollments drive revenues

�   Project enrollments based on October 1 counts �   Compute “survival “ rates

�   Final ADM’s compared to October 1 counts

�   State funding formulas change with every legislative session �   MDE has great resources

�   Levy limitation forms �   “What if” simulations �  Aid entitlement reports

14

1/30/14  

6  

Other revenues �   Federal revenues

�   More significant amounts if more poverty �   Entitlements come out too late for planning �   Most years, safe to assume prior year’s

entitlement �   Sequestration

�  Miscellaneous revenues �   Look at history and what you know �   Fundraising and donations

�  Can you count on it year after year?

15

My process for revenues �  Enrollment projections

�   Simple cohort survival method �   Survival rates

�  School-wide for K-8 �  By grade 9-12

�  Spreadsheets replicate state formulas �  Allocate resources to sites �   Updates expense based revenues

16

General fund expenses

17

�  Personnel costs = 80% of general fund expenses

�  Fairly predictable �  Assumptions can

become political �  Learn about your

employment contracts!

1/30/14  

7  

Estimating personnel costs �  Contract provisions

�  Wage advancement (steps and lanes) �   Benefit costs

�  Set dollar amounts or variable �  Years of service based

�   If you have to cut staff… �   Rules for layoff and bumping �   Teacher tenure �  Notice requirements will force your timelines

18

My process for personnel �   Advance staff based on current contract

�   Steps and lanes �   Years of service

�   Assume they are all coming back or being replaced

�   If enrollment is growing, add staff to maintain current class sizes

�   Freeze salary schedules and benefit contributions in negotiations years �   Don’t cut in advance for settlements

�   Use history to identify amounts for extra wages �   Substitutes, extra hours, summer school, etc.

19

Other expenses �  What can you predict?

�   Big capital projects �   Specific initiatives �  Ongoing contracts

�  What is hard to predict? �   Energy costs �   Tuition costs �  Disasters

�  How big is the impact?

20

1/30/14  

8  

My process for other expenses �   Identify big projects and initiatives

�   Capital projects �   Curriculum adoptions

�   Identify inflation factors for categories of expenses

�  Consistent by object code �   Freeze controllable costs

�   Discretionary budgets �   Inflate other costs

�   Energy, contracted services

21

When there is a deficit! �   Before you go too far, revisit assumptions

�   Do the numbers make sense? �   Wage and benefit inflation �   Inflation assumptions

�  Once you are confident �   Plan a process to develop recommendation �   Timelines and communication plan

�   Be creative and stay positive �   Vision, mission, strategic plan �   What can be done to provide the best

programming possible with the resources available

22

Some ideas for adjustments �   Staff turnover

�   Retirements, resignations, leaves of absence �   Savings from teacher turnover can be significant

�  Cooperatives, sharing and contracting �   Can you share with neighbors? �   Might contracting be an option?

�   Fund balance �   What is your policy target?

23

1/30/14  

9  

More ideas �  Energy savings

�  Changes to mechanical systems �  Changes to human behavior

�  Review procedures and processes �   Redundant processes? �  Can you streamline?

�  Equipment changes �  Technology changes

24

Longer term ideas �  Excess capacity

�  How are buildings being used? �  How could buildings be used? �  Could some square footage be eliminated?

�  Schedule �   Staff assignments and utilization �   Four day week

25

Fund balance �  Assigned, designated, restricted, reserved,

unrestricted, non-spendable �   Why does everything have to be so complicated?

�   Fund balance (within reason) is a good thing �   Cushion for the unexpected �   You can only spend it once �   Allows consideration of deficit spending �   Negative fund balance has consequences

�   Statutory operating debt �  Borrowing

26

1/30/14  

10  

My fund balance approach �  Align expenses with revenues �   Spend reserves first, unless you have a plan

�   Unassigned fund balance gives you the most flexibility

�  Create assigned fund balances if useful �   Plan deficit spending if fund balance exceeds

policy target �   Identify one-time expenses for use of fund

balance �   Spend down over time

27

Reality of budget cuts �   It will impact people

�  Whether you eliminate programs or increase class size

�  80% of the budget is personnel �  People will lose jobs �  Emotions will run high

28

Shared accountability �   Hold administrators/directors accountable

�   Don’t permit overspending �   Consequences if they do

�   Involve administrators/directors in budget development �   Food service and community education must be self supporting

�   Site budgets �   Allocate resources based on enrollment

�   Adjust to actual �   Carryover unspent funds

�   Why? �   More people paying attention to spending �   Increases broader understanding of resources with staff �   Administrators/directors have more ownership of budget decisions �   Helps reduce your isolation

29

1/30/14  

11  

Budget Boot Camp �   Collaboratively identify priorities and needed changes

with district leadership team �   Process

�   Superintendent identifies areas to investigate �   Small teams research, debate, recommend �   One or two days of intensive sharing of recommendations

with full team �   Budget priorities established �   Why?

�   Increases creativity and decreases competition �   Expanded programming while cutting budgets

�   More sharing between buildings and departments �   Increases understanding of district-wide perspective

30

Gaining credibility �   Function with integrity

�   You will never go wrong �   Avoid politics

�   Stay focused on doing the right thing for kids �   Don’t threaten things you don’t intend to do

�   Be transparent �   Publicly share budget to actuals �   Publicly share the challenges of creating budgets �   Clearly articulate your assumptions �   Make information readily available on your

website

31

Gaining credibility �   Simplify and translate everything into English

�   School finance is complicated �   No one wants to understand it �   It helps if you can show that you do

�   Public budget presentations �   Describe the big picture �   Provide summary numbers that are meaningful �   Use graphics �   Revisit what prior projections said, what the current one says, and why

they are different �   Use simple terms to describe what it all means

�   Be consistent and predictable �   If you can explain the budget in simple, understandable terms…

you gain trust

32

1/30/14  

12  

Summary �   Remember that budgeting is really important work �   Spend the most time on the areas of biggest impact �   Reflect on your work and find ways to improve �   Hold administrators/supervisors accountable �   Be transparent �   Translate all the jargon into the simplest terms

possible �   Believe in yourself…

�   No one else in your district knows as much as you do �   They are all depending on you

33

Questions?

34