Budget Busters

Budget Busters

Trimming district budgets is always challenging.







 

Every school district budget is unique-the product of variables that range from state funding formulas to special programming decisions, from student enrollment patterns to teacher retirement packages. Some districts rely almost solely on state revenue, others are dependent primarily on local property taxes, and each system has its own quirks and troubles.


Yet the same underlying issues that can make school budgeting so frustrating arise in almost every district: inflexibility, unpredictability and limited resources. "School district budgets are different from those for businesses," says Shirley Broz, executive director of finance for the Rockwood (Mo.) School District and chair of the accounting, auditing and budget committee of the Association of School Business Officials International (ASBO). "Just the fact that they're not bottom-line driven means it's a different kind of process."


Set Costs and Set Income


Most district costs are tied up in personnel. Broz estimates that for her suburban district, with about 22,000 students, about 80 percent of the $186 million operating budget goes to salaries and benefits. But unlike most for-profit businesses, due to collective bargaining agreements and because districts cannot "downsize" their responsibility to educate local children, districts can't easily cut back on salary expenses.


"The proportion of a budget that the board of education and the administration control is very small," notes Randall Collins, superintendent of Waterford (Conn.) Public Schools, which operates six schools with 3,000 students. Inflexible line items include per-pupil funding allocations from the state, the number of students who attend, and state regulations and rules about everything from fire safety requirements to how much the district can raise in property taxes. And once a school year is underway, it's nearly impossible to make notable budget adjustments.


Collins says that administrators must get creative to find ways to mitigate these limitations. When hiring new teachers, for instance, his district gives preference to candidates who have certifications that cover multiple subjects or more grades, providing the district the flexibility in the future to move staff around if the need arises.


State Money Woes


Of course, just because many assets and liabilities on the balance sheet are fixed doesn't mean they add up nicely. The gap between needs and resources is a problem for many enterprises, but for schools it can be particularly acute.


One of the biggest problems these days is that the stalled economy usually means flat, or even lower, state allocations. "When the state financial picture catches cold, the school districts get pneumonia. In fiscally lean times, the state looks at its revenue allocations, and school districts are viewed as discretionary income, because something like Medicare is a fixed cost," says Chuck Burbridge, chief financial officer for Atlanta Public Schools, a district with a $620 million operating budget and about 50,000 students, 85 percent of whom are African-American and 75 percent of whom are eligible for free and reduced lunches.


In the last two years, Burbridge says, Georgia's payments to the Atlanta school district have dropped by $52 million, leaving Burbridge and his colleagues scrambling to try to patch the hole in the budget.


Declining Enrollment


Burbridge, who has also worked for the Los Angeles Unified School District and Chicago Public Schools, says that a similar financial squeeze comes when a district is facing declining enrollment (although a sharply increasing student enrollment comes with associated budgeting headaches as well). A 2006 study of U.S. school districts' financial management by EdSource, an education research organization for California, found that districts with declining enrollments are more likely to be fiscally unhealthy.


Except in some rare cases, like when one school primarily serving a public housing project is being closed, the loss of students is felt evenly across the district. Unfortunately, that means the income is lost but costs can't easily be lowered. In Spokane (Wash.) School District No. 81, the student population has been declining at the rate of about 1 percent a year. Neil Sullivan, executive director of finance at the Spokane district, points out how difficult it is to make up the loss of income from state and federal per-pupil allocations: "Let's say you lose 25 students and that would have generated $100,000. Even if you can cut a teacher's cost for, say, $60,000 in salary and benefits, you still have a contribution margin of $40,000 that supports librarians, the principal, the custodians-all the fixed costs."


The district administration in Spokane tries to be as transparent as possible in how and where it will cut, which it had to do last year to the tune of $10.8 million. Sullivan's team creates a list of possible cuts that is larger than what will be necessary and then uses that menu in a series of meetings with the public and district staff to forge a set of recommendations to the superintendent, who has the final say.


Generally a school district can use demographic trends to anticipate the costs associated with changes in student populations. That isn't always the case, though. When federal welfare reform changed the work requirements for welfare recipients during President Clinton's administration, Sullivan says many people in outlying areas moved to urban areas such as Spokane to look for work, causing a one-time spike in the school's student population. Since the new students also brought per-pupil state funding, the budget trouble wasn't about running a deficit but rather how to ensure the funds were spent wisely to accommodate the unexpected new students.


Federal Regulations


Uncertainty at budget time is a common trouble spot for designing an airtight budget, especially because administrators are usually trying to create a document that must be approved by the board of education months before the school year begins-and more than a year before it ends. For example, new federal regulations from the IRS about how an employer provides guidance to its employees around transferring funds from 403(b) tax-deferred annuities go into effect next year.


"We're going to have a new monitoring job we've never had before," Sullivan says. The district plans to hire a third-party administrator to handle the responsibility, but the question over who pays remains. If it's the district, that is another line item and more cost. If teachers pay, that will require an OK through the next arbitration session, and it will probably come with costs.


Planning Ahead


State and federal changes can generally be anticipated ahead of time if the district is careful to stay apprised of what is coming, although if the legislative session is especially chaotic, changes can arrive unexpectedly. "In California this year, the budget is two months late," says Mary Perry, the deputy director of EdSource. "So the districts have to be thinking, 'OK, I can guess how many staff I can hire, but I'm not sure.'"



Late-arriving information is a common budget obstacle-be it a negotiating session that goes on too long, a fi nal quote on insurance rates, or how much is expected in property taxes in the uncertain housing market. Sometimes the district itself is the cause of uncertainty. Collins says that a proposed new program for gifted and talented students that the Waterford Public Schools is considering is causing his financial team some trouble. "There's no fixed cost yet, but the budget is due," Collins says. "So how do I decide how to estimate how much it'll cost for, say, the professional development?"


Collins notes that one option is to ask the program staff to wait another year to launch the program. But considering its size-less than $50,000-the budget team should be able to make a pretty good estimate, and if they're off by a bit, it won't bust the district's $39 million operating budget.


Carl Vogel is a freelance writer based in Chicago.


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