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Money Talks

School district budget departments tackle one of the toughest jobs in education and still come out w

Nothing that involves dispersing money seems to come out fair-and still school systems manage to attract budget directors who gear up for the challenge on an annual basis.

In the quest to find that perfect process, some districts have switched to a school-based process that formulaically determines funds for each school and then puts principals in charge of the actual disbursement. Budget directors often like this approach because it allows them, as number crunchers, to pass the buck rather than referee. But other approaches also are alive and kicking across America. Some officials swear by a zero-based budget philosophy, while others have created hybrid systems that combine zero-based with school-based. Then there's Paul G. Vallas' philosophy: as head of The School District for Philadelphia, he insists on a strict fi ve-year budget plan. But what else would you expect from a man who eschewed the superintendent title in favor of CEO?

ADVICE: "Even with limited resources, target [funds] as effi ciently and effectively as possible to be equitable. And it's exciting to know that by getting the budgets out early, you can have a dramatic impact on the schools' ability to hire the best teachers. You're really making a difference." -Susan Olds, executive budget director, New York City Department of Education

So just how do these budget values play out in the real world? We asked the budget directors at the five largest school districts in the country to give administrators a peek into their planning processes:

New York City Department of Education

STYLE: School-based budgeting based on formulas related to either the classroom function or state-mandated funding.

They love their computers in the Division of Budget Operations & Review at the New York City Department of Education. That's because the school-based funds here need to be dispersed quickly (in 2006, it put out almost $8 billion in April for the schools to start using to plan for September), "so it's very important that we have a very good computer system to use as tools to track all of this," says Susan Olds, executive budget director for the New York City public school system, the largest in the country.

As a consequence, the budget department has a home-grown system known as Galaxy, which was specifically designed to help the district transition from a district-based strategy to a school-based one as part of the Children First initiative. As a database, it allows Olds and the deputy chief of staff to the deputy chancellor, Stephanie Keating, drill down and manipulate the information to answer nearly any question that pops up. "It's really the only way to run a place like this," Keating agrees.

Unfortunately, the hard and fast numbers it spits out can't solve every problem. "One of the major issues for us is the fact that as a school system, we're under-resourced," says Olds. She doesn't even have to fantasize or speculate on her idea of the perfect budget: a non-profit group known as the Campaign for Fiscal Equity has mentioned in court cases that New York City falls short of proper funding for a sound, basic education here by nearly $6 billion a year. "So while we use formulas, the formulas are essentially bare bones. It's very frustrating when schools present legitimate needs and there really isn't enough money to meet those."

That means even more coming from someone who has been in budgeting her entire career. "I have always known the best way to do a budget is to really know the operation of the department you're working in," says Olds, who joined the department in November 2002.

Keating, on the other hand, brought a consultant background to her position. "It's a problem to solve: How do you take X number of dollars and spread it out equally throughout the system? It's a challenge, but it's interesting," she notes.

Take No Child Left Behind, for instance. New York City needed to divert resources from its Title One stash to comply with NCLB regulations, as well as pay for the test and scoring to collect the data. "A lot of the other programs we get funding for require reporting, but for a system this size, the logistics meant a pretty comprehensive change," Olds explains.

At least administrators throughout the system don't blame these budget czars. "There really is not much room for flexibility," Keating says. "So I don't have to be the bad guy."

Los Angeles Unified School District

STYLE: Request submissions

Perhaps it's Roger Rasmussen's saving grace that he doesn't have to make decisions on Los Angeles Unified School District's final budget-it takes Superman just to collect and sort the requests that come in for the roughly $13 billion available.

LAUSD's system appears simple at first glance: It divides the operating funds into three main areas, the general fund for K-12, an adult education program, early childhood education and cafeteria fund. The district's famed building program, often touted as the largest public works construction project in the nation, finds its $19 billion funding from yet another pot raised primarily through bond issues.

So as the budget director, Rasmussen's role is straightforward. "I'm the person who tries to maintain the financial integrity of the budget," he describes his job of compiling money requests, summarizing them, and ranking them in order of most expensive to least expensive for the superintendent. Unfortunately, deadlines can turn this simple task into a nightmare. The district is required by law to present a balanced budget on June 30, yet the California state legislature often doesn't release its final budget numbers until August or September. Rasmussen takes a dual adoption route, asking board members to vote on a provisional document at the end of LAUSD's fiscal year, and a second vote when the real numbers roll in.

Next, throw in collective bargaining, where the budget department can be handed a settlement on salaries at any time-but only with one bargaining unit and not the others. He stays ahead of the eight ball by hiring staffers to track specific funds. On the capital side, which changes daily if not hourly, Rasmussen keeps a chart he dubs the "good news/bad news list," listing a running tally of net effects from each change. "We're in the black right now," he says.

It's the perfect position for this researcher who graduated from MIT with a bachelor in electrical engineering and later earned a Ph.D. in management. He first joined the Los Angeles school system as a policy researcher for the school board after they hired him away from that position at the Rand Corporation think tank environment in Santa Monica.

ADVICE: "Part of what we have to do is manage expectations, and help people understand that while we have more money than we did before, we're not rolling in it." -Roger Rasmussen, budget director, Los Angeles Unifi ed School District

Among the proposed budget additions currently on his desk: the facilities division wants to add more custodians to the schools. Some administrators would like to reduce class size in eighth and ninth grade math. Others are asking to increase the number of campus aides who do safety-related work, while another group has petitioned to provide more professional development days before the start of school for the new schools opening that year. Oh, yes, and on the business side, it would be nice to retrofit some of the bus garages and buy more buses.

When he is asked to make a suggestion, Rasmussen typically filters such requests by whether they are a one-time expense or an ongoing budget line item. In 2006, the economy on the West Coast has picked up and signs point to a more prosperous future. "So I'm particularly receptive now to one-time items like a proposal to upgrade a computer system," he notes.

"Most of the things people ask for make sense. But I tell division heads when they come to me, 'I expect you to advocate for your needs, but you must expect that I'll advocate for the bottom line,' " Rasmussen adds. "I have to make sure we don't spend money we don't have, and urge caution when we're getting close to the edge."

Chicago Public Schools

STYLE: A combination of formulas based on enrollment forecasts, projected operating costs and special education needs. Schools then use these funds to determine their staffing and program purchases.

When Pedro Martinez accepted the budget director position for the Chicago Public Schools three years ago, that department made all monetary decisions. "We were the final word on everything, and I told my supervisor, 'I'm not used to working like this-this office has too much power. I don't know that it's a healthy way to run a large organization,' " he says. With a r?sum? that includes finance director for the Archdiocese of Chicago and manager of the audit department at Deloitte & Touche, this MBA graduate welcomed the opportunity to work on a turnaround team with fellow corporate executives to see how they could positively impact the third largest school district in the nation.

So Martinez rolled out a formula based mainly on enrollment forecasts determined by the five years' worth of data at his fingertips. If anyone objects to his figures, there is an appeals avenue, "but again, we have the history, so they have to show us that we made an error," he says. "And if that happens, we fix it immediately. There is no dispute."

In that spirit of keeping things on an even keel, for the 2005-2006 term, Martinez appointed a steering committee comprised of eight principals representing different grade levels and socio-economic conditions to advise on policies, reductions and how to communicate that shrinkage to the schools. (For the past three years, Chicago Public Schools' falling funding has meant slicing $100 million to attain a balanced budget.)

"They're a little bit harder on themselves than I am, because they really care about equity," he says of his pow-wow partners. "They've made my job easier because it isn't just me making the final decision. They are really owning their pieces of the process." Martinez counts this collaboration among the most enjoyable parts of his job, if only for the growth opportunities it offers him.

ADVICE: "One of the things I had to learn: The larger and more complex the system, the more patient you have to be. When I started, I wanted to be really aggressive and change these things. But if you want to do it right and engage people, you have to be patient as well." -Pedro Martinez, budget director, Chicago Public Schools

"After a while in this position, you begin to understand a little more of what's going on in the field, but until you really talk to [administrators], you don't really discuss it. Before I interacted with them, but in a more global setting. Nobody has ever asked them for their budget advice," he adds. In the future, he'd like to engage teachers as well, and ask the team to serve for the entire year as opposed to just budget season.

Illinois bases its funding on property taxes, which creates a huge variation among the school districts in the Prairie State, which often leaves urban settings with pockets of poorer families struggling. Martinez never envisioned public speaking as part of his duties, "but because we dwarf the other 800+ districts, they look to us for leadership, and Chicago speaking out is what draws the media," he notes. Newspaper journalists have his cell phone number on their speed dials; television reporters greet him on a first-name basis. "I didn't expect that," he says.

But at least the public doesn't recognize him in restaurants yet, Martinez says, heaving a sigh of relief.

The School District of Philadelphia

STYLE: Five-year budget proposals

Paul Vallas is the first to admit Philadelphia is not one of the better funded urban districts-yet he just oversaw its third successful, structurally balanced budget and financial stability. "We don't have all the resources we need, but we've been able to find a way to implement our reforms. We've found a way to spend our money more effectively," he says. Best of all, only $5 million of his $2 billion budget stems from one-time revenues.

He has a track record of creating such miracles-when Vallas left Chicago Public Schools in 2001 as its CEO, he left behind a balanced budget and $355 million as an operating reserve. Obviously, his insistence on a five-year budget proposal works as well in an educational arena as it did when he served as budget director for the City of Chicago and as executive director of the Illinois Economic and

Fiscal Commission.

"It forces me to make decisions on revenues and spending that have long-term implications," he says. For example, a dollar saved in 2006 is actually $5 over the course of a five-year fiscal plan. "And when you budget this way, you never really have a financial crisis," Vallas adds. "By intervening early, you take much less punitive or Draconian measures." Nor does he wrap up the benefits here-long-term budgets provide predictability and stability, two foundational cornerstones to district-wide reform.

ADVICE: "Even if you're poor and don't have a lot of resources, you need fi ve years of fi nancial stability. If you make the tough decisions in year 1, then in years 2, 3, 4 and 5 the schools will be relieved. It's when you go through these periodic fi nancial traumas every few years that kills reforms. Second, don't be afraid of the private sector. We outsource anything we can, and often times they let me pay over a four- or fi ve-year period which is much more affordable." -Paul Vallas, CEO, The School District of Philadelphia

"Schools are willing to live with less if they know what they have to work with," Vallas insists. "When you use the roller coaster budget of year to year, it becomes feast or famine. You don't know if the money will be there next year, so you have a tendency to spend every dime."

On a personal note, the budgeting strategy feeds his policy guru tendencies. He cross-trains his budgeting folks to understand core missions and his principals to understand a balance sheet.

"Test scores go up, the first people I congratulate after the teachers are the budget people," he says.

But announcing a budget policy, even when you're the head honcho, doesn't make it so. Vallas had to sell it to the community and the collective bargaining units. He won over the unions by including their representatives in his cabinet meetings. "They can see what's happening on a daily basis, so there's no mistrust. When the budget process begins, they understand the budget as well as my department heads do. They know the resources, how we're spending money and the financial challenges we're facing," he says. "They see what I see."

At negotiation time, the union knows the School District of Philadelphia's capacity to pay to the penny, and just how far he can go in providing raises and increasing benefits without cutting into critical reforms that improve student achievements.

"I've never negotiated a contract that's busted my budget," Vallas notes.

Houston Independent School District

STYLE: A school-based budgeting system that weighs the number of students, the type of students and their attendance records.

Boon Chew started his career in the budgeting department of Houston Independent School District after graduating from the University of Houston 26 years ago, "and I will retire with HISD listed as the last employer on my r?sum?," he jokes. Today, as interim assistant superintendent of budgeting and financial planning (his true title, he is quick to add, is manager for school-based budgeting, a sole focus he's eager to get back to) after stints in the payroll department, and in grants, he brings a wealth of history to his job.

He was well versed in the previous budget formula-doling out so many teachers, counselors, librarians, and so forth per student ratios-when the board of education issued a declaration in 1990 that visualized HISD moving toward shared decision-making at the campus level. Chew's reaction: Good riddance.

"In the old system, even though the intentions were good, over time you had politics that came into play. The squeaky wheel and all that," he points out.

ADVICE: "From my own observations, school districts should establish-which we did not-a prescribed set of parameters to identify what basic needs are, and then from there let the principals and school committees make decisions." -Boon Chew, interim assistant superintendent of budgeting and fi nancial planning, Houston Independent School District

But as the district prepared for the new budgeting process over the next decade, folks at the school level, he reports, were very nervous. "Change is hard, especially if you're not finance savvy-it can be pretty disturbing knowing that you will be entrusted with all this money," he explains. Many weren't keen on the idea of being held accountable with monetary consequences, either. Rumors flew that programs would disappear, or that certain grade levels would be given special considerations.

Now, after six years under school-based budgeting, the process has brought out the creativity in each and every principal, according to Chew. On the other hand, it's also birthed its share of headaches. Among the kinks the district still wrestles: how to fairly fund smaller schools this way. When it first dawned on officials that elementaries with less than 500 students, middle schools with fewer than 750 and high schools with populations under 1,000 couldn't operate on economies of scale as the larger counterparts who were gobbling big percentages of the available dollars, they tried multiplying these schools' populations by a higher per-unit allocation. Opponents screamed that HISD was rewarding schools for being small.

"It was interesting. Not always very pleasant, but interesting," Chew says. "We might have gone through as many as 50 models for discussion." Eventually that plan was abolished in favor of a $2 million to $3 million pot of money set aside on a request basis to help smaller schools cope. That brought the district back to Square One, with politics ruling the roost. At present, the district is once again working with a small-school subsidy calculation.

"There is never enough money because there are lots of things a school wants to do," he adds. "But it's enough for what they are doing.

"If your money is finite, whatever you change will create losers and gainers. Schools may like the idea of change, but once they look at the number, all objectivity goes out the window," he adds.

Julie Sturgeon is a contributing editor.