Budget Development Traps and Tips
The purpose of the following presentation is to offer suggestions and recommendations to guide school district budget preparation efforts and provide information against which to evaluate proposals for change....
Acknowledgement
I wish to thank the following people for contributing their school finance expertise without which the making of this presentation would not have been possible.
· Ross Bunda, OSPI K-4 and K-12 Ratios and Staff Mix
Supervisor, School District Personnel Reporting 360-725-6308
· Rob Cotton, OSPI
Supervisor, Child Nutrition Services 360-725-6217
· Crista Emerson, ESD 101
Director, School Financial Services 509-456-2718
· Christie Hazlett, OSPI
Supervisor, SD/ESD Accounting 360-725-6303
· Allan Jones, OSPI
Director, Transportation/Traffic Safety Education 360-725-6120
· Pam Peppers, OSPI
Supervisor, SD/ESD Financial Reporting 360-725-6304
· Steve Shish, OSPI F-203 State Revenues, Levy Lid and LEA Supervisor, School Apportionment 360-725-6307
· Marilyn Sollers, NWESD 189
Coordinator, Financial Services 360-299-4026
· Kim Thompson, OSPI
Supervisor, Enrollment and Institutions Funding 360-725-6306
12. Protect and manage the overall financial condition of your district.
· Your district’s budget is a working document, a management tool with an accounting structure that should be detailed enough to provide timely information needed to make good financial decisions that align with academic objectives.
Are you developing a new budget by relying, in part, on the old one? This is completely acceptable when the past year’s numbers are used as a baseline and further scrutinized. Don’t just “roll the budget” into the new year and merely use the prior numbers with a percent increase factor as the basis. Review program expenditure reports and analyze the budgeted amounts against year-to-date expenditures. Are changes needed? Are programs going away? Have account codes changed? Have your district’s financial goals changed?
· Consider implementing either a zero-based or priorities-based basis of budgeting.
Both would rely on actual planned expenditures versus the past year’s numbers which may not be accurate. Both would prompt current thinking versus reliance on your district’s previous year’s expenditure patterns and obsolete analysis.
11. Use the correct allowable rates for the budgeted year.
· Check if your district is using the current rates for indirect cost limits and recoveries.
The 2006-07 Federal Indirect Rates and State Recovery Rates can be found on the SAFS web site located at http://www.k12.wa.us/SAFS/default.asp.
10. Take into account possible prior year adjustments in state funds.
· Check if your district is subject to potential recovery of revenues.
The 2005-06 school year recoveries will be made in January 2007 based on final 2005-06 state allocations and year end expenditures reported to OSPI. Use the spreadsheet for estimating recoveries found on the SAFS web site located at http://www.k12.wa.us/SAFS/TT/tt.asp.
9. Budget for sick leave buyback and retiree subsidy payments to the Health Care Authority.
· WAC 392-136-020 Conversion of sick leave upon separation from district employment was revised and became effective July 6, 2005.
Buy back of sick leave includes all unused sick leave days up to the number of days contracted in a year; less any sick leave days previously converted; less credit given as
services rendered for retirement purposes. An employee who is in a retire-rehire situation may buy back accumulated sick leave if the employee ceases receipt of retirement benefits and reestablishes membership in the retirement system, including resuming payments into the system; or the employee establishes and makes payment into a second retirement system from which they may subsequently retire.
· The retiree subsidy monthly rate per full-time employee is on the Budget Driver (John Jenft) Summary on the SAFS 2006-07 Budget Updates web site located at http://www.k12.wa.us/SAFS/06budprp.asp.
8. Budget adequately for deductible revenues.
· The state payment to a district in Revenue 3100 is reduced by the following GF revenues of the district: 1400 Local in Lieu of Taxes, 1600 County-Administered Forests, 3600 State Forests, 5400 Federal in Lieu of Taxes, and 5500 Federal Forests.
The time lag between receipt of deductible revenues and the reduction of apportionment can significantly distort your district’s financial condition. For this reason, if your district receives significant deductible revenues you are encouraged to record a liability upon receipt of the deductible revenue and liquidate the liability when your district’s apportionment is reduced.
7. Budget adequately for utilities and allow for inflationary increases.
· First look in a place that has little to do with conventional energy conservation; your district’s accounting office!
Audit your energy accounts. Are they accurate? Do they indicate any trends? Are there billing errors?
· Electricity is not free. The watt you don’t use is the cheapest watt of all!
Are your computer monitors programmed to go into sleep mode or shut off completely if they aren’t used in a set amount of time? Also reminding people to turn off lights or keep doors closed means money for your district.
· Small measures could make large scale effects.
For example did you know that installation of trash compactors and larger trash bins at buildings throughout your district could be one of your biggest savings in solid waste removal? The biggest expense in solid waste removal is the cost of getting someone out to pick it up. By compacting the trash and putting it in a larger dumpster, you could reduce the number of trips the hauler makes each week to your schools. Also by installing new
365 day programmable thermostats (available free through most energy company rebate programs), they can be set to automatically turn down during breaks in your school year.
· Desperate “across the board” reductions in Objects 5-9 often create unrealistic budgets.
Administrators and department heads should have a workable plan to accomplish reductions. Can you really use 10% less toilet paper or can you get your insurance provider to drop their rates just because you’re in a budget bind?
6. Accurately estimate benefits and the cost of living allowance.
· Double check to make sure salaries and benefits are accurately budgeted.
Make sure to enter changes to insurance costs, retirement benefits, and other mandatory as well as bargained benefits and additional pay.
· SAFS has developed a tool to assist in estimating district costs of COLAs to be funded by their federal or local resources. It is on the SAFS web site located at http://www.k12.wa.us/SAFS/06budprp.asp.
The information presented there is not final and is highly subject to change. Districts are encouraged to perform their own analysis by program. The model is based upon two primary sources of information: district submitted S-275 data as of February 2006 and state funded salaries as of the February 2006 apportionment calculation.
5. Avoid over-estimating the state reimbursement for school breakfasts and the federal reimbursement for school lunches.
· Typically the school lunch count is higher than the school breakfast count because fewer students eat breakfast at school. The state reimbursement for school breakfast is based only on free and reduced meals whereas the federal reimbursement for school lunch is based on all meals.
The state payment is made on the budgeted count all year. At year end an adjustment is made to the actual count. If the state payment is made on a budgeted count that is far higher than the actual count, there will be a large negative prior year adjustment the following year. If you feel your budgeted count is too high, you can provide Steve Shish with a revised estimate that will be used rather than your budgeted count.
· To budget for school lunches you may use your prior year’s Participation Report as a base and multiply by the current year’s allowable federal reimbursement rates.
Your district’s report is on the School Food Services web site located at http://www.k12.wa.us/ChildNutrition/default.aspx. You can also ask your Food Service Director for the current year’s actual to date and include it in your base.
4. Avoid over-estimating the state transportation depreciation allotment.
· For budget development purposes you may use your current year’s state transportation depreciation allotment as the state moves to a 5 year average on bus depreciation.
But be careful! Do you have a large number of your buses about to go off the schedule?
3. Avoid over-estimating the ending fund balance for the current year.
· Verify your fund balance projection for year end and the resulting effect the balance has on your current year’s budget.
Review audit reports and working papers for prior fiscal year ends to understand and confirm prior year numbers. Are the assumptions reasonable? And is the supporting documentation appropriate?
· Analyze your general ledger trial balance during the budget process.
Have you been reconciling your fund balance every month? Do you balance your district’s books to the County Treasurer’s monthly cash balance report? If not, it’s never too late to start!
· Many districts (120 of 150 eligible under RCW 28A.505.020 (2) or 41% of 296 statewide) annually elect to maintain books on a cash basis throughout the year.
If you’re a cash basis district, accounting adjustments unable to be accrued on a monthly basis may be required at year end that significantly change your ending fund balance. The difficulty in predicting ending and beginning fund balances lies in timing of major expenditures. For example, if your district has purchased an entire math curriculum K-8, as a “cash basis” district, expenditures are paid at the time the invoice is received and not determined by your cash flow and budget authority. If the invoice is received this year, it must be paid in this year. Invoices may not be deferred to a later month or the next fiscal year.
2. Avoid under-estimating staffing ratios.
· Initiate the budget development process early enough so you have the opportunity to analyze and estimate the number of staff for which you should receive state funding.
Review your S-275. Are all staff reported that should be? Are all K-4 staff properly coded? Are staff with K-12 duties properly split? Are Special Education staff coded per 1077 excess costing methods?
· Staffing is traditionally around 80% of the GF budget. If budgeting staff reductions, especially in certificated staff, make sure that the reductions are obtainable.
Deciding on reductions after the May 15th deadline to notify staff of RIFs leaves your district reliant on having enough retirements and attrition in the proper programs to accomplish the reductions. Also having full administrative buy-in to the reductions is a must.
· Verify that your staff ratios are what you think they should be.
Look at your apportionment Report 1159(R). January is when OSPI switches from your budget data to P-223 and S-275 data. Are you maximizing your K-4 ratio at 53.2 certificated instructional staff per 1000 students? Are you maintaining your K-12 ratio at 46 certificated instructional staff per 1000 students? If not, you aren’t maximizing your apportionment funding and you need to review staffing assignments and/or enrollment month.
· Do you have staff budgeted to a non-BEA program that could be budgeted to BEA?
Check your I-728 plan. Does the plan assume you maximized funding in K-4 and you have K-4 in I-728? Do you have levy funded positions budgeted to another program, such as Highly Capable? Do you need to reassign staff?
1. Avoid over-estimating student enrollment.
· Student enrollment drives a major portion of the funding your district receives from the state. Be very clear in your own mind of the funding mechanisms for the different enrollments.
Basic Ed-unenhanced, Vocational-enhancement, Skills Center-enhancement, and Institutional are per FTE. Special Education and Bilingual are per headcount. Home/Hospital is per week. Ancillary Services are per hour. What’s your district funded at...what’s in your wallet?
· Balance your guesses and estimates.
When in doubt…… don’t always round up!
· If you’re not comfortable projecting your enrollment, get help.
Consult with other districts around you or your ESD, find a mentor, and/or attend a WASBO training session.
· Do your enrollment projections early. Don’t build a budget and then project your enrollment to support it.
If you build it they may not come!
· Know the history of your enrollment!
Has it gone up or down or stayed the same? Can you rely upon it to do the same this year?
· Focus on projecting your enrollment by grades or grade groups that generate the funding.
Different enrollment levels may generate different funding amounts and influence other projections. Do the math!
· Projecting and tracking your enrollment on a monthly basis provides a more accurate tracking mechanism.
It can be fun when your September enrollment comes in at your budget amount, but the fun will be short lived if you’re comparing it to an Average Annual FTE (AAFTE) budget. Know how your district’s enrollment changes from month to month.
· It is critical that both the headcount and FTE enrollment your district reports for October is as accurate as possible. The October enrollment counts are used by the Caseload Forecast Council in the budget that is released in December of each year.
If you know that all or part of your enrollment (such as an individual grade or program such as Running Start or an Alternative Learning Experience program, or a categorical funding enrollment such as bilingual or vocational) is not accurate or you think you will correct your October count in a later month, you need to notify Kim Thompson when you submit your October enrollment.
· Because the original enrollment counts are used in forecasting, when districts submit corrected October data in a later month, the forecasting process is significantly impacted.
This can result in your district receiving intense scrutiny of your enrollment by other state agencies. We do want correct enrollment numbers, even if your district needs to submit corrected numbers; however, we need to know how accurate the October numbers are.
· Special education funding flows to the resident districts, whereas basic education funding flows to the serving district. If you are serving special education students from other districts be careful to not include them in your state funding projections for special education.
There is a potential of erroneously double counting revenues for non-resident special education students.
· Review your enrollment projections for consistent patterns.
Is your high school enrollment going down and vocational enrollment going up?
· Share your enrollment projections and get buy-in as appropriate.
Your board, your superintendent, and the union all are interested.
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OSPI/SAFS/SFS Prepared by Mike Dooley, CSBO, WMS
Printed on 5/10/2006 Page 5 of 7 Supervisor School District / ESD Budgeting