Understanding School District Budgets
A school district’s budget can be a crystal ball into a school’s past – and its future. Compelling stories lied buried in those lines of type.
They may look baffling at first, but district budgets all operate within a set framework. All school districts operate on the same calendar as the state fiscal year – July 1 to June 30. The budget process, however, typically begins in the fall of the previous year. A district’s elected school board holds final responsibility for adopting the budget. By law, every district’s budget must balance.
District priorities are revealed within a budget, and so is whether the priorities are the result of clear goals or crisis management. For the initiated, it’s a communications document that can tell constituents a great deal about the district’s future. But how does one come to be one of the initiated? School district budgets can be difficult to understand or describe, but they share much common structure and common language, and they respond to common obligations.
There are a few realities that shape district budgets:
- The concept of fund accounting;
- The critical role that the number of students plays;
- The process by which districts receive their revenues;
- The recognition that personnel costs dominate all other spending decisions.
California school districts all use a system called “fund accounting.” All income and expenditures are placed in a specific fund. The General Fund is where most of the district’s day-to-day operations are contained.
Most General Fund revenue is categorized as unrestricted, and it’s applied to general purposes. There are some General Fund monies that are restricted, and can only be used for specific purposes. This includes dozens of special purpose programs, like special education, transportation and federal funds supporting disadvantaged students. Other funds must be placed outside of the General Fund. Usually, these revenues are to be used for purposes other than providing K-12 instruction, and may include special revenue funds for adult education, cafeteria operation or charter schools, capital project funds for building projects and the like, debt service funds to repay bonds, and permanent funds covering things like a charitable endowment.
The key revenue source for districts is linked to enrollment, which makes projecting the number of students vitally important. In California, a school district has little control over revenue sources. Instead, income is governed by state-determined funding formulas and the mandatory programs in which it must participate. Most funding is provided on a per-pupil basis, adjusted for actual attendance.
Thus, enrollment is not the bottom line. For most funding purposes, districts receive income on the number of students who actually attend class, so average daily attendance figures also must be projected. Districts can rely on history, census information, housing starts, birth rate data and a variety of other sources to predict student numbers.
How districts receive revenues is largely up to the state. Each district has a revenue limit – the per-pupil amount it receives for general purposes – that makes up most of its General Fund revenues. Revenue limit income combines local property taxes and state funds. The state calculates the revenue limit separately for each district based on past funding and a set of adjustment formulas that change a bit each year. Thus, two neighboring districts in the same county can have very different income prospects. Districts have no control over revenue limit amounts.
Districts can determine total general purpose funding by multiplying projected average daily attendance by the revenue limit to get an accurate picture of what they have to spend.
And what they spend begins – and almost ends – with staff costs. Teaching is a very labor intensive endeavor, and typically about 85 percent of a district’s General Fund is spent covering staff salaries and benefits. Teacher compensation is about two-thirds of that 85 percent in most districts.
A district’s first budgetary responsibility is to remain fiscally sound. Those that do not can be subject to takeover by the state or county Office of Education. Districts are required to report their financial status to the public and to the Office of Education periodically.
An overview is critical, and each fund has its own line item budget. Since most funds, and most activity, flow into and out of the General Fund, that’s the place that often reveals most about the fiscal health of a district.
Examining the difference between revenues and expenditures may reveal that a district is tapping reserves one year. Transfers from other funds into the General Fund may indicate the district is borrowing against itself.
The state requires districts to maintain a reserve of between 2 and 5 percent of the General Fund expenditures, and this category can usually be found under the label “Designated for Economic Uncertainties.”
In addition to the annual budget, interim reports recognize that estimates used to create a budget are likely to change throughout the year. In 2002 and 2003, midyear cuts in the state’s education appropriations left districts with less revenue than they expected resulting in adjustments in nearly every district.
Collective bargaining agreements are central to spending decisions. With 85 percent of a district’s expenditures devoted to personnel, contract negotiations add a large dose of uncertainty to the future.
Of course, assessing a district’s financial condition goes beyond the General Fund. Aging facilities are the most obvious. When the heating system goes out in December, the district has no choice but to fix it. Other obligations can also affect a district’s financial picture in unexpected ways.
Special education, which provides extra services for students with disabilities, is the largest categorical program in California.
Special education has its own budget category. Allocation of these funds, and many of the expenditure decisions, are outside the district’s authority.
The state provides most special education funding, but not directly to districts. They go to a Special Education Local Plan Area, and the governing board of the SELPA allocates funds based upon formulas approved by all member districts and agencies.
The law requires that special education services be provided, irrespective of which agency pays. All California school districts are expected to contribute a portion of their General Fund to accounts for special education services.
California ’s school finance system is complicated, no doubt, but a basic understanding gives decision-makers and stake-holders the most insightful look into districts available. |
