After getting a handle on the differences between the board’s governance role and the superintendent and administration’s management role, one of the most challenging topics you’ll tackle is your district’s budget.
One of your legally required duties as a school trustee is monitoring the district’s finances—but finding the governance sweet spot can be challenging.
Reviewing the check register for the district with a fine-toothed comb isn’t the best use of your time, so what should you be looking at in the school district budget? This list of questions to ask about your district’s budget will help you focus on the big picture and dig deep into what matters in the budget.
1. Do we have a school finance and planning calendar that can be distributed?
A finance and planning calendar is helpful for knowing what happens when and viewing budgeting as a year-long process. Other discussions your board will have throughout the year about staffing, student enrollment, or programs are also — at some level — budget discussions.
Consider the following for the calendar:
- When revenue estimates (property tax-appraised values) are available
- Staffing projections and salary schedules
- Enrollment projections and demographic reports
- When a complete draft budget can be reviewed
- When the board is expected to vote on the budget and set the tax rate
2. What is the current fund balance, and how does it compare over the last 5 years?
People tend to think of a fund balance like a savings account, but the reality is more complicated. A fund balance is the amount of assets in excess of liabilities.
Fund balance assets could include, among other things:
- Delinquent taxes
- Accounts receivable
The fund balance fluctuates considerably throughout the year, but it’s an indicator of the financial health of the district. It’s often considered when school bond ratings are set, and it’s an important protection against unplanned costs.
Knowing the trend line for your fund balance in the past 5 years can help direct a line of questions about the district’s financial health. There may be good reasons for the trend line, and as a board member, it’s your right to know.
There are five categories of fund balances:
Only the unassigned funds can be tapped at the discretion of the board.
3. How long would your current fund balance carry your district if all revenue were to dry up and expenses were to remain the same?
This forces a longitudinal view of the fund balance.
TEA suggests the district maintain an “adequate” amount in the fund balance—recommending that school districts hold two to three months of expenses in reserve.
The board must define what they consider adequate and make the decision in policy. If your district has a fund balance policy, you’ll find it in CE (Local) in your policy handbook.
It’s not uncommon for districts to adopt a deficit budget that dips into fund balance. When a deficit budget is adopted, it’s important to recognize that:
- It’s a legitimate option for addressing truly unexpected expenses
- It’s okay as an interim strategy
- It’s not sustainable over the long term.
Deficit spending sets a district on a path to financial difficulty if the board does not course correct.
4. What is our current rate of tax collection and how does it compare over a 5-year period?
There is a natural limit to the rate of tax collection. As collection gets above 95 percent, it’s unlikely that much more revenue can be realized.
Districts with economies that experience regular booms and busts will likely see more fluctuation in their collection rates. If tax collection rates have been steady, a board can make some safer assumptions about revenue going into budget time.
5. What assumptions are we basing our budget on, have those assumptions changed in the last 5 years, and how successful have we been at making accurate assumptions?
All budgets are built on assumptions, so it’s important to continually assess whether you’re getting close to reality. Budgets should reflect an intended reality, not wishful thinking.
Look for assumptions in these areas:
- Revenues by type – commercial, residential, oil, agriculture, etc.
- Expenditures – energy, salaries, benefits, etc.
- Fund balance
- Property values
- Tax rates
- Student enrollment and attendance
Shifts in the local community can have a big impact on a district. A natural disaster or large employer closing unexpectedly can mean a dramatic loss of revenue and reduction in student enrollment.
Acknowledging and reviewing the assumptions about budget drivers will help your administration and board to plan accordingly.
6. During the last 5 years, have we received an overpayment or an underpayment of state funds, and what is the dollar value there?
Districts receive state funding based on estimates. Then, in September of each year, there is a settle-up process to reconcile those projected estimates with reality.
If a district was overpaid, the district will owe the state money. If a district was underpaid, it will receive additional funds.
If a district is not expecting this—particularly an overpayment that must be paid back —the surprise can blow a hole in the budget.
7. What is our current staffing ratio—student to staff and student to teacher? Have the ratios changed in the past 5 years? Is there a trend for the next 5 years?
About 80 percent of a school district budget is directly linked to salaries. Full-time equivalents (FTEs)—a useful budget measurement for understanding the combined labor costs of full and part-time employees—are an expense item in the budget. If FTEs are rising without an increase in student enrollment that supports the expense, a district could be creating a serious budget concern.
Reduction in Force (RIF)—terminating employees with no intention to refill the positions—is one way to reconcile the staff numbers and budget numbers, but it’s almost always incredibly painful to the community. Read the TASB School Law eSource document on recognizing the need for and implementing a RIF (pdf).
Boards that keep an eye on the staffing ratios over time can make smaller adjustments—like attrition rather than termination—that accomplish the same goal with less drama and heartache.
8. What sectors of our community carry the burden of paying ISD taxes? What are the implications of this tax load?
Understanding your community’s tax base helps the board understand the impact of taxation on the community.
A district with large oil and gas sectors will have to be much more sensitive to the boom and bust cycles of those industries. A district that is mostly a bedroom community needs to understand what those households are facing and the kitchen table conversations. These concerns can be very different from districts whose tax bases are an urban mix of multifamily buildings, and commercial and industrial properties.
9. Does the current budget reflect the needs described in our facilities study?
Facility studies are needed to plan for big-ticket expenses, including:
- New construction
- Major maintenance
- Energy improvements
A regular demographic study is helpful—particularly in fast growth districts—to anticipate when and where new schools will be needed. Even if growth is slow or enrollment is declining in your district, demographic reports can help inform assumptions that feed the budget process.
10. How do our pay systems — faculty and staff compensation, salary schedule and stipends — compare with other districts in our identified market group?
Your board can consider different approaches to being competitive in the local market area for teachers. There are several strategies your district can consider to recruit and retain the highest quality teachers, including:
- Offer the highest salary to beginning teachers but have slower growth in experience pay or pay increases
- Start with lower salaries but prioritize pay increases to retain quality educators
- Look at the full package of benefits and choose to put more into TRS or contributions to health care costs.
Your superintendent and board should understand the market group—who are you really competing against for teachers—and what the district priorities are for attracting and retaining staff.
Review Compensation of School District Employees (pdf) from TASB Legal Services. This outline addresses a range of topics including salaries, stipends, contracts, bonuses, pay reductions, and more.
More information about adopting a budget and tax rate can be found in TASB’s School Law eSource page for resources on school district budgeting and accounting.