News analysis: Better process would yield better school budgets

By Shawn Cunningham
© Telegraph Publishing LLC

Two Rivers Supervisory Union Business Manager Cheryl Hammond recently told the Green Mountain Unified School District Board that the district ended the 2018/2019 school year with a deficit of approximately $149,000 or about 1.2 percent of the overall budget.

That’s not especially surprising considering the fact that among other unforeseen expenses, the district had to pay out-of-pocket for a portion of the repair costs from the Chester-Andover water main break in August 2018. But a closer look at those FY19 numbers, taking into account both over- and under-spending, points toward a $12.5 million budget that is out of balance by closer to $2.5 million. In other words if the district had fully spent the budget voters approved in March, without reining in over-spending, the deficit would be closer to $1.36 million or  11 percent. Put yet another way, what the district did not spend from its approved budget paid for spending that had not been budgeted.

School funding can be a complicated subject, with money coming from many sources for a wide variety of uses, and it is common for districts to encounter spending during the year that is not budgeted, but is mandatory.

The budget work was begun early this year as members of the GMUSD board attempted to get more clarity, understanding and control of a budget process that many have felt has been rushed. With this analysis, The Telegraph is adding another perspective on improving the process this year and in years to come.

According to the Government Finance Officers Association, a non-profit group founded in 1906 and made up of more than 20,000 public finance officials from federal, state and local jurisdictions, following some “best practices” can lead to budgets that anticipate and ease their impact. GFOA not only acts as a professional group, but also as a public finance think tank and consultant, according to Matt Bubness, senior manager in the group’s research and consulting arm.

Bubness told The Telegraph that having a budget out of balance due to unforeseen problems is not unusual. He added, however, that if the amounts are large and the differences occur regularly, that can signal a problem.

“That speaks back to a lack of fundamental controls and monitoring,” said Bubness, pointing to the association’s guidance for budgeting as a model to help avoid problems and have a strategy for handling them when they are unavoidable.

Bubness cautioned that while he was not familiar with the specific situation in the GMUSD 2019 budget, he called a $2.5 million over/under difference on a $12.5 million budget “significant.”

Improving the budget process

Traditionally, TRSU school boards get a draft budget from the SU business office in mid-to late-November. That gives the board and the finance committee just a few meetings to consider the spending plan before the new year, when it needs to be approved for printing in annual reports ahead of Town Meeting in March, when voters get their say on it. If the budget passes, the board and administration move on to other things.

But GFOA envisions a longer, more involved process that results in a budget document (rather than just a spreadsheet) that speaks to the needs of students and strategies for meeting them using the funds budgeted. It recommends setting budgeting policies and priorities as well as instructional goals, then applying cost and staffing analysis to allocate resources to meet those goals. GFOA’s best practices also urge districts to develop a long-term strategic financial plan to help implement its instructional goals.

Bubness praised the GMUSD board for recently prioritizing instructional goals ( with strengthening early literacy, establishing a STEAM program and bringing world language instruction into the elementary schools topping the list) but emphasized that such goals should be specific and measurable. The association’s advice is to keep a district’s decisions student-centered, driven by data and based on evidence. That includes existing programs.

While the association doesn’t recommend “zero based” budgeting —  in which all the numbers are thrown out and the process begins from scratch — in its publication Making Hard Choices? Don’t Ignore Emotion, it recognizes that “the budget process has a way of freezing in place decisions about curriculum and instruction that were made years ago,” and recommends evaluating existing programs to see if they are working as envisioned and are still worth the resources allocated to them.

Finally, the association recommends employing “procedural justice” in the budgeting process. The authors of Making Hard Choices? point to research showing that people are more likely to accept a decision if they believe that the process of making it was fair and open. To achieve this the group urges that:

• Decisions are based on accurate information.
• Transparent and consistent decision-making criteria are applied to everyone.
• All affected stakeholders get the opportunity for input.
• Mistakes are recognized and corrected.

Bubness emphasized the importance of transparency in successfully employing procedural justice. This would include making budget documents complete, easily understandable and readily available to everyone with enough time to review them before they are discussed

Improving implementation…

Earlier this year, members of the GMUSD board asked for a report on what was over-spent and what was under-spent in the 2018/19 school year, which ended in June. That report showed that the district had under-spent some budgeted lines by more than $1.1 million. At the same time it over-spent other budgeted lines and added 109 unbudgeted lines, for a total of $1.36 million. While some of the spending was unavoidable and some reimbursed, several board members have expressed unease at the way in which such expenditures were approved and monitored. The Telegraph re-created the report, complete with highlights and totals, which you can read here.

GFOA advocates creating a strategic financial plan looking out three to five years in the future and an action plan to implement it. Part of the financial plan would be creating a general fund reserve through a risk-based analysis of the school’s operations. This would provide funds to cover unexpected expenses, but use of the reserve should be based on strict policies for withdrawal and replenishment and may be subject to board approval.

While the best practices document suggests a reserve sufficient to cover two months worth of expenses, Bubness says that there is no “one size fits all” number that should be set aside.

According to Bubness, for a large organization like the Chicago Public Schools, two months would be an enormous amount of money and not necessary to handle routine risks. By the same token, Bubness notes that a very small organization with a tiny budget would have to set aside more since two months reserve would be a minimal amount.

… and monitoring

Periodic board review of spending in the 2018/19 school year did not set off any alarms in real time, and some over budget expenses – like legal fees – only came to light through news reporting. If board members want to monitor spending, they will need to ask to receive that information in a format that allows them to analyze and understand it.

In addition to regular financial monitoring by the elected board of the district, GFOA also recommends regular, periodic monitoring of the goals for which funds were appropriated. The association suggests that senior staff members be assigned to implement the goals and to report on progress.

The school board is not mentioned much in GFOA’s Best Practices for School District Budgeting. Bubness noted that this has to do with different approaches to school governance. According to Bubness, where there is a tradition of school boards being closely involved with preparing budgets, it would be up to the board to decide on its level of involvement in the best practices process.