A few basic realities govern the budgeting process for school districts in California, including the following:
- Revenues are largely determined by the state based on the number of students who attend school.
- Personnel costs dominate district expenditure decisions.
- Trend analysis can make budget assumptions more accurate.
- Districts are expected to remain fiscally solvent.
- Budget development is an ongoing public process
Projecting the number of students comes first
The primary focus of budget development each year is related to General Fund revenues. These funds represent the bulk of the operating money for K-12 instruction, the central purpose of every district.
In California, a school district has little control over most of its revenue sources. Instead, its income is affected by state-determined funding formulas and the mandatory programs in which it must participate. Officials can also choose to operate optional programs-such as K-3 Class Size Reduction-for which the state provides a set level of funding.
The number of students who attend school is critical to district revenues because most of this funding is provided on a per-pupil basis, adjusted for actual attendance. The budget process thus begins with a careful projection of the number of students. However, the student count is not just a matter of how many children enroll each year. For most funding purposes, districts receive income based on the number who actually attend class, referred to as the average daily attendance (ADA).
Expense estimates begin with staff costs
At the average district in California, 85% of the General Fund is spent for staff salaries and benefits, of which teacher compensation is about two-thirds. It is thus crucial that districts project staffing costs accurately. Three things affect those costs: the number of employees needed, the salaries they will receive, and the cost of employee benefits.
Generally, districts allocate teachers-and to some degree other staff-based on negotiated class sizes or other ratios of staff to students. Thus, a district's first step in determining staffing levels is to get an accurate count of how many students will attend school. Once that has been done, officials calculate how many teachers and other staff it will take to educate those students. This calculation depends on the class sizes in the district and the preparation time for which teachers are paid. Both of these are negotiated as part of the collective bargaining agreement between the district and the teachers' union.
District participation in special programs usually requires extra staffing, which often includes teachers on special assignment. Some districts use set formulas to adjust administrative and service staff (e.g., vice principals, counselors) based on site-level student counts. Every district also employs a number of classified staff-such as secretaries, janitors, groundskeepers, cafeteria workers, and teachers' aides-who help to keep the operation going.
Conservative estimates of student population and revenues will lead to
conservative staffing commitments. If the projection proves to be low,
it may cause a sudden rush to hire at the start of a school year and
perhaps necessitate moving children around after the year begins. At
the same time, being conservative will protect the district from
overstaffing, which can have a disastrous financial impact. While
districts can add staff after the school year begins, state law
substantially limits their ability to dismiss permanent teaching staff-
even if they overestimated how many students they would have.
Trend reports confirm and improve the validity of budget assumptions
The budget development process leans heavily on assumptions about a district's students, revenues, and expenses. Examining trend reports can help improve the validity of these assumptions. By looking over district budgets for several years, it is possible to identify patterns and past errors in prediction. Is ADA consistently underestimated or overestimated? Has the district regularly projected less for utilities than it has spent? Are expenditures for health care benefits growing at a faster rate than anticipated?
A sense of a district's financial history-combined with an informed look at the future-can also help make the opportunities for flexibility and new programs clearer. For example, a district may see substantial changes in its staffing needs and categorical income as its student population gets older. On one hand, fewer students will be in subsidized small classes. On the other hand, more will be in high schools, which are traditionally more expensive to operate. How might that demographic change affect the district's revenues and its expenditures? Will it require a realignment of priorities that could have far-reaching effects?
Financial forecasting-essential to building and managing school district budgets-is increasingly required by the state as well. Collecting data and developing assumptions are both important steps in being able to make financial projections. Using computerized accounting systems and data, district staff can develop "what if" scenarios that attach costs to such proposals as program changes and salary increases. This can help district officials weigh their options with a clearer picture of the fiscal impacts.
A district's first budgetary responsibility is to be fiscally sound
District officials must ensure that the district is able to meet its financial commitments each year. Thus, they must temper the desire to innovate and invest in new priorities-or provide raises to employees-with a clear-sighted evaluation of the district's current and anticipated fiscal condition. This requires that the adopted budget be fiscally sound.
Districts are required by law to hold a public
hearing prior to budget adoption. They must also submit the budget they
adopt by July 1 to the local county office of education for approval.
On this submittal the district superintendent and chief business
officer must personally certify that the district can meet its
obligations in the current and following two years.