Districts are required by law to report their financial status to the public and to county office of education officials periodically in budget, interim, and year-end financial reports. Each of these can help identify emerging problems and avert a financial crisis.

Inevitably the estimates used to create the original budget will change somewhat as the year progresses. There are too many unknowns at the time of budget adoption to expect anything else. Sometimes, however, unanticipated events create budget problems that are more extreme. For example, a large shortfall between the district's estimated and actual student attendance can result in significant losses in revenue. On the expenditure side, the cost of a new program may dramatically exceed estimates and a retroactive midyear settlement of employee contracts can unexpectedly increase personnel costs.

Interim reports help ensure solvency during the course of the year

Even the most skillfully prepared budget is just a snapshot in time, and it is imperative that the assumptions upon which it was based are reviewed regularly. Districts are required to certify their financial condition twice during the school year, for the periods ending Oct. 31 and Jan. 31. They do this by filing interim reports in a format specified by the state. The school board must approve the October information by Dec. 15 and the January information by March 15. If a district receives a qualified or negative certification on its Second Interim Report, it must file a third by June 1.

These reports compare the ongoing financial conditions to what was projected in the district's original budget. Through this review of anticipated versus actual revenues and expenditures, districts certify whether they will be able to meet their obligations.

The school board is responsible for monitoring the interim reports to ensure that the district remains on a solid financial footing throughout the year. These interim reports include updates on staffing and student attendance, year-to-date accounting, and projections of future expenses. They can also shed light on potential cash flow problems.

Once the school year has begun, reducing expenses can be quite difficult because so much of the budget is devoted to personnel. State law makes it nearly impossible for a district to reduce permanent certificated staff midyear. Districts have more flexibility in regard to classified staff but still must provide them with a 30-day notice prior to any layoffs. Thus when a district discovers at the time of its interim report that it is facing a budget deficit, its options are limited.

If the problem is a question of cash flow in the short term-with expenditures needing to be made before funds become available-districts can issue short-term tax revenue anticipation notes (TRANs). They may also borrow temporarily from other funds, such as the building fund or a special reserve. If the problem is a more serious structural imbalance between revenues and expenditures, districts with healthy reserves often depend on them to get through the year-a short-term fix.

Download a sample school district interim report