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									        Lecture 5
Introduction to Budgeting
     EDA 757/PPA 730
        Fall 2002
           Lecture 5 Outline
• Expenditure patterns and trends in NY
• Purpose of budgeting
• Budget process
  – Preparation
  – Approval
  – Execution
• Budget document
Sources of Budget Information—
NY State Education Department
• General Educational Management Services Unit:
   http://www.emsc.nysed.gov/mgtserv/gemsho.htm
• Publications available:
   – Budgeting Handbook 3: Good overview of key aspects of
     budgeting, and regulations.
   – School Business Management Evaluation Checklist: Provides a
     series of checklists for SBOs on budgeting, financial management
     practices, and legal requirements.
   – Budget vote results from around the state
   – Template of detailed budget, which is consistent with the financial
     statements the district is required to complete (SBM-1).
   – Legal references for SBOs.
 Expenditure Patterns and Trends
   (1995 to 2000)—Figure 5-1
• 63% of expenditures are for instruction –similar to national
   patterns. 39% for teacher salaries—growing at state
   average.
• 16% of expenditures are fringe benefits—slow growth in
   this category.
• Central administration is less than 3%--much lower than
   national average.
• Facilities, O&M, and transportation are 18% of total, about
   the national average—growth is above state average.
Source: New York SED, School District Fiscal Profile Report,
http://www.oms.nysed.gov/faru/Profiles/profiles_cover.htm
               Figure 5-1: Per Pupil Expenditure Trends by Type
                         All New York School Districts

                                                   % Change
                                                   1995-96 To     % of Total
     Category           1995-96       1999-00       1999-00       (1999-00)

Administration           $210          $239          13.8%          2.2%

Instruction             $5,675        $6,936         22.2%          62.8%
   Teacher Salaries     $3,612        $4,307         19.2%          39.0%

Operating &              $685          $821          19.9%          7.4%
 Maintenance

Fringe Benefits         $1,691        $1,756          3.8%          15.9%

Transportation &         $918         $1,134         23.5%          10.3%
 Debt service

Total Expenditures:   $9,242          $11,040          19.5%       100.0%
Source: New York SED, School District Fiscal Profile Report.
 Expenditure for Special Education
and Regular Instruction (Figure 5-2)
• Difficult to separate special education from regular
  instructional expenditure.
• One estimate for New York shows special education
  spending per student was 3 to 4 time that for regular
  students.
• Special education spending grew much faster from 1980 to
  1993 than spending on regular students, especially in
  NYC.
• These trends have prompted state governments to consider
  limitations on state aid for special education.
    Figure 5-2: Estimated per Pupil Expenditures for Regular and Special Education Students

                                   New York excluding NYC                 New York City (NYC)
                                                    Percent                               Percent
Spending Patterns                1980     1993      Change            1980      1993      Change
Overall expenditure             $6,228   $9,295      49.2%           $6,317    $7,799      23.5%

Medium scenario1
 Spending on teaching
  Per regular student           $3,375    $4,734        40.3%        $3,554      $4,002       12.6%
  Per special educ. student     $7,708    $12,235       58.7%        $8,414     $17,474      107.0%

  Total spending
   Per regular student           $5,757      $7,602        32.0%       $5,781    $6,188        7.0%
   Per special educ. student    $12,490 $17,806            42.6%      $13,558 $21,958          61.6%
1
  Medium assumption made about resource use by special education students in regular classrooms.
  See Table 7-4.
Source: Hampton Lankford and James Wyckoff. 1996. "The Allocation of Resources to Special
  Education and Regular Instruction." In H. Ladd (ed.), Holding Schools Accountable . Brookings.
  Purposes of Budgeting Process
         and Document
• Resource allocation: Budget is a ―spending plan,‖
  and is principal mechanism for deciding priorities
  between programs.
   – Examine percent distribution and trends in budget share
     by program.
• Financial control: One of the principal
  mechanisms for assuring resources are spent as
  decided by school board.
   – Compare actual spending to budget by ―object of
     expenditure,‖ and organizational unit.
  Purposes of Budgeting Process
         and Document
• Management control: Use budget to help
  improve efficiency and effectiveness.
   – Compare trends in enrollment, productivity ratios, and
     student performance.
• Planning tool: Budget can be connected to the
  strategic plan.
   – Provide long-range forecasts of revenues, spending,
     enrollment, and student performance.
   – ―The budget can be thought of as the continuous
     improvement plan translated into a performance plan.‖
     Keuren (2002)
 Purposes of Budgeting Process
        and Document
• Communications device: Budget can be
  used to communicate goals and objectives
  of an organization, and how resources are
  allocated to meet this objectives.
  – Post the budget on-line
  – Prepare a ―popular budget‖
  – Create forums for citizen participation beyond
    the traditional budget hearing.
  What Makes Public Budgeting
          Different?
• Open process: public manager serves many
  masters (school board, mayor, parents/other
  citizens, state education department).
• Objectives of public agencies are complex—
  seldom is there one bottom line like profit.
• Many constraints on decision making (state and
  federal mandates, court orders, financial
  regulations, timing of state aid, etc.)
• Limited control of clientele: public agencies have
  to serve all qualified residents (can’t choose
  student body).
                         Budget Process
1.    Budget guidance (top down part of process)
     a.    Priorities and changes: Superintendents sets out new
           programs, and major changes to curriculum, staffing,
           and facilities.
          i.     Forecasts of enrollment, staff turnover.
     b.        Constraints on size and distribution of budget
          i. Revenue forecasts—ceiling on expenditure growth
          ii. Legal constraints, mandates, categorical aid requirements.
          iii. Mandatory spending—debt service, contractual obligations
               (teacher salaries).
                    Budget Process
1. Budget guidance (top down part of
   process)
  c.    Preparation guidelines:
       i.     Forms
       ii.    Budget calendar (timetable)
       iii.   Inflation rates, salaries.
       iv.    Special procedures for estimating costs.
       v.     Instructions on how to categorize spending—baseline vs.
              improvements, operating vs. capital, etc.
                                      Figure 5-3: Budget Development Timeline
December/January
•Begin review of capital
                                    Salt Lake City Schools (FY 2002-03 Budget)
projects
•Current enrollment
projections ready                                                May                            July
                                   March
•Budget development                                              •Begin printing budget
                                                                                                •Advertise to hold
schedule sent to program           •Textbook, supply &
                                                                 •Board study session,          hearings on budget & tax
managers                           library budgets set up
                                                                 presentation and               rate that exceeds
•Determine general budget          •B&G review of                discussion of executive        certified tax rate (if
policy plans & directions          capital projects              budget (prior to June 1)       necessary)




 February                        April                           June                                August
 •Begin review of special        •Budget tied together,          •Publish newspaper notice of        •Final budget & tax rate
 programs                        reviewed, and budget            public hearings to revise           adoption & public
 •Meet with program              book prepared egin              current & adopt new year            hearings (if it is
 managers & dept heads           review of capital               budget & tax rates.                 necessary to exceed the
 to review & revise              projects                                                            certified tax rate)
                                                                 •Board meeting & public
 special programs
                                                                 hearings to revise current
                                                                 budget and adopt new year
                                                                 budget & tax rates.



        For full SLC budget go to: http://www.slc.k12.ut.us/budget/03/03budget.pdf
      Advantages of a Carefully Constructed
               Budget Calendar
• It improves planning and budget preparation by providing
  advance notice of when particular information is required.
  Facilitates analysis of how budget relates to educational
  plan.
• It facilitates gathering opinions/data from key staff, board
  members, etc. by providing clear timeline on when
  decisions have to be made.
• Helps to assure that legal dates/requirements of the budget
  process are met.
• Facilitates informing the public about the process, and how
  and when citizens can comment.
Source: ―Budgeting Handbook 3‖. Full list is on the website:
http://www.emsc.nysed.gov/mgtserv/budget-02.htm#P240_19485
                Budget Process
• Budget preparation (bottom up part of process)
   – Units within district prepare operating and capital
     budgets, estimate staffing requirements, and prepare
     justification for expansions of budget.
   – Key issue is how decentralized this process is. Is
     budget prepared only by central administration, or are
     schools involved in developing and allocating budget
     (school based budgeting)?
   – If school-level budgeting exists, what do they have
     control over (enrollment forecasts, personnel, facilities,
     other operating spending)?
                  Budget Process
• Budget review and approval:
   – Unit budgets are reviewed by SBO and superintendent—units
     usually required to make modifications. The more decentralized,
     the more time consuming this process is.
   – Final budget is presented to school board, which can usually
     modify before budget vote.
   – Public hearings are often held in conjunction with board review of
     the budget.
   – After board vote, may be public vote on budget (3rd Tuesday in
     May in NY). District gets several chances to pass budget.
   – In New York, if budget doesn’t pass, then district uses a
     ―contingency budget‖.
*SBO plays key role in preparing and presenting final budget.
                      Budget Process
• Budget execution and audit:
   – Budget execution is managing the budget as it is
     implemented
        • Checking for variance of actuals and budget.
        • Adjusting budget targets as actual tax and aid figures become
          available.
        • Modifying budget to meet unanticipated circumstances
          (transferring funds across accounts).
   ― At least once a month, a budget status report should be prepared …
      The report should include: estimated revenues, revenues received
      to date, and estimated revenues yet to be received; original
      appropriations, adjustments and transfers, revised appropriations,
      expenditures, encumbrances, and unencumbered balances…‖
   ―Budgeting Handbook 3‖, http://www.emsc.nysed.gov/mgtserv/budget-04.htm#P530_45112
                      Budget Process
• Budget execution and audit:
   – Budget audit is the use of internal and external (independent)
      auditors to verify financial statements, and identify irregularities,
      control system problems, and pending financial problems facing
      the district.
   ―The annual independent audit should serve as a valuable tool in the
      budgeting process…since the audit is prepared at the close of the year by
      an outside independent certified public accountant or public accountant, it
      represents an unbiased look at the major categories of expenditures and
      revenues. The audit can serve to point out areas for improvement in the
      budget development process, as well as to serve as a review of the
      district's compliance with laws, regulations and accounting practices.‖
   ―Budgeting Handbook 3‖, http://www.emsc.nysed.gov/mgtserv/budget-07.htm#P686_57665
         The Budget Document
    Matching Information & Objectives
• Resource allocation (―spending plan‖):
    – Information by program
• Financial control:
    – Information by ―object of expenditure,‖ and organizational unit.
• Management control:
  – Historical information on enrollment by type, productivity ratios,
    and student performance.
• Planning tool:
    – Long-range forecasts of finances, enrollment, and performance.
• Communication device:
    – User friendly format—popular budget—explanation of budget process,
      glossary, and summaries of key priorities, and program changes.
  Problems with Line-Item Budgets

• No visibility on programs
• No visibility on enrollment trends by type.
  No link between spending per pupil and
  student performance.
• Short-term focus—Only look at one-year in
  the future. No link to strategic plans, and
  capital improvement plans.
 Other Types of Budget Formats
• Planning, programming, budgeting (PPB):
   – Budget organized by program areas. Includes program mission statements,
      objectives, and indicators of success.
   – Long-range planning of goals, programs, and required resources.
   – Policy analysis, cost-benefit analysis, program evaluation.
   *Limited success because of heavy information requirements, incompatibility of
      program format with control mission.
• Zero-based budgeting (ZBB):
   – Efficiency and effectiveness of programs to be reevaluated on regular basis.
   – Agencies to prepare ―decision packages‖ for each program that look at impact
      on mission of ―low‖, ―medium‖, and ―high‖ funding.
   – Decision packages of all programs are ranked by executive. Facilitates
      budget cuts by legislature (school board).
   *Limited success because of heavy information requirements, and limited
      benefit to managers.
 Other Types of Budget Formats
• Performance-based budget:
  – Use of traditional function/object budget
  – Includes performance information on workload (enrollment by
    type), productivity (class size), outputs (courses offered), and
    outcomes (student performance, violence, drop-out rates, etc.)
  – Performance and spending may be linked through cost analysis,
    and program evaluation.
  – Essentially merging of school budget and school report cards.
  * Major budget reform of the last decade. (Used in federal
    government, many state and local governments.) Limited use
    in school districts. Standard & Poor’s is now producing
    reports on school districts linking performance data and
    budgets in Michigan and Pennsylvania (see following).
                                                         S&P Written Report
              S&P Observations
                                                                                                     v
              Detailed written analysis summarizing comparative strengths, challenges, risks, and oerall educational return on
              resources. In addition, for each category of analysis, the report provides a snapshot table of important statistics,
              detailed analytical commentary, and graphs illustrating key data.
                                             Comparisons, Trends, and Data Analysis
              Parents Corner                                             Revenue, Taxes, Debt
              Summary of key information for parents,                    Information on revenue sources, financial margins, reserve
              including test scores, spending, classroom                 levels, property values, school tax rates, and outstanding
              information, tax and debt burden, and                      bonds.
              demographics.
              Student Results                                            Demographics
              Scores and participation rates for MEAP, ACT,              Socioeconomic characteristics of students,the community
              SAT, PSAT, and AP. Also, graduation, dropout,              (district boundaries), and the region.
              and attendance rates.
              Spending                                                   Schools In This District
              Where dollars are spent including                          Snapshot of information on each school in the district,
              compensation, academic programs, instruction,              including enrollment, test scores, and demographics.
              administration, and debt.
              Return on Resources                                        General Information
              Includes the Performance Cost Index (PCI), a               Descriptive information regarding the district, including
              quantitative measure of the spending                       location, number of schools, square miles, etc.
              associated with a level of student achievement.
              Learning Environment
              Information on class and school sizes,
              enrollment stability, staffing levels and profiles,
              safety, technology, and facilities.

                                                 School Administrator Commentary
               School District Perspectives
               A description written by the school administrator of the qualitative aspects of the school system, including recent
               developments, special circumstances, programs or facilities, and accomplishments or distinctions.




For reports for Michigan and Pennsylvania: http://www.ses.standardandpoors.com/
          Budget Document
   What is Recommended by ASBO
• Association of School Business Officials International recognizes
  excellence in budgeting through ―Meritorious Budget Awards Program.‖
  http://www.asbointl.org/Recognition/index.asp?s=0&bid=69
• ASBO recommends four sections to budget:
    – Introduction: executive summary, organization, financial summary in user
      friendly format.
    – Organizational: mission statements, major goals, budget and financial
      policies, budget preparation and management processes.
    – Financial: financial structure, detailed budget tables, capital budget, debt,
      accounting classifications and basis of budgeting.
    – Information section: historical data, forecasts, enrollment and personnel,
      property values and tax collections, debt schedules, performance measures.
   Award criteria:
   http://www.asbointl.org/asbo/files/ccPageContentdocfilename000370705546criteria.pdf
Example: Salt Lake City Budget
Example: Salt Lake City Budget
Example: Salt Lake City Budget
Example: Salt Lake City Budget
    Budget Documents in New York
• Popular Budget: User friendly budget for the
  public, with the following sections:
1. The Educational Plan
•   The introductory portion of the budget document should provide the setting for the
    requested appropriations.
•   a letter of transmittal from the board;
•   a statement of philosophy and major objectives of the program of education offered;
•   an overview of the education programs and services of the district;
•   a statement of the relationship of this year's budget to any long-range program;
•   any new services, or changes in present organization, that are being added or undertaken
•   this year to carry out the educational objectives;
•   a list of budget recommendations which are being deferred for future consideration due
    to an inability to obtain the desirable appropriations.
           Example of Elementary School Programs:
Excerpt from Rochester School District Budget 2002-03
                                 Overview:
  The Elementary Education programs will serve approximately 20,000
  K-6 students (general education and special education). The District
  runs full day kindergarten in all of its elementary schools and pre-
  kindergarten programs at 25 of its elementary sites.
  There are fourteen K-6 schools, seventeen K-5 schools, one K-8 school,
  two K-2 schools, one 3-5 and the Montessori school. The schools and
  programs are provided with the resources to meet the needs of a multi-
  ethnic, urban student population.

  CHANGES IN 2002-2003 BUDGET
     •Increase in class size to contractual maximum of 28 students in
     grades K-2, and 30 students in grades 3-6.
     •
  ELEMENTARY SCHOOL PROGRAMS:
     •Magnet school enrichment programs are offered and organized
     around themes, including foreign language, technology, science,
     intercultural studies and performing arts.

 Website: http://www.rcsd-k12.org/Budgetfiles2002-3/Schools/Index.htm
    Budget Documents in New York
• Popular Budget (cont.):
2. The Expenditure Plan
•   The expenditure plan should classify budget items through the function and object codes in
    accordance with the Uniform System of Accounts. As previously noted, in order to provide the
    comparative statistics which are required to be included in the budget, it will be necessary to divide
    the current and the upcoming budget into the three components. The expenditure plan should also:
•   compare statistics for at least one year prior to the current proposed budget with respect to
    expenditures, revenues, fund balance, and tax rates;
•   describe the nature and types of service covered in some of the more general item classifications;
•   provide an attractive and interesting format through pictures, charts, tables, and graphs;
•   explain substantial increases or decreases in appropriations by reference to enrollment data, effects of
    inflation, or program expansion/reduction;
•   focus attention on past and present successful efforts to provide economy and efficiency in the
    district's operations.
http://www.rcsd-k12.org/Budgetfiles2002-3/PDFs/page23.pdf
http://www.rcsd-k12.org/Budgetfiles2002-3/PDFs/page27.pdf
Budget Documents in New York
• Popular Budget (cont.):
• 3. Revenue Plan
• The income plan should contain at least the following
  elements:
• a) a listing of anticipated revenues with an explanation of
  substantial increases or decreases;
• b) an explanation in general terms of state aid and types of
  programs funded by state aid;
• c) an indication of the estimated amount to be raised
  through local taxes.
• d) fund balance - appropriated and unappropriated.
Budget Documents in New York
• Detailed Budget:
  – Districts are required to fill out annual financial
    statements. Recommended budget format follows
    closely the program categories and line items.
  – Line Item categories:
     •   INSTRUCTIONAL SALARIES
     •   NONINSTRUCTIONAL SALARIES
     •   EQUIPMENT
     •   CONTRACTUAL EXPENDITURES
     •   MATERIALS AND SUPPLIES
     •   BOCES SERVICES
                                        GENERAL FUND - APPROPRIATIONS
                                             GENERAL SUPPORT
ACCOUNT
 CODE   NAME OF ACCOUNT                 AMOUNT                    FNC. UNIT TOTAL   MAJ. FNC. TOTAL

BOARD OF EDUCATION

            BOARD OF EDUCATION

1010.16     NONINSTRUCTIONAL SALARIES
1010.2      EQUIPMENT
1010.4      CONTRACTUAL EXPENDITURES
1010.(4)5   MATERIALS AND SUPPLIES
1010.49     BOCES SERVICES


1010.0            TOTAL BOARD OF EDUCATION

            DISTRICT CLERK

1040.16     NONINSTRUCTIONAL SALARIES
1040.2      EQUIPMENT
1040.4      CONTRACTUAL EXPENDITURES
1040.(4)5   MATERIALS AND SUPPLIES


1040.0            TOTAL DISTRICT CLERK



     Full copy is available on the website: http://www.emsc.nysed.gov/mgtserv/sbm1ex40.xls

								
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