Lecture 5 Introduction to Budgeting

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Lecture 5Introduction to Budgeting

• EDA 757/PPA 730
• Fall 2002

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Lecture 5 Outline

• Expenditure patterns and trends in NY
• Purpose of budgeting
• Budget process
• Preparation
• Approval
• Execution
• Budget document

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Sources of Budget InformationNY 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.

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Expenditure Patterns and Trends (1995 to
2000)Figure 5-1

• 63 of expenditures are for instruction similar
  to national patterns. 39 for teacher
  salariesgrowing at state average.
• 16 of expenditures are fringe benefitsslow
  growth in this category.
• Central administration is less than 3--much
  lower than national average.
• Facilities, OM, and transportation are 18 of
  total, about the national averagegrowth is above
  state average.
• Source New York SED, School District Fiscal
  Profile Report,
• http//www.oms.nysed.gov/faru/Profiles/profiles_co
  ver.htm

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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.

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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.

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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)

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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.

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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 complexseldom
  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 (cant
  choose student body).

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Budget Process

• Budget guidance (top down part of process)
• Priorities and changes Superintendents sets out
  new programs, and major changes to curriculum,
  staffing, and facilities.
• Forecasts of enrollment, staff turnover.
• Constraints on size and distribution of budget
• Revenue forecastsceiling on expenditure growth
• Legal constraints, mandates, categorical aid
  requirements.
• Mandatory spendingdebt service, contractual
  obligations (teacher salaries).

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Budget Process

• Budget guidance (top down part of process)
• Preparation guidelines
• Forms
• Budget calendar (timetable)
• Inflation rates, salaries.
• Special procedures for estimating costs.
• Instructions on how to categorize
  spendingbaseline vs. improvements, operating vs.
  capital, etc.

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Figure 5-3 Budget Development Timeline Salt Lake
City Schools (FY 2002-03 Budget)

• December/January
• Begin review of capital projects
• Current enrollment projections ready
• Budget development schedule sent to program
  managers
• Determine general budget policy plans directions

• May
• Begin printing budget
• Board study session, presentation and discussion
  of executive budget (prior to June 1)

• July
• Advertise to hold hearings on budget tax rate
  that exceeds certified tax rate (if necessary)

• March
• Textbook, supply library budgets set up
• BG review of capital projects

• February
• Begin review of special programs
• Meet with program managers dept heads to review
  revise special programs

• April
• Budget tied together, reviewed, and budget book
  prepared egin review of capital projects

• June
• Publish newspaper notice of public hearings to
  revise current adopt new year budget tax
  rates.
• Board meeting public hearings to revise current
  budget and adopt new year budget tax rates.

• August
• Final budget tax rate adoption public
  hearings (if it is necessary to exceed the
  certified tax rate)

For full SLC budget go to http//www.slc.k12.ut.u
s/budget/03/03budget.pdf
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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.htmP
  240_19485

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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)?

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Budget Process

• Budget review and approval
• Unit budgets are reviewed by SBO and
  superintendentunits 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 doesnt pass, then
  district uses a contingency budget.
• SBO plays key role in preparing and presenting
  final budget.

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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.htmP530_45112

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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 processsince 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.htmP686_57665

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The Budget DocumentMatching 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 formatpopular budgetexplanation
  of budget process, glossary, and summaries of key
  priorities, and program changes.

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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 focusOnly look at one-year in the
  future. No link to strategic plans, and capital
  improvement plans.

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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.

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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 Poors is now producing reports on
  school districts linking performance data and
  budgets in Michigan and Pennsylvania (see
  following).

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SP Written Report

SP Observations


Detailed written analysis summarizing comparative
strengths, challenges, risks, and o
verall 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 Cor
ner
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 Res
ults
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.

administratio
n, 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 Perspectiv
es


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/
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Budget DocumentWhat 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?s0
  bid69
• 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/file
  s/ccPageContentdocfilename000370705546criteria.pdf

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Example Salt Lake City Budget
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Example Salt Lake City Budget
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Example Salt Lake City Budget
 
 
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Example Salt Lake City Budget
   
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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.

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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
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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.

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http//www.rcsd-k12.org/Budgetfiles2002-3/PDFs/pag
e23.pdf
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http//www.rcsd-k12.org/Budgetfiles2002-3/PDFs/pag
e27.pdf
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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.

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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

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