Question: Does FCMAT have a template or good practice procedure for developing a systematic process of reviewing programs/services for possible cuts?
Response: Each district is unique in its combination of services, programs and overlying mission statements. A "one size fits all template" does not work when doing budget cuts or other adjustments for this very reason. Without spending time at your district studying and asking questions about your current budget and programs, we are not able to give specific advice to you in this area.
Although there is no list of specifics that all school districts should follow when identifying areas for budget reduction, districts should choose areas that will help them to build a sustainable financial recovery. It is also useful to develop recovery plans when considering the options for improving employee compensation levels while addressing increasing costs in other expenditure categories. These plans also help districts determine expenditure reductions. To remain fiscally viable, all areas of expense must be reviewed.
The sooner budget adjustments and/or reductions are made, the more resources can be saved in the long run since each year, the ending fund balance is increased or deficit spending decreases. Conversely, if revenues can be increased in any given year, and the increase is an ongoing one, the affect compounds year after year.
It is important to avoid rollover budgeting, in which the prior year adopted budget is moved to the new budget year. Districts that utilize rollover budgeting do not adjust for actual expenditures or adjust budgets accordingly. In many cases, it is more appropriate to start with a zero-based budget as is commonly done with summer school. This allows the district to review available funding, determine the most efficient way to expend these resources and decide whether expenditures meet the district’s goals and objectives.
Restricted dollars should be budgeted first. As the district identifies its goals and instructional methods, categorical dollars should be included in the budget development process. The district should maximize the use of categorical funds by identifying the goals that can be met with these funds, similarly to unrestricted funding.
The district should ensure that categorical, restricted resources pay for themselves, including general fund overhead expense, such as direct support, indirect costs, PERS revenue limit reduction, post retirement benefits and all other costs. If categorical funds are not charged their share of "overhead," they can encroach on the general fund. This type of encroachment should be discussed at the board level so that there is an understanding of why encroachment is occurring and what affect it has on other district goals.
Categorical funds are meant to be expended in the same year the funds are generated. Many districts carry over large balances and fail to utilize them. Because the ending fund balances of categorical funds are restricted, the balances do not help meet reserve levels mandated by criteria and standards. Both restricted carryover and deferred revenue should be discussed and a conscious plan developed to spend the balances.
Sites or departments should not have carryover from year to year. If the sites or departments do not expend their allotment, those funds should be used in an area identified as needing increased financial resources. Funds are sometimes saved year to year for a specific large purchase. These types of carryover funds should be approved by the Superintendent or superintendent’s designee.
All funds should be reviewed to ensure appropriate charges are being appropriately allocated. Allowable indirect and direct charges should be applied so that the general fund is "reimbursed" for costs specific to the other funds’ activities. These other funds should not encroach on the general fund, but when they do, a recovery plan should be developed to end the encroachment.
It is helpful for governing boards to define policy in the areas of staffing ratios and class sizes (often in collective bargaining agreements), allocation of supplies or operating expenditures, student transportation, a requirement for categorical programs to be self-supporting, reserve levels, priorities for annual budgets, budgetary goals, and other fiscal related issues. Such policies can clearly communicate values, perspective, and priorities, and help departments and programs operate within the district’s fiscal constraints.
Most districts have staffing allocations for the certificated classroom staff, but they can also be utilized for other district positions such as site administrators, site support, student services employees, maintenance and operations workers, food services people and other district office personnel. Those allocations also can be based on different factors, such as student enrollment, the number of staff members on site, student mobility, free and reduced meal data, and school calendars.
All expense areas must be reviewed when developing a financial recovery plan or planning for increased ongoing expenditures in the future. A typical list of questions that help determine where savings might be realized could include the following:
· Are teacher/student ratios being maintained at contract levels, or is there room for class consolidation or combinations without going over the established ratios in order to align FTEs?
· Does the district monitor staffing levels throughout the year, especially at second semester to determine whether temporary or long-term substitutes can be released? It is much easier to add teachers during the year if staffing estimates were too conservative. The ability to decrease the number of teachers during the fiscal year is limited by Education Code requirements.
· Are unfilled positions kept in the budget after the first and second interim reporting periods if the positions will not be filled in the current budget year?
· Is the budget updated to reflect changes in salary levels when new hires take the place of longtime staff?
· Are the prior year current liabilities and accounts receivable closed out within 120 days of the fiscal year to minimize the impact of unpaid or uncollected items reconciled during year end closing?
· Are onetime revenue sources such as carryover, grants and donations being used to fund ongoing expenditures such as salary?
· When reserves are spent down, is this accomplished in a conscious manner for onetime purposes?
· Is overtime kept at a minimum level, for safety and emergency needs only?
· Is further consolidation of school sites necessary?
· Is the concept of "total compensation" being used in negotiations to recognize the percentage increases that come for step-and-column movement, increases to benefit caps, statutory benefit increases due to raises, and wage increases?
· Are health plan costs being reviewed for cost containment opportunities in the plan design, such as second opinion requirements and primary physician assignments?
· Has the district conducted a re-enrollment on health benefits to make sure that employee’s are not covered after separation from the district and that retiree benefits are not being offered after the contracted age (i.e. age 65)?
· Has the district discussed the method of coordinating Medicare benefits with the retiree health plan’s benefits since? This can result in a substantial reduction in retiree health costs.
· Has the district ensured that it has a process to collect overpayments to employees? Employees are overpaid for various reasons, and it is important for the district to collect these overpayments when they occur.
· Has the district considered establishing a special month-end payroll in which employees are required pick up their monthly paychecks at the district office? Many districts that implement this change find that some employees should not be receiving monthly paychecks for a variety of reasons.
· Are substitute teacher costs being evaluated to establish clear guidelines for using a substitute?
· How closely is the Worker’s Compensation program monitored? Are claims being questioned, and is the employee’s status being followed up on? Are employees being required to perform limited, appropriate duties whenever possible? Are injured employees being required to watch training films or participate in other activities to build job skills? Has an early return-to-work policy been implemented?
· Are annual supply allocations being carried over to the next year, or are they being absorbed back into the general fund if unused?
· Are categorical funds being maximized for appropriate uses?
· Are indirect costs being applied to categorical programs at the maximum allowable level?
· Are facility use fees being assessed when local groups use school facilities?
· Has the district quantified dollars that can be prioritized for uses that may include salary increases?
· Are contracted services reviewed annually to ensure that the district is receiving what is paying for and that a less-expensive vendor is not available? This could include legal services, which can be negotiated by requesting competitive quotes.
· Are copy machine costs being monitored? Costs for leases, materials and agreements on existing copiers at school sites and offices should be compared on a per-copy basis. Using an outside vendor is sometimes more cost effective because maintenance and replacement costs on older machines are very expensive.
· Have cleaning standards been established in the operations departments? Districts can often save costs by taking this approach, which involves setting standards with specific task time lines for each custodian.
· Has the use of cell phones been reviewed at a policy and expenditure level?
· Has the automated substitute calling system been integrated with payroll?
· Have non-transportation distances been increased for students, reducing the number of buses needed and/or the number of driver hours?
Governing boards should ensure that guidelines are developed for collective bargaining, and these guidelines should align with the district’s instructional and fiscal goals over several years. The Superintendent should ensure that the district has a formal process that identifies collective bargaining multiyear costs or the Governing Board, and that those expenditure changes are identified and implemented as necessary prior to any imposition of new collective bargaining obligations. The Governing Board should ensure that the costs and projected district revenues and expenditures are validated over a period of several years so that the fiscal issues faced by the district are not worsened by bargaining settlements. The public should be informed on budget reductions and/or changes that will be required for a bargaining agreement before any contract is accepted by the board. The public also should be notified of the provisions of the final proposed bargaining settlement and provided with an opportunity to comment.
One of the biggest obstacles for a district experiencing financial difficulties is deciding operational and programmatic priorities. One method is to create a list of costs that are related to providing required instructional classes, categorical compliance, student safety, an appropriate level of administrative oversight, fiscal management and reporting, and the functions related to payroll, purchasing, and payables. Once this list is created and the cost to perform all the required elements is calculated, the district can determine how much money is left for optional uses. The optional list might include elective classes, additional supplies, capital improvements not funded with state monies, and other elements that make the schools better, but do not have a dedicated revenue source.
Using this method of determining what to keep and what to eliminate in the budget often causes friction with the community, resulting in further declining enrollment. However, this method can also bring the district’s financial status to the forefront of the public’s consciousness and prompt a collaborative effort to find solutions. This could include the development of a priority list to determine the order in which the optional costs can be added back to the budget as funding becomes available.
06/27/06
