PASBO Conference Pittsburgh, PA March 2011

1. PASBO ConferencePittsburgh, PAMarch 2011 Budgeting Yesterday, Today, and Hopefully Tomorrow William Hartman, Penn State University Christopher Berdnik, Centennial School District Tim Shrom, Solanco School District

2. Budget Instructions / Forms / Timelines / Bid Recaps / Budget Summaries / Account Codes • This link goes directly into a folder with all of the files: • http://moodle.solanco.org/mod/resource/view.php?id=39673 • This link takes you into the course where the files are: • http://moodle.solanco.org/course/view.php?id=846

3. Budgeting & School Finance the next three years Budgeting for the present..... ....and then to sustain...

4. What if.......this is not a storm... What if....this is ‘Climate’ change... There is no ’TRY’......either do...or do not do... Master Yoda

5. Beliefs • Districts must articulate a clearer connection between spending and student performance. • Data must inform resource allocation decisions for improving student performance. • Data must inform budgetary allocations AND reductions. • Data collection systems must be effective to trend and track prior expenditure decisions...and corresponding outcomes.

6. Budgeting For Tomorrow??It will become... • More Transparent?.....on-line....Real time?? • More data driven...informed decision making. • Asking Why?... Why this and not that? • Asking What Results? Outcome based • More aligned with pre-stated, well vetted objectives • More flexible and quicker to reallocate existing resources to improve processes and outcomes • ......Connected to data.....

7. Purpose of School District Budgeting Balance the educational needs and requirements of students with fiscal capacity of the district Develop a budget that: • Serves students appropriately • Meets state and federal mandates • At an affordable price PASBO Annual Conference - March 2011

8. It’s A New Fiscal Reality for Districts • Rules have changed • Insufficient recognition of new situation • Districts, board members, unions, teachers, parents • Less Revenue growth, even significant reductions • Need to reduce or curb Expenditures • Serious structural imbalance between revenues and expenditures • No letup in Student Achievement mandates • Difficult adjustments will be required • Budgets will have to reflect new fiscal conditions PASBO Annual Conference - March 2011

9. Balanced Budgets More Difficult • Expenditures increasing faster than revenues • Expenditure increases can’t be sustained at higher levels (Salaries & benefits are biggest part) • Many out of district control • PSERS, Health Care • Imbalance between revenue and expenditure trends • Act 1 limits local tax increases, now and in future • State aid reductions • Unsustainable and increasing deficits PASBO Annual Conference - March 2011

10. New View of School Budgeting • No Longer a One Year Process • Must Take a Longer View of Fiscal Decisions • Actions Taken This Year Will Impact District Budgets for Years to Come PASBO Annual Conference - March 2011

11. Basic Budget Math PASBO Annual Conference - March 2011

12. Reset the Budget • To New Lower Expenditure Level • Bring Expenditures in Line with Available Revenues • Changes Must Be Substantial to Have Impact: • Salaries, Benefits, Transportation, Energy, Debt Service EDLDR 597G New Fiscal Reality- Session 2

13. Why Taxes Aren’t the Whole Answer Anymore • “No New Taxes” Mantra • Local, State, Federal • Act 1 limits on district tax increases • Disconnect between • What people want/expect in public services • What state and federal mandates require • What the public is willing to pay in taxes • Tradeoffs between • Minimizing tax increases • Providing necessary educational programs PASBO Annual Conference - March 2011

14. Types of Budgeting Approaches • Line-Item • Function/Object • Required by PDE • Budget structure matches organizational structure • Site-Based • Decision making authority for site • Resources under control of site • Zero-Based • Alternative to annual incremental changes • To what extent PASBO Annual Conference - March 2011

15. PASBO Annual Conference - March 2011

16. Budgeting Challenges for Tomorrow • Long term planning disrupted with seismic shifts in state funding and new revenue and expenditure rules • Must be able to react quickly to large fiscal shifts • Major changes in revenues force changes in expenditure plans • When will PA start to come out of the economic recession? • How fast will it recover? • Will it rebound to prior levels? • Will education funding go back to prior levels? • Are cuts, new practices permanent? • Are we establishing a new normal? PASBO Annual Conference - March 2011

17. What Kinds of Expenditures Can/Should Be Connected?I • Expenditures in professional development • Expenditures for materials • Expenditures in technology • Expenditures in programs • Expenditures for positions

18. What Kinds of Expenditures Can / Should Be Connected?II Reductions / Cuts / Reallocations: • in professional development • for materials and equipment • Infrastructure and technology • in programs and departments • And Most importantly.....for positions

20. 2010-2011 Students’ Required Proficiency in 11th Grade Year

22. http://en.wikipedia.org/wiki/Zero-based_budgeting (March 2011) Site Based Incremental Based Zero Based Budgeting Cite:

23. Incremental Budgeting Disadvantages • Assumes activities and methods of working will continue in the same way. • Little incentive for developing new ideas. • Little to no incentive to reduce costs. • Encourages spending the budget so the budget is maintained next year. • The budget may become out-of-date and no longer relate to the level of activity or type of work being carried out. • The priority for resources may have changed since the budgets were originally set. • Budgetary slack often built into the budget, which is never reviewed. • Overestimated requirements to obtain a budget which is easier to work within and manipulate

24. Incremental Budgeting Advantages • The budget is stable and change is gradual. • Managers can operate their departments on a consistent basis. • The system is relatively simple to operate and easy to understand. • Conflicts are avoided when departments appear to be treated similarly. • Co-ordination between budgets is easier to achieve.

25. Site-Based Budgeting Christopher M. Berdnik, PRSBA Business Administrator/Chief Financial Officer Centennial School District

26. Tools you can use • Budgeting strategies • Focus on site-based budgeting • Monitoring your budget • Year to date budgeting • Planning for the future • Multiple year “budgeting”

27. School budgeting strategies • Line-item - historical focus • Performance – standard unit costs • Program and planning – fundamental objectives • Zero-based – annual justification • Site-based – decentralization • Outcome-focused – mission driven

28. Philosophy of site-based budgeting • Emphasizes the decentralization of budgetary decision-making • Greater control and reporting of school-level data • Grants increased authority to schools • Places principals front and center • Responsible for both preparation and maintenance of their budget

29. Elements of site-based budgeting • Resources are allocated to the site, typically on a per pupil basis • Grade level • Demographics • School size • Principal has the authority to allocate, including staffing decisions • Actual or average salaries and benefits

30. Advantages of site-based budgeting • Grants power to those who best understand the needs of your customers • Principals love it • Increases local accountability • Aligns well with principal pay for performance • Facilitates staff and community participation at the school level

31. Fundamental SBB questions • Are your enrollment projections accurate enough? • Which costs do you allocate? • How will you manage conflict between central managers and school principals? • Can you maintain standards of quality and consistency across the organization?

32. Micro lessons learned • Training, training, training • Site-based budgeting will advance your preparation calendar by at least one month • Strong guidelines will minimize • Student:teacher ratios • Vice-principals, support staff, student services • Gaming the system

33. Macro lessons learned • No one budget system fits all • The centralized vs. decentralized paradigm swings over time • Site-based systems require add significant complexity • Personnel costs • Differences between site-based budgeting and site-based management

34. Want to learn more about site-based budgeting? • Sample site-based budgeting manual: http://www.pps.k12.pa.us/14311019103352810/lib/14311019103352810/2009-10_Site-Based_Budget_Manual.pdf

35. Premise of year to date budgeting • Typical school district monthly financial statements report: • Adopted and/or adjusted budget • Actual revenues and expenditures • Comparison to prior periods • Percent collected/used or remaining • Does not fundamentally answer the question “are we where we should be?”

36. Philosophy of year to date budgeting • School district revenues and expenditures are fundamentally cyclical • Tax calendars • Unipays • Pay dates • Debt schedules

37. Getting started • Collect five years of annual revenues and expenditures: • Revenues by revenue source (pick the 25 or so most important to you and bundle the rest) • Expenditures by object code (pick the 25 or so most important to you and bundle the rest) OR by major object and major function. • For each year of history, add year to date totals for each month (separate tabs).

38. Getting started, part 2 • Add this year’s adjusted budget. As the year progresses, this may need updated. • Calculate an average run rate and a year to date budget for each revenue and expenditure bucket: • Percentage collected or spent at a point in time; • Take a three to five year average; • Multiply the average run rate for a given period (e.g. February 28, 20XX) against your adjusted budget. • Adjust for known factors, such as your debt service schedule.

39. Getting started, part 3 • Compare your year to date budget versus your year to date actual. • This will tell you, your Board and your constituents not just what the year to date is against the adopted or adjusted budget, but what it is versus what it should be at a point in time.

40. Suggested analytical reports • All in addition to, not a replacement for, your traditional reports: • Year to date budget to actual detail; • Year to date budget to actual summary; • Key financial indicators/dashboard; • Financial statement highlights.

41. Sample Board report – YTD detail

42. Sample Board report – YTD summary

43. Sample report - Dashboard

44. Sample report - Highlights

45. Multiple year “budgeting” • Year to date budget to actual layout becomes the basis for high level analysis of future years. • Run rates can be used to project year end totals. • Requires a table of assumptions to roll forward. • Consider reporting out to your Board and public monthly.

46. Sample report – Rolling forecast

47. Questions? • My contact information: • berdch@centennialsd.org

48. Zero Based Budgeting Defined (a) • Zero-based budgeting is a technique of planning and decision-making which reverses the working process of traditional budgeting • A budgeting technique that generally attempts to analyze budget requests without an implicit commitment to sustaining past levels of funding

49. Zero Based Budgeting Defined (b) • The method of beginning each new budgeting process from a zero base. Every assumption and proposed expenditure receives a critical review. • Zero based budgeting also refers to the identification of a task or tasks and then funding resources to complete the task independent of current resourcing

50. Zero Based Advantages (1) • Efficient allocation of resources, as allocation is based on Vetted needs and Measured benefits • Drives managers to find cost effective ways to improve operations. • Detects inflated budgets / prevents inflated budgets. • Useful for service departments where the output is difficult to identify • Increases staff motivation by providing greater initiative and responsibility in decision-making.