Robert J. Madonia is an assistant professor at St. Xavier University in Chicago. He served 34 years in public education as a building administrator and school superintendent
Some school districts make things happen, some school districts watch things happen and some school districts say, "What just happened?"
Districts across Illinois take different approaches to fiscal management. But there are two things communities will not tolerate:
Every school district needs to have a financial plan...not just a budget...and to update that plan annually, or more often, as conditions change. Research shows a connection exists between good fiscal management, opportunities for children and student outcomes.
Read through the descriptions and see if your district makes things happen, watches things happen or is clueless to what just happened.
Districts that make things happen are proactive. They have a long-range strategic plan that sets the mission, vision and course of action to be fiscally solvent now and in years to come. They stay on top of their game and do not jeopardize their future or their children's educational program.
To use a medical analogy, these districts continually take care of themselves and practice preventative medicine. Their communications with the community are regular and ongoing, not just when asking for money. They outline the long-range plan and illustrate how the district is a good fiscal steward of the taxpayer's money. This builds trust and confidence, solidifying a strong partnership between district and community.
Partnerships like these are essential to get through good times and bad. Engaging the community and collecting input through an advisory board shows respect for opinions and gives the stakeholders ownership in fiscal decisions.
Districts that take care of themselves and make things happen typically are models for best practice in fiscal management. However, these districts are not always the ones with wealthy tax bases. Rather, they are the ones that implement good fiscal strategies, a plan, communicate well and build partnerships. They receive the top state financial rating; they are leaders and set good examples for others to follow.
When experiencing a fiscal challenge, districts that watch things happen look around to see what others are doing and then, out of fear, make a change. This change usually is a temporary fix until the next problem occurs and then again they attend workshops, look at others and set a new course.
To continue the medical analogy, they may jump from one diet plan to another or contact their doctor because someone they know just had a heart attack or caught the flu and they want to see if they're okay. After the visit, they may or may not make permanent changes to their routine based on the doctor's diagnosis.
They may or may not have a long-range fiscal plan. If they have a plan, they do not fully use it or update the document on a regular basis. These districts are playing defense. In essence they react and change to problems as they arise.
This does not build trust with the community but rather apprehension. Decisions are quick fixes with little or no input from the district stakeholders. One minute they are on the state's financial watch list and then they are off the list. Conditions change all the time. The community is confused and starts to question the efficiency of the operation. Referendum requests are a challenge because the community gets mixed messages and questions the district's stability.
Districts that ask "what just happened" are those that do not react until they are in fiscal danger and a major problem is before them. As problems occur, they just ignore them until they reach a crisis state. It's like being overweight, out of shape and smoking two packs of cigarettes a day then waking up in the hospital after a heart attack and wondering how this could have happened.
These districts do not have a long-range financial plan. They do not communicate or involve the community in decision making. They carry huge debt and mismanage funds.
These districts are continually on the state's financial watch list and some are even in danger of being taken over by the state. They do not take ownership for their decisions and usually blame others or special conditions...like lack of local wealth, not enough state support or lawmakers who make bad decisions...for their fiscal state.
A school district does not need to be wealthy to be financially stable. Some land-wealthy districts do not manage money well or have a financial plan, and they are always broke. The more money they get, the more they spend and they are always without fiscal resources. On the other hand, some districts with little local wealth have a plan, manage it well and put money aside for the future yielding good fiscal health.
Consider the following as a prescription for preventative care when your district looks at its long- and short-term fiscal health:
Develop a long- and short-term plan
A five-year strategic long-range plan is crucial to the mission, vision and goals of the organization. Review and refine this document annually because it should be the heart and soul of the organization and drive everything. Make sure the district has engagement, input and ownership of the plan by all stakeholders in the school district.
Consider a demographic study to analyze the growth, decline or potential stabilization of enrollment in the years to come. Next, design a financial plan that complements the goals of the long-range strategic plan. This plan should chart your specific course on a year-to-year basis and be updated annually. The plan should have databases identifying all of the district's information (equalized assessed valuation, student enrollment, fund balances, class size, district building space, etc.) It is a working tool that will be of great benefit to the user.
Consider an annual board work session to brainstorm financial scenarios for the next year. With all the data in the plan, technology will allow analysis with one click to determine the impact of any scenario relative to fund balances, student enrollment and projected fiscal health at the end of the year.
Communicate regularly with stakeholders on fiscal issues
This is extremely important. Annual financial reports to the community are essential to keep district stakeholders in the loop. Secure their input through advisory boards at all levels. Asking for their input and having a dialogue with them establishes a relationship, builds trust and engages them in ownership of your fiscal plan.
This will pay big dividends at the time when the district has a need to go for a referendum. Communicating with the stakeholders only at the time you are asking for money is not a prudent thing to do.
Understand tax cap and new growth implications
Be cognizant of the implications of tax caps and new growth as they apply to fiscal planning. As it currently stands, the Property Tax Extension Limitation Law (tax caps) only permits school districts to collect 5 percent or the Consumer Price Index (whichever is lower) more than was collected in taxes the year before.
In addition, realize that new growth in a school district can only be captured one time when it first comes on the tax rolls. The extra revenue will be received over the tax capped dollar amount that you will receive. If you miss the capture of the new growth, the district will never get it again on your base for levying taxes.
This has implications for immediate and long-term fiscal loss. School districts need to maximize and preserve their base for levying taxes. Be on top of the growth in the district and have administrators continually monitor property closings when they first appear on the tax rolls.
When growth occurs, increase the percentage of the levy over the tax-capped percentage in order to get the benefit of the new growth. Sometimes this is referred to as "balloon levying." Estimate the percentage increase for the levy as accurately as possible. This means increasing the levy by 5 percent or the CPI (whichever is lower) and then add on top of that the projected percentage needed to capture the new growth.
It is always prudent to estimate high because the county clerk will lower the district to the correct percentage if it is too high. However, the office will not increase the levy if it is too low...the district just loses the money.
Invest money well
Managing and investing existing resources can be one key step to planning for good fiscal health. Consider pooling your money in investment pools to get a higher interest rate of return. Analyze and assess how much money you need to be liquid for payroll, benefits, bills etc. and then invest dollars over and above that in opportunities that might tie up this money but yield a better return. Consider investing monies that you need to be annually liquid to be liquid only when you need these dollars. The fiscally astute can manage at this level and reap the benefits.
Inventory materials before setting a budget and ordering
This may sound like a basic step, but amazingly some districts do not do this. Board members should ask that everything the district has — from textbooks to supplies to maintenance materials — gets inventoried. Establish what you have annually so that you will only order what is absolutely necessary. Keep on top of inventory during the year and the level of usage of that inventory.
Shop for electricity and gas
Utilities are very expensive, so have your administrators shop throughout the year and purchase gas and electricity when prices are low. Store it for the upcoming season so the district is not subject to the volatility of oil prices and the season (gas is higher in the winter during the heating season and electricity is high during the summer air conditioning season). This takes aggressive steps to maximize your efforts at the right time and reap the benefits of a good market.
Bid insurance frequently
One of the biggest costs to a school district is salary and benefits. This can be 75 percent to 80 percent of the budget. With that said and understanding the volatility of the insurance market, districts need to bid out insurance on a regular basis.
Annual average increases in the insurance market are double digit. You will be surprised how much you save when bidding it out and negotiating a premium with the vendor. Also, do not forget your broker. Negotiate with your broker to get a better deal or scope the market for a new broker. This is also true for other insurances carried by the district.
The only danger here is complacency. If you are not on top of this, insurance companies will sneak up the premium and you will be hit with spending unnecessary dollars.
Don't feel bound by long-term agreements
Do not be complacent. Long-term relationships with attorneys, architects, construction managers, auditors, etc. that are not checked are dangerous. This is especially true when you are satisfied with these services. Satisfaction with the services causes you to not take the extra time and effort to check the market and prices charged for services rendered. This will cause you to potentially misspend money. Just having your current service agency know that you are checking the market will cause them to sharpen their pencil.
Use P-cards for monetary rebates
Spending is extensive. Why not use P-cards? This is a credit card that permits you to purchase items from your budget and get monetary rebates at the end of the year. Some districts are reaping the benefits of anywhere from $10,000 to $20,000 from this endeavor. It is an excellent supplemental revenue source that should not be missed.
Connect with legislators
Continually communicate with legislators about fiscal issues that impact schools. Develop a relationship with the district's state senator and representative. The same applies to national representatives in Washington, D.C.
This can be done effectively with the establishment of a legislative council. Partner with schools in the same legislative jurisdiction and establish a council that meets quarterly to bring together legislators from all of these entities and dialogue on issues important to schools.
You might choose as your first area of discussion legislation for a floor on tax caps. Yes, there is a ceiling of 5 percent or the CPI (whichever is lower), but there is no floor. This is dangerous.
In 2009, for example, districts in tax-capped counties will only be able to levy the CPI of .1 percent more money than the year before. This is unfortunate and will be a fiscal challenge for school districts. If there is a ceiling of 5 percent, then, for example, there should be a floor of 2 percent.
Develop a tax coalition
Here is one of the areas where districts lose a great deal of money. Annually, school districts get assessment reduction requests from corporate and commercial properties. Some of these may be legitimate, but many are not. If a district does not get on top of this, they will lose money already collected in the form of a rebate. In addition, for every assessment reduction request that is granted the burden of taxation shifts to the homeowner.
Districts are losing dollars given to them by local taxpayers and in addition to that causing local homeowners to have their taxes increased. What a fiscal and public relations nightmare!
Taxing coalitions bring all the taxing bodies together to challenge corporate and commercial assessment reduction challenges and they share the costs of legal fees and independent appraisals. This is another fiscal savings. Remember, taxing body coalitions are about fair taxation; they are not anti-business. You will be amazed how many businesses challenge their taxes annually just to get a rebate check back while the schools and other taxing bodies are not checking.
Coalition representatives attend all first level appeals from the county level at the Board of Review all the way up to the Property Tax Appeal Board if a case goes that far. You have to be involved in this initiative. The savings are huge.
Use a working cash fund
The working cash fund is the district's bank account. Use it wisely and efficiently. You can and should loan money to any of the other funds as long as you pay it back within 12 months. This will permit you to get extra resources into the other funds. For example, if taxes are received late a district can make a loan transfer and meet payroll.
This option is much more efficient than going out to get a short term loan at high interest rates. Like a personal savings account, this is your "fall back" of fiscal security. Keep it healthy.
The sale of working cash bonds can help you keep this fund solid. You can abate or abolish this fund and transfer it permanently if necessary. You can also transfer current interest or grandfathered interest from this and other funds as you need to replenish dollars in individual funds.
A strategy for growing districts
An excellent strategy to consider in a growing school district is to promise the community a consistent tax rate. This means that their school district taxes will remain stable and will not increase or decrease. As the district grows so will the equalized assessed valuation. This will cause the tax rate to drop since the district's levy is spread out over more taxpayers.
Take the difference between what you promised and the new reduced tax rate and refinance your debt raising the tax rate back to the promised amount. This will retire your debt early and save a lot of money in interest. What it will also permit is dovetailing the retirement of the debt to the next time you need a new school.
The goal here is to have the debt retired early (at the time of the new school) and then you could run a referendum at no new cost to the taxpayers. The district would then sell bonds to build the new school and raise the tax rate back up to the promised level.
Consider an education foundation
This is a wonderful opportunity to establish a foundation that can accept donations and generate funds for the district over and above what the budget can provide. This district affiliated group is run by its own governing board.
Develop business partnerships
Consider developing community partnerships with businesses in the school district. Quite a few businesses have a requirement from their national headquarters to give back to the community that they serve in the form of grants. Your relationship with these businesses could yield dollars to supplement monies in your budget.
Once you are there
Once fiscal health is yours...that you're making things happen instead of watching things happen or saying "what just happened?"...consider being evaluated to get a good bond rating. A good rating from an organization such as Standard and Poors can solidify fiscal health.
For example an AA+ or AAA rating will allow you to save money when selling bonds since certain insurance policies necessary for the sale will not be required. This is yet another fiscal savings and a reward for good fiscal management and health.
In light of the challenging economy, shrinking state resources and taxpayer concerns at the local level, now is the time to think outside of the box and consider new strategies to maintain fiscal health. All strategies will take a great deal of work, perseverance and commitment in order to reach the desired goal. But remember, the children are the ones at stake here.
Nothing is greater than maintaining the integrity of the educational program. Be proactive not reactive. Be a leader among school districts. It all starts and ends with good fiscal management.