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Illinois School Board Journal
July/August 2001

Building budgets

By Linda Dawson

If the foundation of a school district is its financial structure, then building the budget is like laying the cornerstone for each and every school year.

The budget needs a mortar of trust to support district programs and allow them to flourish. It demands carefully crafted planning with an eye to detail. But, unlike a project that comes to completion, the budget is more of a constant work in progress: a remodeling project that can be refined and improved with each passing year.

The budget is also the picture window that allows the board, the staff and the community to survey the inner workings of education.

"Show me a school district budget, and I'll show you where a district's priorities lie," said Larry Frank, research computer specialist with the Illinois Education Association.

How does such an important document come into being? How can the budget process work better? And what should the board's role be in that process?

"Budgeting is one of the first things new board members are interested in," said Ronald L. Cope, newly retired superintendent of Galesburg Community Unit School District 205. But it's also one of the most complex.

Cope has presented Illinois Association of School Boards finance workshops for more than 10 years, as well as nurturing his own board members in budget issues. He's also helped the media understand school finance through the Illinois Journalism Fellows Program, a joint effort of the Illinois Press Association and the Institute for Government and Public Affairs on the Urbana campus of the University of Illinois.

When it comes to the state school funding formula, the Property Tax Extension Limitation Law (PTELL), Tax Increment Finance districts and the impact of collective bargaining with teacher and support staff unions, novice board members - and even some veterans - may find the budget building process looks like a blueprint only a certified public accountant could understand and interpret.

But board members aren't usually elected because they're financial wizards. That's why the board employs a superintendent.

The superintendent, often assisted by a business officer (Cope has his in Galesburg's V. James Rich), works with the details of the budget and the district finances on a daily basis. While board members are accountable and should be able to answer stakeholder questions about the budget, Cope said the minutiae of the budget is best understood and left to the administrative staff.

Common reasoning would indicate that the more information a board has to make its decisions on an issue, the better. However, that reasoning seems to be contradicted in this case, according to Mark Light in his new book, The Strategic Board: The Step-By-Step Guide To High-Impact Governance.

"The danger is that the board will not be able to wade through the details to find the truth," writes Light. "The best place to begin a discussion of the right (budget) format is at the absolute minimum, not the maximum."

"As a minimum rule of thumb," Light says, "any budget presented to the board should give enough information to answer at least these three questions: 1. What has been spent so far this fiscal year? 2. What is the budget for the current fiscal year? 3. What is the projection for how the current fiscal year will end?"

In terms of school district information, this might mean that board members should know whether the cafeteria is ahead or behind its budget projections, not whether there has been an increase or decrease in chocolate milk or carrot stick consumption.

This distancing from details also allows the board to operate more from the "balcony perspective," a board role espoused by Richard Broholm and Douglas Johnson in their book, A Balcony Perspective - Clarifying the Trustee Role.

"The wisdom of trustees, however, comes precisely from that which could be construed as weakness: distance from the daily routine. ... Because trustees are more emotionally distant from the day-to-day action of the organization, they often are in a better position to see things from a balcony perspective. They can observe the whole of the dance floor without getting caught up in the dance."

This is what gives the board its unique perspective in budgeting. The superintendent is familiar with the minutiae of the budget. The board can see the larger trends and has the opportunity to be proactive to the benefit of the young people it has been entrusted to assist with their education.

According to Section 17-1 of Illinois' School Code, the board must adopt an annual budget by the end of September each year, which is the end of the first fiscal quarter. But beyond deadlines for publishing the budget notice and filing the adopted budget with the county clerk, the school code does not define the board's role in the process.

While many may view the school district as just another "big business" in town, with a budget formulated under conventional corporate wisdom, Richard L. Wiggall maintains that the school budget is decidedly different. Wiggall is an assistant professor in Illinois State University's College of Education and a former superintendent at School District U-46 in Elgin.

"The budget is a spending plan. It's usually a well-crafted integrated document," said Wiggall. But unlike most businesses, the school district has only "a modicum of control" over their revenue and often very little "wiggle room" with expenses, as well.

On the revenue side, changes in local property wealth influence the amount of taxes that can be levied and collected. PTELL "tax caps" curtail the revenue in many districts enjoying economic growth. And fluctuations in enrollment impact state aid. The only "control" over revenue comes with decisions by the board to ask for additional income through a referendum, which must be approved by voters.

School districts may be seen as turning out a product in terms of educated students, but students aren't widgets, Wiggall said. They each come with their own needs. When districts face difficult times with revenue, it's often not because there are fewer students. And when there are more students, a district can't just "charge more" to educate them.

On the expenditure side, boards find themselves boxed in by rising energy and health care costs, as well as contractual obligations to teachers, staff and transportation.

"Quite frequently, new board members get frustrated if they ran for the board on a fiscal restraint platform," Wiggall said. "There's a perception that school districts have all this money that they don't spend wisely. That's not usually true."

In fact, most school boards find they have 15 percent or less of the entire budget that is flexible in terms of spending, he said. The remaining 85 percent is tied to fixed costs determined by teacher and staff contracts for salaries and benefits.

With such little "discretionary" spending, "board members need to understand where the money is coming from and then study policy for the expenditure side of the budget," Wiggall said. By setting policies such as class size, instructional programs and expected student learning outcomes, the board can direct the use of the district's money without getting mired in the dollars and cents.

"The whole budget process begins with the classroom (teacher) and what the students need," said Pi A. Irwin, superintendent of Glen Ellyn Elementary District 41, a suburban pre-K-8 district serving more than 3,400 students in five buildings.

Once the programs are determined, teachers and principals meet with Irwin and Cynthia Heidorn, assistant superintendent for finance and operations, to see what it will cost to put those programs in place.

"If it doesn't all fit together, we don't just scrap the program," Heidorn said. "We stay aware of programs that need money and balance that until we have a balanced budget."

Although Illinois statutes do not require school boards to maintain balanced budgets, both the Galesburg and Glen Ellyn boards have made that a top priority.

For Glen Ellyn, that has meant tough decisions to move the district from a $1 million deficit seven years ago to a balanced budget. But, Irwin said, it sets a clear direction for how the district handles its finances. "The board truly sets the parameters when they set the strategic initiatives," she said.

What does this mean for board members? For Kathy Schmidt, a 10-year veteran and current president of the District 41 board, it means knowing the reality of the program if cuts are necessary rather than just seeing numbers.

"Instead of sitting at a board meeting discussing how much should be spent on milk contracts or cleaning supplies, we're able to hear presentations on programs," Schmidt said. That's quite a switch from when she came onto the board and 90 percent of the meeting was devoted to the business portion of the agenda.

"We receive a printout of all expenditures, all of the receivables, all the invoices for our review," Schmidt said, "but that's not what boards are supposed to be talking about. We talk about the impact of what's going on for our children."

Randy Dunn, chairman of Educational Administration and Higher Education at Southern Illinois University-Carbondale and also an IASB school finance workshop presenter, likes to see boards such as Glen Ellyn that look more to the big picture.

"The policy role of the board is to provide oversight to see how well we're following the budget during the year," Dunn said. "Try to look at large categories, not line items. Use this as a means to have a conversation about what's happening in the district."

His advice as a former superintendent is echoed in the 1999 Board Member Manual distributed by Aspen Publishers, which admonishes boards not to review monthly bills during the board meeting: "Once you've approved the budget, you should trust the administrator to make purchasing decisions."

While it's not unusual for some boards to dicker more on a $500 piece of carpet than to be concerned with a $50,000 textbook purchase, Dunn said, "that's what boards need to stay away from."

Letting go of budget details requires trust between the board and the superintendent.

Superintendents come out of administrative school with a good practical and theoretical basis for working with budgets, Wiggall said. "Their lifeblood is the financial blood of the district. They follow legislation. They study the finances on a daily basis. They are the experts."

But the board and the superintendent really need to have a trust and confidence relationship, he said, to facilitate good budget building and monitoring. "When something happens that diminishes that confidence or rattles the trust, that's when board members start to micromanage the budget. That makes it harder on everyone."

Unless a specific purchase impacts a bid limit, the superintendent and the staff should make spending decisions, Dunn said. Boards and superintendents need to establish a comfort level and then let go and trust that right choices will be made on behalf of the district.

Dunn's experience in his first superintendency was a prime example. When he took the job, he inherited a board policy that prohibited the superintendent from spending more than $75 without board permission.

"I talked to the board about the policy," he said, "but until it was changed, I lived by the letter of that policy. After two meetings, they saw it wasn't a good policy."

Better policy decisions regarding the budget would set a direction for the district, Wiggall said. "If they want to keep class size smaller in K-3, they need to put a policy in place."

But he also cautioned that policies affecting curriculum and operations must be in place no later than January or February to influence the following budget year.

"Board members need to understand the cyclical nature of budgets as well as their ongoing nature," Wiggall said. Because the budget is such an integrated document, taking money from one program to fund another, or adding new programs, can't be overnight decisions.

"They can't just tell the superintendent to 'find it' when it comes to new money," he said. "Everything has ramifications."

In Galesburg, Cope and Rich have devised a budget timeline to keep the board informed of those budget ramifications throughout the year, rather than just during the quarter when the budget is approved. Cope shares his budget assumptions with board members in early March.

Cope said this year was much simpler when it came to preparing assumptions because all the contracts were settled: teacher and staff salaries, transportation costs, etc. He next looked to his list of who will be retiring and how many teachers need to be hired.

On the revenue side, the assumptions he prepared in February included the district's assessed valuation (a figure that's not actually known until May); the amount of corporate personal property replacement tax revenues; General State Aid expectations; and the expected increase in total revenue. On the expense side, Cope listed salary commitments; new money needed to staff a four-block program; money needed for a summer school program; expected increases of 3 percent in all building and department budgets; and provisions to equip new classrooms, which were part of a scheduled capital improvement.

"If the board buys into the assumptions, when the tentative budget is presented in July, it's their budget," Cope said. Even though he and Rich have supplied the numbers, the board has said, "These are the programs we want."

And because the district includes three board members on its standing budget committee, the board feels it has had input to the budget all the way along, according to this year's committee chairman Carl Strauch, a six-year board veteran.

The committee meets four or five times during the year, Strauch said. Although every board member gets the same information as the budget committee, this "streamlines" the process by allowing the committee to go into more detail about revenue and changes in expenditures. The committee, in turn, helps the superintendent and the budget director highlight and explain the more important aspects for the remaining members of the board.

"The system really works," Rich said of the committee structure. "Other board members have more confidence in the budget. They can point out their initiatives."

Cope believes their system provides the community with the information it needs as well. Local media attend budget committee meetings, ask questions and report progress on the budget well before the budget hearing.

In addition to giving Glen Ellyn District 41 board members information about the numbers in the budget, Heidorn and Irwin make certain their budget items are coded with the strategic initiative they address. Quarterly and annual updates are sent to every Glen Ellyn district resident.

As they formulate their budgets, both the Galesburg and Glen Ellyn districts rely on budget data from prior years to make decisions. That's good budget practice, Dunn said, and superintendents should maintain detailed work files and copious notes on previous budgets. However, the real test is to be able to predict trends or foresee an impending problem.

"When you see that five- or six-year set of figures, they still have to have that caution that they may have a year when that trend doesn't hold," Dunn said. "Good budgeting reflects when that trend doesn't hold."

Case in point is this past year's volatile energy expenses.

Last summer, Cope said, his administrative team spent "a couple of hours" with the regional director of Illinois Power to discuss utility costs. The district budgeted for a 35-percent increase in utility costs and discussed the possibility of higher energy costs at a public board meeting.

"It still wasn't enough," Cope said. Rates were more than anticipated and the winter was colder than normal. "The audit will show us as under-budgeted."

But that's not all bad. Variances happen. Dunn said he would rather see an audit with under- or over-budgeted items than to amend the budget at the end of the year to align everything.

"This may be good for the purposes of a nice audit report," Dunn said, "but it takes away from the budget as a planning document. If you're going to change it in May, it takes away from the role of the budget. Making a budget is much more than making sure everything matches at the end."

Building the budget provides the foundation for all the activities within a district as well as ensuring opportunities for all children to learn.

"We don't represent a school," Glen Ellyn board president Schmidt said. In addition to representing the community's aspirations, "we represent the children who can't vote. We try to balance every interest with children in mind."

She believes that the budget's impact was best summarized by her fellow board member William DiFabio, who offered this at a District 41 board meeting: "Children only have one opportunity to come and learn at any grade level. We're not in the business to make money or save money. We spend the money that we have to benefit our children."

Board Member Manual, Aspen Publishers, 1999*

Brohold, Richard and Johnson, Douglas. A Balcony Perspective - Clarifying the Trustee Role, The Robert K. Greenleaf Center, 1993*

Light, Mark. The Strategic Board: The Step-By-Step Guide To High-Impact Governance, John Wiley & Sons, 2001*

State, Local and Federal Financing for Illinois Public Schools, Illinois State Board of Education, 1999-2000*

*Available from the Illinois Association of School Boards Resource Center.