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Illinois School Board Journal
July/August 2002

How are your finances?

by Hank Boer

Hank Boer retired as superintendent of Streator Township High School District 40 and has served as an interim superintendent for a number of school districts in Illinois. He is now a full-time professor at Aurora University.

Whether you're a new school board member or a veteran, you probably have multiple questions about the past, present and future financial status of your school district.

A good approach to a local school district financial study is to begin with a simple question: "What do our past finances look like?" Your answer is in past district financial audits on the page that clearly expresses the end-of-year fund balances effective June 30th of any school year. Or ask the superintendent or business official to simply list June 30th ending fund balances for the past several school years. This list will indicate past financial trends that may affect present operations of the school district, or they may point out trends that could impact your future financial situations.

Next take a closer look at your present financial status. Every school district must complete and approve the required Illinois State Board of Education School District Budget Form 50-36 that expresses the current financial health of the district. Look at Part III, Line 1, to find the unaudited July 1st beginning-of-year "Estimated Fund Balance" for each school district fund. On Part III, Line 27, you will find the June 30 projected end-of-year "Estimated Fund Balance" for each school district fund. These fund balances should give you a good idea of the district's current financial status.

Now comes the more difficult question: Where are we headed in the future? Revenue for public school districts is generated from three primary sources: local, state and federal. You can project local tax revenues, but you must also remember to consider the effects of "tax caps," TIF districts, property reassessments, student enrollment trend increases, student enrollment trend decreases, new construction and referenda campaigns.

In order to project the future state of Illinois revenues, you will need to consider the state of the economy. The same is true when considering federal funding, but you need to consider other outside influences, like the cost of fighting a war against terrorists.

After you consider these factors, how optimistic or pessimistic are you about the percentage of increases from local, state and federal revenue sources? How will the percent of increase from these three revenue sources compare to future expenditures?

Every school district in Illinois must account for all revenues and expenditures in up to nine different financial funds. Because school districts are service organizations, existing to serve the educational needs of a community, employee salaries and benefits account for the vast majority of expenses. It follows, then, that the Educational Fund generally has the greatest expenses because those salaries and benefits, which account for approximately 80 to 85 percent of all expenditures, are paid from this fund.

To better determine the future financial health of your school district, stop and reflect on some very simple yet powerful financial observations. Start with an overview of revenue for the Educational Fund, because it accounts for the majority of all money received by a school district and spent by a school district.

The three primary sources of tax dollars are local, state and federal. A major responsibility of the district's central office is to prepare all appropriate financial claim forms for each of the three sources of tax dollars. Office personnel should have a good estimate of the financial projections for each of the sources.

Earlier in this article, you were asked to ponder what percentage of increase you generally believed would be realized from local, state and federal taxes. You also were asked to think about the significant factors that will affect the percentage of increase for each of these three sources.

Let's presume you estimated that local revenue might increase 3 or 4 percent, state revenue may increase 2 or 3 percent, and federal revenue may increase 1 or 2 percent. This gives you a general prediction of future revenue for the Educational Fund.

Now, look at future expenditures for the Educational Fund. Remembering that approximately 80 percent to 85 percent of the expenditures for this fund are employee salaries and benefits, ask these questions:

Answering these questions should give you an idea if your district is obligated to fund a multi-year contract agreement that it cannot afford based upon budget projections.

The remaining 15 percent of expenditures for the Educational Fund that are not employee-related are generally not discretionary expenditures and often increase at a rate greater than the Consumer Price Index. Examples of these non-employee costs are purchased services, supplies/materials, capital outlay, dues and student tuition charges.

The definition of deficit spending is a situation where expenditures exceed revenue sources. The Educational Fund checkbook is fundamentally very similar to your personal checkbook. We can compare what happens with your personal checkbook to the Educational Fund checkbook when both are experiencing deficit spending.

You have several basic options when you attempt to compensate for deficit spending. Maybe you have a large positive checkbook balance that can ease the problem temporarily. For the long term, however, you will need to generate increased percentages of revenue or re-duce your percentages of expenditures. Or, you could contact a financial institution and borrow money on a short-term or long-term arrangement.

Do you have a savings account with a huge balance? School districts also have a savings account known as the Working Cash Fund. The School Code of Illinois states this fund can serve as a source of internal borrowing. No direct expenditures may be made from this fund, but the balance of this fund may be permanently transferred to the Educational Fund at the close of a school year. Recent court cases also indicate that all or a portion of the Working Cash Fund may be permanently transferred to other school district funds than the Educational Fund.

This should help you visualize the comparison of deficit financing options from a personal checking account scenario to a school district checking account scenario.

Using this information, you should be able to determine whether your district appears to have adequate financial resources available to pay for the future educational needs of your students. Or, you may have determined that significant financial problems appear to be developing for your school district.

If significant financial problems appear to be developing, are your board of education, administration, employees and citizens of your school district prepared to improve this financial situation? Are district stakeholders prepared to reduce expenditures, i.e. budget cuts? Are your stakeholders prepared to increase local revenue though a referendum? Are your stakeholders prepared to create debt through short-term or long-term loans?

Maybe your projected financial problems are temporary and there is a clear solution in the immediate future. Past and present financial practices have an effect on future financial situations, so look at these practices carefully.

Does your district use efficient financial management? Is your district effectively using school district facilities and staff? For example, if you have a building that is over-crowded, have you studied the advantages and disadvantages of the 45-15 day year-around school?

Have you used the maximum allowable local property tax rates and maximized state as well as federal financial grant opportunities? Has the district sought out and applied for all appropriate entitlement and competitive grants? Did the board of education settle past and future employee negotiated agreements "at all costs" to prevent employee work stoppages?

Each school district has unique variables that can greatly affect financial situations. By conducting a thorough financial self-analysis you can examine the local variables that affect your school district. Also remember that the sociological power of collaboration, collegial relationships, trust, listening, caring and basic teamwork are powerful factors in the process of resolving difficult school district financial situations.

After having answered these questions, you should be better prepared to ask some basic school district finance questions. You should feel more comfortable about analyzing school district past, present and future finances. And you should feel better equipped to participate in financial discussions with peers, administrators, employees, parents, business people and other district stake-holders.

You also should feel more confident in asking local school district officials questions that will accurately answer your financial questions.

To continue to learn about school finances, attend appropriate financial workshops and related sessions. Each professional educational statewide organization can assist in directing individual school district stakeholders to enroll in meaningful learning financial workshops.

Just remember, the best way to become better informed of past, present and future financial conditions of your school district is to ask questions.


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