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How do you spend your money? The majority of your district's budget is locked into fixed costs, so how do you decide where to cut? We asked and you answered.

The president says the economy is on sound footing. And, true enough, many states across the union are experiencing budget surpluses, and spent the summer debating increases to their education budgets. So why are consumers still so wary, and why are educators still struggling with recession-style budget allocations?

The answer, of course, is politics.

Education spending has been a hotter-than-usual topic during the last budget season in most states, but in a good way:

* Maryland had a billion dollar surplus, and was discussing providing full funding for its $1.3 billion school reform effort.

* Legislators in Massachusetts found themselves with a $400 million surplus, and proposed channeling an additional $160 million to local school districts.

* Indiana proposed increasing education spending by 2.5 percent over the next two years, nearly double the increases proposed over the last two-year budget cycle.

* Alaska increased state spending per pupil by 7.5 percent and added $190 million for construction projects.

But the picture was considerably less pleasing in a handful of states that are wrapped up in court cases and legislative wrangling that could dramatically change how education is financed. There are at least 20 funding equity cases in courts around the country, according to The Campaign for Fiscal Equity. Michael Rebell, who produced a legal grand slam on behalf of New York City earlier this year, is now leading an effort at Columbia University's Teachers College to address the issue nationwide.

* In New York City, the Campaign for Fiscal Equity won a judgment that ordered the funding authorities produce an additional $5.6 billion a year for NYC, plus a onetime gift of $9.2 million. The state is still appealing.

* Legislators in Kansas eventually approved a $148 million increase in school funding, following a court case.

* The Texas legislature held two special sessions this summer hoping to revamp how education is funded in that state, following a legal ruling that the current taxation system is unconstitutional.

* In Missouri, legislators grappled with a complex plan to transform the way the state pays for education, forced to act after 250 districts filed a lawsuit charging that the current system doesn't provide enough money.

* In Georgia, a suit by 51 rural school systems seeks a $1.5 billion increase in funding by the state

* In Colorado, parents and districts file a funding suit that says the state underfunds education by as much as $1 billion annually.

So given this backdrop, DISTRICT ADMINISTRATION asked our readers the question that is at the heart of education reform and funding debates everywhere: Some 80 percent of your budget, give or take, is automatically allocated to personnel costs every year. How do you spend the rest of your money? And, when there's not enough, how do you decide what to cut?

"Over 99 percent of our budget is locked into fixed costs, not only for salaries and benefits, but also the ongoing costs of utilities, gas, diesel, leases, repair and maintenance and the like," says Michael Haluska, superintendent of the Jefferson-Scranton Community Schools in Jefferson, IA. "Simply put ... less than 1 percent of our operating budget is truly discretionary."

Your answers weren't surprising--nearly everyone in education knows how precious little discretionary spending truly goes on. But the way districts approach budgeting, budget cuts and searching for cost savings, are instructive for every district that's ever wanted to add programming but couldn't find the funds.

"We have enough money to do anything we want in public education--just not everything" says Stephen Kleinsmith, superintendent of the Nixa (Mo.) R-2 School District. "With our federal and state governments accelerating and expanding expectations, as well as issuing mandates without money, it becomes very difficult to exercise local control in the prioritization process."

FIRST, THE SACRED COW

Superintendents from across the country report that personnel costs account from anywhere from 75 percent to 85 percent of their annual budgets, a percentage that seems to creep up every year.

"It's no secret our increases are due to rising employee hospitalization [costs], retirement [increases] and the teacher annual salary schedule," says Carl Hilling, superintendent of the Gaylord (Mich.) Community Schools. "So we have built in annual expense [increases] of at least $1,000,000 before we can do anything academically."

The Catch 22 of budget cuts is that when districts are forced to eliminate discretionary items, the less they have to work with the next year. "The 10 to 12 percent that's actually discretionary goes to transportation, maintenance and operations, supplies and materials, staff development and technology," says Steven Meyers, superintendent at Huffman ISD, a suburban district outside Houston. "But the longer you have to cut from those areas, the more difficult it becomes. That percentage grows smaller, and what you have left is a smaller base from which you can save."

Some superintendents have found ways to sacrifice the sacred cow, with innovative moves that cut into their personnel budgets without violating labor contracts or incurring the ire of the teaching staff. Prairie Valley CSD, in agribusiness-dominated northwest Iowa, found that one way was to ask new superintendent candidates if they were willing to do double duty. David Arnold, who took the job as head of the 750-student district that covers 240 square miles, is both principal of the district's elementary school and superintendent. His job description includes all the management and budget tasks of a superintendent, but also requires pulling lunch and recess duty on a regular basis, just like the other principals in his district. Arnold relishes his dual role, but says his days can be long and full of hat changes.

"You have to do what you've got to do to make it work," Arnold says. "There are days when you've just got to pick up the puke and go on."

In the coming years Prairie Valley will likely move toward multi-age classrooms and distance learning agreements with other districts, as it looks for creative ways to deal with declining enrollment but increasing mandates on class size and course offerings.

Other districts are also experimenting with creative staffing. Another trend: hiring back retired teachers, who are already collecting a pension, at lower salary rates. It's a win-win; the schools get the benefit of the veterans' experience at the cost of a newbie, and the retirees get something to do with their time and an extra income stream.

In other places, teachers and administrators have chipped in to help keep personnel costs down and retain FTEs. "We do what we can to maintain our staffing levels," says Judith A. Palmer, superintendent of the Oxford (Conn.) school district. "Our teacher's union agreed to a four-month step freeze as part of our negotiations; all administrators and the superintendent offered a year-long wage freeze in an attempt to hold on to teaching positions."

When there's no creative way out of a budget crunch, districts are often forced to cut personnel. Nearly every respondent to our survey agreed with Tom Shelton, superintendent of Davies County Public Schools in Owensboro, Ky.: "If we are forced to cut staff, district-level positions would be considered first. The last possible place a cut should be felt is in the classroom. It must be about kids first."

NEXT, THE SEEMINGLY FIXED COSTS

After salaries and benefits, mandatory costs like insurance, transportation, utilities, maintenance and contracted services eat up the next largest chunk of most district budgets, generally accounting for up to 15 percent every year. But, as many superintendents will testify, these are not necessarily fixed costs; there's a grab back full of tricks that districts employ to save money on operational expenses.

At Huffman ISD, a suburban district of 3,000 students outside Houston, Superintendent Steven Meyers has reduced his utility expenses by more than $400k in the past two years by retrofitting schools with energy management systems. The operating equipment allows the district to centrally control all of its heating and cooling devices so "we're not running AC in the middle of the night," Meyers says. Funded through a lease-purchase agreement, the arrangement allows the district to pay for the cost of the system from the savings it generates, and will be entirely paid for in six years.

"Almost every district--whether they have someone come in and put together an energy management plan for them, or do something in-house like put procedures in place for turning off the lights, could save a significant amount of money," Meyers says.

The next most likely place to look for savings is in non-core competencies, things like food service and transportation that can often be handled better and cheaper by outside vendors who specialize in that industry. Many districts that have chosen to outsource their food service have turned those functions into student-loved, revenue generators, after years of subsidizing unappetizing meals.

"We contract out for school transportation and food service and have saved several million dollars over the past nine years," says. Dennis D. Murray, superintendent at Perris (Calif.) Union High School District.

Conversely, in-sourcing some functions can also lead to cost savings, as the Greece (N.Y.) Central Schools realized.

"Our largest cost savings during the past five years has been through the ongoing reduction and elimination of purchased special education services from outside agencies," says Margaret Keller-Cogan, Greece's superintendent. "By creating a much broader continuum within our district we have saved $1.2 to $2.1 million per year.

Other approaches to trimming seemingly fixed costs:

* Eliminate or combine bus routes, using bigger buses, or passenger vans, as needed

* Shift technology, maintenance and transportation purchases or upgrades to bond issues.

BUCK THE CONVENTIONAL. WISDOM

Stephen D. Levitt, author of best seller Freakonomics, asks the question, "What do schoolteachers and sumo wrestlers have in common?" In asking, and answering, this and other freakishly compelling probes, Levitt advocates "turning conventional wisdom on its head." This may be just the latest form of the cliche "think outside the box" but it's true that questioning accepted norms can often lead to savings in surprising ways.

Murray, in Perris, Calif., found that he could save a bundle by re-examining conventional wisdom regarding economies of scale.

"Do we actually save money by warehousing supplies, paying for employee time to inventory, order and deliver, or can we make better use of the resources through site-based ordering that is direct shipped?" Murray asks. "These considerations have actually allowed us to put more dollars in the classrooms, reduce class size, add more student services and raise employee salaries," he says.

STRATEGIC APPROACHES TO BUDGETING

Questioning the conventional wisdom may mean a departure from budget as usual. In Statesville, N.C., Superintendent Terry Holliday has taken a cue from business in implementing a zero-based budgeting process, based on the Baldridge National Quality Program for education. The budget for the Iredell-Statesville schools has been categorized into approximately 50 line items, each owned by a particular staff member or group. When the budget process begins every year, each person responsible for a line item makes a presentation to a budget committee on how the money was spent the prior year, the results achieved, and how they're tied to the district's 28 strategic goals. The owner then makes a pitch for next year's allocation, whether it remains static, decreases or increases.

"We say, 'Assume you have no money and make an argument for what you need to meet your customer requirements,' "says Holliday. "Fringe benefits are the only thing that are a given--retirement contributions, health benefits, social security and other things based on state formulas."

After eight to 10 budget meetings, the committee puts together a list of items or programs that they think aren't producing enough results for the investment; they call this a list of potential 'redirects'. This year's redirect list had $1.6 million in potential cuts.

"What we do through our budgeting process is identify all those redirect items that are not adding value," Holliday says. And if budget cuts are required, "we take that list to all the building principals and say, 'If you were going to cut from this list, which would you cut?' "After the principals give their input, the list is sent to the board of education, which has final say on all budget matters. "We look at every dollar every year to make sure we're spending it in the most effective way possible," Holliday says. "Ours isn't just a carry-over budget."

Similar to the zero-based budget approach is another that's intricately tied to strategic goals.

"What we're moving toward is what we call budgeting the plan," says Peter Flynn, superintendent of a K-12 district with 4,300 students in Freeport, Ill. "Most school districts plan their budget; they figure we're going to get this much money and try to figure out where to spend it. We do the opposite. We develop a strategic plan that assumes certain operational things are going to continue, but also states our goals over the coming years. Then we try to figure out an action plan to achieve our goals."

The entire district has a "plan on a page" that states goals and plans to achieve them. Each principal also develops a plan on a page for his or her school. "Then we budget the plan. We ask the principals to come and tell us what they need to accomplish their goals," Flynn says. This approach to budgeting developed as a result of a partnership with a major employer in the area, Honeywell.

But this approach can't be implemented everywhere, Flynn says. "There are a lot of districts that don't have this luxury because they're operating on a crisis basis. Some of the fast-growth districts in Illinois can't generate enough revenue to build schools for all the kids who are coming in. But in districts where we have some stability, we can begin to look strategically at what our issues are."

The Public Education Dollar

Nearly $420 billion was collected for public elementary and secondary education for school year 2001-02. Nationally, revenues increased an average of 4.7 percent over the previous year's revenues of $401 billion. Expenditures for public education in 2001-02 totaled approximately $368 billion. This represents a $20 billion (5.8 percent) increase over expenditures in the previous school year ($348 billion).
REVENUES BY SOURCE
School year 2001-02
(Total revenues: $420 billion)

State sources 49%
Local sources 43%
Federal sources 8%

Note: Table made from pie chart.

EXPENDITURES BY FUNCTION
School year 2001-02
(Expenditures: $368 billion)

Non-instruction
bookstore, etc.) 4%

Support services
(school maintenance, nurses,
administration, library, etc.) 34%

Instruction
(teacher salaries, textbooks, etc.) 62%

Source. National Center for Education Statistics,
nces.ed.gov, Revenues and Expenditures
for Public Elementary and Secondary Education:
School Year 2001-02

Note: Table made from pie chart.


Facilities and Construction: Top & Bottom 10

Out of approximately $435 billion in expenditures in the 2001-02 school year, about $43 billion went for facilities acquisition and construction, $7 billion for replacement equipment, and another $10 billion for interest payments on debt.
1. CALIFORNIA 6,228.4 billion
2. TEXAS 4,956.4
3. FLORIDA 2,790.2
4. NEW YORK 2,692.5
5. ILLINOIS 2,351.0
6. MICHIGAN 2,088.0
7. PENNSYLVANIA 1,715.5
8. OHIO 1,654.3
9. GEORGIA 1,448.1
10. NEW JERSEY 1,186.1
41. MANE 107.9 million
42. KANSAS 106.7
43. SOUTH DAKOTA 101.3
44. WYOMING 61.8
45. MONTANA 54.4
46. VERMONT 47.7
47. NORTH DAKOTA 34.1
48. KENTUCKY 33.6
49. HAWAII 7.4
50. RHODE ISLAND 3.6


International Comparison of Expenditures per Student

Wealthy nations spend more per student on education compared with nations with lower GDP per capita. They also spend a larger share of their GDP per capita on education than less wealthy nations. In 2000, expenditures per student for the member countries of the Organization for Economic Cooperation and Development averaged $5,162. Expenditures per student varied widely across these countries, ranging from $1,415 (Mexico) to $8,187 (Switzerland) at the combined elementary and secondary level.
 Elementary Expenditures
 and secondary as percentage
 expenditures of GDP per GDP
Country per students capacity per capita

AVERAGE $5,867 3.6 $23,317
AUSTRALIA 5,867 4.3 26,325
AUSTRIA 7,851 3.8 28,070
BELGIUM 5,732 3.6 26,392
CANADA 5,947 3.6 28,130
CZECH REPUBLIC 2,541 3.0 13,806
DENMARK 7,467 4.2 28,755
FINLAND 5,292 3.5 25,357
FRANCE 6,214 4.2 25,090
GERMANY 5,779 3.4 26,139
GREECE 3,696 2.8 5,885
HUNGARY 2,352 2.8 12,204
IRELAND 3,976 2.9 28,285
ITALY 6,506 3.2 25,095
JAPAN 5,971 2.9 26,011
KOREA 3,644 4.0 15,186
MEXICO 1,415 3.8 9,117
NETHERLANDS 5,138 3.1 27,316
NORWAY 7,399 3.7 36,242
POLAND 1,988 3.7 9,547
SLOVAK REPUBLIC 1,732 2.8 11,278
SPAIN 4,636 3.3 20,195
SWEDEN 6,337 4.3 26,161
SWITZERLAND 8,187 4.2 29,617
UNITED KINGDOM 4,844 3.8 24,964
UNITED STATES 7,397 3.9 34,602

Source: NCES, The Condition of Education 2005


State by State Comparison

Expenditures for instruction totaled more than $226 billion for school year 2001-02. More than $162 billion went for salaries for teachers and instructional aides. For the same school year, the 50 states and the District of Columbia spent on average of $7,734 in expenditures for every student.
 Total Salaries

UNITED STATES $226,565,677 $1,624,791,102
ALABAMA 2,721,721 1,906,961
ALASKA 754,660 503,771
ARIZONA 3,123,642 2,237,599
ARKANSAS 1,739,445 1,248,407
CALIFORNIA 28,566,063 20,161,156
COLORADO 2,976,088 2,212,800
CONNECTICUT 3,861,634 2,688,389
DELAWARE 660,857 461,208
DISTRICT OF COLUMBIA 452,905 278,597
FLORIDA 9,161,962 6,185,610
GEORGIA 6,932,058 4,996,620
HAWAII 815,123 606,089
IDAHO 905,333 647,036
ILLINOIS 9,804,430 7,179,384
INDIANA 4,689,264 3,185,211
IOWA 2,124,947 1,567,105
KANSAS 2,017,178 1,542,165
KENTUCKY 2,619,607 1,944,855
LOUISIANA 2,935,369 2,134,350
MAINE 1,208,176 773,644
MARYLAND 4,653,921 3,245,682
MASSACHUSETTS 6,340,143 4,560,139
MICHIGAN 8,598,644 5,835,163
MINNESOTA 4,192,253 3,057,758
MISSISSIPPI 1,591,250 1,160,486
MISSOURI 3,954,002 2,906,364
MONTANA 664,569 466,792
NEBRASKA 1,390,961 1,011,425
NEVADA 1,353,806 943,619
NEW HAMPSHIRE 1,064,917 720,425
NEW JERSEY 9,358,608 6,561,117
NEW MEXICO 1,232,319 900,683
NEW YORK 22,001,202 16,187,038
NORTH CAROLINA 5,412,927 4,166,642
NORTH DAKOTA 436,583 312,980
OHIO 8,574,310 6,040,867
OKLAHOMA 2,239,893 1,649,563
OREGON 2,476,323 1,607,688
PENNSYLVANIA 9,686,763 6,989,250
RHODE ISLAND 989,404 699,724
SOUTH CAROLINA 2,857,016 2,066,479
SOUTH DAKOTA 484,985 344,562
TENNESSEE 3,586,780 2,552,496
TEXAS 17,026,101 13,092,101
UTAH 1,549,329 1,056,617
VERMONT 638,802 418,565
VIRGINIA 5,373,764 4,030,346
WASHINGTON 4,227,572 3,063,890
WEST VIRGINIA 1,368,692 907,246
WISCONSIN 4,705,538 3,143,174
WYOMING 463,839 319,269

 Employee Purchased
 benefits services

UNITED STATES $419,505,362 $66,267,172
ALABAMA 524,272 72,255
ALASKA 141,151 41,823
ARIZONA 566,120 88,633
ARKANSAS 271,819 51,528
CALIFORNIA 5,078,524 990,457
COLORADO 401,087 59,358
CONNECTICUT 710,126 113,563
DELAWARE 147,587 14,485
DISTRICT OF COLUMBIA 57,993 12,056
FLORIDA 1,570,906 852,447
GEORGIA 1,501,223 86,065
HAWAII 116,918 40,859
IDAHO 189,961 21,628
ILLINOIS 1,753,331 237,189
INDIANA 1,300,424 55,188
IOWA 412,866 56,731
KANSAS 301,058 50,498
KENTUCKY 474,432 57,435
LOUISIANA 567,983 50,774
MAINE 278,684 46,334
MARYLAND 959,420 99,238
MASSACHUSETTS 1,287,164 39,331
MICHIGAN 2,071,915 331,543
MINNESOTA 794,630 144,009
MISSISSIPPI 296,876 2,928
MISSOURI 602,773 96,340
MONTANA 24,993 20,057
NEBRASKA 253,035 43,080
NEVADA 269,142 20,012
NEW HAMPSHIRE 198,166 25,912
NEW JERSEY 1,657,406 180,432
NEW MEXICO 226,485 23,864
NEW YORK 4,336,324 511,848
NORTH CAROLINA 845,599 108,137
NORTH DAKOTA 85,483 13,968
OHIO 1,664,159 252,253
OKLAHOMA 372,594 34,381
OREGON 641,755 88,641
PENNSYLVANIA 1,709,369 431,952
RHODE ISLAND 208,256 8,360
SOUTH CAROLINA 561,695 60,996
SOUTH DAKOTA 84,666 21,134
TENNESSEE 539,927 53,367
TEXAS 1,897,474 496,721
UTAH 357,775 29,649
VERMONT 117,522 33,396
VIRGINIA 993,472 107,505
WASHINGTON 718,834 200,853
WEST VIRGINIA 379,804 21,183
WISCONSIN 1,227,904 77,197
WYOMING 99,457 19,121

 Expenditure
 Supplies per student

UNITED STATES $112,215,422 $77,341
ALABAMA 205,477 60,291
ALASKA 42,355 9,563
ARIZONA 150,295 5,964
ARKANSAS 153,262 6,276
CALIFORNIA 1,808,867 7,434
COLORADO 215,204 6,941
CONNECTICUT 109,498 10,577
DELAWARE 31,999 9,284
DISTRICT OF COLUMBIA 14,411 12,102
FLORIDA 449,711 6,213
GEORGIA 338,463 7,380
HAWAII 44,520 7,306
IDAHO 45,820 6,011
ILLINOIS 98,435 7,956
INDIANA 136,730 7,734
IOWA 70,946 7,338
KANSAS 105,728 7,339
KENTUCKY 124,003 6,523
LOUISIANA 161,356 6,567
MAINE 40,424 8,818
MARYLAND 143,662 8,692
MASSACHUSETTS 170,933 10,232
MICHIGAN 31,522 8,653
MINNESOTA 138,750 7,736
MISSISSIPPI 91,121 5,354
MISSOURI 303,734 7,135
MONTANA 49,816 7,062
NEBRASKA 53,946 7,741
NEVADA 57,553 6,079
NEW HAMPSHIRE 35,219 7,935
NEW JERSEY 390,138 1,193
NEW MEXICO 81,084 6,882
NEW YORK 600,033 11,218
NORTH CAROLINA 287,602 6,501
NORTH DAKOTA 21,166 6,709
OHIO 404,638 8,069
OKLAHOMA 176,404 6,229
OREGON 111,515 7,642
PENNSYLVANIA 391,727 8,537
RHODE ISLAND 27,850 9,703
SOUTH CAROLINA 139,043 7,017
SOUTH DAKOTA 27,269 6,424
TENNESSEE 59,525 5,959
TEXAS 1,360,149 6,771
UTAH 96,067 4,900
VERMONT 20,831 9,806
VIRGINIA 234,306 7,496
WASHINGTON 205,022 7,039
WEST VIRGINIA 59,898 7,844
WISCONSIN 178,714 8,634
WYOMING 24,803 8,645

Source: ACES


Local, State & Federal

On average, the percentage of revenue for public schools was distributed as follows: local, 43%; state, 49%; federal, 8%. Nevada received the highest local distribution, while New Mexico received the least. (Because both Hawaii and the District of Columbia hove only one district each, they were not factored.)
NEVADA

Local 62%
State 32%
Federal 6%

NEW MEXICO

Local 14%
State 12%
Federal 14%

Source: NCES

Note: Table made from pie chart.


Rebecca Sausner is a contributing editor.
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Author:Sausner, Rebecca
Publication:District Administration
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Geographic Code:1USA
Date:Oct 1, 2005
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