School Finance Training for School Board Members

So much to say about this training session from the Alabama Association of School Boards (AASB).  Held at the Wynfrey in Birmingham on March 15 and 16 , speakers included Dr. Craig Pouncey, Chief of Staff, Policy and Budget (a.k.a., chief finance guy) and Liz Killpack on Friday and a panel discussion on Saturday to share “how to get the most bang for your bucks”.  There were breakout sessions as well, but as a member of the media, I attended only the General Sessions.

First up on Friday was Dr. Bice, who spoke about Plan 2020.  But I wasn’t there, so I can’t tell you about it.  Sorry.

Legislative Update from AASB’s Sally Howell

When I joined the group, Sally Howell, the Executive Director of the AASB, took the stage and shared with the somewhere-around-350-maybe-400 school board members in attendance how the Alabama Accountability Act (AAA) came to pass.  It was a thrilling tale, one which I won’t share in detail, but I will hit the highlights of what Howell shared:

  • The passage of the AAA arose from the “perfect storm” of opportunity and issues.
  • The “Flex Bill” (what we knew as the Local Control School Flexibility Act) was in trouble in the Senate, and earlier in the week that it was passed, it was known to be in trouble.
  • The House and Senate versions of the Flex Bill differed slightly, with the House version more favorable to the school community and the Senate version more favorable to the Alabama Education Association (AEA).
  • No one outside of the few who hatched the plan earlier in the week knew about the tuition tax credit part of the bill that was added in Conference Committee.
  • As to the question of whether it is legal, Howell stated that yes, the Conference Committee can make the change.
  • If the bill had gone through the normal vetting process, it probably wouldn’t have passed.

Howell added that the AASB is not optimistic at all that the law will be overturned.  She acknowledged that trust among the legislators and the stakeholders that were left out of the loop (including the AASB, the School Superintendents of Alabama, Council for Leaders in Alabama Schools, among others) has been broken, but encouraged attendees (all school board members themselves) to work to repair the relationship because it is “critical” that board members have ongoing relationships with political leaders.

Howell reiterated that rebuilding and maintaining those relationships with political leaders is more important than ever before for a couple of reasons, including to ensure that this never happens again.

She encouraged board members to not lose sight of the Flexibility portion of the Act.  “We need to use flexibility to make our schools so good that no one will ever want to take their children out of the public schools,” Howell said.

Howell stated that the AASB is crafting a resolution to inform Governor Bentley about their position and remind all that the AASB should never be left out of the legislative process.  Howell was genuinely irritated that school board members were not at the table of that discussion.

I can relate:  parents and families haven’t been at the table in, I don’t know, a hundred years?

10 Telltale Signs You Could Be Headed for Financial Trouble

Dr. Pouncey spoke next.  Here is a link to his presentation.  There are a couple of slides that are extremely interesting.  Feel free to page through, but I am only hitting the high points.

Pouncey spoke on the 10 Telltale Signs You Could Be Headed for Financial Trouble as a school system.  He began by stressing the need for a Chief School Financial Officer (CSFO) and the school board to communicate regularly about the financial condition of the school system.  The superintendent should be in that loop as well.  He stated that the CSFO, the superintendent and all school board members should have a fluid and open line of communication with each other.  [PSST:  Make sure you don’t violate those pesky Open Meetings laws, though, ok?]

Pouncey said that for 80% of Alabama’s school systems, the following holds true:  “If they don’t send it, we can’t spend it,” with “they” meaning the state and federal governments.  He said that somewhere around 20% of school systems are fortunate enough to have a supply of local money over which they have some discretion in spending.  But most school systems in Alabama have almost all of their money earmarked before it ever comes to them.

Being “earmarked” means that the state and federal governments have stated exactly how the money must be spent, and that a school system cannot waiver from those instructions.

Pouncey stressed the need for board members to have access to financial reports, and encouraged attendees to work with their CSFOs to create some type of financial report that actually means something to them, not just what the state requires in the way of formatting.  [This was music to my ears.  The format of state-required financial reporting tells board members and the rest of us basically nothing.  And most folks just stare at them blankly.  But it is as if they are afraid to ask for the information in a digestible format.] Pouncey all but demanded that they look for better ways to digest the financial information available to them as board members in their districts.

The School Fiscal Accountability Act of 2006 mandated that every school district maintain a 1-month operating balance in their General Fund, a.k.a. the “fund balance”.  Pouncey said that from 2011 to 2012, even with reduced funding for schools, the number of districts that did not have a 1-month operating balance declined from 60 to 19.  And of those 19, 16 of them improved their fund balance this year.  In addition, three districts, Dallas, Perry and Franklin County schools approved tax measures for additional school funding.

Pouncey made an interesting comment here.  He commented on the local taxing capacity of each school system and how limiting that can be for school systems, since most all state and federal monies are earmarked.  He gave the example of one county school system and said that they will always struggle with keeping a 1-month operating balance because all they have is “three Dollar stores and 10 mills of property tax”.

So here are all of Alabama’s school districts and where they stand on the 1-month operating balance line.  Districts highlighted in yellow are ones that are struggling to maintain a 1-month balance. Click the picture to make it larger.

Pouncey then stated that he is comfortable with a 1-month balance because when you get into too many months of savings, it means you are not spending money on the children, and that’s what you are supposed to be in the business of doing.  He said that “if you have ten months [of operating fund in your General Fund], you know kids are foregoing educational opportunities”.

He added that keeping too high of a fund balance can cause City Councils to take their city funding back. [Dagger in my heart.  That’s exactly what happened to my home district in 2005.]

Pouncey then called their attention to the FTE (full-time equivalent) reports.  There is one report for certified personnel (teachers, principals, counselors) and one report for support personnel. These reports are on pages 19 and 20 of the PDF.

These reports are important because they show exactly which personnel are funded from federal, state or local money.  In districts where local money is scarce, you really don’t want to see any personnel funded from local money.  He went so far as to say “the key to financial stability” is to limit the number of support personnel funded with local money.  Systems should use federal and state money for local support personnel.

Pouncey then referred to OCE, or “Other Current Expense”. OCE is “light bulb money” and is an amount added to school system appropriations each year based on the number of support people they employ.  A good explanation of OCE is in this document on page 16.

These FTE reports are sent to each district in December.  December is a good time for boards to “take stock” of where they are financially.

Looking at attachment 6 (below, click to make larger), Pouncey remarked that board members must understand what they have before they should worry about “overseeing”.  Rural school districts are losing 200-300 students per year per district.  Losing students means you earn fewer “teacher units” (commonly referred to as classroom teachers) than the previous year.  Some urban districts have faced similar challenges.  Fewer students means fewer personnel are needed.  And no one enjoys releasing teachers and support personnel.  But it is an unavoidable situation in many places.

The example above is from FY2012 (October 1, 2011, to September 30, 2012).  You can clearly see where the district had fewer students in FY12 (actually in the 2010-2011 school year, because enrollment is always one year behind), resulting in a total loss of more than $3 million in state funding.  There are hard choices to be made when districts lose money.

Pouncey stated emphatically: “There is no room today for a surplus of teacher aides.  Teacher aides are a thing of the past. The only place we need aides are for children with special medical needs.”

The next attachment is particularly interesting [at least to me].  This is a listing of local money available to be spent the way the board decides, or money over which they have discretion to decide how it is spent.  It is listed in rank order of how much money per pupil is available.  Here is a PDF of just this report.  Here is the first page.

Yes, the first few are “the usual suspects”, with a lot of local money available per student to fund additional educational opportunities over and above what the state mandates.  But there were some surprises on this list for me, including where Tuscaloosa City, Birmingham City, and Leeds City fell on this list.  Remember, there are 132 systems in our state. And this is the listing of the Top 20 in Local Money Available for Board Discretion.

Figure out where your system is on this list.  Know how much local money is available per student in your district.  Typically, when local money is available, there is more room for public input and discussion about the types of educational and extracurricular opportunities your district can offer the children in your school community.

Pouncey reminded attendees that the local money over which they have discretion in spending is reduced by 25% of transportation cost, any contracts with personnel over 187 days and the cost of their utility bill.  “Because you have essential obligations the state has failed to fund properly… creates the haves and have-nots,” Pouncey said.

Revenues must exceed expenditures.  ‘Nough said, right? That’s attachment 8.

The Budget Variance Report, attachment 9, is a report the district CSFO can generate to help the board understand how the budget they approved is being followed.  Staff should be following the budget.  The budget is the board’s plan.  This report shows the difference in what was budgeted and what has been spent as of the month that reports reflects.  In the example, fiscal period 3 is the end of December.  Remember that fiscal period 1 is October….then count up from there.

The annual Audit Report was discussed next.  Pouncey stressed the importance of being fairly and accurately audited and stated that “some of you have no findings in your audit because you have a relationship with the CPA firm that you’re paying $50,000 to”.  He stressed that a system and a CPA firm can have “too cozy” of a relationship and that board members should want a thorough audit in order to ensure financial resources are being spent properly.  He added that there are certainly good CPA firms performing thorough audits, but if you are worried about it, you could rotate firms.

Blast from the Past: in 2008, I attempted to convince my school system that they should pay less than the $75,000 a year they were paying to a CPA firm to perform their audit.  The board put the audit out for bid the following year, but the same CPA firm was able to knock $30,000 off their price and was rehired for $45,000.

Put Your Money Where Your Vision Is

The next session was a wonderful presentation from Liz Killpack.  Here is a link to her presentation.  Killpack stressed that boards must create a vision with the dollars that they spend.  She challenged board members to have the discussion of what their vision is and to keep discussing it at every board meeting:  are the dollars we are spending helping to make that vision a reality?

A board’s budget is its statement of philosophy. That is a very important statement, hence the bold emphasis.  A budget is where a board aligns its human and financial resources with their vision, goals and priorities for student achievement. That is important, too.

A board’s budget reflects its priorities.  Killpack used the example of her own personal budget and shared her credit card statement with attendees.  Her priorities were revealed through her spending (she is a runner and her children are high priority).

Killpack challenged board members to examine their budgets carefully to determine if their spending priorities were in line with their vision, and if not, it is truly up to the board to make that happen.  Please take the time to look through her presentation slides for more information.

Get the Most Bang for Your Bucks

Here is the full presentation from this session.  Again, I plan to hit the high points.

The four presenters were David Smith, Executive Director of the Alabama Association of School Business Officials (AASBO), Sheila Jones, CSFO of Jefferson County Schools, Pat Conner, Director of Operations for Madison City Schools, and Linda McGhee, CSFO of Thomasville City Schools.  Each had a different topic to cover.

Sheila Jones was up first, speaking of the virtues of the Purchasing Card (P-Card) program, where school systems can basically earn cash rebates through utilizing what is in essence a charge card that is paid off regularly.  Since 2009, Jefferson County Schools has earned $494,000 in cash rebates through the use of this program.

A few of the details were shared, including that these types of programs should be negotiated with banks to ensure the highest cash rebate and minimal, or even zero, fees are attached.

David Smith, of AASBO, said Jefferson County Schools were the original test site for the program and that the 35-40 school districts that participate earn around $500,000 in total (all districts) each fiscal year.

Jones added that the only kind of “reward” her district was interested in was cash.  Other programs were offered, including ones that allowed her district to purchase items at a discount, but she realized that what was most useful to her district was the actual cash rebate.

There was an initial cost to set up the program (no details were shared), but now there is no annual fee nor any cost for the program for Jefferson County Schools.  Smith said that negotiating with banks necessarily entails a hard look at spending levels and that fees are associated with minimum spending levels.

Pat Conner from Madison City Schools spoke about process management.  Please see his presentation in the link provided above for details.  This was mostly about looking at more efficient processes across the district, combining databases, sharing turf, etc.  Very interesting to those looking to save money and eliminate duplication and wasteful spending.

Smith gave the example of the paper Purchase Order (PO) costing $60-$90 to generate, where an electronic PO costs much less.  He encouraged attendees to look at their CSFO as financial managers, not just as accountants and bookkeepers.

Linda McGhee, CSFO of Thomasville City Schools, shared an in-depth look at the Child Nutrition Program and how to maximize efficiency within that program in a school system.  Please take a look at her presentation for more details.

David Smith was up next.  His presentation was focused on ways for school systems to save money overall.  He encouraged board members to take a look at the National Cooperative Purchasing Program, as in many instances, prices can be 15 to 20% lower than state prices.  When districts utilize co-ops, they avoid the bid process, which saves time.

Smith stressed that districts should be looking at ways to share services with other government operations and even other school districts.  He encouraged board members to seek partnerships with private corporations in order to best leverage the public money used to support our schools.  He used the example of career tech facilities that could be shared with community colleges and other career tech programs.

Energy management programs are also an area that can generate savings.  Smith said that utilities usually account for 3 to 4% of a district’s General Fund budget.  There are many ways that these management programs can save money.  Please see his presentation for the details.

Maintaining school buildings and facilities is an expense that school systems must anticipate.  Smith used the “pay me now or pay me later” analogy and stressed the need to develop a preventive and predictive maintenance plan.

Electronic time and attendance systems can generate not only monetary but time savings for human resources personnel.

Smith encouraged board members to support using data to generate benchmarks for efficiency.  For example, knowing how much it costs to operate a school bus is important.  If your district is spending $10,000 more per route than a similar school system, then perhaps somebody needs to look into why it costs so much more.

Another example would be how much a school building’s utilities cost per square foot.  If a building’s utilities are way out of line with other school buildings in the district, or the state,  somebody probably needs to take a look and figure out why.

Smith said that he and Dr. Pouncey are working on statewide benchmarks to assist school districts in this way.

Smith said, “If I’m working for the school system, I should treat [the public’s] money just like my own money.” Well said, Mr. Smith.  All board members and public school employees should hold that philosophy.

The training session ended on Saturday afternoon around 12:30 p.m.

There was so much good information shared at this session.  I appreciate the AASB allowing me to cover the session for the Alabama School Connection.

Please take the time to look through the presentation materials.  If you have any questions, feel free to contact me and I will do my best to answer your questions or will find someone who can.


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