Revenues: Loss of State Aid
In most school districts, the budgeting process does not end when the board approves the budget. As soon as one budget is completed, most school business professionals are already looking ahead to the next year and beyond.
In 2010, New Jersey issued fiscal accountability regulations that redefined school district accounting and budgeting. One of the substantial changes was the ruling that a district tax levy increased by 2% or less did not need to go to the voters for approval.
This change shifted how New Jersey school districts compile their budgets. Expenditures are no longer on the start line; revenues are. Knowing they can raise their tax levy only 2%, districts must build the expenditures around these numbers and not back into the difference to balance the budget.
Further complications arrived in 2018 when the state passed NJ S2, which eliminated adjustment aid to school districts over a six-year period. For this article’s purpose, let’s assume that a district’s main source of revenues is a tax levy and state aid that is flat except for adjustment aid.
In this example, losing adjustment aid equates to $1,490,686, or an average of $248,000 yearly. The district has a tax levy of $22 million with a total budget of $27 million. A 2% increase on the tax levy is $440,000 ($22,000,000 × 0.02). Netting the increase against the loss in state aid is an increase of $192,000 ($440,000 − $248,000), or 0.71%. An increase of $192,000 on a $22 million budget is unrealistic, even if programs were reduced or eliminated and a wave of personnel retired.
The bottom line is that adjustments must be made to balance the budget.
When budget cuts need to be made, the best action plan is to plan in advance.
Conversely, if the district did not lose the $248,000 per year, the first year would allow for increases of $688,000, a 2.548% increase. This is a more palatable amount in the budget building. Adjustments will need to be made, with salary and insurance percentages above the two percentages identified above, but the latter scenario is not as drastic.
Continuing with the example, over the three years from the base year, a district would see a $1.4 million difference between the total budget without the reduction in state aid versus the budget with no state aid reduction.
Expenditures: Budget Cuts to Balance the Budget
When budget cuts need to be made, the best action plan is to plan in advance. Before the budget is even put together, a meeting with the administrative team to discuss and determine the 5%, 10%, 15% reduction list is essential. Here are some topics to discuss when determining budget-balancing cuts and strategies:
- Discontinuing courtesy busing and after-school busing.
- Discontinuing programs that have low enrollment.
- Charging “pay to play” athletic fees.
- Contracting versus in-house services.
- Postponing capital projects.
- Not replacing personnel who retire or otherwise leave the district.
The goal is to not need this list of cost-saving strategies, but it is important to have one ready.
Cliff Walk, Anyone?
Regarding budget season, education leaders should take time to look a few years into the future, not just the next cycle. Mapping out a five-year plan of estimated budgets will give the administrative team plenty of time to look for fiscal cliffs and opportunities.
The information can be as detailed or as general as you are comfortable with. For the revenue side, take your final budget and put in the current year information. On the expenditure side, you can use three categories: instructional, noninstructional, and capital. Look at assumptions for the next five years, such as an increase of 2% for the tax levy, flat or increase in state aid, and an increase of 1% in facility rentals.
Then look at the expenditures and project out. For salaries and benefits, use the percentage of where your contracts are settled, and adjust for retirements and new hires (if any). You can use an estimated percentage for other lines.
Add up everything and look at your differences. This long-distance look at the future may either scare you or give you an excellent game plan.
Finally, Know the Why
When you present your budget—whether to the faculty, parent–teacher association, county or state office, board, or the public—you must be able to explain the why: Why costs are going up or down. Why you need more money for textbooks versus athletic supplies. Why adjustments need to be made today to be ready for a significant expense that will be on your books in a year (such as purchasing buses).
Include additional information in budget presentations in the hopes the audience will be able to see where you are headed with the financial health of the district. Rather than view the budget one year at a time, it may be a good idea to use the five-year plan as part of your current presentation to show that the district is working to maintain expenditures and programs.
The district budget is one of the more critical responsibilities of a school business professional. With proper planning, communication, and even a little luck, every budget season can resemble a feel-good holiday movie . . . hot chocolate included (on me!).