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Multiple Scenarios Needed Since State Budget Still Unclear

Preparing for This Year's 45-day Budget Revise

By Brett McFadden and Helen Bellonzi - July 15, 2010

Before modern weather forecasting, ancient mariners would post lookouts to keep a “weather eye” on the horizon to prepare for bad conditions in their path.   In much the same fashion, education leaders up and down the state are keeping  a close eye on what might happen in Sacramento this summer, or (as some predict) early fall, in regards to the final 2010-11 state budget.

After two of the most challenging fiscal years in history, school districts and county offices are faced with the likelihood of additional budget reductions once the state eventually enacts its 2010-11 budget.  The magnitude of these new reductions, and whether they will be accompanied by additional fiscal flexibility, is still anyone’s guess as of mid-July.

State law requires school districts to adopt a revised budget no later than 45 days after the passage of the state budget.  If school districts do not follow through on this requirement, then their county office of education (COE) is charged with developing a budget for them.  The way things are going in Sacramento, adoption of the state budget will likely happen right near the start of the new school year -- and perhaps several weeks into it.

Given this year’s budgetary dynamics, education leaders should use the intervening time effectively.  Most district fiscal offices are focused on closing the books for 2009-10.  But district leadership teams should also begin to prepare for their 45-day budget revise and developing their 2011-12 budget.  We recommend the following considerations when beginning this analysis:

Stay calm in the storm:  At this point, almost every district is technically qualified when it comes to its budget certification.  In addition, the number of districts receiving negative certifications is increasing at an unprecedented rate.  So you are not alone.  Compare notes with your colleagues in your county and your region, so you have reference points.   It is critical that the decisions education leaders make now and into the fiscal year are sound and reasonable given the multi-year projections of their districts.

Keep a close eye on enrollment and staffing:  We continue to live or die by enrollment and staffing.  By now, most districts’ percentages of salaries and benefits compared to the rest of their budgets are at record levels.  It remains critical that districts closely monitor their enrollment, and the staffing that accompanies it.  A mistake in this area could end up costing a huge amount and disrupt school site instruction and operations.  District leaders should be prepared to react to unforeseen conditions in this area.

Know your budget and district:  Even during ordinary times, district leaders should always have a good idea on the fiscal and programmatic aspects of their districts.  But this is downright critical now.  No decision should be made without consideration to the long term fiscal effects it may have on your agency’s ending balance.  Know the sources of funding available – revenue limit, categorical, federal – and what it costs to staff and operate specific programs.

This is also critical to keeping your credibility with district stakeholders.  If your numbers are wrong, or you make several critical errors in a row, the credibility of multiple staff leaders will come into question.  This will erode trust, thereby making it more difficult for other district stakeholders to support necessary fiscal decisions in a timely manner.

Stay in communication with your county office:  In times like these, COE fiscal teams can be invaluable resources.  Notify your county office of any changes your board made to your June budget.  Use county fiscal staff to confer fiscal assessments to your board, unions, staff, and other community stakeholders.  They can often help reinforce what you have been saying and provide needed support and understanding when it may seem no one else is listening.  COE staff can also provide insight on what is happening statewide and recommend actions necessary to retain a positive cash balance.

Plan for the worst, implement the actual:  It is easier to add more to programs than it is to cut them during the school year.  With fiscal conditions so challenging and dynamic, there is simply no other way to keep enough wiggle room to adjust at the last minute.  Therefore, develop multiple scenarios and analyze the fiscal implications of each.  Plan according to the worst alternative, but be prepared to implement the scenario that is not as bad.

Communication:  This often sounds like a broken record, but good communication is vital to achieving necessary fiscal actions.  All stakeholders should be kept in the loop regarding the fiscal condition of your district.  Many stakeholders will not have this “front and center” on their radar screens.  So be prepared to explain (and possibly re-explain) your district’s current and future fiscal condition in terms that are easily understood.  Periodic updates via weekly communiqués, or a district-wide email, are useful tools for keeping folks up-to-date.  Even if they aren’t read by every recipient, you‘re much less likely of being accused of not communicating.

Keep the big picture in mind:  This is an unprecedented time in education funding.  Virtually all districts have made reductions this past year they never thought would be possible.  By the time the state finally adopts its 2010-11 budget, it will probably be too late to make major adjustments to your district’s 2010-11 spending plan.  You will likely have to implement another fiscal stabilization plan and implement those actions in your 2011-12 budget.  But keep in mind that it has taken two to three years to get your district to this point.  It will almost certainly take one to two years more to get your district out of its current fiscal predicament.

The bottom line is this – we are the last line of defense.  It will be up to education leaders to keep their districts fiscally solvent and protect core services for the next several years.  We should not expect that this financial crisis will end within our multiyear projections.  Nor should we expect Sacramento lawmakers to come to our aid with radical changes to our current K-adult financial system.

As a result, the next several years will be even more critical than the last two fiscal years (as painful as they have been).  Most districts have already made unprecedented program and staffing reductions.  Although the next round of revenue reductions will likely include fewer cuts overall, these new reductions will be more difficult than those during the two previous years because at this point, we have fewer options.  While we are waiting for Sacramento to act, now is the time to begin analyzing and developing the fiscal stabilization plan for this year, and next.

Editor's Note::  Brett McFadden is the Chief Business Officer and Helen Bellonzi is the Director of Finance for the Pajaro Valley Unified School District.