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One Budget? Two Budgets or More… That’s the Question

By Tahir Ahad and Kari Sousa - February 10, 2011

The uncertainty surrounding the proposed state budget is unprecedented for several reasons, including, most importantly, half of Governor Brown’s budget balancing solutions that hinge upon the extension of $12 billion in taxes to be voted upon in a June special election.    Not only does this special election have critical funding implications for K-12 schools, but it will also serve as a litmus test for the strength of voter confidence in the Governor, voter confidence in economic recovery, voter support for K-12 education, and the strength and influence of the educational lobby. 

Even without the uncertain outcome of the tax extension election, it would be very hard to predict the actual level of education funding in 2011-12 fiscal year.  The conditions that can impact education funding include, among other things, possible suspension of Proposition 98 and distribution of state cuts among various state programs such as education, public health and social welfare.  With a correctional system under federal receivership, federal maintenance of effort requirements for health and social service programs, and legislated and legal funding minimums for various programs, including K-12 education, we have painted our state into a corner with mandated expenditures, while state revenue streams have slowed to a trickle.

By now, no doubt, you have seen a number of “analyses” and “projections” from different sources and individuals offering various versions and scenarios. Each of these sources projects varying level of funding per ADA (or reduction in funding per ADA) depending on their interpretation of confusing and incomplete information and their reading of tea leaves. The projected loss to K-12 education has been predicted to be as little as $19 per ADA and steep as $1,300 per ADA.  Quite a broad target for districts trying to make budgetary plans and operational decisions for the upcoming year.

Also, the pundits have advised districts to develop the 2011-12 district budget based on a number of scenarios. The most common recommendation is to prepare at least two versions of budget; both using the assumptions used in the Governor’s proposed budget. One of the scenarios assumes passage of tax extension by the state voters in June while another assumes defeat of the tax extension proposal.

However, the possibilities are many and it will be virtually impossible to have a budget scenario to fit every possible situation. Some have suggested developing multiple budgets to address many expected scenarios. However, anyone who has spent a few years in public education, doing budget development and presentation work, knows that it is extremely hard to develop and communicate multiple budget scenarios.

It is hard enough to have the layperson board, unions, employees and community to understand and follow one budget.  It may be possible to explain and keep separate two budget discussions; we may not have a choice but to develop two budgets, one with the passage of tax extension and another without. It will be very challenging to develop more than two budgets and have the consumers of budget information not mix them up.

Regardless of the number of budgets you create, it is essential for district budget builders to calculate the impact of these scenarios, and be able to answer the question, “what would I do if this happened?”  For some lucky individuals, the answer is “retire”.  For the rest of us, finding short and long-term solutions will be essential.  Your plan will need to be adjusted depending on the depth of the funding reduction, and your plan will most likely include some one-time solutions for the 2011-12 year, with negotiated long-term solutions following for the 2012-13 year.

While now might not be the time to issue blanket layoff notices and dismantle district programs in anticipation of the failure of a June election that is yet to be scheduled, it is the time to begin or continue discussions with your collective bargaining units.  Regardless of the level of reductions districts will face if the election fails, one thing is certain – these reductions cannot be implemented without impacting personnel, which will likely require negotiations.

We recommend that you do not venture to try out more than two budget scenarios, but use this time to work with your board and associations to discuss priorities for implementation if the severe budget reductions materialize. For example, identify savings from implementation of furlough days, benefit caps, phase-outs of post-employment benefits, increasing class sizes, and elimination of preparation time to name just a few items.  We also recommend taking the time to educate your stakeholders of various possibilities and their impact on the district budget. When developing two budget scenarios, keep clear and accurate records of all communication including all assumptions used in the development of each scenario.  Make sure to always present the two scenarios together and do not allow publication of a single scenario separately.

Finally, we must all remember that while we are only preparing a budget for the 2011-12 year, we should be developing multi-year solutions.  Looking only at 2011-12 through a microscope may cause your district to take reactionary steps that may prematurely dismantle programs or cause irreparable harm to employee relationships.  Regardless of the recommendations of outside experts, you must first evaluate your individual district situation and take the steps that will best protect your district’s financial and educational foundation.  More than any other year, there will be no one-size-fits-all solution, and you must pick the solution that best fits your district.

Editor's Note:  Tahir Ahad is President of educational consulting firm Total School Solutions (TSS)Kari Sousa, CPA is Director of District Support Services with Total School Solutions.