School Finance101: What HR Leaders Need to Know

ACSA 2014 Personnel Institute Brett W. McFadden Chief Business Officer Pajaro Valley USD Tanya Krause Deputy Superintendent Campbell Union HSD 1

What we will cover

Four parts: 1.

LCFF and LCAP – a look back, a look forward 2.

School district budgeting 3.

Fiscal issues impacting human resources 4.

Working with your CBO / business office 2

Part one: LCFF / LCAP: A look back. A look forward

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What a difference a year makes

October, 2013

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LCFF formula just enacted

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Developing LCAP uncertain

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Promise of new money

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Rising expectations

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Community engagement?

October, 2014

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LCAP process successful

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Adjusting to new system

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Learned what to do

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Learned what not to do

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Gearing up for next round

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The outlook for bargaining and budgeting

2014-15 and 2015-16

    Expectations will remain high – but all parties have one year of LCFF/LCAP under their belts Unions will continue to advocate for their “share” But be careful – watch LCFF revenue allocation via the FCMAT Calculator In an LCFF/LCAP era – HR leaders play a larger and more critical role in the budget and LCAP processes 5

Bargaining overview:

Statewide perspectives

    No surprise - Initial proposals from unions coming in high Some districts seeing proposals for 15 percent (or more) in salary increases  Average is10 percent across state  Many units seeking to raise benefit caps Many proposals seeking greater involvement in LCAP process Language proposals also reflect greater demand for benefits and involvement 6

LCFF / LCAP and Collective Bargaining:

Did it change anything?

    LCFF/LCAP didn’t change the statutes, regulations, or mechanics of bargaining.

But now there are more unknowns and more responsibilities.. More to look at and consider within the context of bargaining Have to negotiate language and intent related to LCFF - Formulas might need to be changed Budget for other things and needs within the LCFF base grant - Have to keep it budgeted but no more funds from state

Conclusion:

LCFF/LCAP dramatically changed the context of collective bargaining 7

The realities of LCFF funding:

Not as much when broken down New unrestricted funding is limited Core Includes (but not limited to) Teachers/classroom Professional Dev.

Adult Ed Sports/Athletics Facilities/Planning Educational Services Maintenance Operations Textbooks IT Business Services HR State categoricals Transportation Books/Supplies Utilities Health & Welfare BTSA For New Teacher Gate Board of Trustees Safety and Security Student Services Child Care Healthy Start Nutrition/Food Migrant Ed (State) Nurses Speech/Hearing State/Federal Accountability Unrestricted New LCFF Dollars Concentration Grant Core Staffing/Services/Programs Supplemental Grant K-3 CSR 9-12 CTE

Keeping LCFF/LCAP in perspective

LCFF • Funding sources defined • Priorities for use identified LCAP • Accountability areas identified • Sanctions defined Central Support / Operations • Alignment of support systems • Optimal use of resources

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2015-16 LCAP review and update:

Round 2 You will need to have a process for LCAP review and update Initial planning: This should begin at board and cabinet level Community input and review

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What worked well?

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What didn’t?

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What do we still need to do?

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What is projected funding?

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How much is available?

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What else do we need to do?

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What stakeholder groups are required to talk to?

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What process do we want to employ?

What is the timeline for all of this?

Final development and approval

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What does the board want?

How does the input match with budget realities?

How do union proposals fit into all of this?

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District revenues

District reinvestment plan:

Multi-year strategy matched to funding Phased recovery over time Equates to a 23% drop in state revenues Return to 2007-08 per ADA statutory funding levels Eight year phase in of LCFF funding

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Heads up:

Watch out for LCFF revenue changes LCFF Calculator Version 15.2

Version 15.2b

Difference 2014-15 186.45

188.19 1.74 2015-16 201.17 194.66 6.51 2016-17 208.47 204.46 4.01

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Your district/COE and the LCFF

  Each district will have its own relationship with the LCFF Districts that are high-funded by LCFF are now at mercy of state and formula  Now only one primary pot of state funding determined by one formula   COEs have their own unique interaction with LCFF Many districts are now subject to unexpected revenue changes based on state LCFF decisions

Part two: School district budgeting

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Where the money goes – PVUSD example

Services - 1.15% Books & Supplies - 4.40% Employee Benefits - 31.37% Capital Outlay 0.01% Indirect Costs & Transfers Out (0.31)% Other Uses - 0.41% Certificated Salaries - 40.17% Classified MgmtSalaries - 1.34% Classified Salaries - 15.91% Certificated Mgmt Salaries 5.54% 15

The multi-year projection:

Still your most important budgeting tool Beginning Balance Revenues Expenditures Increase/Decrease Ending Balance Revolving Cash/Rest.Bal

3% Reserve Unapprop Reserve 2014-15 2015-16 2016-17 33.20 186.45 201.40 (14.98) 18.22 8.21 6.04 3.97 18.22 201.17 205.30 (4.13) 14.09 7.46 6.16 0.47 14.09 208.47 211.80 (3.33) 10.76

6.70 6.35 (2.29) Identify two potential problems with this MYP As they relate to LCFF/LCAP, what might have contributed to their occurrence?

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Fingertip facts you should know

The basic fiscal facts you need to know:    How much funding is unrestricted under LCFF How much is restricted in CSR, CTE, supplemental, or concentration grants Multi-year projections – you live or die by these        Your fiscal history What is one percent of expenditures?

Number employees and breakdown Ave teacher cost (total comp) In’s and out’s of employee benefit costs Major cost centers – special education, transportation, health/welfare, other?

Collective bargaining agreements and any MOUs, TAs, or side agreements Develop your own one-sheet “finger tip facts” about your district See www.pvusd.net

budget narrative for example 17

The district budget

    The district’s budget is essentially a plan for revenues and expenditures in a given fiscal year But money most often drives policy – so it is above all a policy document that reflects the district’s core mission and values It will also serve as a guide for administrative and operational decisions over the coarse of the fiscal year But it is not intended to be static – it will change over the coarse of the year 18

Fund accounting

  All school districts and county office practice fund accounting Major funds include:           01 09 11 12 13 14 17 21 25 71 General Fund Charter Schools Adult Education Child Development Cafeteria Deferred Maintenance Special / Unallocated Reserve (on top of REUs) Building (bond proceeds only) Capital Facilities Fund Retiree Benefits 19

District budgeting process: This remains the same

Budget action;

Adopted budget* Unaudited actuals (fiscal activity through year end) Annual independent audit of prior-year budget 1 st 2 nd 3 rd Interim Report (activity through Oct 31) Interim Report (activity through January 31) Interim Report (activity through June 30) Federal fiscal year

Adoption date:

July 1 By September 15 October each year December 15 March 15 If required by COE Oct 1 – Sept 30 • If no state budget by July 1, a revised budget must be adopted within 45 days after the state budget is adopted • Federal expenditure reporting will follow the federal fiscal year 20

County office oversight

    All California school districts adhere to the budget adoption process per Education Code School district budgets and interim reports must contain a three-year fiscal projection – current FY plus two more County offices of education are responsible for the fiscal oversight of districts within their jurisdiction County offices are authorized to approve and/or disapprove district budgets 21

County office review categories

 Per Education Code, the county office shall review and issue a certification of all school district budget and interim reports    July budget adoption – positive certification, conditional, disapprove 1 st and 2 nd Interims – positive, qualified, negative  Positive – the district can meets its obligations over the 3-year forecast  Qualified – the district may not be able to meet its obligations over the 3-year forecast  Negative – the district will not be able to meet its obligations over the 3-year forecast The COE can require the district to adopt fiscal stabilization plans to address current and out-year fiscal shortfalls 22

Reserves for economic uncertainty

     All districts are required to maintain minimum reserves for economic uncertainty Most districts are required to set aside 3 percent of total General Fund expenditures Some districts will be 2 percent if above 50k ADA Smaller districts are required to maintain 4 percent Reserves are not just about the amount of money in the fund, they are about time – time to react, time to plan 23

Part three: Fiscal issues impacting human resources

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Some things have not changed

We recommend HR leaders develop a solid understanding of these concepts:   l     Need for appropriate reserves in an LCFF/LCAP era Maintaining position control Understanding components of total compensation District budget process and COE oversight Multi-year projections Fund accounting and the district’s/COE budget, accounting, purchasing processes 25

A new approach and perspective

HR leaders will need to take new approach and perspective when developing and implementing your agency’s LCAP:  Understanding the components of the LCAP  Work with both business and curriculum to determine district priorities and student achievement goals for three to five years out.

 Examine LEA Plan, PD plans, Site Plans, contractual costs, employee total compensation, special programs, legal fees, etc.

 Understand implications to districts formerly known as "Basic Aid"- dependent on local funding 26

Position control

    Your most critical fiscal responsibility as the HR leader will be to maintain position control The HR department must implement and maintain accurate records regarding positions, hiring, contracts, salary levels, etc.

The relationship between HR and the business office will often be strained when it comes to this issues  The HR office will want to fill positions fast  The Business office will want a very rigid systems with a lot of check and balances

FACT: All districts that have gone into AB 1200 receivership do not maintain position control

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Understanding revenue sources

      Understanding revenue sources and the nature of funding is critical One time vs. ongoing funding Unrestricted vs. restricted Categorical funding requirements Supplemental vs. supplant Breaking out costs – salary, benefits, stipends, etc 28

S = SR = ST =

Total cost of unit formula

S + SR + ST = TCU

Salary - including Step and Column Salary Related - Health and Welfare Benefits, Stipends, Bonuses, Etc.

Statutory Requirements - Retirement, Social Security, Medicare, Workers’ Compensation, and Unemployment Insurance * * If district in State Disability Insurance Program, employee pays .6%

Total Cost of Unit

8% 17% 50% 1 2 3 4 Legend 1 Certificated 2 Classified 3 Management 4 Programs and Operations 25% 29

Factors that will influence the formula

 Health and welfare cost changes  Distribution of employees between types of plans  Change in benefit coverage by employer  Carrier premium increases  Step and column costs  Dollar change between salary cells   Employee placement on the salary schedule Retiree savings or turnover which offset step and column costs 30

Other factors to consider

 A more accurate formula would reflect:  Declining enrollment:   Include the loss of revenues between fiscal years (if any) as part of the formula Growth enrollment:   Recognize that your percentage ratio for salaries and benefits might be able to be increased Fiscal calamity:  Recognize that your percentage ratio might not be able to be maintained 31

The next class: Things to know next

       Differences between ongoing and one-time revenue The cost of one percent Total compensation costs Comparative analysis Reserves and ending balances Where unions get their data Common union arguments 32

Strategy for reinvestment

Resources

     ACSA Negotiator’s Symposium – every January ACSA Personnel Academy and Business Services Academy SEAC Negotiator’s Certificate Program School Services of CA Fiscal Report and workshops Your legal counsel 34

Part four: Working with your CBO

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The average business manager

 School district business leaders often have common traits       More often do not have instructional backgrounds Tend to be process and rule oriented (“Type A” personality, a “gold” in True Colors) Strengths lie more to administrative and accounting abilities Will often think money and process before students and people Your leadership challenge will be to balance your needs with theirs  Develop a strong relationship and you can accomplish much WARNING! – Just because they are good with numbers doesn’t mean they are good at school business and finance 36

Your relationship with the business manager

    What’s the number one job of a CBO / business manager?

They won’t necessarily see themselves in this role They may see protecting the General Fund as their most important role For HR leaders – this is your most critical relationship after the superintendent 37

Closing remark

As a leader, you are only going to be as “popular” as your last “yes”. Strive to be trustworthy, consistent, fair, and set a positive model of the work habits and interpersonal behaviors you value in the organization. The popularity will eventually follow.

Dr. Jeff Baarstadt, Superintendent Conejo Valley USD Former CBO, Principal and Teacher

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