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How To Read A School Budget

…and ask the tough questions that matter

School districts are presenting their finalized budgets, which will be put before voters on May 21. For most, the prime question is, “How much are my taxes going up?” While that is important, budget season also gives community members an opportunity to take a more detailed look at their district and its finances, including its priorities, which areas are receiving the greatest funding, and how well the district is positioned to meet the challenges of educating its students, both now and in the future. Four experts in school administration shared their insights on school budgeting and questions that community members should be asking to gauge their district’s financial health.

What are the district’s personnel costs?

The major expense is salaries and benefits. For the most part, these costs are uncontrollable. State regulations determine how much districts are required to contribute to state retirement plans of teachers and non-instructional personnel. Health insurance rates are also not determined by the school district.

“It’s important to realize that very little of the budget is discretionary,” said Meredith Brosnan, an assistant superintendent on Long Island, who also teaches at LIU Post.

Dr. Robert Reidy, executive director of the New York State Council of School Superintendents, adds that 75 to 80 percent of most school budgets are salaries and benefits, and that he has never seen a school district that did not maintain that percentage. However, should a district’s personnel costs not fall within that 75 to 80 percent ratio, a community member should ask why.

“No matter what size the budget is, the ratio is usually pretty standard,” said Reidy. “That’s a major portion of the budget. The public needs to know that schools are human resource intensive places. People are what make schools work.”

However, although salary and health insurance costs are mostly out of a district’s control, John Masserwick, visiting professor at Farmingdale State College, says that districts can exert some influence over these costs in collective bargaining agreements. The percentage of health coverage costs that each employee contributes is determined in each district’s collective bargaining agreement (the percentage is usually in the teens). If the district is struggling financially, administrators may ask employees to contribute more.

Teacher salaries are also determined by collective bargaining agreements. If those levels are too high, it can lead to districts scrambling to cut in other places, or perhaps even reduce teaching staff. Masserwick points out that cutting teachers can lead to savings in the present. But fewer teachers would likely result in larger class sizes and have an impact on the quality of the education offered by a school district, something that ultimately could impact property values.

“It’s a vicious cycle,” he says.

How much of the budget is going to instruction?

“You want to get as many resources to the kids as possible,” said Reidy.

According to Reidy, a budget is a roadmap and it outlines the district’s priorities. He adds, “Every school that I know had the priority of teaching and learning.”

Dr. Lydia Begley, associate superintendent for educational services, of the Board of Cooperative Educational Services of Nassau County (BOCES), suggests that residents ask to what degree does the budget maintain programs. Keeping with the theme of directing as many resources to students as possible, Begley says that residents should be informed about what programs are being sustained and, if there had been any proposals to cut programs due to Gov. Andrew Cuomo’s proposed state budget (which called for the reduction of High Tax Aid), how many programs have been restored now that this category of state aid had been significantly restored.

How are reserves being managed?

Every school year, most districts have a little bit of money remaining from the previous school year’s budget. Brosnan explains that districts budget just a little bit more than necessary, so there is added money available to deal with unforeseen circumstances.

“There is no provision for going over,” she said.

The money that is left over can be placed into a reserve account to be used in future years, or be used to keep a lower tax rate in the following school year. By law, school districts may have an unassigned fund balance that has funds up to four percent of next school year’s budget.

In recent years, when faced with both decreased state aid and a New York State property tax cap that limits the amount of tax increases, as well as school district revenues, some districts have tapped into reserve funds to preserve programs or keep tax increases low, thus reducing the amount of reserves. However, this could create problems should an emergency happen, such as a hurricane.

As Begley explained, some districts have many buildings. Just as homeowners maintain a savings account for roof repairs and other expenses that occur, schools similarly maintain a reserve account, something that was likely needed during the last two years, when Hurricane Irene and then the devastating Superstorm Sandy hit the area.

“Because of reserves, districts may have recovered from Sandy more quickly,” said Begley.

Administrators concur that a low fund balance is not necessarily a sign of financial woes for a district. However, a strong fund balance is usually a good sign that the district can weather any unexpected expenses that develop.

“If you have something major happen in your district that’s unexpected, you need a little bit of money in the bank,” said Reidy. “Or if your revenue is continuing to be less, and you want to maintain programs, the only way you can do that in New York State is through reserves. It can disappear pretty quickly if you have some infrastructure problems. The data we’re getting back is more and more districts are bringing their reserve funds down to very dangerous levels.”

Reidy said his rule of thumb is that for every dollar that’s taken out of reserves, two dollars will be needed next year, one to replace the reserve fund and another to maintain the program that the reserve money was used for.

“It’s not a good sign when that fund balance starts to deteriorate,” he said. “If you see those fund levels going down, that’s an indication of a problem. That means you’re not living off your paycheck and you’re using your savings account to maintain your standard of living. When your savings account runs out, what are you going to do?”

What is the tax rate?

Masserwick says he has never seen it, but it is possible that a computer glitch or clerical error could have a tax rate misapplied. Although it is highly unlikely for this to happen, he suggests that taxpayers check this anyway, just to be sure.

Am I informed about my district?

While most voters will ask about the tax levy increase, other questions such as those suggested here are important to ask. Masserwick says that informed residents make for better school districts.

“It’s complicated for the average voter to read, understand and comprehend, but it’s important because it’s a lot of money,” he said. “Voters have to do their homework. If more voters understood what goes into the number crunching, they would be better informed and have a better understanding. They could hold administrators accountable.”

How is the district positioned for the future?

Reserve funds can show how well a district is prepared for unforeseen circumstances. However, some districts might have difficulty maintaining programs in future years, if budgets are filled with one-time influxes of revenue. Begley says that school districts and residents should be concerned with whether a current year’s budget positions a district to maintain programs, especially if future state aid dwindles.

“If new programs are introduced, is there a plan to sustain them?” Begley suggests asking. As an example, she says state aid will cover the first-year costs of full-day kindergarten when a district implements it. However, the aid is not there in subsequent years.

To what extent has the school district considered pension smoothing?

Next school year, mandated school district contributions to the New York State retirement system are increasing dramatically from 11.84 to 16.25 percent. To help prevent districts from bearing this burden all at once, Cuomo has implemented a “pension smoothing” initiative. However, districts that choose the option are just delaying the costs, while those who confront the costs immediately might have difficulty maintaining programs. Begley says that informed residents might ask school district administrators what their district’s plan is.

“There’s no right or wrong answer,” she says.

What’s the difference between two percent and the allowable tax levy increase under the cap?

When the tax cap was implemented, it mandated that school districts could not exceed a tax level increase of two percent or the rate of  inflation, whichever was lower, unless a supermajority of 60 percent of voters approved such an increase. However, most school districts exceed this amount and are allowed to do so under the cap. The law allows school districts to have exemptions and exclusions when determining the maximum allowable tax levy increase under the tax cap. According to Begley, that will average about 3.3 or 3.4 percent this year, so residents who see such an increase should not assume that the tax cap has been pierced.