© Copyright 2007 by EdSource, Inc. K A summaryofaresearchstudybyEdSourceandSchoolServicesCalifornia fo ex however, rarely much garners attention district asabusiness enterprise, broad coverage. scores andschool receive performance state’s announcementsregarding test onnationaltestsandthe performance students’ Studies thatrankCalifornia educatingstudents. taskof primary public school its systemisperforming public pay careful attentiontohow the students. newsmediaand the The throughkindergarten 12th-grade a free educationtomore than6million are responsibleCalifornia for providing PUBLIC SCHOOLDISTRICTSIN r school districtsseldom agement of Y does aproposal toclose alocalschool. f strike becomesthe ers. Ateachers’ thepress andpolicymak- attention of assistance from thestatedraw the egn o ait freasons, lenging for avariety of solid financialoperationcan bechal- cso thecommunity’s interest as ocus of eceives seriousscrutiny. et, theday-to-day financial man- cept whencept there isacrisis.Districts r Fiscally Healthy S ced toseekemergency financial T In California, justmaintaininga In California, eeping California prepared forthe2007 epromneo aschool of he performance chool Districts Ongoing Challenges C urrent Practices information that clarifiescomplexK–12 educationissuesand promotesthoughtful decisions aboutCalifornia’s public schoolsyst needn n mata,ESuc tie oavnetecmo odb eeoigadwdl itiuigtutoty useful andwidely distributingtrustworthy, EdSourcestrivesto advancethecommon goodbydeveloping Independent andimpartial, REPORT Getting Down toFacts and EdSource research project ® is anot-for-profit501(c)(3) organization established inCalifornia1977. outside adistrict’s control relate tofiscal the study. Itexamines how conditions based onameasure of developed aspart to which districtsare fiscally healthy looksattheextent thisreport California, school districtsgenerally operatein ov Afterabrief California. of Services conducted by EdSource andSchool a2006research study findings of fiscal healthbasedprimarily onthe districts anditsrelationship tostrong school California management of management practices. nance andleadership, andtheirfinancial theirgover- management, thenature of personnel responsible for theirfinancial the qualifications andstabilityof r strong fiscalhealthwithinthisenvi- districts varyintheirabilitytomaintain cutting initiative in1978. theProposition 13tax- passage of their revenues, particularlysincethe control thatschool districtshave over funding systemandthegeneral lack of theschool including thecomplexity of onment. alsodiffer inthe They riwo theconditionsunderwhich of erview Th California’s nearly 1,000school is report looksatthefinancial is report fthestate’s school districts. of ways toimprove thefiscalhealth sion of looks tothefuture, including adiscus- to districtfinancialhealth.Finally, it ing which practices show arelationship It considersfiscalbestpractices,includ- ership, andtheirmanagement practices. theirgovernance andlead- the nature of theresponsible personnel, stability of inthequalificationsand districts vary districts. alsolooksathow report This developing tohelpstruggling strategies health andthecomplexities involved in education. teristics thatare uniquetopublic a public agency, andoperatingcharac- re context thatincludes statecontrol of operatewithinalargerCalifornia financially. said,alldistrictsin That district leadersface inmanagingthem to differences inthechallenges school tion intheirsizeandconfigurationleads schools undertheirpurview. varia-The r School districtsare thefiscalagents fiscal realitiesandconstraints California schooldistrictsface sosbefrtemngmn fthe esponsible for themanagement of ve nues, thedynamics inherent inbeing em. APRIL 2007 EDSOURCE REPORT

This report summarizes a research study by EdSource and School Services A state-controlled school revenue of California system limits options for districts In November 2006, EdSource and School Services of California, Inc., completed a study entitled In California, the school revenue School District Financial Management: Personnel, Policies, and Practices as part of the Getting system is state-controlled, with districts Down to Facts research project overseen by Stanford University and released in March 2007. This having limited options for increasing EdSource publication summarizes the study findings. the funds they receive. They can maxi- mize attendance and claim funding for While the official findings were the work of School Services and EdSource,EdSource takes full respon- programs for which the district or sibility for the content of this summary and for any errors or misinterpretations it may contain. school is eligible. They can also enhance local funding through foundations, parcel taxes, and other sources. But in Research Team: the end, the vast majority of a district’s revenues are generated by the number EdSource: Prime Contractor of students multiplied by their base Mary Perry, deputy director and study project director revenue limit for general (unrestricted) Isabel Oregón, research associate purposes. Their eligibility for categori- Trish Williams, executive director cal (special-purpose) funds depends on a variety of additional factors, but School Services of California: Subcontractor many such funds are allocated on a per- Robert Miyashiro, associate vice president pupil basis. Jannelle Kubinec, associate vice president For most California school districts Laurel Groff, research/fiscal analyst then, the number of students is a driving Philip Wong, director, Information Systems force in financial planning. But it is a Ron Bennett, president and CEO number that can be somewhat unpre- dictable and over which districts have little control. Further, while enrollment Stanford University: propels district costs, such as staffing and Susanna Loeb, Ph.D., senior technical consultant to materials, revenues are largely driven by the project, director of the Institute for Research on the yearly average of students who attend. Education Policy & Practice (IREPP) at Stanford University Average daily attendance (ADA) usually and project director for the Getting Down to Facts studies is lower than enrollment due to factors such as students moving, dropping out, or staying home due to illness. Thus, Acknowledgements: accurate budgeting and sound financial management depend, in an important Although EdSource is responsible for the content of this publication, the research study itself was way, on the ability of district leadership a group effort between EdSource and School Services of California, Inc., with Professor Susanna to estimate not only how many students Loeb of Stanford University providing oversight, active interest, sound advice, and analytical work. will sign up for school, but also what The quality of the study was also significantly enhanced by Joel Montero, chief executive officer of their average attendance will be. the Fiscal Crisis & Management Assistance Team (FCMAT),who provided input throughout the study design and analysis process. CBOs report that they maximize In addition, EdSource wishes to thank the superintendents and chief business officers (CBOs) from revenues where they can 135 school districts who completed a long and detailed survey,and their support staff who assisted When chief businesss officers (CBOs) in that effort.Their enthusiasm for the project made our job easy. were asked in the EdSource/School Services survey to what extent they Finally,we thank the William and Flora Hewlett Foundation, the James Irvine Foundation,the Bill felt their district was successful at & Melinda Gates Foundation, and the Stuart Foundation for underwriting the expenses to maximizing revenues where possible, conduct this important school finance research project; and the Fiscal Crisis & Management they generally reported success at Assistance Team (FCMAT) for the supplemental support that enabled EdSource to prepare and maximizing public funds, including distribute this summary publication throughout California. unrestricted state funds and, to a lesser © Copyright 2007 by EdSource, Inc. EdSource, 2007 by © Copyright 2 ● Keeping California School Districts Fiscally Healthy ● April 2007 EDSOURCE REPORT

extent, categorical state and federal particular to California can be added to funds. They were split, however, regard- this more general comparison. These Study Methods ing their success at maximizing interest include the requirement to collectively income and securing extra revenues from bargain with employees should they The original study relied on data available from state private sources. And few CBOs report choose to be represented, due process and local sources, augmented with a survey success at maximizing revenues from protections for employees that can completed in spring 2006 by 135 chief business offi- property (such as lease income) or serv- make the cost of termination substan- cers in a stratified random sample of California school ices for which they could charge a fee. tial and the process lengthy, and districts. A review of both legal requirements and limitations on the ability to contract professional standards for the financial management School district management requires with outside vendors for services. of school districts guided the survey’s development. good business practices, but it is not like managing a business School districts often rely on To determine the fiscal health of districts,the study Although some critics say school common business practices used data from California’s system for identifying districts should just manage their At the same time, many school districts fiscally troubled districts, which was supplemented finances more like businesses, experts adhere to common business practices with data regarding patterns of deficit spending point to numerous contrasts between that improve their efficiency and reduce and financial reserve levels.This measurement tool school district financial management their costs, such as strategic planning, was used to evaluate the short-term financial and business management. A 2005 competitive bidding, and best practices health of all districts in the state for the period report by Stacy Childress out of the in the area of personnel management from 2002–03 to 2004–05. Public Education Leadership Project at (hiring, evaluation, and progressive The study uses comparative statistics to test for Harvard Business School states that the discipline). Districts can also approach relationships between the fiscal health of districts, differences between businesses and their interactions and communications the survey responses from the sample districts,and school districts are greater than the with families and communities state data. Where appropriate, the study also similarities. The report cites examples, constructively, treating them as the applies regression analysis to examine relation- such as the way districts acquire capital, “clients” of the education business. the requirement to serve all students Effective investment strategies can ships between the fiscal health of all California regardless of their capabilities, and ensure that districts manage real school districts and selected district characteris- districts’ accountability to a number of property well and maximize earnings on tics. For some of the variables, a statistically public and private stakeholders. cash balances and other investments. significant difference (not likely the result of A number of additional require- Districts also benefit from the use of random variation) was found based on the fiscal ments for school districts that are effective management information health of the district, and those findings are noted systems. Some school districts gain throughout this report. important advantages by forming joint powers authorities (JPAs) for purposes Inside This Report of combining purchasing power, provid- ing services, or sharing risk. and ultimately approve the budget and The Study Uses a Robust Measure that more other fiscal information submitted to Accurately Captures District Fiscal Health ...... 5 Financial decisions are a shared local county offices of education Districts’ Fiscal Health Is Related to leadership responsibility (COEs) and/or the California Depart- Factors Outside Their Control ...... 7 Another reality regarding school district ment of Education (CDE). When Data on District Leadership financial management is that it is always superintendents and boards sign financial Provide a Partial Picture ...... 9 shared among school district governing reports, that means they agree with and boards, superintendents, and CBOs. support the information provided. For Financial Management Practices Are Somewhat Consistent with Professional Standards ...... 10 Generally, CBOs are responsible for this reason not only CBOs but also developing and managing the technical superintendents and board members What Are District CBOs Concerned details of the budget, monitoring fiscal need to be knowledgeable about financial About in the Future? ...... 14 activities, and advising the school board management laws and practices. Financial Management Is a Complex and superintendent on the district’s fiscal California does not currently have Undertaking in California ...... 15 health. But California law requires that any official requirements for CBO certi- the superintendent and the board review fication. Districts are free to hire © Copyright 2007 by EdSource, Inc. EdSource, 2007 by © Copyright April 2007 ● Keeping California School Districts Fiscally Healthy ● 3 EDSOURCE REPORT

Fourteen states require some form of processes, including a declaration of “Basic aid” and small districts certification or licensure for CBOs, ac- impasse, mediation, and fact-finding. In cording to surveys conducted in spring California, there is no binding end to operate outside the “normal” 2003 by the Association of School negotiations short of a bargained agree- finance system Business Officials International (ASBO) ment, and neither the school board nor “Basic aid” districts have property taxes that with Purdue University. Another 14 the union is compelled to reach one. exceed their revenue limit states have voluntary certification, and After an agreement is reached, About 50 districts regularly generate property tax 20 have neither type of program. (Two however, state law requires that the district revenues that exceed their base revenue limit states did not respond to the survey.) superintendent and CBO personally certify that the district can afford the cost amount. These districts are termed “basic aid” Compensation issues—determined of the agreement for its duration. The districts. They are allowed to keep all the property through collective bargaining—are COE then reviews the agreement and can taxes they collect but receive no other general- central to school district finances advise the board of any concerns. purpose funding from the state. An inescapable reality for every school The budgeting process for basic aid districts is district is that the bulk of expenditures Compensation is determined locally fundamentally different. Their general-purpose are for personnel. That fact, combined but within state guidelines revenues are typically more predictable from year to with California state law regarding California requires districts to place all year because they do not depend on student count collective bargaining, means that district teachers on a single salary schedule and property taxes are a relatively stable revenue negotiations with employee unions are based on seniority and educational source. Although other districts have an incentive to central to the district’s ability to keep its qualifications. But the specifics of the maximize their average daily attendance (ADA) in expenditures in balance with its revenues. schedule are locally bargained. As a order to receive additional funds, basic aid districts Collective bargaining is mandatory result, no two districts use exactly the can benefit from a lower student count that leaves for school districts in California, and same compensation scheme. them with more funds per student. the vast majority of them are totally Compensation also includes days and unionized. A typical district will have hours of work as well as health and Small districts often rely on their county at least two bargaining units, one for welfare benefits, with many districts offer- offices of education teachers and one for classified employ- ing free, or nearly free, health benefits Of the state’s 979 school districts, 396 qualify to ees. Some districts also have bargaining while others cap their contribution. be “direct service” districts based on size. These units for a portion of their administra- Statutory benefits are an automatic—and districts,by law,must have fewer than 901 elemen- tors, such as school principals. substantial—cost to school districts. For tary students, 301 high school students, or 1,501 The scope of bargaining is defined each employee, the district is required to unified (K–12) students.They can depend on their partly by state law and partly by local contribute to specified public employee local county office of education (COE) for a variety contract and past practice. State law spec- retirement programs and unemployment of services, such as instructional supervision, ifies wages, benefits, representation, and as well as Social Security/Medicare for attendance supervision, health services for pupils, working conditions as mandatory subjects some employees. These expenses cost and guidance services. For some of the smallest of bargaining. The scope of bargaining more than 12% of salary. districts, this includes financial management, and often also includes class sizes, coaching Retiree health benefits are a concern the COE officially acts as the district’s chief busi- stipends, paid planning time, compensa- ness officer. Data regarding the number of districts tion for after-school activities, number of The issue of postretirement benefits, teaching minutes, duty-free lunch periods, particularly health care, has gained visi- that receive financial services or give their fiscal retiree benefits, employee transfer and bility in recent years and is creating new duties to their COE are not readily available. reassignment policies, and processes for challenges to districts’ fiscal health. Most evaluation and termination of employees. districts limit benefits to a maximum number of years or age. A small number Public employees can strike of districts, however, offer benefits for whomever they choose in this role, and In California, public employee unions life, often including a retiree’s spouse and the state does not regularly collect data have the right to strike, and the district dependents. The cost of lifetime benefits regarding the education or experience of has the right to unilaterally impose its is dramatically higher because, in general, district CBOs. In other states, the certi- last, best, and final offer. But first the a disproportionate share of health care fication requirements for CBOs vary. parties must comply with specified state costs occur during the final year of life. © Copyright 2007 by EdSource, Inc. EdSource, 2007 by © Copyright 4 ● Keeping California School Districts Fiscally Healthy ● April 2007 EDSOURCE REPORT

districts still do not have to set aside fund- receive state funds for deferred mainte- This report relies on fiscal data ing to pay for the future benefit. They can nance projects as long as they provide continue to allow the liability to grow. matching local funds. Custodial work is during financially volatile years The district can also determine the paid through the general fund. This report relies on fiscal data from 2002–03 to nature of the benefit offered. In practice, School districts are also required to 2004–05. During those years, the state’s financial most plans require coordination of bene- comply with the Civic Center Act and situation was particularly volatile, and the number fits with Medicare (when eligible), but allow use of their facilities by the public. of districts identified as having serious fiscal health some do not. Many California school These arrangements are handled at the problems increased. districts offer a zero benefit—and a few local level, and districts vary in the offer the most costly benefit—but most requests they get, the fees they charge, In 2005–06 the new set of regulations based on districts fall in the middle. and the number of obstacles they some- Assembly Bill 2756 (see the box on page 6) went into Once given, the postretirement times place in the way of such use. effect, further increasing these oversight require- health benefit is difficult to take away. Additionally, school districts are free ments. In addition, 2005–06 marked a turning point Districts that have done so have typically to engage in asset management programs in a two-decade increase in student enrollment. established a two-tier system. Employees and use excess property to generate addi- Projections are that enrollment in California’s K–12 hired before a certain date have the bene- tional revenue. This most commonly schools will decline in 2006–07 and will continue to fit; those hired after that date do not. involves leasing vacant school sites. decrease by small numbers during the next decade. Finally, the cost of health benefits Some districts also sell some of their has risen at a rate that is two to five holdings to raise one-time money. Districts vary in their experiences, however, with times higher than revenue increases in about half experiencing declining enrollment, but school districts. This unfunded liability The study uses a robust measure about a third—generally in areas with lower hous- grows at a rate far in excess of the that more accurately captures ing costs—expecting growth to continue. district budget. Over time, both the district fiscal health unfunded liability and the cost of “pay One of the central questions in the as you go” benefits have become larger EdSource/School Services study was the percentages of district expenditures. relationship between a district’s fiscal Districts that terminate the benefit or health and various personnel characteris- transition former employees to Medicare Good facilities management is key to tics, state and local policies, and district at age 65 avoid some of that cost. fiscal health, but funding is separate practices. A first challenge was to accu- If districts choose to offer postretire- School buildings are integral to district rately categorize which districts are fiscally ment benefits, they are not required to operations, yet much of the financial healthy, marginal, or unhealthy. A concern prefund any part of the benefit; and most management related to them is outside was that the state’s current measures for districts do not. Thus, a district can grant of district general fund budgets. In identifying districts with poor fiscal a costly benefit to current employees and, California, the capital investment in health, described next, appear to underes- in the future, have to balance that cost buildings, including both new timate the problem. EdSource and School against a desire to augment educational construction and modernization, is Services developed a new measure of programs or raise salaries. primarily financed through a combina- district fiscal health that more accurately In the past, districts were not required tion of local and state bond money. captured district fiscal health during the to include any acknowledgement of the Except for cases of hardship or emer- three-year period examined in the study. liability for postretirement benefits in their gencies, districts are expected to match financial statements. A footnote referenc- state bond proceeds with funds from Assembly Bill 1200 created California’s ing the actuarial value of the unfunded local bonds and/or developer fees. current fiscal warning system benefit was sufficient to meet disclosure The ongoing maintenance of facili- In 1991 California lawmakers passed requirements. Then, in 2004, the federal ties, on the other hand, comes from Assembly Bill (AB) 1200, which Governmental Accounting Standards district operating funds in ways that are established standards for financial Board (GASB) issued statements 43 and partially mandated by state law. Districts management and created a system of 45, which require districts to record the are required, for example, to maintain a fiscal accountability and oversight for unfunded liability in their financial state- routine restricted maintenance fund that school districts. The standards are broad ments beginning with the largest districts dedicates 3% of their general fund budget in scope, dealing with such things as in 2006. But, unlike private corporations, to this purpose. In addition, districts can required reporting, data formats, a © Copyright 2007 by EdSource, Inc. EdSource, 2007 by © Copyright April 2007 ● Keeping California School Districts Fiscally Healthy ● 5 EDSOURCE REPORT

meet its financial obligations for the These types of indicators are largely California leaders strengthened the current and immediate two fiscal years. not available for California. The state’s ● Negative—based upon current current approach fundamentally fiscal oversight provisions in 2004 projections that a district will not measures districts’ short-run financial After several years of robust economic growth and meet its financial obligations for the condition and solvency. In 2004 poli- increased funding for schools, the state’s financial current or next fiscal year. cymakers added some additional situation worsened after 2000, affecting school Of California’s 58 county offices of oversight provisions to the AB 1200 funding. During the next few years, a small number education, 51 provide secondary fiscal process. (See the box on this page.) of districts did not have the financial reserves or oversight for the state’s school districts. systems in place to avoid disaster. After granting State law requires county superinten- The state’s current measures identify few districts of concern the two largest school district emergency loans in dents to not only monitor the financial the history of the state and a couple of lesser performance of school districts, but Initially, this study attempted to use also intervene when a district is unable districts’ AB 1200 status to categorize loans, lawmakers passed Assembly Bill (AB) 2756 to meet its fiscal obligations. The them as healthy, marginal, or unhealthy. in 2004.This bill added more teeth to the oversight California Department of Education Using this approach, healthy districts process that AB 1200 created in 1991. Lawmakers (CDE) does the same for county were those that received only positive used a list of indicators developed by the state's offices. Additionally, school districts certification from 2002–03 to 2004–05; Fiscal Crisis & Management Assistance Team must retain independent certified public marginal districts received one qualified (FCMAT) to strengthen the fiscal oversight function. accountants to conduct annual audits certification; and unhealthy districts In July 2005, the State Board of Education supple- as specified by the State Controller’s received a negative certification or two mented the list. (See: http://wwwstatic.kern.org/ Office. Further, the state’s Fiscal qualified certifications. gems/fcmat/predictors12805.pdf) Crisis & Management Assistance Team The vast majority of districts (88%) (FCMAT) provides both preventive were in the healthy category by this services and recovery assistance to finan- measure, with 7% marginal and almost standard account code structure, and cially troubled districts. 5% unhealthy. These data make clear the purchasing and bidding procedures. Regarding financial reporting poli- relatively small number of districts that The AB 1200 certification process is cies, the state also requires that all have been identified as having fiscal diffi- a straightforward evaluation of district districts use a standardized account culties under the AB 1200 process. solvency based on financial documents code structure for tracking revenues and However, recent experiences in Cali- required by the state and dependent on expenditures, that they maintain a fund- fornia suggest that the current system local officials’ ability to accurately project accounting system that meets specific under-identifies districts that may be enrollments, costs, and revenues over guidelines, and that they comply with facing fiscal health problems. In par- time. When districts submit their annual state law regarding budget development, ticular, it does not provide a clear budgets and interim financial reports to review, and submission. These rules distinction between districts that are the county superintendent, they certify are—in spirit, if not always in prac- healthy and those that are marginal (at their ability to meet their financial obliga- tice—consistent with the guidelines of risk for problems given current prac- tions for the current and subsequent two GASB Statement 34, issued by the tice). Specific issues include: years. County office officials review these federal government in June 1999. ● Management flaws compromise data. There documents to validate the district’s self- Outside California, some work has are several examples of school certification. A similar process occurs been done to create more robust districts that received a positive certi- when the district finalizes a collective systems to evaluate school district fication under AB 1200 one year and bargaining agreement with employees. financial conditions. For example, the then required the drastic step of state Based on this review, districts receive Financial Condition Indicator System loans the next year in order to meet one of three financial certifications: developed in 2003 to assess New York their obligations. The fiscal crisis did ● Positive—based upon current projec- school districts looked at districts’ not erupt in one year but went unde- tions that a district will be able to meet short-run financial solvency, long-run tected for several years because of the its financial obligations for the current financial condition, conditions within lack of quality information about the and immediate two fiscal years. the local economy surrounding true fiscal situation. ● Qualified—based upon current projec- districts, and student performance as a ● There is limited ability to generate early warning. tions that a district may not be able to measure of service-level adequacy. Under the current system, there are © Copyright 2007 by EdSource, Inc. EdSource, 2007 by © Copyright 6 ● Keeping California School Districts Fiscally Healthy ● April 2007 EDSOURCE REPORT

ways to distinguish districts that will figure 1 Districts statewide and in the study are rated based on fiscal health clearly be unable to meet their finan- cial obligations in the current year. Districts Statewide Districts in Study Sample However, there is no systematic review used to monitor or identify Number Percent Number Percent risky financial practices—such as Not available 12 1% deficit spending or inaccurate revenue Healthy 520 53% 53 39% estimates—that can eventually lead Marginal 275 28% 46 34% to fiscal problems. Unhealthy 176 18% 36 27% ● Districts and county offices have difficulty eval- uating the long-term effects of their decisions. Total 983 100% 135 100% State law calls for districts and county Note: The survey participants included an oversample of districts that had been identified as having fiscal problems.This was in offices to certify that the district can order to make conclusions about unhealthy districts possible given the relatively small number of districts included in the survey. meet its obligations for the current year as well as the subsequent two Data: School District Financial Management (Perry/GDTF) 2007 EdSource 4/07 years. There is no objective standard for these projections, however, and they are particularly difficult to evalu- figure 2 From 2002–03 to 2004–05, districts statewide with increasing ate or monitor due partly to funding enrollments were more likely to be healthy fluctuations in the state budget and, Enrollment change from Percent of Districts thus, in school funding. 2002–03 to 2004–05 Healthy Marginal Unhealthy A more robust approach shows more Districts that Declined 49% 30% 21% marginal and unhealthy districts Districts that Increased 56% 28% 16% To compensate for these problems, the EdSource/School Services study Data: School District Financial Management (Perry/GDTF) 2007 EdSource 4/07 created a multidimensional measure that would consider not only districts’ AB 1200 status over a three-year period, Other factors are largely outside the statistically significant (not likely the but also their deficit-spending patterns sphere of influence of district manage- result of random variation). and reserve levels. The assumption was ment. The study showed that some of that fiscally healthy districts are less those factors were related to district Declining-enrollment districts are likely to exhibit patterns of spending fiscal health as previously defined. more likely to be fiscally unhealthy, beyond their means and more likely to The state provides extensive data and growing districts are more likely have reserves. Using this more robust regarding school district enrollments to be healthy measure, districts in the state as a whole, and revenues, two factors over which School districts in California have and in the sample, were categorized as California districts have limited limited control over their enrollment. fiscally healthy, marginal, and unhealthy. control. Districts in California also They must serve all students who show Statewide, more than half of school generally fit three types of configura- up for class, but the number of districts fit the healthy category, but tions: unified (grades K–12), high students can grow or decline because of almost three in 10 were in the marginal school (9–12), and elementary (K–8). larger demographic and residential category. (See Figure 1.) For all districts in California, the patterns in the state. What districts can study compared these characteristics control—such as attracting students to Districts’ fiscal health is related and others, such as student demo- good district schools or losing them to to factors outside their control graphics, against the fiscal health other districts or charter schools— Numerous factors influence a school categories described previously for the typically have only a marginal impact district’s financial condition. Some are years 2002–03 to 2004–05, consider- on total enrollment. under the direct control of district ing each characteristic (one at a time) Yet enrollment and attendance management or can be significantly against the fiscal health categories. numbers have a substantial influence over influenced by management decisions. The relationships discussed next are school district expenditures and revenues in © Copyright 2007 by EdSource, Inc. EdSource, 2007 by © Copyright April 2007 ● Keeping California School Districts Fiscally Healthy ● 7 EDSOURCE REPORT

figure 3 Statewide, elementary districts are the most likely to be healthy The funding system disadvantages Percent of Districts declining-enrollment districts Healthy Marginal Unhealthy Declining enrollment puts specific fiscal stresses on Elementary School Districts 62% 24% 15% school districts in California because of the funding High School Districts 54% 27% 18% system, while increasing enrollments bring financial Unified Districts 40% 36% 24% advantages to districts. As school districts increase All Districts Statewide 53% 28% 18% their enrollment, the state provides additional funds based on their per-pupil revenue limit. This amount Note: Rows may not equal 100% due to rounding. represents an average amount that would be needed to accommodate the new workload, even though the Data: School District Financial Management (Perry/GDTF) 2007 EdSource 4/07 district may not incur the equivalent increase in aver- California. Enrollment establishes the highest in districts that are currently desig- age costs for that unit of average daily attendance number of teaching and support staff a nated as fiscally unhealthy: almost six in (ADA). Instead, districts usually incur a marginal district will need. Attendance rates among 10 anticipate enrollment losses. Less than increase in costs for each additional student. those enrolled students largely determine one in five unhealthy districts anticipates Marginal costs would be the added salary and bene- the amount of revenue a district will receive. an increase in enrollment in the next three fit costs for a teacher and an aide (if applicable). Enrollment growth and decline also affect years. On the other hand, more than half Conversely, when enrollment declines, school a district’s facility needs and costs. of the currently healthy districts expect districts lose revenue limit (unrestricted) funds at Figure 2 on page 7 summarizes the either an increase (39%) or no change the average rate per ADA, rather than at a marginal distribution of all districts statewide (15%), while 46% of this group predict rate. To accommodate this loss of revenues, with regard to enrollment change and enrollment losses. Of the districts identi- districts must cut costs beyond the classroom. A fiscal health based on ADA histories fied as marginal, 52% expect declining somewhat simplified example illustrates the point. from 2002–03 to 2004–05. Statewide, enrollment in the next three years. If a district lost 30 ADA at a per-pupil revenue limit districts that experienced declining Unified districts are more likely to be of $5,000, it would face a loss in unrestricted enrollment are under-represented in the healthy category and over-represented marginal or unhealthy revenue alone of $150,000. However, cutting one in the unhealthy group. Conversely, Based on the study’s fiscal health index, teacher from the district’s payroll would reduce districts that experienced increased the data suggest that both elementary costs by only about $50,000 to $60,000 (assum- enrollment are disproportionately and high school districts are more likely ing the least senior staff would be released first). healthy and less likely to be unhealthy. to be healthy and less likely to be The savings related to an aide could be about However, enrollment data from marginal or unhealthy compared with $30,000. After making these reductions, the 2002–03 to 2004–05 do not capture the unified districts. (See Figure 3.) district would still have to find savings of at least magnitude of enrollment declines that Although these data are compelling, $60,000 to mitigate the revenue loss. Reductions have occurred in California since then. a number of factors make it difficult to in other school or district operations—such as Some districts have experienced declines draw substantive conclusions regarding administration, student support services, or main- over several years. In addition, an increasing the relationship between district type and tenance—would be required to keep the district’s number are now facing this situation, and district health. For example, revenue budget in balance. Because the scale of these many declines are becoming more acute. limits per ADA—and thus total funding operations do not adjust automatically with The survey asked respondents to per ADA—correlate highly with district marginal changes in ADA,incremental implementa- indicate what they expect their district’s type. By design, the state’s revenue limit tion of reductions in these areas can be a major enrollment pattern to be for the next system provides, on average, a higher per- challenge. And this example assumes that the 30 three years. Altogether 52% indicate pupil amount to high school districts, a students would all attend one school and that that they expect their district’s enroll- lower amount to elementary districts, categorical funding (for special-needs students or ment to decline, 16% predict no and a middle amount to unified districts. for special programs) would not be reduced. Yet, change, and 32% anticipate an increase. (However, in recent years, elementary neither scenario would likely be the case. An analysis of these responses against districts have been receiving almost the districts’ fiscal health show that the the same amount as unified districts.) expectation for enrollment declines is District size is a similar variable, with © Copyright 2007 by EdSource, Inc. EdSource, 2007 by © Copyright 8 ● Keeping California School Districts Fiscally Healthy ● April 2007 EDSOURCE REPORT

elementary districts being the largest in responsible for keeping California school regarding superintendents’ total years of number but the smallest in size. By districts fiscally healthy. Topics of interest experience in the role or their education. contrast, unified districts include all of included the stability of district leader- The CBOs who answered the survey the state’s largest districts. ship and the education and experience of are generally well-educated. The vast However, a further regression analysis district chief business officers. State data majority of respondents report holding to control for these other district variables on these topics is extremely sparse, so the at least a bachelor’s degree, and three- showed the same results and that these study depended on the CBO survey and fourths hold a bachelor’s or advanced results are statistically significant. Unified proprietary data sources. degree in a finance-related field. districts are more likely to fall into the Further, the majority of CBOs say they marginal and unhealthy categories. have participated in some voluntary training. (See the box on page 11.) Higher-revenue districts are more Stability of business leadership is likely to be fiscally healthy difficult to measure, again due to a lack The study also looked at the extent to of state data. Survey responses, however, which districts’ fiscal health might be provide a sense of what may be happen- related to revenue levels. The authors ing statewide. They indicate relatively examined districts’revenue limit funds and Fiscally healthy districts high turnover in any given district, but a their total revenues, using a per-ADA are more likely to have relatively experienced cadre of people measure to control for the size of districts. stable leadership and filling CBO jobs statewide. On average, For this analysis, the study looked at more administrative staff respondents had 4.7 years of tenure as a elementary, unified, and high school CBO in their districts and 10.5 years of districts separately. Although there was no Districts with the highest stability in the experience in the role. Among the 129 statistically significant relationship for the superintendency are more likely to be CBOs who responded to this question, 84 high school districts in the state, fiscally healthy, based on data for the 43% report having 10 years or more of elementary and unified districts yielded a sample districts and the state as a whole. experience, but only 9% say they have number of statistically significant results: been in their current position for that ● Those with higher total revenues per Based on survey responses, the level of length of time. pupil (ADA) are less likely to be in CBO education or training is not clearly Most CBOs in California have a the marginal or unhealthy category. related to fiscal health among the sample broad scope of responsibility. Re- ● Looking only at revenue limit districts, but healthy districts are more spondents to the survey are nearly amounts per ADA, the same relation- likely to have had the same CBO for a unanimous in saying that they are ships are true, with districts that have decade or more. responsible for their district’s budget- higher revenue limit amounts more Districts in the sample that have adminis- ing, accounting, purchasing, and risk likely to be in the healthy category. trative staffing ratios lower than 125 to 1 management/insurance administration. ● An examination of “other revenues” Approximately seven out of 10 indi- are more likely to be healthy. (total revenues minus revenue limits) cate responsibility for facilities, main- shows the same general pattern, but tenance, operations, transportation, not as strongly. and food service. Only about half, The study found that, for the most The majority of California school however, say they handle their district’s part, district size alone did not seem to districts have stable top leadership information technology, and about have a clear relationship to fiscal health. and well-educated CBOs 15% say they have human resources But there was one exception: large Based on data collected by EdSource responsibility for both certificated and elementary districts are more likely to be over several years, 39% of California classified staff. marginal than healthy. school districts had the same superin- The study also used state data to tendent from 2001–02 to 2005–06, compare the level of administrative Data on district leadership provide and another 46% had only one leader- staffing in the sample districts, based on a a partial picture ship change in that time. In other words, ratio of staff to students. The data include The study looked at a variety of issues about 85% of school districts in the both district office administrators and related to the superintendent and the state had relative stability at the top employees in the office/clerical category. CBO to learn more about the people during that period. No data are available The majority of districts in the sample © Copyright 2007 by EdSource, Inc. EdSource, 2007 by © Copyright April 2007 ● Keeping California School Districts Fiscally Healthy ● 9 EDSOURCE REPORT

(58%) have a staffing ratio of between 75 available in California, and individuals or CBOs. They also address district finan- and 125 students per administrative staff, school districts generally paid for it. Four cial management and governance more but nearly 30% have fewer staff. primary options were available. This study generally. These standards documents, asked respondents about the extent to combined with the experiences and Attention has been directed at which they participated in those backgrounds of School Services and improving the capacity of CBOs programs, and most reported having done EdSource during the last 30 years, Presumably, appropriate education and so at least once. (See the box on page 11.) helped guide the development of the training are an important part of survey for this study. preparing school district CBOs for this demanding and complex work, particu- School board governance and larly absent any mandatory or voluntary decision making affect financial certification procedure in California. management In California, there has been in- Along with their responsibility to creased recognition that effective fi- understand the state and federal laws nancial leadership requires that CBOs in under which school districts operate particular have sound knowledge of Fiscally healthy districts and to maintain professional standards, good fiscal management practices. The CBOs play an important role in inform- growing number of districts nearing or have well-trained board ing the decision making of their school reaching fiscal insolvency ultimately members, high-quality board and superintendent. Further, prompted legislative action in 2005. policies, and the ability their ability to function effectively can Prior to that, the state had no specific to cut programs not be either helped or hindered by the policies regarding training or qualifica- quality of those decisions. tions for CBOs. This action followed aligned with their goals In California, school district several years of work on the part of state CBOs in healthy districts are more likely to: governing boards have the ultimate officials and the education community. responsibility for approving their The CBO training bill, Senate Bill ● Characterize the general orientation that district’s budget and for many ongoing 352, which passed the Legislature board members receive as high-quality; financial decisions. To do this effec- in 2005, was supplemented by a ● Report that their district has high-quality tively, board members need to, at a $1 million ongoing budget augmenta- policies and regulations; minimum, have a clear and accurate tion. The program provides $3,000 per understanding of the school finance candidate to attend one of several ● Say that their district has to a great extent system, accounting principles, district approved training programs (enough established procedures for evaluating the operations, and the role they should for close to 350 participants annually). financial impact of budget amendments play in the district’s fiscal affairs. The In March 2006 the State Board of and has been able to cut programs that study did not survey school board Education approved criteria for training are not aligned with strategic goals. members regarding these issues, but providers, and the first cadre of partici- instead asked CBOs some key questions pants was approved during the summer. about the district support given to The legislation further required board members. The survey also asked that the CDE provide both an interim Financial management practices about the extent to which the district as and final report on the program. are somewhat consistent with a whole aligned its expenditures with Included in the interim report, due in professional standards strategic goals and priorities. July 2007, will be the “identification In developing its system of fiscal over- of the core competencies that should, sight of school districts, California has School board members often do not at a minimum, be included as part of a focused on identifying and intervening receive high-quality training, according state-administered chief business offi- in bad situations. In a more con- to the CBO survey cer certification.”The legislation does structive vein, documents from the Although the vast majority of CBOs who not, however, call for that certification Association of School Business Offi- responded to the survey say their school to be implemented. cials International (ASBO) and from board members receive some training on Previously, private organizations and other states recommend some profes- school district budgeting and finance, FCMAT provided the CBO training sional standards for school district only a quarter of them characterize that © Copyright 2007 by EdSource, Inc. EdSource, 2007 by © Copyright 10 ● Keeping California School Districts Fiscally Healthy ● April 2007 priate financial-control procedures, thattheyfollow report survey appro- Almost alltheCBOswho answered the rely onsomecost-cuttingstrategies butfewer financial-control procedures, Most CBOssaythey useappropriate ● ● ● ● extent:trict, toagreat say theirdis- Substantial proportions districts make theirfinancialdecisions. questions regarding how strategically CBO responses more vary widely on linked topriorities the extent towhich financesare CBO responses widely vary regarding fo ance, but thatfew boards conduct eva re r g addition, almost40%characterize the highquality. In training asbeingof promptly updated. ev highquality, areand regulations of tion andthatwrittendistrictpolicies r those goals. thatdonotfurther cut programs g b lished procedures for evaluating districts have extent toagreat estab- CBOssay their positive. Just 23%of decisionsweretegic markedly less practices. the negative regarding thesesame respondents answer in 35% of eceive ashighquality. MostCBOsalso eceive good qualityfinancialinforma- eneral orientationboard members oals orthattheyare able to udget amendmentsagainst district port thattheirschool boardsport formally rm en thoughtheyare notalways menting a new program (47%). menting anewprogram Considers goals closely when imple- priorities (42%);and Re priorities (37%); Links itsfinancialplanandbudget to F luate thesuperintendent’s perform- R Tw Conversely, between 20%and ollows plan(31%); astrategic al self-evaluations. espondents alsosay thatboards gularly adjustsitsbudget tomeet o otherquestionsaboutstra- ing procedures. high-qualityestimatingandbudget- of ov ing practices.Respondents are also r supplies toschools (at75%and64% authorities anddirect delivery of powercost-cutting strategies—joint district always oroftenusestwo other Somewhat fewer respondents say their somepurchases. bid) tocutthecostof wh (in bidding” “piggyback gies, such as usingcost-cuttingstrate- also report requirementslegal for purchasing. They dards for debt management, andsatisfy and professionalmeet bothlegal stan- setvl)a ato theirpurchas- espectively)—as of part erwhelmingly positive abouttheuse The programisheldon10weekendsthroughouttheschoolyear. California Commissionon Teacher CredentialingProfessionalClear Administrative ServicesCredential. Administrators SchoolBusinessManagers requirementsofthe Academy wasdesignedtomeetcertain to ensure certification renewal. to ensurecertification fiveyears mustcompleteanadditional40hoursofcontinuingeducationevery participants addition, In asappropriate). of classesataccreditedcollegesanduniversities(orprofessionalorganizations, arerequiredtocomplete30semesterunits Participants comprehensive trainingprogramsinCalifornia. programisoneofthelongest-runningandmost Association ofSchoolBusinessOfficialscertification 8% participated inthenew FCMAT8% participated CBOMentorProject. Program. intheSchoolBusinessManagementCertificate 23% participated in 48% participated ACSA SchoolBusinessManagers Academy. Program. inCASBOChiefBusinessOfficialCertification 53.5% participated inmultipleprograms. 26hadparticipated respondents, Ofthe93 voluntary trainingprogramsthatwereavailabletothempriorthe2006–07schoolyear. inorcompletedatleastoneofthefour havingparticipated reported The majorityofCBOssurveyed insomevoluntarytraining participating The majorityofCBOsreport ects outside class. Participants arepairedwithanexperienced CBOmentor. Participants ects outsideclass. occursduringoneyearandconsistsofeightday-and-a-halfsessions variousproj- guidance.Training hands-ontrainingand tendents EducationalServices Association (CCSESA)—emphasizes long-term, andCaliforniaCountySuperin- FCMAT, SchoolServices, This project—acollaborationbetweenCASBO, of20CBOsduringthe2004–05schoolyear. programtraineditsfirstcohort thisnew Assistance Team, esi ihSho evcso aiona Inc. nership withSchoolServicesofCalifornia, In2005 the programbeganoperatingasapart- Italsoprovidesmentorsforstudents. and presentation. plusafieldworkanalysis weekends permonth(10-hoursessions)tocomplete26unitsofcoursework, offered bytheUniversityofSouthernCalifornia(RossierSchoolEducation)requiresattendancetwo EDSOURCE REPORT ich several districts work together to A pril 2007 ● Ke e ping California School Districtsping California Fiscally Healthy it provides capital-project tracking or r software meetsbasicaccounting largely say thattheirdistrict’s financial sometimes orrarely able todoso. thattheyare minority (30%)report points inenrollment. Andasubstantial always able toaccurately predict turning things, lessthan17%say theirdistrictis 10 say theyalways oroftendothese housing developments. sixoutof While factors, such external asnew eration of statisticaltechniques andconsid- use of enrollment projections, including their questionsabouttheirapproach to of equirements, theyare lesslikely tosay Likewise, although respondents R Coordinated by the Fiscal Crisis&Management Coordinated bytheFiscal espondents were alsoasked aseries The Association ofCaliforniaSchool This yearlongprogram The California ● 11

© Copyright 2007 by EdSource, Inc. © Copyright 2007 by EdSource, Inc. fo substantially lesspositive thanisthecase T facilities. dards for themaintenanceof to control, planfor, andsetqualitystan- about thesystemsinplacetheirdistrict cal—suddenly fail. andelectri- heating, roofing, plumbing, wh sometimes substantialexpenditures health. canleadtounexpectedThey and ity needscanaffect adistrict’s fiscal thesefacil- quality, cost,andtracking of Inadequatecontrols onthe important. use tomaintainexisting facilities are Th systems inplacetomaintainfacilities CBOs are lesspositive aboutthe those statements. with 10agreeing about sixoutof helpful for with theirdecisionmaking, easy for theboard tounderstandand is forthat theformat financialreports cally significant level. these differences are notatastatisti- highquality. However, practices of unhealthy districtslesslikely toreport r tions followed in aconsistent pattern highquality. their practicesare of respondents say tions, aboutathird of orders andinventory. Ontheseques- computerized systemtotrack work project cost estimates,andusinga tizing maintenanceneeds,completing asked aboutprocesses related topriori- high qualityinthoseareas. thattheirpracticesare of dents report r r thissurvey, where thebulk of areas of written procedures. In contrasttomany eva e the measures districtstake todocument espondents selectedthemostpositive sos,ol bu 0 frespon- esponse, only about20%of elation todistrictfiscal health,with xpectations for high-quality work and heir responses tothesequestionsare otohraeso thesurvey. r mostotherareas of 12 luate thatwork, including theuseof en building systems—such as e businesspracticesdistricts office CBOs were asked afew questions T questions survey A secondsetof questionsrelated to of One group ● he responses toalltheseques- Ke e ping California School Districtsping California Fiscally Healthy concern inrelationtofiscalhealth Compensation issuesareacentral collective bargaining procedures and meeting professional standards for In general, respondents survey report r positiveMost CBOsreport and retiree healthbenefits. r lective bargaining procedures and areas related tocompensation:col- fiscal health. study looksatthreeThis district’s financial management and compensation canbecentraltoa district, theissuesrelated toemployee tures intheaverage school California operatingexpendi- more than85%of Because personnelcostsconstitute elationships, compensationpractices, elationships w and expendituresforunusualcostfluctuations. financialnegotiations, significant contracts, analyze appropriate controls;and(2)thatthey nificant expenditureprocessestoensure analyzesig- complete agreementthatthey including:(1) fiscally healthydistrictsapart, otherfinancialcontrolpracticesset Certain and helpswiththeirdecisionmaking. for schoolboardmemberstounderstand iseasy that theformatforfinancialreports systems providecapital-projecttrackingor to saythattheirdistrict’s financialsoftware CBOs fromunhealthydistrictsarelesslikely by and isnoteasilyunderstood does nottrack capitalprojects districts say theirsoftware CBOs fromunhealthy EDSOURCE REPORT boardmembers ● A pril 2007 ith unions n so highquality. ing isof r thatbargaining teams and support training positive aboutthequalityof board. However, respondents were less mates theyprepare for thegoverning bargaining, including thefinancialesti- re union. teachers’ primary districts’ having positive relationships withtheir lifetime healthcare. most costly postretirement benefits— statewide)havesimilar proportion the districts inthestudy sample(anda health andwelfare benefits. hard capontheper-employee costof plusbenefits)andhavingtion (salary a practice by negotiating totalcompensa- their districtfollows recommended T increase largersalary thantheCOLA. re respondents survey only about19%of r among sampledistricts—a3%difference. fits averaged arelatively 7% uniform time frame,increases insalariesandbene- district inthesample.Duringsame re (COLAs) resulted inanincrease in cost-of-livingstatutory adjustments to 2004–05show thatthestate’s compensation increases from 2002–03 statedataregarding A comparisonof r increases butsalary restraint on Compensation trends show consistent schools are thekey operationalunitsin w cate resources totheirschool sites, about howinformation districtsallo- provideState datainCalifornia little at theschoollevel at resource allocationpractices The studytookalimitedlook eceive, withjust40%saying thetrain- ecent contract(generally 2005–06), etiree benefits hich is an important questionbecause hich is an important v port that their district had granted a thattheirdistricthadgranted port port good-quality preparation forport emjrt frespondents alsosay he majorityof ne fabout4%intheaverage enues of ute,tevs aoiyo CBOs thevastFurther, majorityof lgtymr hn1%o the Slightly more than 10% of However, regarding theirmost allocation policiesandpractices. school-level pals andtheirdistricts’ school princi- management abilityof ● r school-versus-district control of of two extremes interms district atoneof answered thisquestion,30puttheir their district. schools within cated tothemajorityof how resources general-purpose are allo- three choices cameclosest todescribing asking respondents toindicatewhich of allocate resources toschools, firstby e questions survey Another setof little variation r Re flexibility. control andguidelinesthanonschool ally placemore emphasisondistrict school-level allocationpoliciesgener- R gr for school-leveltrue budget andpolicy e b training onfinancialmanagement and about 60%say thatprincipalsreceive fi pals are heldaccountable for sound authority, say andthree-fourths princi- theirfinancial cipals thescopeof district clearly communicatestoprin- thattheir CBOsreport majority of and thetrainingtheyreceive. principals vastThe expectations of districts’ appears tobesomedisconnectbetween responses,Based onthesurvey there to belacking inmany districts Principal financialtrainingappears we respondentssome lightonthis,survey a school district. To attempttoshed esource decisions: xplored in greater detailhowxplored ingreater districts xtent, andjust40%say thesameis esource allocationpracticesshows udgeting toeitheragood orgreat nancial management. However, only esponding CBOsalsoindicatethat oups (such asschool sitecouncils). re w givesoffice theschool abudget to respondents say theirdistrict 8% of otn fdistrict-to-school of porting Among the131CBOswho ork withfor bothpersonneland

asked aboutthefinancial- c nonpersonnel costs,andtheschool ● site chooses how tospendthosefunds.” b school hasandthengives the school a a staff administrators, andsupport teachers, thenumberof termines f withthe on thisquestion,agreeing dents—77%—took amiddleground ollowing: “The district office de- districtoffice “The ollowing: hooses how tospendthosefunds. udget for nonpersonnelcosts,andthe 24% ofthestudentsinstate). districts serve1.4millionstudents(about These these benefitstotheirretirees. thathavegranted fies 72districtsstatewide studyidenti- similarresults.The data reveal Statewide are morelikelytobeunhealthy. havinglifetimebenefits thatreport survey Districtsinthe health benefitstoretirees. grantinglifetime is ifadistrictreports is significantlycorrelatedwithfiscalhealth The oneareaofcompensationpracticethat exceptone. district fiscalhealth, compensationpracticesand reported found nosignificantrelationshipbetween thestudy However, ing teamtraining. high-quality costestimatesandbargain- Healthy districtsaremorelikelytoreport poor districtfiscalhealth retirees arecorrelatedwith Lifetime healthbenefitsfor nonpersonnel items. theschool’sdetermines spendingfor ataschool andalso staff and support teachers, administrators, number of the determines their districtoffice that respondents report 15% of EDSOURCE REPORT usata aoiyo respon- A substantialmajorityof A pril 2007 ● Ke e ping California School Districtsping California Fiscally Healthy assignments withinaschool: both toaschool andtospecificteaching individual teachers the assignmentof teachers assignedtoaschool andabout sions were madeaboutthenumberof askedsurvey the101CBOshow deci- r assignments. schools have more voice inwhich peopleandtheir control nonpersonnelbudgets. personnel decisionsandtheschools districts inwhich thedistrictmakes tice amongtheapparently typical discover what constitutesstandard prac- questionsto seriesof asked afurther itsallocationapproach were of in terms themiddleground their districtstruck ● ● ● support staff. Althoughstilllimited, support professional number andtypeof have only abitmore influence over the siteadministrators.Schools and typeof their districtsdecideboththe number tions, theyoverwhelmingly that report w assignments. other staff esource inaschool isitsteachers. The orsoddt hssre fques- ho responded tothisseriesof W T ize thisasashared decision. More thanathird (37%)character- decide withindistrictguidelines. sayingwith aboutafourth schools specific teachers assignedtoaschool, decision-making role regarding the are much more likely tohave a sayCBOs inthesurvey thatschools ment decision. district share equally intheassign- thattheschool and 16% report district guidelines(54%).Another either decidealone(16%)orwithin the respondents say thatschools within aschool, however, 70%of vide input. thatschools pro- 54%)—report schools or substantial portion—(52 teachers ataschool, but a number of say theirdistrictdecidesonthe itit eietenme fteachers; Districts decidethenumberof T Districts exercise considerable control over he overwhelming majority(92%) hen individuals are assigned he 101 CBOs who reported that he 101CBOswho reported Arguably themostimportant Among theCBOs ● 13

© Copyright 2007 by EdSource, Inc. © Copyright 2007 by EdSource, Inc. ● ● ● ● ● schools: terized asbeingthechoice of their general answer, theyhadcharac- allocation practicesthat,basedon substantially inhow theydescribed r nel expenditures. CBOswho The nonperson- authority for avariety of decision-making at thebalanceof e have limitedauthorityover othernonpersonnel decisions. influence over classified staff schools appeartohave slightly greater xpenditures. esponded tothesequestionsvaried 14 f or withindistrictguidelines(53%). that schools decidethisalone(32%) therespondents (85%)report ity of in purchasing supplies. vastThe major- schools have discretion is thegreatest re district isthekey decisionmaker R input oralone. ing thatdistrictsdecidewithschool share thedecision and40%report- 28% saying schools anddistricts responses are split,with balance of or withindistrictguidelines. The r districts surveyed. Aboutathird of decision amongthemajorityof tional materialsare notaschool-level By contrast,textbooks andinstruc- It in theresource-allocation decision. district andschools share equally r ment for teachers, themajorityof Re with school inputoralone. decision anddistrictsdecidingeither schools anddistrictssharingthe der are nearly evenly divided between (41%) oralone(7%). remain- The either withindistrictguidelines thatschools decide dents report therespon- ters, copiers),abouthalf equipment purchases (e.g., compu- Re acilities upkeep. About80%say the espondents say schools decidealone espondents (58%) report thatthe espondents (58%)report Schools decideonsupplypurchases, butthey

espondents are alsoclear thatthe ga ● appears thattheonearea where ga ga r ding staff and services related to andservices ding staff rd Ke r ding professional develop- e ing decisionsaboutcapital ping California School Districtsping California Fiscally Healthy Additional questionslooked about how theirdistrictsdecideonthe question askedsurvey CBOsafurther consider school andstudentcharacteristics. ● ● orunhealthy: marginal, nation ofhealthy, fiscalhealthdesig- depending ondistricts’ some statisticallysignificantdifferences allocationpracticesreveals of school-level Ananalysis andflexibility. accountability, capacity, to emphasizeschool-level F andflexibility accountability, school-level capacity, are morelikely toemphasize F to spendfundsinbothcategories(3%). likely tosaythattheirschoolschoose how nonpersonnel expenditures(23%)and less district determinesbothpersonnel and unhealthy aremorelikelytosaythatthe Respondents whosedistrictsarefiscally ● school input(39%)oralone(41%). district makes thesedecisionswith EDSOURCE REPORT iscally healthydistrictsaremorelikely Bsrpr htsafallocation decisions thatCBOs report staff iscally healthydistricts performance outcomes. decision makingtoschoolandstudent to expecttheirschoolslinkfinancial Fi healthy districts. cantly greateramongrespondentsfrom tobesignifi- and budgetingisreported training relatedtofiscalmanagement The extenttowhichprincipalsreceive likely tobeinthehealthycategory. to agreatextentaresignificantlymore cipals withstaffingandbudgetflexibility providingprin- The districtsthatreport scally healthydistrictsaremorelikely ● A pril 2007 The personnel toschools: theyallocate English learners—when tics—particularly thepercentage of andtostudentcharacteris-performance give someconsiderationtoschool r conditions inthosedecisions.Overall, w to agiven school andtheextent to personnelassigned number andtypeof ● ● hett hi itit’fiscalhealth, threat totheirdistricts’ costs have beenthemostcommon thatrising and thefuture, CBOsreport to fiscalhealthbothintherecent past W about inthefuture? What aredistrictCBOsconcerned ● considered somewhat. considered, andanother49%say itis thatthisisstronglydents (19%)report respon- of personnel. Asmallgroup when itallocated school’s teaching staff a districts considered theexperience of theextent towhichattempted tolearn the needieststudents. survey The particularly when thoseschools serve schools withinexperienced teachers, leveled atschool districtsthatoverload espondents report thattheirdistricts espondents report ihte osdravreyo school hich theyconsideravariety of T considered somewhat. considered and55%saying itis with 27%saying itisstrongly w low-income students percentage of e R aconsideration. somewhat of (49%)say thisis school. Abouthalf personneltoassigna and typeof tests when itdecidesonthenumber ers school-level onstate performance say thattheirdistrict strongly consid- respondents About athird (31%)of w either strongly (43%)orsome- English learners percentage of say theirdistrictconsidersaschool’s hen asked aboutthethreats theysee xtent thatthedistrictconsiders Increasingly, criticismhasbeen hen itallocatespersonneltoasite, hat (51%). evs aoiyo respondents he vast majorityof esponses are similarinregard tothe oeta afthedistrictsexpecting more than half nent placefor many respondents, with Enrollment changes occupy apromi- coping withenrollmentdeclines Respondents differinstrategies for ● ● ● e deal withissuesrelated toincreased 98 responses tothisquestion. more circumstances, providing atotalof answered, and several mentionedtwo or therespondents health. Abouthalf district’s abilitytoremain ingood fiscal the district’s control, andthreatened the we onany circumstancesand report that R health focusonrisingcosts fiscal threatstodistricts’ Reported re most notably declines—which leadto ter alsomentionenrollment changes— the sametocontinue;but nearly aquar- staffing. Lookingforward, theyproject and Special Education,transportation, costincreasesparticularly related to declining enrollment. losingstudents,primarily through of on reduced districtrevenues asaresult xpenditures: espondents were asked tolookback v T re f notably increases inmedicalbenefits are alsomentionedoften,most various kinds costsof Staff-related than ondistrictcosts. rather historical fundingformulas provides somefundingbasedon fortion, aprogram which thestate mentioned inregard totransporta- Encroachment isalsoanissue to support a categorical program). acategorical to support itsgeneral operatingfunds of portion to contribute agreater-than-expected encroachment (theneedfor adistrict described asSpecialEducation Education, isoftenmore specifically enue declines aswell. or current employeesor current andretirees. T About oneinfive responses focus

he mostcommonresponse, Special unique totheirdistrict,were outside emjrt ftheseresponses he majorityof Th tocheckand instructed allthatapplied. actionstheymightusetoaddress this of declines. Respondents were given alist their personnel. differences intheirfinancialpracticesand that vary intheirfiscalhealthalsoreport are becausedistricts not thewhole story problem. conditions Buttheseexternal re projecting enrollment declines, thiscould W those experiencing declining enrollment. are more likely tobeunhealthy asare others. Districtsthathave lower revenues to stay fiscally healthy thanitisfor easier for school someCalifornia districts goals. performance re more dauntingtostrategically allocate cult tomaintainfiscalhealthandeven e school districtsconfront revenue and improvements were made,California those Buteven countyoffices. if of districts andbetteroversight onthepart of better financialplanningonthepart could bemademore effective through a fiscalcrisis.However, thosesystems districts thatwould otherwisehave had school has reduced thenumberof r through itsrequirements for fiscal T inCalifornia complex undertaking Fi ● ● ● is underconsideration. schools, and35%say thatschool closure considering reconfiguring theirexisting anticipating adrop inenrollment are esponsibility (AB1200andAB2756) xpenditure issuesthatcanmake itdiffi- present an important andcontinuing present an important sources inways student thatfurther he safety netcreated by thestate nancial managementisa Vi ith about half of California districts California of ith abouthalf r Seven in10districtswillconsider re Nine in10districtswillconsider r EDSOURCE REPORT e results indicatethat: eductions inadministrative staff. eductions inteaching staff. T nadto,4%o thedistricts In addition,42%of ductions inclassified staff. rt his study makes itclear thatitis ually alldistrictswillconsider A pril 2007 ● Ke e ping California School Districtsping California Fiscally Healthy several areas, including: cial management couldbeimproved in findings,traininginfinan- on thesurvey cial management responsibilities. Based need tobewell prepared for theirfinan- r allowing professional practicestotake priorities canbeconsistentandclear, environment inwhich districtgoals and school districtsbecauseitprovides an for important stability isparticularly ● ● ● r allocation decisionscloser totheclass- puttingresource sion isthedesirabilityof system would looklike. about what abetterresource allocation Opinionsvary,performance. however, school resources toimprove student A majorgoal istomore effectively use r major message inthe funding itsschools. Such acritiquewas a ing for achange inthestate’s approach to Increasingly criticsare call- inCalifornia, objective thatwarrants morestudy educational goals isanambitious Linking resource allocationsto w facilities anotherspecificarea suggest of set qualitystandards for themaintenance systems inplacetocontrol, planfor, and the study onthefew questionsabout tion, therelatively negative responses in ensure theirfinancialsecurity. Inaddi- trative positionscouldhelpdistricts adminis- advantage. of Adequatestaffing school districtscouldstrengthen totheir financialmanagement thatCalifornia of appears thatthere are somespecificareas esearch project released inMarch 2007. oom andthestudent.Advocates argue oot and flourish. Further, theseleaders oot andflourish.Further, here practicescouldbeimproved. T f Fiscal management andbudgeting f School districtbudgeting andfinance collective bargaining teams;and or school siteadministrators. or school board members; T One commonthemeinthisdiscus- Based ontheCBOresponses, italso he negotiating processhe negotiating generally for he study indicatesthatleadership Getting DowntoFacts ● 15

© Copyright 2007 by EdSource, Inc. EDSOURCE REPORT

To Learn More at least as reported by their CBOs. Having a clear picture of what exists in the state in For the findings of the full study and references, including this regard—both in terms of attitude and the survey that district chief business officers completed, practice—is valuable as a starting place for go to EdSource Online, www.edsource.org,to EdSource further research and debate. It is also inter- Research Studies on the right and click on School District esting that the study found a significant Trish Williams Financial Management: Personnel, Policies, and Practices. difference in fiscal health in those districts EdSource Executive Director Also see Understanding School District Budgets (1/05): that pay attention to principals’capacity for www.edsource.org/pub_abs_budgetguide04.cfm financial management, expect principals to 2006–07 EdSource Board of Directors link fiscal decisions to student perform- Davis Campbell, President Works Cited ance, and provide schools with budget President, California School Boards Association Governance Institute Association of School Business Officials International. The State of flexibility. These findings are not sufficient Lawrence O. Picus, Vice President State Certification for School Business Officials. http://asbointl.org/ to indicate that these practices are why Professor, Rossier School of Education, asbo/files/ccLibraryFiles/FILENAME/000000000379/Certification- districts are healthy, but they do suggest an University of Southern California Document-FINAL.pdf.Accessed on Aug. 23, 2006. area where more information is needed. Martha Kanter, Fiscal Officer Chancellor, Foothill-De Anza Community College District Association of School Business Officials International. International Controlling expenditures is the key to School Business Management Professional Standards and Code John B. Mockler, Secretary of Ethics. http://asbointl.org/asbo/files/ccLibraryFiles/FILENAME/ fiscal health in California President, John Mockler & Associates, Inc. 000000001176/ASBO-Professional-Standards-2006.pdf.Accessed on Given their inability to raise significant Ray Bacchetti revenues on their own, a key to fiscal Scholar in Residence, Carnegie Foundation Aug. 3 & 4, 2006. for the Advancement of Teaching health for most California school Childress, Stacey; Elmore, Richard; and Grossman,Allen. Promoting a districts lies in controlling their expendi- Pam Brady Management Revolution in Public Education. Public Education Lead- President-elect, California State PTA ership Project at Harvard Business School, July 2005. tures. The need to do so creates a dynamic Christopher Cross tension between their responsibility to Chair and CEO, Cross & Joftus, LLC Duncombe,William; Ammar, Salwa; Jump, Bernard; and Wright, Ronald deliver sound, effective educational serv- Gerald C. Hayward (2003). Developing a Financial Condition Indicator System for New York ices to their students and to reasonably Partner, Management Analysis & Planning, Inc. School Districts. www.albany.edu/edfin/Duncombe.EFRC.june03.pdf compensate their employees. Some fiscally Santiago Jackson and http://nces.ed.gov/pubs2005/2005865_1.pdf.Accessed on healthy districts may maintain their fiscal Assistant Superintendent, Division of Adult Nov. 1, 2006. and Career Education, Los Angeles Unified status by scrimping on the services they School District Florida Legislature Office of Program Policy Analysis and Government provide. Others may risk being fiscally Jacqueline Jacobberger Accountability. Sharpening the Pencil Program: Best Financial Manage- unhealthy in the name of educational President, League of Women Voters of California ment Practices. www.oppaga.state.fl.us/school_districts/bestprac/ quality. And some districts are apparently Kelvin K. Lee practices/practices.html.Accessed on Aug. 4, 2006. Superintendent (Retired), Dry Creek Joint able to strike a delicate balance between Elementary School District these two extremes through a combination Donna Lilly Co-president, American Association of University of effective financial practices and perhaps Women–California that if greater accountability for results some good fortune in terms of the Paul J. Markowitz accompanied this change, districts and amount of revenues they receive. Teacher, Las Virgenes Unified School District

schools would operate more efficiently and The study’s findings illuminate some Ted Olsson students would be better served. Much of possible strategies for improving districts’ Manager (Retired), Corporate Community the discussion in California, with its state- ability to be in this latter group, but they Relations, IBM Corporation Amado M. Padilla controlled funding system, currently also shed light on the complexities Professor of Education, Stanford University revolves around the question of school involved in doing so in California. In Peter Schrag districts having greater flexibility. How- addition, they raise important issues Contributing Editor, Sacramento Bee

ever, the question of flexibility for schools related to school district financial Don Shalvey is invariably part of this discussion. management that warrant more study, CEO and Co-founder, Aspire Public Schools The study looks at the extent to which including further examination of district Krys Wulff Director-at-large, American Association the concepts of strategic resource alloca- leadership as a key factor that, at least in of University Women tion and site-level decision making have some cases, can overcome weak financial salience among California school districts, fundamentals.

520 San Antonio Rd, Suite 200, Mountain View, CA 94040-1217 • 650/917-9481 • Fax: 650/917-9482 • [email protected] © Copyright 2007 by EdSource, Inc. EdSource, 2007 by © Copyright www.edsource.org • www.californiaschoolfinance.org • www.ed-data.k12.ca.us