School Finance101:What HR Leaders Need to Know

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Brett W. McFadden

Chief Business Officer

Pajaro Valley USD

Tanya Krause

Deputy Superintendent

Campbell Union HSDACSA 2014 Personnel Institute

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

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What we will cover

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Part one:

LCFF / LCAP:A look back. A look forward

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What a difference a year makes

October, 2013

• LCFF formula just enacted

• Developing LCAP uncertain

• Promise of new money

• Rising expectations

• Community engagement?

October, 2014

• LCAP process successful

• Adjusting to new system

• Learned what to do

• Learned what not to do

• Gearing up for next round

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The outlook for bargaining and budgeting2014-15 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

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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

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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

The realities of LCFF funding:Not as much when broken down

Core Includes (but not limited to)

Teachers/classroom Adult Ed

Professional Dev. Sports/Athletics

Facilities/Planning Books/Supplies

Educational Services Utilities

Maintenance Health & Welfare

Operations BTSA For New Teacher

Textbooks Gate

IT Board of Trustees

Business Services Safety and Security

HR Student Services

State categoricals Child Care

Transportation Healthy Start

Nutrition/Food

Migrant Ed (State)

Nurses

Speech/Hearing

State/Federal Accountability

New unrestricted funding is limited

Keeping LCFF/LCAP in perspective

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2015-16 LCAP review and update:Round 2

You will need to have a process for LCAP review and update

• What worked well?• What didn’t?

• What do we still need to do?• What is projected funding?• How much is available?

• What else do we need to do?

Initial planning:This should begin at

board and cabinet level

• What stakeholder groups are required to talk to?• What process do we

want to employ?• What is the timeline for

all of this?

• What does the board want?

• How does the input match with budget

realities?• How do union proposals

fit into all of this?

Community input and review

Final development and approval

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District reinvestment plan:Multi-year strategy matched to funding

District revenues

Equates to a 23% drop in state

revenues

Eight year phase in of LCFF funding

Return to 2007-08 per ADA statutory funding levels

Phased recovery over time

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Heads up:Watch out for LCFF revenue changes

 LCFF Calculator 2014-15 2015-16 2016-17

Version 15.2 186.45 201.17 208.47

Version 15.2b 188.19 194.66 204.46

Difference 1.74 6.51 4.01

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

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Part two:

School district budgeting

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The multi-year projection:Still your most important budgeting tool

  2014-15 2015-16 2016-17

Beginning Balance 33.20 18.22 14.09

Revenues 186.45 201.17 208.47

Expenditures 201.40 205.30 211.80

Increase/Decrease (14.98) (4.13) (3.33)

Ending Balance 18.22 14.09 10.76

Revolving Cash/Rest.Bal 8.21 7.46 6.70

3% Reserve 6.04 6.16 6.35

Unapprop Reserve 3.97 0.47 (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

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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

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Fund accounting

All school districts and county office practice fund accounting

Major funds include:

01 General Fund 09 Charter Schools 11 Adult Education 12 Child Development 13 Cafeteria 14 Deferred Maintenance 17 Special / Unallocated Reserve (on top of REUs) 21 Building (bond proceeds only) 25 Capital Facilities Fund 71 Retiree Benefits

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District budgeting process:This remains the same

Budget action; Adoption date:

Adopted budget* July 1Unaudited actuals (fiscal activity through year end) By September 15Annual independent audit of prior-year budget October each year1st Interim Report (activity through Oct 31) December 152nd Interim Report (activity through January 31) March 153rd Interim Report (activity through June 30) If required by COEFederal fiscal year 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

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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

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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

1st and 2nd 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

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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

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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:

Need for appropriate reserves in an LCFF/LCAP era

Maintaining position controll 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

A new approach and perspectiveHR 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

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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

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S + SR + ST = TCU

S = Salary - including Step and ColumnSR = Salary Related - Health and Welfare Benefits, Stipends, Bonuses, Etc.ST = 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

50%

25%

8%

17%

1

2

3

4

Legend1 Certificated2 Classified3 Management4 Programs and Operations

Total cost of unit formula

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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

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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

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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

Strategy for reinvestment

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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

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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

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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 criticalrelationship after the superintendent

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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, SuperintendentConejo Valley USD

Former CBO, Principal and Teacher