A Look at a School District Budget
A school district uses its money to purchase a variety of goods and services that produce the educational programs available to their students. A school district also provides a variety of services for nonpublic school students. Spending will vary between districts due to the uniqueness of each district. The uniqueness is defined by local preferences and student needs within the district.
A school district budget is more than numbers. It is a record of a district’s past decisions and a spending plan for its future. It shows a district’s priorities whether they have been clearly articulated or simply occurred by default. And it is a communications document that can tell constituents a lot about the district’s priorities and goals.
A school district budget can certainly be difficult to understand and even more challenging to describe. But behind the volumes of mandatory reporting forms, accounting procedures, and jargon are some basic principles that can help bring clarity for those who develop school district budgets and for those who want to understand them.
The first thing to understand is that most state budgets use standardized object codes to classify their General Fund revenues and expenditures (see: Revenues & Expenditures below).
Two different approaches can be used to describe just what a district purchases. One approach is to examine the function and sub-function spending of the district. Using the function and sub-function approach presents a view of the district’s expenditures in a summary and program structure. Second is to discuss specific elements of spending, or object, such as salaries and benefits, books and supplies. Combining the two different approaches in a matrix allows an understanding of the interrelationships between programs and elements of cost, such as salaries.
Functional spending in school districts is reported annually by each district through the district’s Annual Financial Report (AFR). The functions defined by the school accounting system are:
- Debt and
- All other
Within each of the functions are a number of sub-functions that provide details of the types of services each district provides, depending upon the needs of the students. Based on a review of 459 of 501 annual financial reports for the 1999-2000 school year, more than 90 percent of all district spending is for instruction and support functions. The functional area of instruction is designed to track expenditures related to instruction of all students. Sub-functions within instruction identify several specific educational programs: regular education, special education, vocational education, other education, adult education and support of community colleges. Regular education includes all classroom activity for grades K through 12.
Special education records many of the costs associated with providing educational opportunities, other than regular classroom, for any child with special needs. Special education normally includes costs for both gifted and impaired students under a state’s School Accounting System (SAS). Vocational education includes costs for both district vocational instruction and tuition payments to area vocational-technical schools. Other education includes the required educational services of homebound instruction, alternative education for disruptive students, summer school and driver education.
The support functional area includes the costs of activities and programs directly related to assisting both the teacher and the student, but are not directly associated with classroom activity. Sub-function expenditures classified as support include guidance, attendance and psychology services. Other support services designed to assist students include speech and audiology services, pupil health services (school nurse) and school libraries.
Among the other costs listed as support sub-functions and typically viewed as administrative costs are:
- Related central office support
- Legal costs
- Business office
- Tax collection activities
- Costs related to buildings such as utilities and cleaning services
- Transportation costs
- Acquisition and renovation of buildings cost
- Purchase and repair of equipment and
- Payment of principal and interest on any borrowed funds.
Salaries typically represent the largest single item of expenditure in a school district. Teacher salaries are subject to collective bargaining at the school district level. Salary schedules for professional staff are based on educational level and number of years of service of the individual. Also, included in collective bargaining requirements are employee benefits.
In many cases, when a district experiences an increase in student enrollment, it requires increasing the number of teachers or the adding classroom aides. The interesting aspect is that as the number of students declines, the number of teachers employed by the district is subject to arbitration and documentation to show that enrollment has declined significantly. Further, districts reach a point where reductions in the number of students must result in an alteration of the education program. Therefore, while local boards may increase the number of teachers without review, to reduce the number of teachers is subject to potential litigation. Additionally, some state school codes prohibits reduction in the number of teachers for purely financial reasons.
Most recently, federal and state mandates have created the need to increases to staff. For example, English as a Second Language programs, like special education, are required and have similar class size and hour regulations for program delivery requiring staff. No Child Left Behind (and now Every Student Succeeds Act) requires all students meet proficiency in math and language arts requiring remedial teachers, reading specialists, and after and summer school instruction adding to staffing costs. Certification and Highly Qualified Teacher credit requirements have resulted in costs associated with training and staffing. Nursing, psychological, and social work services have grown in recent years due to mandates as well as the threat of litigation from advocacy groups. Even though enrollment may not be increasing, there are circumstances where staffing increases are required.
Within the functional and sub-functional areas are a series of specific costs for salaries and wages, individual costs of benefits, purchased services, utilities, supplies and materials. The instruction function contains the largest single item of expenditure, which is the compensation paid to individual teachers and classroom aides. Salaries and wages are recorded in most of the function and sub-function areas, as are the benefits to be provided as part of the contractual obligation related to employment. Other costs in the functional area of instruction include costs for substitutes, materials and supplies, as well as textbooks for classroom use.
Spending by school districts can be examined by object (such as salaries), by function (such as instruction), or by sub-function (such as special education). Looking at only one structure for spending can be misleading about the specific purpose of the anticipated benefit of such spending.
The only purpose of a school district is to provide public education. This means that the district must provide for classes such as math, reading, physical education and social studies. All of the specific course requirements are established by the State Board of Education, although a district can make additional locally determined requirements.
Other sources of required spending result from federal and state laws. Costs incurred by districts because of federal and state laws are not always supported by increased revenue. These may be referred to as unfunded mandates. Also, outside of the control of the district is expense of legal action against not only the district itself, but against other districts (this may alter the requirements for all districts).
School districts typically spend money on their facilities from two separate budgets: the general district operating budget and the capital budget. Each has different funding streams. General operating funds largely come from local property tax and state transfers. Capital budgets are largely funded by a combination of local general obligation bonds, statewide general obligation bonds, and locally imposed development fees. Bond funds accrue interest, which must be paid on top of the principal borrowed amount.
School district capital and operating budgets are separate, but they affect each other. Well-deployed capital funds can finance improvements that help reduce facility operating expenses. Additionally, a school with well-maintained facilities, for example, may be able to extend the life of their assets and spend less money on capital renewals. Regrettably, the converse is also true: some districts must use operating funds on facility repairs to compensate for capital shortfalls.
A look at a district’s line-item General Fund budget reveals a lot about its fiscal health. For example, examining the difference between total revenues and total expenditures can show whether a district is operating with a deficit in any given year. A comparison of fund balances from year to year can do the same.
Some states require districts budget a fund balance of no more than 8% of their General Fund expenditures. The percentage depends on the size of the district, with smaller districts needing to keep a larger portion of their budget in reserve. In difficult budget years, it is much more challenging for even the most conscientious districts to make ends meet.
The District’s Responsibility
School districts are the fiscal agents of the state public school system and as such they are responsible for using the funds the state and federal government provide to deliver educational services to the state’s children. They must do so within a process prescribed by state law.
While school district administrators implement each step in this process, the elected school board holds final responsibility for adopting the budget, and making sure that the budget allows the district to meet its current and future financial obligations. The Superintendent, a commissioned officer of the state, has the responsibility to insure the district follows all required state mandates, codes, and regulations.
Almost all school districts operate on a fiscal year that begins July 1. The budget process, however, is virtually continuous. The state Department of Education generally releases an accounting timeline by September of each year.
- Forecasts of revenues, expenditures, and student enrollments begin in the early fall, a year in advance.
- A preliminary budget is adopted early in the year but continues to be adjusted.
- During the school year, the district confirms its financial status both officially and unofficially.
- After the books for that year are closed, the process ends with an audit certifying the accuracy of the district records.
A local school district must balance the need to be fiscally solvent against state and federal expectations for academic performance, community expectations for services schools should provide, and staff expectations around their compensation and working conditions. Further, while fiscal responsibilities rest with school district officials, the educational enterprise occurs at the school site and in classrooms. That means that discretion over resource allocations is also a balancing act, this time between school site and district. School districts vary in the amount of decision-making power and flexibility they give their schools, depending on their size, staff, and traditions, including sometimes their collective bargaining agreements.
But regardless of how decisions are made, a district’s top officials – its elected board and superintendent – remain accountable for how well the district balances all of these competing priorities and meets its legal obligations for financial responsibility. The state in turn has policies and procedures in place to help assure that districts are living up to that responsibility. And state law requires that the district conduct its business in public, giving community members and parents the opportunity to be informed and involved in the district budgeting process.
School spending is the result of a mix of federal, state and local actions and decisions. The primary focus is the provision of educational services to public school students. In some cases, there is either limited or no financial support. Tracking of school expenditures is subject to a specified structure designed to reflect accountability for school district spending. The structure, while useful for consistent reporting, does not always disclose why spending occurs. The interrelationship of spending, student needs and complex laws and regulations is intended to meet the local demand for public education.
General Fund revenues are received from a variety of local, state, and federal sources. These sources are used to provide instruction and adjunct support services consistent with the state Constitution’s directive to provide for the “maintenance and support of a thorough and efficient system of public education.”
Local Sources of revenue, included in Function 6000, are the amounts of money produced within the boundaries of the District. These sources include real estate taxes, per capita taxes, earned income taxes, real estate transfer taxes, and interest earnings on investments. The Public-School Code normally empower school districts with the authority to levy and collect such taxes for the purposes of providing public education. Substantially all of the local sources of revenue are from these levies, recorded as current or delinquent collections.
State Sources of revenue, included in Function 7000, are the amounts of money collected and distributed by the state to support the activities of the district. These amounts are characterized as subsidies received or receivable from the state Department of Education. The subsidies include allocations for basic instruction and operation, as well as subsidies or reimbursements for specific expenditures such as special education, transportation, retirement, and social security taxes.
Federal Sources of revenue, included in Function 8000, are the amounts of money collected and distributed by the federal government to provide for certain categorical expenditures. The state Department of Education ordinarily acts as an agent for distributing these funds.
Other Financing Sources of revenue, included in Function 9000, are the amounts of money received from other local education agencies for instruction and transportation provided to pupils from the paying agency.
Following are Pennsylvania detailed explanations of the specific sources of Local, State, and Federal revenue:
6111 Current Real Estate Tax
Real estate tax is normally the main source of revenue for funding the operation of the school district. It is based on the assessed valuation of all taxable property within the school district and is collected by the district.
6112 Interim Tax
Interim Tax is revenue from the increase in assessed valuations of local property as a result of improvements or construction to that property, after the mailing of original tax notices. The yearly estimate is based on historical collections.
6113 Public Utility Realty Tax
Public Utility Realty Tax is revenue collected and distributed by the state. The allocation is based on the district’s total revenues as a ratio of the total revenues of all participants, and the real estate tax which the district could have collected if the utilities were not exempt entities. The yearly estimate is based on historical collections.
6114 Payments in Lieu of Taxes
Payments in Lieu of Taxes are revenues received in lieu of taxes for property withdrawn from the tax rolls for public housing, forest lands, game lands, water conservation, or flood control. This is computed at $0.40 per acre.
6141 Current Per Capita Tax, S679 & A511
Section 679 of the school code provides for a $5.00 “head tax” on all inhabitants of the School District who are at least 18 years of age. Act 511 of 1965 provides for an additional $5.00 “head tax”. Estimates are based upon this tax rate, appropriate census data, and historical collection rates.
6151 Earned Income Tax
Earned Income Taxes are assessed at a maximum rate of one percent (1.5%) of earned income pursuant to Act 511. Earned income tax revenues are shared equally with our component municipalities resulting in an effective rate equal to 1% for the School District. Estimates are made using historical collection and personal income data from the Commonwealth of Pennsylvania. The component municipalities collect most of the earned income taxes.
6153 Real Estate Transfer Tax
Transfer Tax is revenue collected by the County Recorder of Deeds on the value of all real estate property within the District boundaries sold during the year. This tax is equal to 1/2% of the value of the property being sold and is paid at the time of title transfer. The yearly estimate is based on historical collections.
6411 Delinquent Real Estate Tax
Delinquent Real Estate Tax is revenue collected by the County Tax Claim Bureau for real estate tax not paid during the original year of levy. Estimates are based on the total amount outstanding for various tax years, as well as historical collection trends.
6441 Delinquent Per Capita Tax, S679 & A511
Estimates are based on the total amount outstanding with the appointed delinquent tax collector (segregated by tax year) as well as historical collections trends.
6452 Delinquent Occupation Tax
Estimates are based on the total amount outstanding with the appointed delinquent tax collector (segregated by tax year) as well as historical collections trends.
6510 Interest Earnings
Interest earnings are revenues received from investing the district’s resources as they become available, and includes earnings on various forms of cash and cash equivalents. Excess funds are automatically transferred to a qualified investment trust. Investments with a term maturity are purchased from the trust based on cash flow projections, market conditions, and projected yield estimates.
6710 Revenue for Admissions
Admissions revenue represents anticipated gate receipts for athletic events.
6831 Federal Revenue from Other Public Schools
Federal revenue received from intermediate sources as an agent of the federal government.
Rentals classify the revenue received from various government bodies, organizations, and civic groups for the rental of the district’s buildings and facilities. This year’s budget assumes the rental of classrooms and facilities to such organizations as the Bucks County Intermediate Unit and LifeSpan.
6940 Tuition from Patrons
Tuition from patrons represents the charges to non-resident students who attend classes in the Quakertown Community School District, the charges for summer programs, and the charges for adult education programs.
6980 Admission Integrated Arts
Admission for Integrated Arts represents admission charges for various performing arts programs and performances.
6990 Miscellaneous Revenue
Miscellaneous Revenue is those items of revenue received during the year that cannot be classified as one of the previously identified sources.
7110 Basic Education Funding
Basic Education Funding is the primary source of state funding provided to local school districts. In recent years, these funds have carried a variety of names and been distributed according to an equal number of funding formulas.
7160 Children in Private Homes
This revenue represents tuition received from the Commonwealth for children who are orphans and/or children placed in private homes by the court. Payments are made in accordance with Sections 1305 and 1306 of the Public School Code.
7210 Homebound Instruction
Homebound Instruction is a reimbursement to school districts for instruction given to pupils unable to attend the public school because of temporary mental or physical handicaps.
7220 Vocational Education
Vocational Education is a reimbursement to each school district conducting vocational classes and programs organized in accordance with state prescribed standards and criteria.
7270 Special Education Subsidy
Special Education is a subsidy to school districts for the costs associated with instructing exceptional children in mandated special education programs. Payments are made in accordance with Sections 2509 and 1373.1 of the Public School Code.
7310 Transportation Subsidy
Transportation is a reimbursement to school districts for the operation of a school-busing program in compliance with state law and regulations. It is not required that each district operate a busing program, but if operated, it must comply with the state law and regulations and is then eligible for reimbursement based on the number of students transported, miles driven, and other approved factors.
7320 Rental & Sinking Fund Payments
Rental reimbursement is available to each school district to help with payment of debt in building construction and renovations. To be eligible, building plans must have been approved by the Department of Education in conformance with the District’s Long-Range Plan.
7330 Health Services Subsidy
Medical, Dental Services and Nursing Services are reimbursements available to each school district providing the required health services to pupils (both public and non-public) in the district.
7340 State Property Tax Reduction Allocation
Gaming revenue is received from the State as a result of Special Session Act 1 of 2006, and is used to reduce real estate taxes for approved Homestead and Farmstead properties.
7360 Safe Schools
Safe Schools is reimbursement for approved safe school programs.
7810 State Social Security Subsidy (FICA)
Revenue received from the State designated as the Commonwealth’s matching share of the employer’s contribution of the social security taxes for covered employees which are not federally funded.
7820 Retirement Subsidy
Revenue received from the State designated as the Commonwealth’s matching share of the contribution to the Public School Employees Retirement System for covered employees.
7910 Technology for Education
Revenue received from the State to supplement the district’s investment in computer networking and professional development in technology
8514 ECIA Title 1
Revenue received (under the Education Consolidation and Improvement Act – ECIA) for programs designed to provide remediation to disadvantaged children in certain basic educational skills. The amount received for this item is determined by the number of students needing remedial education, amount available, and the number of other districts participating in the program.
8560 Federal Block Grants, ESEA, Title VI
Revenue received from the Federal Government to supplement and increase the level of funding available for the District’s Instructional Program. Funding for the program is based on the number and classification of students enrolled in the school district.
8570 EESA – Title II
Revenues received for inservice and retraining programs for teachers.
8670 Drug Free Schools
Revenues received in support of programs conducted under the Drug-Free Schools and Community Act of 1986. Revenues include entitlements and proceeds from competitive grants.
8690 Other Restricted Federal Grants
Revenue received from the Federal Government as a grant-in-aid for reducing class size.
OTHER FINANCING SOURCES
9330 Transfers from Capital Projects Fund
Money received from the Capital Projects Fund to offset the interest expense on debt. The Capital Projects Fund earns interest income on funds borrowed but not yet expended on the project. These amounts are transferred to offset the expense in the General Fund.
9611 Receipts From Other LEA’s
Money received from other Local Education Agencies (LEA’s) for instruction and transportation provided to pupils from the paying agency.
“Several levels of classification are used to present governmental fund expenditure data. The major classifications are by fund, function (or program), organizational unit, activity, character and object class. The function level provides information for a group of related activities. Standard function classifications include general government, public safety, highways and streets, sanitation, health and welfare, culture and recreation, and education. These functions vary in importance and nature, based on the government’s activities. The object classification is a grouping of types of items purchased or services obtained.” (Governmental Accounting, Auditing, and Financial Reporting)
Includes all activities dealing directly with the interaction between teachers and students which can be directly attributed to a program of instruction. Teaching may be provided for students in a school classroom, in another location such as a home or hospital, and in other learning situations such as those involving co-curricular activities. It may also be provided through some other approved medium such as television, radio, telephone, and correspondence. Included here are the activities of aides or classroom assistants of any type (clerks, graders, teaching machines, etc.) which assist in the instructional process.
1100 Regular Programs
Regular Programs are those activities designed to provide grades K-12 students with learning experiences to prepare them for activities as citizens, family members, and non-vocational workers as contrasted with programs designed to improve or overcome physical, mental, social and/or emotional handicaps.
1200 Special Programs
Special Programs are those activities designed primarily for students having special needs. The Special Programs include support classes for pre-kindergarten, kindergarten, elementary, and secondary students that have been identified as exceptional.
1300 Vocational Programs
Vocational programs are those activities which provide organized learning experiences designed to develop skills, knowledge, and working habits in order to prepare individuals for productive employment in occupational fields including agriculture, business, distribution, health, gainful and useful home economics, and trade and industry.
1400 Other Programs
Other Programs are those activities that provide learning experiences not included elsewhere. Examples include remedial and developmental programs in given subjects, as well as safety and homebound education.
1600 Community Education Programs
Community Education Programs are designed to meet immediate and long-range educational objectives of adults. Programs include activities to foster the development of fundamental tools of learning, prepare for a post-secondary career, upgrade occupational competence, develop skills and an appreciation for special interests, or to enrich the aesthetic qualities of life. Adult Basic Education and Graduate Equivalency Diploma programs are included in this category.
2000 Support Services
Support Services are those services which provide administrative, technical (such as guidance and health), and logistical support to facilitate and enhance instruction. Support Services exist as adjuncts for the fulfillment of the objectives of instruction, community services, and enterprise programs, rather than as entities within themselves.
2100 Pupil Personnel Services
Public personnel services include those activities designed to assess and improve the well-being of students to supplement the teaching process.
2200 Instructional Staff Services
Instructional staff services include those activities associated with assisting, supporting, advising and directing the instructional staff with or on the content and process of providing learning experiences for students.
2300 Administration Services
Administration Services include those activities concerned with establishing and administering policy in connection with operating the Local Education Agencies.
2400 Health Services
Health services include physical and mental health services which are not direct instruction. Included are activities that provide students with appropriate medical, dental, and nursing services.
2500 Business Services
Business Services include those activities concerned with paying, transporting, exchanging, and maintaining goods and services for the LEA. Included are the fiscal and internal services necessary for operating the Local Education Agencies.
2600 Plant Operation and Maintenance Services
Plant Operation and Maintenance Services are those activities concerned with keeping the physical plant open, comfortable, and safe for use, and keeping the grounds, buildings, and equipment in effective working condition and state of repair.
2700 Transportation Services
Transportational Services include those activities concerned with the conveyance of students to and from school, as provided by State and Federal law. It includes transportation costs only for trips between home and school. Transportation costs for educational field trips and student activities are charged to the functional area to which the costs are applicable.
2800 Central Services
Central Services include those activities, other than general administration, which support each of the other instructional and supporting services programs. These activities include planning, research, development, evaluation, information, staff, and data processing services.
3000 Operations of Non-Instructional Services
Operations of Non-Instructional Services are those activities concerned with providing non-instructional services to students, staff or the community.
3200 Student Activities
Student Activities include School sponsored activities under the guidance and supervision of the LEA staff. Included are co-curricular activities supplementing the regular instructional program such as athletics, band, chorus, debate, technology education, theatrics, and others.
3300 Community Services
Community Services include the shared expense of providing crossing guards. These services are provided jointly with certain municipalities.
Facilities expenditures include the initial purchase of land and buildings; construction, remodeling, additions, and improvements to buildings; initial installation, replacement, or extension of service systems and other built-in equipment; improvements to sites; and activities related to all of the above.
5000 Other Financing
Other financing uses represent the disbursement of governmental funds not classified in other functional areas that require budgetary and accounting control. These include debt service payments (principal and interest) and transfers of moneys from one fund to another.
5100 Debt Service
Debt Service includes payments on general long-term debt, authority obligations and interest.
5900 Budgetary Reserve
Budgetary Reserves is not an expenditure function or account. It is strictly a budgetary account. In addition to the appropriations which are made to each of the functions, it is a sound management practice to provide for operating contingencies through a Budgetary Reserve.
Experience indicates that there are certain variables over which control is impossible regardless of the care with which the budget is prepared. These variables include unpredictable changes in the costs of goods and services, and the occurrences of events which are vaguely perceptible during the time of budget preparations, but which, nevertheless, may require expenditures by the Local Education Agencies during the year for which the budget is being prepared.
Rather than provide for such contingencies by “padding” the functional appropriations, it is preferable to limit the functional appropriations to amounts which are supportable by estimates based upon financial, enrollment, and other statistics as related to the more definite educational plans and programs for the budget year, and earmark a reserve for the less predictable requirements. The Budgetary Reserve should be reasonable in amount and in proper proportion to the known operating requirements of the LEA.
100 Salaries & Wages
Salaries & Wages include gross salaries paid to employees of the LEA who are considered to be in positions of a permanent nature or hired temporarily, including personnel substituting for those in permanent positions.
Benefits are amounts paid by the LEA on behalf of employees; these amounts are not included in gross salary, but are in addition to that amount. Such payments are fringe benefit payments; and, while not paid directly to employees, nevertheless, are part of the cost of personnel services.
300 Professional Services
Professional Services are services which by their nature require persons or firms with specialized skills and knowledge. Included are the services of architects, engineers, auditors, dentists, medical doctors, lawyers, consultants, teachers, accountants, etc.
400 Property Services
Property Services include services purchased to operate, repair, maintain, and rent property owned and/or used by the LEA. These services are performed by persons other than LEA employees.
500 Other Services
Other Services are amounts paid for services not provided by LEA personnel but rendered by organizations or personnel, other than Professional Services and Property Services.
Supplies are amounts paid for material items of an expendable nature that are consumed, worn out, or deteriorated in use; or items that lose their identity through fabrication or incorporation into different or more complex unity or substances.
Property are expenditures for the acquisition of fixed assets, including expenditures for land or existing buildings and improvements of grounds, initial equipment, additional equipment, and replacement of equipment.
800 Other Objects
Other Objects are amounts paid for goods and services not otherwise classified in objects 100 through 700.
900 Other Financing Uses
Other Financing Uses include transactions which are not recorded as expenditures to the LEA but require budgetary or accounting control.