How to Read 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. Budget Watch

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 district budgets in Pennsylvania use standardized object codes to classify their General Fund revenues and expenditures. The following represent the main categories into which these are placed.

Click here to review Revenue Account Information. Click here to review the Expenditure Accounts by Function and Object information.

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 instruction, support, non-instruction, facilities, 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 includes costs for both gifted and impaired students under the Pennsylvania School Accounting System. 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.

Account_CodingThe 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: superintendent, principals and related central office support; legal costs, business office, and tax collection activities. This area also includes costs related to buildings such as utilities and cleaning services, as well as transportation costs.

The remaining functional areas of facilities, debt and other all pertain to costs of acquisition and renovation of buildings, purchase and repair of equipment and the 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. The initial requirement for collective bargaining was the passage of Act 195 of 1970, and modified by Act 88 of 1992. This legislation and related court rulings have produced salary schedules for professional staff that 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, the Pennsylvania School Code 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 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.

Budget 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).

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.

The state requires 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 Pennsylvania's 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 Pennsylvania mandates, codes, and regulations.

All Pennsylvania school districts operate on a fiscal year that begins July 1. The budget process, however, is virtually continuous. The Pennsylvania Department of Education generally releases an ACT 1 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 dist rict budgeting process.

scale Summary
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.

Much of the information for this documents is from PSBA. Visit for more information regarding the costs of operating schools.

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