School Finance from USBA Convention Jan. 2011

When I gave my husband a draft of this post to proof-read, he said he felt like Marlin in  "Finding Nemo" when the little turtle, Squirt, is explaining the proper exiting procedure from the EAC.  He said, "I know you are telling me something really important, I just don't understand a word you're saying."  So, I will give you the Reader's Digest Version, and then the full Geek/Accountant-type version.  Hopefully, one of them will appeal to you. 

School Finance: Reader's Digest Version
Every year by June 22, the board must approve a budget, essentially allocating different money into different categories (think envelopes).  After the budget is set, the district has flexibility in spending the money within each category, according to the policies and procedures the board has already outlined.  Starting on June 1, the proposed budget is available from the Business Administrator to anyone who wants to see it.  ASD has past budgets on the website, in case you are really interested.

The district receives money from 3 sources: local taxes (including property taxes), state taxes (100% of your income tax goes to public education), and federal taxes.  Each of these taxing sources comes with some strings and/or limitations.  The state provides a set amount per student, called the WPU (weighted pupil unit).  In addition, if there are certain programs the legislature wants to fund, certain amounts are allowed for those programs.  Of course, if you wanted to use that money for something else, you can't.  The Feds, of course, have their own set of strings.  ASD gets about 7% of its budget from the Feds.

Every year, the County sets a specific tax rate for the district, called the Certified Tax Rate.  If the district wants to increase that rate, there will be a public hearing for that purpose in August or September.  Of course, since the fiscal year started back in July, the public hearing is more of a formality than anything else.  The board can, at any time in the year, amend the budget in an open board meeting.  But, unless something major occurs, that probably won't happen. 

On your property tax notice, you will see 2 line items for Alpine School District: Basic and Other.  The Basic rate is set by the state.  The Other is a combination of all the taxes (leeways, bonds, etc) set by the local school board.  Bear in mind, that property taxes can only go to pay for capital items.  All operational costs come from the state via WPU and specific programs/items or from the Feds (with their specific programs).

I would appreciate your looking at the budget and giving me feedback. I will see if there is a link on the district's website and will post it here after June 1st.


School Finance: Accountant's Version
Schools get revenue from local, state, and federal sources.

Local:
Local funds come in the form of property taxes and other fees.  There are 2 line items on your property tax statement: Basic and Other. 

Other Property: Other property taxes are leeway, capital, transportation, debt service, tort, and recreation.  All primary residential property is taxed at 55%.  For example, if your home is worth $200K, whatever the property tax rate is you pay taxes on only 55% or $110K.  Commercial property is taxed at 100% of the property value.  The school board sets the tax rate.  If the tax rate goes above the Certified Tax Rate the county sets, you must have a truth in taxation hearing.  It isn't as logical as it sounds either.  Here is an example:

Say in 2010 your property is worth $1000 and the certified tax rate is 10%, so you pay $100 in taxes.  In 2011, your property value increases 5% to $1050.  10% of that would be $105.  Since $105 is more than the $100 you paid in 2010, the board would need to hold a truth in taxation hearing.  Even though the tax rate remained the same, the amount of taxes received increases.  Hence, the hearing.  In order to avoid a hearing, the tax rate would need to be adjusted in 2011 to 9.5%, so that 9.5% of $1050 = $100.  All new buildings and new growth are exempt from the truth in taxation hearing, and the taxes are county- or district-wide, so it is possible for your individual property taxes to go up without a hearing.  However, it means that somewhere else, someone is paying less for their property taxes, and it all balances out across the district.  Just by way of information, in 1980, the average property tax rate in Utah was 0.004534.  In 2009-10, it was 0.001433.  So, the rates have gone down, but values and growth have increased. 

There are other local revenues that come from investment income, inter-district billings (e.g. some of our kids go to Provo and some Provo kids go to ASD, so we pay each other for those kids), school lunch fees, and community education programs.

Basic Property: The basic property tax rate is the only local tax that is NOT set by the local school board, but by the state legislature.  This basic amount is currently 10% of the property value that is able to be taxed (e.g. 55% on a primary residence). This is the other line item on your property tax statement that says Alpine School District: Basic.

State Funds:
WPU: The weighted-pupil unit is an amount set by the legislature for each student that attends class for 180 days (membership or enrollment).  This year, the WPU is $2577.  The WPU is given to districts/schools based on the difference between last year's membership and this year's membership as of Oct. 1.  For example, if on Oct. 1, 2010 there are 5% more kids in ASD than there were from Aug. 2009- May. 2010, then there will be a 5% increase in WPU funds.  (I think.) 

Other State Funds:  The state tries to equalize the amount spent, per student, across the state in some fashion.  Here is my attempt at explaining this.  Let's say we have two districts (A and B), each with 5000 students.  District A has property tax values of $100 million.  District B has property tax values of $40 million.  Each district will receive $12.885 million in WPU funds ($2577 x 5000 students).  They will also get 10% of the property values in the form of the Basic school levy.  District A will receive $10 million, and District B will receive $4 million.  Because of the $6 million deficit for District B, the state will kick in $6 million more in state funds to District B, than to District A from their pool of state income taxes, etc. 

Additionally, the state gives extra funds for the following:
Professional staff (more higher degrees)
Special Ed
Career Tech Ed
Class Size Reduction (one time money)
*WPU Flexible (SS, Medicare, and Retirement)
Transportation
Other

*The WPU Flexible is for SS, Medicare, and Retirement for staff.  It used to be that the state reimbursed the districts for all of the amount they spent on these items.  After that, they reimbursed a percentage of these amounts.  Now, there is just a line item in the budget, called WPU Flexible; it is a fixed amount.  The board can use whatever amount is in here to pay for SS, Medicare, and Retirement, but these amounts have to be paid by law. 

Federal funds:
Federal funds are given, based on different programs.  These are:
Title I: Poverty, Mobility, ESL
Title 2: Quality Teaching
Special Ed
School Lunch (free or reduced lunches)
ARRA (Obama's Stimulus)
Edujobs

The biggest issue with federal funds is that the money must not supplant existing funds and there needs to be MOE (Maintenance of Effort).  For example, if you spent $1000 on special ed last year, you can't reduce the amount this year and still get federal funds--regardless of the reason.  You also can't take the $1000 of special ed monies that you were going to use, spend it somewhere else, and finance special ed with ONLY the federal funds.  Federal funds must be used IN ADDITION to state and local funds.

Expenditures:
85-90% of general fund expenses are salaries and benefits.  Currently, 18% of salary goes to retirement, 7.65% SS/Medicare, and 30% Health Insurance.

Other expenses are: professional services like nursing, utilities, textbooks/library books, instructional supplies and equipment.

Accounting:

Think of accounting funds as budget envelopes.  A board sets certain amounts for each envelope (fund).  Within that fund, the district has some discretion, but moving money between funds is not usually allowed.

In general the funds are:
General (operational costs)
Capital (things that last for 1 year or more: furniture, buildings, computers, etc)
Non-K-12
Debt Service
Lunch Service

The board must have the budget set by June 22 of each year, but the public attends a hearing in Aug or Sept. if the tax rate (see above) is greater than the certified tax rate from the previous year.  The difficulty is the budget is already set and started on before the public is involved in the hearings.  It would make more sense for the public to get involved in the budget process during April, May and June of each year.  The superintendent is ultimately responsible for the budget, and you CANNOT (by law) budget a surplus.

Audits:
Annual audits are done by independent third parties.  They look at whether you are following your district policies, how you are allocating revenues, state compliance issues, federal law or grant compliance,  and payments, especially to the board, superintendent, and business administrator.  They do not tend to audit how the money is spent other than on a general level of following policies.

At the end of this class, we were given a quiz.  The first person who finished with 100% got a box of M&M's.  They were yummy! (smile)