Avoiding Fiscal Distress: Six Tenets of Sustainability

Transcription

1 Avoiding Fiscal Distress: Six Tenets of Sustainability 2015 MASB Annual Leadership Conference Early Bird Session Don Sovey, President and CEO of School & Municipal Advisory Services, PC Michelle Falcon, Superintendent, Maple Valley Schools Debbie Stair, Board Development Manager, MASB 1 Research Documents Best Practices in School Budgeting GFOA (January Building Financially Resilient Government Through Long-Term Financial Planning GFOA Conditions that Affect Financial Position in Michigan Schools Best Practices in Facilities, Transportation and Energy Management 1

2 Significant Legislation for Schools Collective bargaining: PA 54 of 2011 Hard caps: PA 152 of 2011 Retirement: PA 300 of 2012 Local Financial Stability and Choice Act: PA 436 of Essential Tenets for Sustainability 1. Develop a Proactive Financial Leadership Team 2. Properly Staff and Train Business Services Employees 3. Define our Challenges 4. Establish Fiscal Sustainability Goals 5. Adopt Successful Governance Models 6. Install Best Business Practices for Finance and Operations 4 2

3 TENET 1 Develop a Proactive Financial Leadership Team 5 What Your Business Official Needs From the Superintendent and Board Understanding of staffing needs Public acknowledgment of business office success and financial credibility Appreciation for the value of accurate reporting Understanding the relationship of numbers A partnership Collaboration Space to do a job well 6 3

4 Superintendent and Business Office Partnership Tone from the Top is Critical for Success 7 BOND RATING AGENCY CONSIDERATIONS (Put your best foot forward) Management and Administration Ultimately the most important Adherence to institutionalized and prudent policies Forward planning Monitoring & ability to take corrective action Source: FitchRatings ww.fitchratings.com 8 4

5 Reporting Administrators who do not report credibly to their boards will be unable to help manage the financial carnage that ensues. CLARK HILL.Lessons Learned TENET 2 Properly Staff and Train Business Services Employees 10 5

6 Recommended Staffing Qualifications Accounting degree required for CFO Associates degree or higher required for other business positions Mid-size districts will require two degreed accountants 11 Superintendent: Seek Help With Hiring Your Next CFO The CFO and the superintendent are the top two positions that can most affect financial position in the district Are you able to test for accounting skills? Involve your auditor or other CPA Utilize full complement of background checks this is your top financial position Check your bonding level 12 6

7 Staffing Options Option 1: Employ all personnel Option 2: Explore ISD services Option 3: Employ CFO and outsource other functions (recommended for only extreme conditions) Improperly Staffed Business Offices Have Resulted in Critical System Failure in Michigan School Districts. 13 Business Office CFO Qualifications Bachelor degree in Accounting with a CPA designation preferred 3 to 5 years school experience is preferred Intent to seek the Chief Financial Officer (CFO) designation through Michigan School Business Officials 14 7

8 Business Office CFO Qualifications Ability to speak to his / her audience Positive leadership ability CREDIBILITY is critical Experience with software and operations of computerized financial accounting systems 15 CFO Compensation Ranges Mid-Michigan Salary Ranges with CPA $68,850 to $115,000 Southeast Michigan Salary Ranges with CPA Range up to $130,

9 Training and Support Michigan School Business Officials has developed 14 certification tracks relative to school business employees, including business office and human resources: Business Office Manager (BOM): Purchasing, Personnel and Payroll Business Office Specialist (BOS): Day-to-Day Business Functions Certified Purchasing Officer (CPO): Purchasing Managers, Supervisors and those who are responsible for Purchasing Chief Financial Officer (CFO): Business Office, Transportation, Personnel, Food Service, Facilities, and Technology 17 New Pressures and Requirements for the Business Office ORS accounting and reporting November 1 Audit Due Date Enhanced deficit elimination plan (5% mark) Reduced staffing 18 9

10 Business Office Expectations Develop and maintain metrics for big picture understanding and decision making Inform leadership of likely CONSEQUENCES for courses of action Proactively educate entire organization on long-range financial forecasting dynamics Provide real-time monthly reporting information of BUDGET versus ACTUAL 19 Business Office Expectations CREDIBILITY is our greatest asset Strive for minimal budget variance from actual Invite participation in budget process Serve as district financial representative for employee contract negotiations Serve not as an historian, but as a CONTROLLER (Dictionary.com: a person who regulates, directs, and restrains) 20 10

11 Minimize Year-End Surprises: Budget Variance to Actual 21 Negotiations Intentionality 22 11

12 Is Your Board-Approved Parameter Affordable?

13 Unsustainable Business Office Staffing Levels District District District A B C Students 1,980 2,473 6,651 FTE We saved $10,000 but it cost us $10 million.. a Michigan school district board member. Your school business office is the wrong place to make cuts for balancing the school budget..a strong business can save your district

14 Superintendent View and Group Discussion In your role as a board member, how can you ensure that Tenets 1 & 2 are in place? 27 TENET 3 Define Our Challenges 28 14

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16 31 Why 5% is the new Early Warning Standard 32 16

17 Considerations Decision making flexibility is limited at 5% or less When FB falls below 5%, you are out of options other than tough decisions MSBO Budget variances are magnified with this low level of fund balance New enrollment challenges: o Online competition o Section 25 o Winter count is now 8 months after initial budget adoption o State deferred kindergarten entry date 33 Considerations Uncertainty of best practices / performance incentive attainment Legislative reallocation of school aid fund dollars has resulted in fewer dollars for K-12 K-12 school community has not convinced the legislature of the funding crisis schools are experiencing We have a fiduciary responsibility to serve FUTURE and current students..msbo 34 17

18 Considerations Accounting and operational systems are challenged due to turnover of top K-12 leadership Business and operational functions have been downsized leaving less time for big picture visioning, projecting and planning New Office of Retirement Services (ORS) requirements have created new reporting and monitoring demands on school business offices, resulting in time-consuming attention needed for proper accounting and reporting of employee and district retirement issues 35 Considerations Moody s Investor Service downgraded the bond rating of 53 Michigan districts Source: mlive.com Michigan school districts credit ratings cut Source: The Detroit News Between 2002 and 2011, real per-pupil funding in Michigan s public schools fell by $2,643 or 24.5 percent.sixty percent of the revenue decline can be attributed to declining tax effort ---- in other words, policy decisions. Source: David Arsen, MSU Professor of K-12 Educational Administration; An Open Letter to Michigan Governor Rick Snyder; Feb

19 Credit Downgrades Dog Districts 37 Long Range Financial Projection Review when Budget is Adopted and Amended 38 19

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21 Testimonial: How a 5 Year Projection Helped Us Established a true sense of the pattern of finance Opened up avenues of dialogue with administration and the union Gave confidence to our Board of Education Created a tool that is more reliable when building budgets and making assumptions Superintendent Randy Rodriguez Caledonia Community Schools 41 Superintendent View and Group Discussion Is your business office providing the financial information and leadership your district needs to accurately define its challenges? 42 21

22 TENET 4 Establish Fiscal Sustainability Goals 43 Long Term Sustainability (Government Finance Officers Association) Diversity: Avoid a single point of failure or reliance on a single solution. Redundancy: Have more than one path of escape

23 Long Term Sustainability Decentralization: Centralized systems look strong, but when they fail, the failure is catastrophic. Transparency: Don t hide your systems. Transparency makes it easier to figure out where a problem may lie. Share your plans and preparations, and listen when people point out flaws. 45 Long Term Sustainability Collaboration: Work together to become stronger. Fail Gracefully: Failure happens. Make sure a failure state won t make things worse

24 Long Term Sustainability Flexibility: Be ready to change when plans aren t working. Don t count on stability. Foresight: You can t predict the future, but you can hear its footsteps approaching. Think and prepare. Source: Building a Financially Resilient Government through Long-Term Financial Planning; The Government Finance Officers Association; Shayne Kavanaugh; Jamais Cascio, a fellow at the Institute for Ethics and Emerging Technologies 47 Useful Sustainability Tools Stanfred Enrollment Projection Fred Iganatovich at (517) or f.ignatovich@att.net munetrix.com eidex.com MISchoolData.org 48 24

25 49 Superintendent View and Group Discussion Of the 8 sustainability goals reviewed in Tenet 4, which ones need improvement in your district? 50 25

26 TENET 5 Adopt Successful Governance Models 51 Does the work of school boards affect student achievement? 52 26

27 YES IT ABSOLUTELY DOES! Background on the Research Meta-analyses of education research, with a focus on the practices of boards, superintendents, and other school leaders; Case studies of high-achieving districts, with a focus on the evolving role of school boards; and Studies comparing school board practices in districts with similar demographics but substantially different student outcomes as reflected by annual assessments and other factors

28 Both the school board and the superintendent have essential leadership roles that are interconnected but different. Effective school boards establish a clear vision with high expectations for quality teaching and learning that supports strong student outcomes High academic standards, transparency, and accountability undergird a world-class education Through public advocacy and community engagement, school boards share their concerns and actions with the public. Policy is how a board sustainably exercises power to serve students. Through policy, school boards establish a set of cohesive guidelines to transform vision into reality. 55 The Governance Clock Source: MASB 28

29 Goals Are Set To: Achieve the district s mission and vision Serve as the foundation for decisions of the board Clarify and communicate district objectives Establish board and staff performance expectations Types of Goals District Strategic and give direction for the district Board Goals Specific to board governance Superintendent Performance expectations aligned to district goals Site-Based Goals Align to district goals; address teaching and learning School Improvement Plans Tactical; support district and site-based goals 29

30 The process of determining what an organization wants to be at some point in the future and how it will get there

31 Goal Setting District Strategic and give direction for the district Board Goals Specific to board governance Superintendent Performance expectations aligned to district goals Site-Based Goals Align to district goals; address teaching and learning School Improvement Plans Tactical; support district and site-based goals Source: MASB Turning the Plan into Action 62 31

32 Board of Education Fiduciary Role

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34 67 Budget Process Options 68 34

35 ZERO-BASE BUDGET PROCESS 69 Recommended Budget System Proactive, transparent, and collaborative budgeting User friendly data Cost centers Focus on monthly financial statements Budget development timeline 70 35

36 Zero-Base Budget Involve stakeholders Budget amounts must be annually justified Assess costs while weighing benefits Various levels of service are presented so final decisions can be made in reaching balanced budget 71 Incremental Budgeting Starts with existing base Zero-Base Budgeting Starts with clean slate Examines cost / benefits for NEW activities Does not examine new ways of operating as a part of the budget process Results in a take it or leave it budget approach Examines cost / benefits for ALL activities Explicitly examines new approaches Results in a choice of several levels of service and cost 72 36

37 Budget Development Process Levels of Collaboration Teachers and Building Support Principals and Supervisors Superintendent and Central Office Board of Education and Community Michigan Departments of Education / Treasury Emergency Manager 73 Preferred Budget Timeline November Board / administrative workshop on budget process and facts Jan / Feb Departments / buildings prepare budget requests March (beginning) Formal budget presentations are made to central office administrators 74 37

38 Preferred Budget Timeline March Administrators narrow budget imbalance to develop balanced budget recommendation April FIRST DRAFT of budget reviewed in board / administrative workshop May June Board presentations and adoption 75 NEW GFOA* Best Practices in School Budgeting January 2015 Develop a budget that best aligns with student achievement goals Instructional priorities provide a guide for decision-making Visit *GFOA - Government Finance Officers Association 76 38

39 NEW - GFOA Best Practices in School Budgeting January 2015 Step 1. Plan and Prepare 1. Develop principles and policies to guide the budget process. 2. Establish a partnership between finance and instructional leaders. 3. Apply cost analysis to the budget process. 4. Analyze current levels of student learning 5. Identify communications strategy. 77 NEW - GFOA Best Practices in School Budgeting January 2015 Step 2. Set Instructional Priorities 1. Develop goals. 2. Identify root cause of gap between goal and current state. 3. Research & develop potential instructional priorities. 4. Evaluate choices between instructional priorities

40 NEW - GFOA Best Practices in School Budgeting January 2015 Step 3. Pay for Priorities 1. Evaluate & prioritize expenditures to enact the instructional priorities 79 NEW - GFOA Best Practices in School Budgeting January 2015 Step 4. Implement Plan. 1. Develop a strategic financial plan. 2. Develop a plan of action. 3. Allocate resources to individual school sites. 4. Develop budget document

41 NEW - GFOA Best Practices in School Budgeting January 2015 Step 5. Ensure Sustainability. 1. Put the strategies into practice and evaluate results. 81 Superintendent View and Group Discussion How does your board fulfill its governance and fiduciary roles? 82 41

42 TENET 6 Install Best Business Practices for Finance and Operations 83 Assess Best Practices for Operation Facilities assessment Custodial efficiencies Maintenance scheduling and staffing Energy management plan Outsourcing custodial Outsourcing transportation Food services management 84 42

43 Managing Fund Balance Preserve the district financial position with board support Establish a fund balance policy with superintendent / board buy-in Establish a fund balance reserve for technology replacement using a long-term replacement schedule A Long Term Financial Projection will help you manage fund balance. 85 Fund Balance Policy The Board of Education recognizes that good fiscal management comprises the foundational support to the entire school program. To make that support as effective as possible, the board intends to maintain a fund balance of fifteen percent of the district s general fund annual operating expenditures. If a fund balance declines below fifteen percent, it shall be recovered at a rate of one percent, minimally, each year. SAMPLE partial language 86 43

44 Recommended Fund Balance MSBO 15 to 20% GFOA Two month minimum of operating expenditures or revenues Board of education policy Your auditor s written recommendation 87 Superintendent View and Group Discussion What best practice for finance and operations should your district consider? 88 44

45 Wrapping It All Up Together 89 Best Practices in Sustainability Top 8 Turn Around Strategies 1) Develop a district strategic plan with stakeholder buy-in 2) Adopt best practices in school budgeting GFOA or zero-base budgeting 3) Contract a professional enrollment projection to anticipate and plan for enrollment changes 4) Establish sustainability goals 45

46 Best Practices in Sustainability Top 8 Turn Around Strategies 5) Complete long range financial projection annually 6) Monitor budget monthly and amend by January 7) Review structure and strengthen business and human resource functions 8) Document and streamline operational costs Final Question Which of the 6 Tenets do you think your district needs to work on first, and in your board role what can you do to ensure improvement? 92 46

47 Donald Sovey (517) Michelle Falcon (517) Debbie Stair (517)