School Finance Basics and District Support Operations. Budgeting. When Do You Begin?

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1 School Finance Basics and District Support Operations The Legislature implemented the school funding formula that exists in Arizona today starting in the school year. The formula was developed in response to property tax limitations that were being put in place in many states including Prop 13 that had been approved in California. The new system for funding schools in Arizona was designed to reduce local property taxes, especially property taxes for homeowners. In addition, the new formula was designed to equalize school spending between school districts. The basic formula for funding school district operations today is very similar to the legislative formula that was put in place in the school year. In July of 1998, the Legislature significantly changed the capital finance system. The new system called Students First (Fair and Immediate Resources for Students Today) was passed by the Legislature under a court order from the Arizona Supreme Court. The new system created minimal adequacy standards for schools and provided state dollars to bring school districts across the state up to these adequacy standards. Also, the new system put in place the Arizona School Facilities Board, which uses a formula to determine when the state will fund the purchase of land and the building of new schools for qualifying school districts. Budgeting The annual school district budget is a planning document that lists how the district will operate financially during the school year. The budget expresses the anticipated expenditures of the district for the entire year. The completion of this document may be one of the most important activities of a governing board. This document is a plan for allocating financial resources and determines the type of educational programs that will be funded. This document is a statement of the school district s funding priorities for the school year. When Do You Begin? If the budget is not required to be adopted until July 15, when does the budget process begin in the district? Many school districts begin as early as November to develop preliminary budget projections. A budget calendar may be developed that lists the significant activities during the year. One of the first steps may be to assess existing programs in order to consider which programs require revisions. Also, early in the budget process, districts may look at any new programs that need to be developed during the upcoming school year. Since employee salaries and benefits are a major portion of the school district s budget, decisions in this area will be critical to completing the budget process. The number of employees and the salary level for employees is a major issue in the development of most school district budgets. The actual budget limitation is based on the prior year s average daily membership (ADM) through the first 100 days in session. For example, the budget limit will be based on the ADM. After a school district has been in session for 100 days, the district may revise its budget upward to reflect any additional students. For example, if the school district had 5,000 students in , its budget limit would be calculated on 5,000 students for If after 100 days in session in the district had 5,100 students, the district would be allowed to revise the budget upward to reflect

2 the additional 100 students. A district that has a reduction in the number of students after the first 100 days is not required to reduce its budget in that year. Starting with the school year, the legal school year was increased. For , the days were 178; for , 179; and for and beyond, 180 days. School districts may elect to offer a 200-day school year (11 percent increase in days) and receive a 5 percent increase in base funding. In the budget planning process, a district should consider the impact of revising its budget based on projected growth in student numbers. However, a district needs to be careful not to overestimate growth. The allowable budget increase after the first 100 days in session is based only on the actual increase in students. How Are Students Counted? The district counts the students enrolled for each of the first 100 days. The average for these first 100 days becomes the average daily membership (ADM), or student count. How Is the Budget Limit Established? The Legislature has prescribed budget limitations for Arizona school districts. The first item in the budget limit calculation is the revenue control limit (RCL). The factors that impact on the RCL are: 1) The ADM of the district 2) Special program add-ons for academic assistance and reading programs for pupils in kindergarten through Grade 3 and for certain disabled students 3) The district s teacher experience index (TEI) 4) Transportation route miles Utilizing these factors, a revenue control limit (RCL) is calculated by legislative formula for each school district. Beginning with , the state added increased funding for full-day kindergarten to the funding formula. This increased funding was phased in over two years. The increased funding started in and was fully phased in by In the school year, the Legislature eliminated funding for full-time kindergarten and returned to the old system of only funding kindergarten students at a.50 level. Therefore, under the current system, kindergarten students only receive 50 percent of the funding provided for a full-time elementary student. Also, beginning in , the Legislature froze the funding formula for pupil transportation for many school districts. Under this law, a school district will have no increase in the district s transportation funding formula unless the Transportation Revenue Control Limit (TRCL), which is the district spending formula for pupil transportation, is no more than 120 percent of the district s Transportation Support Level (TSL), which is what the state funds for pupil transportation.

3 Certain other special provisions also exist in the legislative formula. Adjustments are made for small school districts. Districts with student counts of fewer than 600 are eligible for these small-school adjustments. Included in the small-school adjustment factor is a provision to assist small isolated districts. A small isolated district is a school district with fewer than 600 in Grades K through 8 or Grades 9 through 12 that contains no school within 30 miles of a school in another Arizona school district that teaches the same grades. This 30-mile limit is changed to 15 miles if road conditions and terrain make driving slow or hazardous. Other items are added to the RCL to determine the actual budget limit (maximum expenditure level). These items include:» Tuition revenue. Received from other districts, the state or private individuals.» Budget overrides approved by the voters. Overrides in the maintenance and operation area may be authorized for up to seven years. If the school district wants to extend an override beyond the original term, the override must be reapproved by the voters. A school district may use a voter approved override to expend additional funds beyond the established budget limit. The additional expenditures could be for any purpose as determined by the local governing board. Overrides to exceed the maintenance and operation budget generally are restricted to a maximum of 15 percent of the revenue control limit (RCL). Certain small districts have an override limit of 25 percent. An additional override provision exists for a special program override. The maximum amount for a special program override is 5 percent of the revenue control limit. However, the total limit for a regular override and a special program override cannot exceed 15 percent of the RCL.» Sale, lease or rental of school property. Districts may utilize the proceeds from the sale, lease or rental of school property to increase their budget limits. Any school district that has an outstanding bonded indebtedness in excess of 7 percent of the current year s assessed valuation for elementary and high school districts or 14 percent for unified districts may use up to 25 percent of the revenue from the sale of district property in the maintenance and operation budget. A district that is below the applicable 7 percent or 14 percent level may use proceeds from the sale or lease of school property in the maintenance-and-operation and/or capital-outlay funds. Proceeds from the sale of school property after June 30, 1998, may not be expended for maintenance and operation expenses. Any lease of school property for more than five years requires voter approval. Facilities may be leased for a maximum of 99 years.» Desegregation costs. Expenditures to comply with a court order of desegregation or an administrative agreement with the U.S. Office of Civil Rights. The desegregation expenditures that are exempt from the revenue control level and capital outlay revenue limit are limited by law.» Audit costs. Expenditures to comply with the Single Audit Act of 1984 (P.L ). These financial and compliance audits must be completed 87 on at least a biennial basis. Generally, this provision pertains to individual school districts that receive $100,000 or more in federal funds. The amount that may be budgeted is equal to the amount the district expended for the most recent audit, adjusted for inflation. This provision is now a part of the state s funding formula.

4 » Budget balance carry forward. Districts may budget a limited amount of unused budget capacity in the next year. The amount of unused budget capacity used cannot exceed 4 percent of the revenue control limit.» School opening fund. Districts may budget for a school opening fund. Monies in this fund may be expended only for additional maintenance and operation expenses incurred in the first year of operation of a new school. Any money transferred to the school opening fund shall be subtracted from the amount that the district otherwise would be able to budget as budget balance carry forward.» Dropout prevention. School districts participating in dropout prevention programs in are still allowed to continue to budget for such programs. However, the budget amount for these programs is frozen at the budget level.» Career ladders. Certain school districts are allowed to budget for career ladder programs. However, the Legislature eliminated career ladder programs after the school year.» Limit on new items. Beginning with the school year, the Legislature placed a prohibition on any additional items placed outside of the revenue control limit that are funded by local property taxes. No new items have been added since this law became effective. Other Budget Funds Classroom Site Funds Beginning with the school year, school districts began receiving funds from an increase to the state sales tax and certain school trust revenues. These funds are received by school districts based on the student count for the district, and the funds must be used for instructional purposes. Twenty percent of the funds must be used for teacher base salary increases and for employmentrelated expenses. Forty percent must be used for teacher-compensation increases based on performance. The remaining 40 percent shall be spent for class size reduction, teacher-compensation increases, AIMS intervention programs, teacher development and dropout prevention programs. A classroom site fund budget limit is established for each school district. The limit is based on the estimated revenue for the classroom site fund as determined by state formula, the unexpended budget balance from the prior year and net interest earned on monies in the fund from the prior year. Instructional Improvement Fund Beginning with the school year, school districts began receiving monies generated by Indian Gaming. Districts may utilize up to 50 percent of these monies for teacher compensation and class size reduction. Monies not used for these two purposes must be used for instructional improvement programs including dropout prevention programs and programs to develop minimum reading skills for students by the end of Grade 3. Instructional Improvement Funds are distributed to school districts and charter schools on a per pupil formula.

5 Student Success Fund Beginning with the school year, school districts began receiving monies from the new state student success program. For the first year, state funding was set at $40 million for the entire state. Monies were distributed to individual districts through a formula that was based upon the academic growth of students. The future for this program after the school year is unknown. Capital Funding In addition to the revenue control limit, school districts compute two different capital outlay limits. Part of these capital outlay funds may be used to increase the maintenance and operation budget.» District Additional Assistance (DAA). The Legislature has combined two prior capital funding programs in one. The state combined the old Capital Outlay Revenue Limit (CORL) and the old Soft Capital Allocation(SCA) into one new fund. Monies from the District Additional Assistance fund may be used in capital outlay or maintenance and operation. The formula amount per pupil for the new fund is equal to the combined amount per pupil from the two existing funding programs. The amount of the funding formula per pupil in this area has not increased since the school year.» Building Renewal Grant Fund. School districts may apply for a building renewal grant to fund primary building renewal projects, including major renovations and repairs of a building, upgrades to building systems that will maintain or extend the useful life of a building, and for infrastructure costs.» Emergency Deficiencies Correction Fund. School districts may apply to the School Facilities Board (SFB) to correct facility deficiencies that threaten the functioning of the school district, the preservation or protection of property or public health, welfare or safety. The cost of the correction must exceed the school district s current year budget.» Adjacent Ways. School districts may budget for the cost of improving any public way adjacent to school district land. Included is the construction of sidewalks, sewers, utility lines, roadways and other related improvements. A school district shall not use adjacent ways funds for any improvements to school district property except for improvements necessary to ensure the safe ingress and egress from school property directly adjacent to property for buses and fire equipment.» New School Facilities Fund. District eligibility for new school facility funding is based upon a district exceeding state building capacity standards.» Deficiencies Correction Fund. The State Facilities Board distributed monies to school districts to correct building deficiencies. Funding was provided for facilities that did not meet state square footage standards or for facilities that did not meet state minimum adequacy guidelines. The State Facilities Board also provided funds for new construction to a school district if it was cost effective to replace rather than repair a building. This program was completed during the school year. Currently, limited funds are available for emergency projects.

6 Budget Limits Computations of a Revenue Control Limit (RCL), and District Additional How these funds may be used: Limit Category Revenue Control Limit (RCL) District Additional Assistance (DAA) Where Monies May Be Used May be used in maintenance and operation or capital outlay May be used in maintenance and operation or capital outlay Assistance (DAA) are established by the Legislature. The main factors in these formulas are the number of students in the school district and the established dollar amounts per student. However, the decision to allocate funds to specific areas of the budget is made by the local governing board. Generally, all of the Revenue Control Limit (RCL) is used in maintenance and operation. The major decision that is made by the school district is the amount of the District Additional Assistance (DDA), if any, that would be used in the maintenance and operation budget. The following is a presentation of how this process operates: Revenue Control Limit (RCL) District Additional Assistance (DAA) Maintenance and Operations Limit Capital Outlay Limit Allocating Funds to Programs The budget limit establishes the maximum that may be budgeted and expended for maintenance and operation. However, the local governing board has the responsibility for allocating funds to regular, special and pupil transportation programs. The following is a representation of how this process operates: Limit established by legislative formula BUDGET LIMIT Allocation made by local governing board Regular Education Programs Special Education Programs Pupil Transportation

7 The Legislature, in making the purpose statement for the existing Arizona school finance legislation, stated: The Legislature intends by this act to increase the authority and responsibility of local school boards in determining how revenues will be utilized. An important activity for the governing board is determining how funds are allocated to the educational programs in the district. The budget not only lists the totals that are planned to be expended on regular, special education and pupil transportation programs, but also lists the types of expenditures within each category. Each budget area includes planned expenditures for salaries (certificated and classified), employee benefits, supplies and materials, utilities and communications, tuition and other expenditures. Monitoring Expenditures A key responsibility for the governing board is to monitor district compliance with the budget for the district. The penalty for a school district that has expenditures that exceed the district s budget can be severe. The Arizona Department of Education is required by law to notify the State Board of Education if expenditures by a school district exceed the general budget limit, the unrestricted capital budget limit or the soft capital allocation limit. The only exception is that limited exemptions exist for overexpenditures for excessive and unexpected legal expenses for emergencies not funded by the Arizona School Facilities Board. Any exceptions must be approved by the County Board of Supervisors. For any district that is found to have expenditures that exceed their budget limit, the budget limit for the next year is reduced equal to the over-expenditure. In addition, the State Board of Education may take additional action against the school district including putting the district into receivership. In a number of cases, districts with significant over-expenditures have been put into receivership with the school district governing board no longer responsible for financial control of the school district. Under receivership, the financial decisions are made by the receiver with these powers not returned to the governing board until the State Board of Education decides to take the district out of receivership status. The district staff and the governing board will spend many hours of work preparing and adopting the district budget. However, it is clear that the work must continue to be sure that the budget plan for the district is monitored during the school year. During the year, situations may arise that will require expenditures that were not planned for when the budget was adopted. This will require adjustments that will allow the district to make these required expenditures without exceeding the adopted budget. Remember, expenditures above the budget limit, except for a few limited exceptions, will result in penalties for the district. Since each district will have a plan for the adoption of a budget, each district will need a plan for monitoring expenditures during the school year. Over-Expenditures for Destruction and Damage to Facilities, for Excess Legal Expenses or for Health Hazards A school district may not expend beyond the total limit established for that fund except for a provision of law (A.R.S ) that allows school districts to expend beyond the budget limit for an emergency for which the school district did not receive funding from the School Facilities Board because of insufficient monies in the emergency deficiencies fund or excessive and unexpected legal expenses. The County Board of Supervisors must approve the over-expenditure.

8 Penalty for Expenditures in Excess of Budget Limit A penalty has been enacted by the Arizona Legislature for any school district that makes expenditures in excess of the allowable budget limit for maintenance and operation (Fund 000) or capital outlay (Fund 410). The penalty is loss of budget capacity in the year following the over-expenditure equal to the amount of the expenditure. This provision does apply to approved items under the provisions of A.R.S School Facilities Board (SFB) The Legislature established a nine-member board to evaluate the capital needs of school districts and to distribute monies for building renewal, building deficiencies and new construction. The members of the board are appointed by the Governor. The Superintendent of Public Instruction is also an advisory non-voting member. Each school district is required to develop routine maintenance guidelines and maintain school facilities in accordance with the school district s maintenance standards. The board adopted rules establishing minimum school facility adequacy guidelines. Major Financial Documents The governing board ultimately is responsible for the financial affairs of a school district. In carrying out this responsibility, the members of the board should be concerned with the following major financial documents: Expenditure Budget This document projects the estimated expenditures for the year. The budget is a planning document and should represent the district s best estimate of its needs. The school district s budget shall be adopted no later than July 15. If any law or state forms were changed after May 1 of the prior fiscal year, a district governing board has until October 31 to revise the district s budget to reflect such changes. Annual Financial Report This document lists the estimated and actual revenues, expenditures and fund balances for the school district during the previous fiscal year. The annual financial reports of each school district are compiled by the Superintendent of Public Instruction and reported to the Governor and the Legislature by January 15. The annual financial report or a summary of the report must be published by the governing board in a newspaper of general circulation within the school district by November 15. A copy of the annual financial report must be sent to the Arizona Department of Education by October 15. Revenue Sources Federal Assistance The federal government provides categorical aid to school districts through special projects. In most cases, eligibility for these funds is based on district application to the Arizona Department of Education. However some federal programs are funded directly from the federal government. Federal impact assistance (P.L ) revenue is also available to school districts that educate children who live on federal property and/or whose parents work for certain federal government agencies.

9 State and County Aid The finance system utilized in Arizona provides block grant funding from the state and county to support Maintenance and Operations and Capital Outlay. Equalization assistance is the term used to identify financial support provided school districts by the state and county. In calculating a district s entitlement to equalization assistance, the first step is to compute the total for the revenue control limit (RCL)/district support level (DSL), the capital outlay revenue limit (CORL) and the soft capital allocation (SCA). From this total amount, the district subtracts the amount that would be raised by applying a qualifying tax rate (QTR) to the primary assessed valuation (AV) of the district divided by 100. Each year, the amount of the QTR is established by the Legislature. The calculation is determined as follows: (RCL or DSL + CORL + SCA) (QTR AV/100) = equalization assistance As noted earlier, equalization assistance is a shared responsibility of both the state and the county in which the school district is located. The sharing is established by legislative formula, which directs that:» The Board of Supervisors of each county will apply a tax rate against the primary assessed valuation of the county. Monies collected are credited to the county equalization fund. The amount of the levy is set each year by the Legislature. This levy is now called State Equalization Assistance Property Tax Levy.» The equalization assistance due all eligible school districts located within the county will be totaled, with each district s entitlement being shown as a percentage of the total.» The county will accumulate monies into the county equalization fund. The county will apportion all monies collected to the eligible districts on the basis of the districts respective entitlements to equalization assistance, using the percentage calculated as noted in the preceding paragraph.» The county equalization monies will supplant the liability of the state in providing equalization assistance to school districts.» An additional factor in providing financial aid to school districts incorporated into the school finance scheme is called additional state aid. This program reduces the primary tax liability for residential homeowners. In addition, in the event that the total tax liability on a residential parcel should exceed 1 percent of its full cash value, the taxes due are reduced to 1 percent and the state makes up the difference. It should be noted that in a limited number of instances, the only financial assistance provided by the state is additional state aid. The reduction rate for residential homeowners was reduced by 5 percent per year from to This change in the homeowners rebate caused local property taxes for homeowners to increase.

10 Other Funds The school district also has funds in addition to maintenance and operation and capital outlay. Most of these funds are cash controlled. Some of these additional funds are listed below. Adjacent-Ways Fund. The district may budget monies (raised by an ad valorem tax on the taxable properties in the district) to be used to provide capital improvements on properties adjacent to district-owned property. Special Projects. These funds include the categorically (federal or state) funded activities. Expenditures are cash controlled, which means that a school district may expend only such monies as have actually been received and are on deposit with the County Treasurer. An example of a federal project is the Chapter I program for the educationally disadvantaged; an example of a state project is vocational education. Debt Service Fund. This fund is utilized to accumulate revenue to be used for paying interest and redemption expenses associated with voter-approved bond issues. School districts are constitutionally limited to maximum debt ceilings. Special Revenue and Enterprise. Special revenue funds exist to account for revenues from specialized sources that are designated by law to finance particular functions or activities. Included among these funds are food services, civic center, community school, auxiliary operations (bookstore and athletics), and gifts and donations. Student Activities. This fund is used to account for monies raised by the effort of students. District Services Fund. This fund is utilized by a school district to provide goods or services to district schools or departments or to other school districts on a cost-reimbursement basis. Other. Other special funds, such as insurance proceeds, intergovernmental agreements, insurance refund, textbook (lost or damaged), indirect costs, unemployment insurance, litigation recovery and teacherage. The County Equalization Funding has been eliminated for through , and the County Equalization Tax Rate has been set at 0. The reduced county funds were replaced by increased state funding for these years. The name for the county fund was changed and it is now called the State Equalization Assistance Property Tax. Advance Payments of State Aid Equalization assistance (paid by the state) is apportioned to eligible districts in accordance with a statutorily prescribed calendar. A school district may apply to the Arizona Department of Education for an advance payment of state aid. The procedures and forms for applying for advance payments are available from the Arizona Department of Education, School Finance Unit.

11 Other State Revenue The state also provides some categorical aid to school districts through special projects. Also, the state provides funds to school districts for students who live in foster homes, child care agencies and other institutions that are licensed and supervised by the Department of Economic Security. In addition, the state provides funds to school districts that educate children who live in areas that are not part of organized school districts. The Legislature funds two programs to assist small school districts. These two programs are a county special program and a special program for the purchase of pupil transportation vehicles. One major source of funds from local sources is property taxes. Other sources of local revenues are tuition payments, interest on investments and payments in lieu of taxes. The property tax rate is set by the County Board of Supervisors in August. However, the information used to establish the tax rate is provided by the local school district in cooperation with the County School Superintendent. When the school district adopted the budget, it set a maximum for expenditures for the upcoming year. The determination of where the funds will come from is stated in the revenue budget. This document normally is prepared by the school district during July. If the revenue budget is not prepared accurately, the district may have a tax rate that is in excess of the amount actually required or the district may have less revenue than needed. Therefore, the revenue budget is a critical document that should be accurately prepared utilizing the latest available data. Setting the Tax Rate The tax rate is set by the Board of Supervisors. The rate is set at a level that will raise the amount of property tax levy requested by the school district. The amount of property tax levy is determined in the following manner:» Step 1. Determine the amount of revenue that will be available from cash balances.» Step 2. Determine the amount of revenue that will be available from other than property taxes. These other revenues include tuition payments, interest payments, county aid, state aid, federal impact aid and any other non-property-tax revenue.» Step 3. Determine the total non-property-tax-available revenue (Step and Step 2) and subtract from the adopted budget amount. This amount is the local levy requirement for the school district.» Step 4. The County Board of Supervisors sets a tax rate sufficient to raise the required revenue. School districts have primary and secondary property tax rates. The secondary tax rate is for budget overrides and debt service only. The primary tax rate is for maintenance and operation, capital outlay and adjacent ways. The primary tax rate is applied against the limited property value. The secondary rate is applied against the full cash value or unlimited property value.

12 Quick Tips: Truth in Taxation School districts are required to publish information if selected budget items are increased beyond the prior year s amount. The formula for computing this increase is set by the Legislature. The law specifies the format for this notification and requires a public hearing. The truth-in-taxation hearing must be held on or before the adoption of the budget. Constitutional Aggregate Expenditure Limit for All School Districts During the summer of 1980, a series of 10 amendments to the Arizona Constitution were presented to the voters. All of these amendments were approved. One of the amendments provided an expenditure limitation for cities, towns and counties. If cities, towns and counties need to expend above the limitation, they must have voter approval. Another amendment, approved by the voters, imposed expenditure limitations on community colleges and school districts. Expenditure increases under this limitation were based on changes in population and the cost of living. The limitation for community colleges was similar to the limit for cities, towns and counties in that the limitation was placed on individual units. Unlike these limitations, which are calculated on an individual basis, the spending limitation for school districts applies to the aggregate expenditure of all districts. It is a restriction on total spending by all districts rather than a restriction on individual school districts. What Is Included in the Constitutional Limit? The constitutional aggregate expenditure limit includes the majority of expenditures by school districts. This limitation covers most maintenance and operation expenditures (Fund 000) and capital outlay (Fund 410). Most expenditures for federal grants, capital levy and debt service are exempt from the limitation. However, state special projects (except construction grants) and federal impact aid (P.L. 874 funds) are included under the limitation. How Does the Limitation Work? The constitutional aggregate expenditure limitation allows expenditures to grow based on changes in inflation and in the state s student population. The inflationary increase is based on changes in the gross national product (GNP) price. Allowable budgeted expenditures change each year based on increases/decreases in numbers of students and changes in inflation as measured by the GNP price deflator. The year was the first year of impact for the constitutional limitation. The limitation was based on adopted budgets with a two-year increase for changes in inflation and in numbers of students. The constitutional limit was exceeded in the year by approximately $14 million. However, on November 4, 1986, the voters of the state approved a 10 percent increase in the constitutional limit. In 2000, Arizona voters approved Proposition 301 (Education 2000). This proposition allocated additional sales tax and state trust revenues to increase educational expenditures by Arizona schools. This

13 Quick Tips: increased revenue was subject to the constitutional limit. This increase caused the constitutional limit to be exceeded for the school year. However, the Legislature approved action to exceed the limit for the school year. On November 5, 2002, Arizona voters approved Proposition 104, which exempted sales tax revenue and state trust revenues from Education 2000 from the constitutional limit for future years. What Happens If Constitutional Limitation is Exceeded? The Arizona Constitution does not state what happens if the aggregate limitation is exceeded, except that the constitution does allow for an override of the limit on an annual basis by a two-thirds vote of both houses of the Legislature. Currently, A.R.S sets forth a procedure to be followed if the aggregate limitation is exceeded. The following steps are to be utilized:» Step 1. On or before March 1, the Legislature could, by a two-thirds majority of both the Senate and the House of Representatives, approve action to exceed the limitation. Approval to exceed the limitation is required on an annual basis.» Step 2. If the Legislature does not authorize action to exceed the limitation, then the State Board of Education is required to notify each school district of needed budget reductions. The districts must be notified by March 5, and the reduction is equally prorated among all school districts. For example, if the constitutional limitation is exceeded by 2 percent, then each district would be required to reduce its budget by 2 percent. Board Role in Other District Support Operations Like its role in many other areas, the board s role in risk management, purchasing transportation, food services, etc. is to ensure its policies not only meet laws and regulations, but the policies must also set the tone for how these functions are carried on within the district. All such support functions are critical to the operations of the schools, and one function is no less important than the other. It is the board s job to ensure its policies have high standards and provide clear guidance to those hired to supervise these functions. The Accounting System Governing boards are responsible for the accounting and reporting duties of their respective school districts. Arizona school districts are required to maintain records in accord with the Uniform System of Financial Records (USFR). The manual for the USFR is found on the Auditor General s website: Quick Tips