District Budget Process

Transcription

1 1. District Budget Development Process This is Jim Austin. In this lesson we are going to review the general process and timelines for the development and approval of California community college budgets. Additionally, I ll be discussing the importance of collegial participation, accessibility and transparency in the budget development process. 2. Student Learning Objectives There are four learning objectives for this lesson. After this lesson you should know what the basic budget preparation timeline is; you should be able to outline the typical process for developing a district s Tentative Budget; you should be able to describe the differences between the three major budgets in a district; and, finally you should feel comfortable being able to navigate a district s web site to find the budget documents and budget workshop materials. Now, let s get started. 3. Types of District Budgets Over the course of a budget cycle every district will have a tentative, adoption (AKA final ) and working budget. Each of those three budgets will be discussed latter in this presentation, and you will be expected to know the timing of those three budgets and the differences among the three budgets. Not all districts prepare a preliminary budget, and if such a thing is created it may have any name that the district determines. Other names might be long range fiscal plan, five year plan, or fiscal simulation. Typically the document would be a multiyear forecast of revenues, expenses and balances, and frequently its timing puts it in the early stages of the annual budgeting process. In the following slides we will go through the Tentative, Adoption and Working budgets in the sequence in which they occur. 4. Table of Contents, MiraCosta CCD Tentative Budget, FY2014 Here is the cover of the MiraCosta College Tentative Budget for fiscal year By the way, when you see the term FY14 or Fiscal Year 14 they are referring to the twelve months from July 1, 2013 to June 30, So, the fiscal year refers to the second calendar year in the fiscal year. Back to the MiraCosta Tentative Budget. There is not one template for the Tentative Budget. Some districts approve a very high level budget by major Object level category, the 1000, 2000, 4000, 5000, etc. object levels with no deeper detail. But other district boards require very detailed budgets to be approved. And of course there is every level of detail and glitch in between those two extremes. Now, let s move on to talk more about what the Tentative Budget is. 5. Tentative Budget (TB) The Tentative Budget must be approved by July 1 st, the first day of the fiscal year so that the district has the authority to expend public funds. The budget is called tentative because there is seldom if ever a signed state budget before the Tentative Budget is prepared, the district books are not closed, the FTES numbers are not final yet, and Title 5 of the California Code of Transcript - District Budget Process 3.docx Page 1

2 Regulations requires a Final Budget to be approved by each district before September 15. Do you know what it means to say the books are not closed yet? Pause. To say the books are closed means that the final CCFS320 and CCFS311 reports have been submitted to the state chancellor s office, all of the transactions for a fiscal year have been recorded, the district s accounts have all been internally reconciled and reconciled with the county board of education (unless the district is fiscally independent), and there are no outstanding purchasing documents or other commitments that are to be charged to the fiscal year. When the fiscal year ends on June 30th those conditions do not yet exist, so the books are not yet closed. Usually the books can t be closed until late August or early September. Now, let s move to the process for developing the Tentative Budget. At the district level, that process starts in January. 6. January Kick-off! The community college budgeting season really kicks-off mid-january before the fiscal year that will start on July 1st. The kick-off event is the Governor s budget announcement, but within the district there are a lot of other budget-related factors in play, also. For example, in January the district will have the final enrollment numbers from the fall term. Having those numbers will allow the district to more accurately forecast its final numbers for the entire year and the potential revenue that the enrollment numbers will generate. And having the more accurate numbers for the current year also allows the district to make its first estimate of what level of enrollment in terms of FTES would be reasonable for the up-coming budget year. By combining the fiscal information in the Governor s budget proposal and other fiscal information that is released at about the same time with the district s enrollment information the district can make its first estimate of the funded level of FTES that may be in the coming year. That estimate of the funded level of FTES is the first critical piece to the budget preparation process. Typically in January there will be a process to approve an FTES goal amount for the coming year so that the budget process can begin and so can the academic schedule development process. The approval of the FTES goal is really the first step in the process to develop what is called the Tentative Budget. Now, let s move on to the next slide to talk more about the typical Tentative Budget process. 7. Typical Tentative Budget Process As I mentioned before, in January and early February the district will develop the basic budget assumptions for the coming year. Those assumptions include the estimated funded level of FTES and the potential revenue that will be generated by those FTES. In some districts the process requires that the board approve the over-arching assumptions, but in others there is no requirement for board approval. March and April then become very, very busy budgeting and schedule preparation months. As the big picture districtwide budget is moving through collegial consultation processes, committee meetings and workshops, simultaneously there is bottom-up budgeting on the front lines, too. The reality is that the academic division can t wait for the district-wide budgeting process to run its course before preparing the schedule of classes to generate the planned level of FTES because the schedule of classes is typically published on-line in early to mid-april. On Transcript - District Budget Process 3.docx Page 2

3 the fiscal side, neither can the colleges, divisions, and departments wait to begin their line item budgeting until there is approved districtwide budget. Furthermore, the total district Tentative Budget can t be prepared until the line item budgets roll-up to match the big picture budget that has been working its way through the process. In other words, in March and April the Tentative Budget is being prepared from both the bottom-up and top-down at the same time. May is also a very busy month because the district budget office has to reconcile the bottom-up and the top down amounts, and multiple internal workshops need to be conducted before the CBO (chief business official) and CEO (chancellor or superintendent/president) conduct a public session workshop for the board, usually the first or second week of June so that the board can have some time to consider the budget before voting on it later in the month, and so the public and internal constituencies can have the opportunity to comment on it before the board votes. Let me take a minute to comment about the timing of Board of Trustees meetings. As with many thing in our CCC system, the timing of board meetings varies greatly among the districts. Some meet once a month, some twice or more a month; some meet on Mondays, some on Tuesday, some on Wednesdays, and some on Fridays; I don t know of any boards that have regular meetings on weekend days. A fairly typical board meeting schedule is to have a workshop style meeting on the first Tuesday of the month and then a more formal business meeting on the third Tuesday of the month, but, again, practice varies greatly around the system. In terms of both the Tentative and Adoption budgets the codes requires a public hearing before the board votes. In the past many districts simply technically opened a public hearing right before they actually voted, however that practice really does not conform to the spirit of the Brown Act, the California Open Meetings Act. More typically now a board with have a workshop and public hearing in the first week of the month and then the board takes action in the third week of the month. With that timing the public has time to consider the proposed document and comment before the board votes. Finally, one way or the other, the board needs to approve a Tentative Budget before July 1 st so that the district can legally conduct business in the new fiscal year. Let s now move on to challenges with the Tentative Budget preparation. 8. TB Challenges After the long narration with the previous slide you can hopefully understand the many challenges posed by the Tentative Budget timing and process. In this slide I list just a sampling of the major issues. As you consider the points in this slide let me dwell on the second bullet a bit. A budgeting adage is that you should underestimate income and overestimate expenses in preliminary budgets. No chief business officer wants to be in the position in the next year where actual revenues are coming in under budget and expenses are coming in over budget and he or she has to propose mid-year budget reductions. All constituencies in a district hate, and I mean really hate, mid-year budget cuts. Among the many reasons mid-year cuts are hated so much, rightfully I may add, is that by the time the cuts happen it is functionally just too late to make Transcript - District Budget Process 3.docx Page 3

4 the cuts in any intelligent and reasonable manor. The district has already taught summer terms, fall term is in-progress and the spring term schedule has probably already been publish. Additionally, remember that almost 90% of a district s unrestricted general fund budget is a fixed cost after the third week of a term, the deadline for cutting classes. If you consider the adjunct teachers to be a fixed cost after the term starts, there remains very, very little discretionary budget that can be cut midyear. So, the natural inclination of every business official is to very conservatively budget the Tentative Budget. Hopefully you can appreciate his or her position with what you have learned about how uncertain the next year s funding is during January and February when the big FTES and revenue decisions must be made. But, can you think of why that budget conservatism can hurt a district? Remembering what I said about the difficulty of making mid-year cuts, how difficult do you think it is to make well thought-out mid-year increases that are congruent with the district s strategic plan during the course of a year in progress? Hopefully a district has unfunded priorities from its Tentative Budget budgeting process, but the latter in the year it gets the harder it is to make planningdriven increases. 9. Adoption Budget, Grossmont Cuyamaca CCD Now let s move on to the Adoption Budget 10. Adoption Budget The Adoption Budget is also called the Final Budget the two terms are used interchangeably. I prefer Adoption Budget because the board technically does adopt it and because it really is not the final budget of the year. But, again, both terms are used interchangeably. Now let s move on to discuss this budget in more detail. 11. Adoption Budget (AB) Title 5 of the California Code of Regulations requires that every community college district adopt a final budget, or Adoption Budget, by September 15th, and that budget must be submitted to the California Community Colleges Chancellors Office. In reality, there is no enforcement mechanism or sanctions concerning the September 15th date, but districts almost always comply with it anyhow. The only times I am aware of that districts are late are when a state budget has not yet been signed or when the second district board meeting of September fall a day or two after the 15th. Compared to when the TB is prepared, by the time the Adoption Budget is approved the district s prior year books are closed, all accounts are closed, final FTES numbers are known and the final CCFC320 and CCFS311 reports have been submitted. Additionally, since the state s fiscal year is also over, the system has much better projections of funded FTES levels and potential revenue. Also, internally, contracts are in place, salary schedules are usually set, and fall term staffing is a done deal. Now let s move on to the process for the Adoption Budget. 12. Typical AB Process The adoption budget process really flows right on from the tentative budget process. Essentially through the summer internal districts projections are refined, contracts are signed, the fall Transcript - District Budget Process 3.docx Page 4

5 schedule is solidified and more solid fiscal projections are received from the state. The district s budget office with essentially just tweak the Tentative Budget and prepare informational workshops for the internal constituencies and the board culminating in the board s action before September 15 th. Two important take-aways are that the Adoption Budget is just a modified Tentative Budget based on better, more up-to-date information, in other words it is not built from scratch; and, secondly, it must be approved by September 15 th. But, there are challenges to the AB process let s move on to discuss some of them. 13. AB Challenges Internally, by far the biggest challenge is the fact that the majority of the faculty is gone between terms and critical constituencies don t meet. By the time the faculty returns for fall term there is a very tight timeline that barely allows enough time for the Board workshop and then vote, let alone the internal constituency workshops and participation that should be part of the process. Additionally, all of the district employees classified, administrators and faculty are very busy and focus on the students in the beginning of the term so they just can t allocate adequate time and focus to the Adoption Budget process. Another factor that is internal to the district is the timing of the audit for the prior year. Typically that audit will not be completed until after September 15th, so any major adjustments can t be reflected in the AB. Hopefully you remember that the CCFS320 report is the report that reports a district s FTES to the state. Districts are permitted to submit revised 320 reports, and they often do. The challenge in terms of the Adoption Budget is that districts will look at their enrollments for the prior year and then the summer and then make decisions about win which fiscal year to report summer FTES from classes that cross over between June and July. Within the total system the swing of FTES between years due to the summer slide can be significant and can impact the projected funding for all the districts in the system. Of much greater importance is the fact that the quote Final unquote budget has been passed, all revenue information from the state is still very preliminary and even that preliminary estimated income must be earned. In other words, the final revenue in the Final budget is anything but final or certain! Lastly, what if there is not a state budget yet? That used to be a common situation until several years ago when the voters approved two ballot propositions that combined to virtually insure a budget by June 30 th. Now, let s move on to the Working budget, the third of the three budget types that every district has. 14. Working Budget (WB) The Working Budget is the current budget of the district at any given point in time. Unlike the Tentative and Adoption budgets, the Working Budget is a fluid document. Conversely, the TB and AB are fixed in time once the board approves them. During the course of the year there are many changes both in terms of revenues and budgeted expenditures. Revenue accounts: In terms of revenues, it is very usual and customary that additional actual and potential revenue comes into the district for a whole host of reasons. The changes come into both restricted and unrestricted funds. Mechanically the board must accept any additional revenue to be budgeted, and it must approve into which expenditure accounts it will be Transcript - District Budget Process 3.docx Page 5

6 distributed to. Until the board accepts new funds and approves the distribution of the funds the funds must be placed into the district s contingency account and the funds may not be moved or expended from that account without prior board approval. Expenditure accounts change for three primary reasons. First, an increase in revenues as I just discussed. Secondly, a decrease in revenues. When there is a decrease in projected revenues both the revenue and the related expenditure accounts to which the funds had been budgeted must be reduced. But, by far the most frequent reason for budget changes during the year are due to district initiated movements of funds among accounts. For example, if a biology class is added to the schedule and an English class dropped due to low pre-term enrollment, perhaps budget will be moved from the adjunct faculty account in English to the adjunct faculty account in Biology. In that case probably budget would need to be moved from a divisional contingency account into the biology supply account. If budget is being moved with a single major object account then board approval is not required; for example if budget is moved from supplies (4521) to printing (4531) both accounts are within major object code 4000, so no board approval is needed. If, however, the budget is moving between major object accounts, then board approval is needed. For example if budget were moved between supplies in the 4000 object to consultants in the 5000 major object, then board approval would be required. District fiscal departments try to consolidate as many of the transactions as possible during a month to try to minimize the amount of budget transfers that go to the board. In any case, the Working Budget will reflect the Adoption Budget plus any changes made after the adoption of that budget by the board. 15. Budget Access and Transparency Virtually every district in the state makes it extremely easy to find budget and audit information. Try it just go to any district s home page, find the search box, and then type in Budget, Tentative Budget or Adoption Budget and see what you get. I would be very surprised if you don t find several years worth of budget workshop presentations, budgets and audits. In this slide I give you links for MiraCosta CCD and Grossmont- Cuyamaca CCD to try. Now, can you find the budget information for San Diego CCD? How about your district? 16. Review of SLOs Well, how did we do? Did we accomplish the objectives? If not, can you go back and find the information you need to succeed? 17. The End Transcript - District Budget Process 3.docx Page 6