Budget Notes And Thoughts 
By Alex Saitta 
February 12, 2013 
 
Introduction: 
The board had its first budget meeting on February 9th. First some interesting notes. Classroom expenditures are 63.4% of the budget. That figure is up nearly 2 full percentage points from the previous year. On average, employee benefits are 27% of their total compensation. The general fund balance at its lowest point this past year was only $2.3 million, and that was down from about $4 million, so savings are being eroded again.  
 
The early estimates on the 2013-14 budget are: revenues are estimated to rise $1.9 million, but mandatory costs are estimated to rise $1.8 million. Revenues are expected to grow but inflation is rising just as fast, so the district is not getting ahead. There is no extra money.  Healthcare costs are expected to rise $566,000, retirement costs $450,000, property insurance due to more square footage $67,000, workers compensation $63,000, and schoolsí energy cost $1.0 million. Whoa, on those electricity costs.  
 
Electricity Costs: 
If revenue is only growing 2 to 3% a year and budget expense xyz is growing 8%, let's say, to fund xyz you either have to find new revenue (hard in this economic environment) or take money from the rest of the budget to pay for it. In this instance, expense xyz is said to be eating up your budget.  
 
Healthcare and retirement costs have been rising in the 8% to 10% range, and workers comp costs are rising faster than that, so those items are already eating up the budget. Now add electricity to that list of items ďeating upĒ the budget.   
 
(Seeing this coming, this is why I opposed continuing the TAP program. TAPís cost would have rose each of the next three year, rising by a total of $2.2 million. This budget could not handle that on top of the rising benefits and buildings costs. By the way, next year, when Brice Middle comes on line, it will sock the budget with $700,000 more in annual expenditures.) 
 
Those who said all these new buildings werenít going to cost more to run because they were so much more efficient either didnít have a clue or lied to the public. The facts are now in: 
 
Since 2007-08 (the start of the building program) total sqf is up from 2.2 million to 3.2 million. Electricity costs alone (excluding natural gas or water) are up from $2.3 million to $3.5 million or $1.2 million. For example, Chastain Road Elementary is costing an extra $100,000 a year in electricity. Pickens High is up from $166,000 to $296,000. Liberty High is up from $108,000 to $208,000. Easley is up from $245,000 to an expected $392,000 this year. Daniel is up from $158,000 to an expected $305,000 this year. The Vocational School is up slightly from $102,000 to $106,000.  
 
Between the extra utilities, maintenance costs and staffing the two new schools (Chastain and Brice), it will cost the district more than $3 million extra a year to run its buildings compared to the period before the building program started. That $3 million has to come out of the general fund, so there is less money for things like classroom supplies, gasoline for athletic travel or employee pay raises.  
 
2013-14 Budget Estimates: 
Like I said above, the early estimates on the budget are revenues will rise $1.9 million and mandatory costs will increase $1.8 million. The tentative budget is balanced. Those figures do not include a pay increase for employees, neither a step or cost of living increase. If the state mandates a step increase for teachers, the budget will be in a $900,000 hole. If the state mandates a 2% increase for all employees, either the state or district will have to saddle that $1.3 million in extra cost. Clearly, unless revenue turns out to be stronger than expected, the 2013-14 budget is leaning toward a deficit.  
 
Financial Leadership: 
Our new superintendent and her staff are stronger than the past ones in the sense of academics, communication and personnel management. Overall, I will give the district leadership a positive review in most areas. However, like all leadership teams of the past, I believe this one is struggling in the area of financial management.  
 
When facing a budget deficit, an organization should size up the short-fall, identify low priority spending items, reduce or eliminate them, and use the freed up money to balance the budget and/or help pay for new items it wants to add to the budget. Thatís Budgeting 101.  
 
The 2013-14 budget is leaning toward a deficit. Yet, on February 9th the board wasnít given a list of potential cuts. Instead we were given an $8 million list of district wants/ needs. In red letters across the top, the list said, FOR DISCUSSION ONLY ó AMOUNTS ARE PRELIMINARY ESTIMATES ARE SUBJECT TO CHANGE.  
 
What discussion? The district has about $1.9 million in new revenue, and about that much will be spent in mandatory cost increases like electricity or medical costs. If pay raises are mandated, the budget will be in deficit. There is no extra money. Whatís to discuss in terms of adding spending items? 
 
Iím sure the district leadership will say it presented the board the list for informational purposes or someone on the board requested to see the list of wants/ needs. I ask for a list of spending cuts every year. Most every year I give the same speech ó I would like to see the district rank expenditures from most important to least important and then cut the bottom x% or the bottom x million, and then use that money to either plug a deficit or to fund new priorities. The reason lists of new spending initiatives are dropped on the board room table every year isnít due to board member requests.  
 
Why? 
Why would the board be given a long list of needs when the budget is leaning toward deficit, but not be given a similar list of suggestions on where to cut? 
 
The reason is twofold, in my opinion.  
 
One, most managers in the school district know how to grow spending. That is what the government system trains them to do. After the system grows spending, and the growth has been excessive, the system lacks the mechanisms, discipline and skill to cut spending back and when faced with a deficit most are very uncomfortable with cutting anything. Naturally, year after year, the board is readily given lists of new spending initiatives, and it is like pulling teeth to get a list of reasonable spending reductions. This bias toward more spending, and not eliminating low priority spending, is one reason why the district is mired in the same financial situation it has been in for years now (with no new extra money), four years into an economic recovery. 
 
The second reason dovetails with the first. Like I said the government budget process teaches managers in our school system and school systems throughout the state to ask for this and that and then hope to receive it. When there is no extra money, it seems too many of our senior leaders lack the financial courage to tell principals and department heads we donít have the funding to meet your requests. Stop asking for more money; either do without your new wants/ needs, or cut low priorities in your budget to free up the money to pay for this or that new thing you want or need.   
 
Thatís proven to be too difficult for every administration Iíve worked with, so  the leadership just drops the wish list on to the board room table and forces the board to play manager and tell their department heads and their principals the score.  
 
This has been the dynamic since Iíve been on the board. When there is extra money to hand out, the district leadership takes the lead handing out this and that to the department heads and principals.  When cuts have to be made, it throws the situation to the board and forces the board to give the tough speeches and make the tough decisions.   
 
 
 
Here is one such difficult but necessary speech made  
to employees, managers and parents two years ago. 
 
 
When the district leadership fails to make it clear to managers: 1) we are not in surplus, but likely facing a deficit, 2) there is no point of creating a long list of wants/ needs if you can't come up with reductions elsewhere to pay for those wants/ needs, and  3) so the focus this year should be on reducing costs,  the administration relinquishes their role as the manager of the financial situation. The board is then forced to step up to fill the management void, deal with the financial reality and make the tough reductions. For example, two years ago the district leadership's budget recommendation had $1.3 million more in spending than revenue. It was called option A at the Liberty Middle School Board meeting. The leadership lacked the courage to do what was required. We voted that down and then Judy Edwards, Ben Trotter, Jimmy Gillespie and I had to then pass option C, which made the deepest cuts and balanced the budget.    
 
Given this is how budgeting often works out -- the adminstration handles the surplus years and the board is thrown the financial hot potato in the deficit years, those inside and outside the system need to stop complaining when I or others on the board want to make other decisions too or we second guess this or that recommendation that is coming from the administration. There is no quicker way for a manager to lose creditability in my mind then to not step up or pass the buck on tough financial decisions.  
 
In sum, the administration canít have it both ways. If the administration wants to make all the decisions, they have to be just as willing to make the hard decisions as the easy ones, especially when it comes to budgeting.   
 
Two Breaths of Fresh Air: 
At the budget meeting, one department head demonstrated an approach with his annual budget I wish all the districtís department heads and principals would adopt. He said, I want to do this new thing and that new thing, and I plan on funding it by cutting a, b and c. 
 
What the district leadership is doing with the Career Center is just as revolutionary. They plan to take the existing budget and better utilize the middle and high schools, the alternative school and the Career Center in such a way to improve the graduation rate. And they aim to do it with no extra money. Bravo to both.   
 
Conclusion: 
There are two things the district leadership must to do meet the on going financial challenge.  
 
First, it must take that approach, and push it out to all departments and all schools. This requires convincing department heads and principals new revenue is limited. What new revenue the district will receive is likely to be eaten up by rising benefits or buildings costs. If a principal or department head wants something new, he/ she will have to cut the lowest priority items in his/her budget to free up the money, then they can buy what they want. 
 
Second, the district needs to get control of the items that are eating up the budget. That may mean something like raising the hours worked each week for eligibility for medical benefits from 20 hours to 24 or 28, like most every private company has done. It may mean putting in a strict energy use policy that has rewards/ penalties for schools and departments that make/ bust their electricity budgets.   
 
The fact is revenue is growing slowly, and some budget items are eating up the budget. The districtís budget is being squeezed. 
 
Those on the left (just like President Obama) will argue we have to raise more revenue to balance the budget. They will want to run savings down to zero, and some will urge the district/ board to run savings into the negative zone and borrow money through TANs. Others on the left will want to raise tax rates again.  
 
Those on the right (like the Republicans in Washington) will argue savings have already been run down to a dangerous level; borrowing to finance annual expenses is fiscally unwise, plus the districtís debt level is still climbing at $352 million, and tax rates have already been raised enough (39 mills in 2007 and 2 mills in 2011). Those on the right will say the budget needs to be balanced on the expense side. I'm a member of the latter group.  
 
 
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