Oakland Unified School DistrictDecember 3, 2002

Finance Board Training Session

Oakland Unified School DistrictDecember 3, 2002

Finance Board Training Session

Presented by:Presented by:

Ron BennettRon Bennett

President & CEOPresident & CEO

School Services of California, Inc.School Services of California, Inc.

Overview of the SessionOverview of the Session

Financial Responsibilities of the BoardFinancial Responsibilities of the Board

Oversight and MonitoringOversight and Monitoring

Assessing the Fiscal Health of the DistrictAssessing the Fiscal Health of the District

Current Financial IssuesCurrent Financial Issues

Options and ActionsOptions and Actions

Financial Responsibilities Financial Responsibilities of the Boardof the Board

Financial Responsibilities Financial Responsibilities of the Boardof the Board

The Board’s Role and ResponsibilitiesThe Board’s Role and Responsibilities

The Board sets financial goals and objectives The Board sets financial goals and objectives for the districtfor the district

The Board selects staff and evaluates The Board selects staff and evaluates progress toward goalsprogress toward goals

The Board adopts the budgetThe Board adopts the budget

The Board monitors execution of the budgetThe Board monitors execution of the budget

The Board approves the financial system and The Board approves the financial system and its implementationits implementation

The Board approves financial statementsThe Board approves financial statements

The Board sets financial goals and objectives

for the district

The Board sets financial goals and objectives

for the district

How Schools Get MoneyHow Schools Get Money

Proposition 98Proposition 98

In equal amounts/student from Sacramento--In equal amounts/student from Sacramento--Revenue LimitRevenue Limit

Categorical funding--for example, School Categorical funding--for example, School ImprovementImprovement

LotteryLottery

Local fundingLocal funding

Bonds, Developer FeesBonds, Developer Fees

Parcel Taxes, DonationsParcel Taxes, Donations

Proposition 98Proposition 98

Prop 98 provides schools with about 40% of Prop 98 provides schools with about 40% of state revenue.state revenue.

It is a funding floor.It is a funding floor.

Its’ value has been to keep real dollars for Its’ value has been to keep real dollars for schools from significantly eroding.schools from significantly eroding.

Prop 98 is VolatileProp 98 is Volatile

Driven by two unstable taxesDriven by two unstable taxes

SalesSales

IncomeIncome

Property taxes are stableProperty taxes are stable

30% of school revenue30% of school revenue

School funding is now inherently unstableSchool funding is now inherently unstable

Financial Effects ofEnrollment ChangesFinancial Effects of

Enrollment Changes

Growth Districts have more moneyGrowth Districts have more money

Inexpensive teachersInexpensive teachers

Administrative efficiencyAdministrative efficiency

Stable and Declining DistrictsStable and Declining Districts

Expensive teachersExpensive teachers

Aging facilitiesAging facilities

RolesRoles

Planning

Monitoring

Adopting/Approving

Budgeting

County

State Board

Staff

Planning & Budgeting CyclePlanning & Budgeting Cycle

CalendarBudget Development Cycle

Progress on Current Goals & Objective

New Goals & Objective Development

CALENDAR

2

A

F

E

G

D

C

B

A

G

Dec Jan

Mar

Apr

Oct

Sept

JunJul

Oct 311st Interim

Report

Jan 15Governor’sProposed

Budget

April 15 2ndInterimReport

May 15Governor’sMay ReviseJuly ?

LegislationGovernorApproveBudget

DistrictReadoption

45 DaysAmendment toGov. Budget

June 30District

Adoption

May

1

3

4

Process to Develop NewGoals & Objectives

A.Nov-Jan: Obtain initial input from staff/community on new G/OB.Feb: 1st draft new G/O created to be reviewed by committeeC.Feb-Mar: 1st draft new G/O reviewed by/communityD.Late Mar: 2nd draft of new G/O reviewed by committeeE.Early Apr: 2d draft of new G/O reviewed by staff/communityF.Apr 30: Board adopts G/OG.Apr-Sept: On-going, determination of any needed modification to G/O

Process on CurrentGoals & Objectives

1.Jan: Collect information for mid year report2.Mar: Mid-year report on G/O3.May-Jun: Collect information for final report4.Sept-Oct: Report on previous years G/O

The Board selects staff and evaluates progress

toward goals

The Board selects staff and evaluates progress

toward goals

BeliefsVision

Priorities

Strategic GoalsSuccess Indicators

Board

DistrictPersonnel

Operational GoalsStrategies Tactics

Techniques

Budget Development PlayersBudget Development Players

BoardBoard

SuperintendentSuperintendent

Business OfficialBusiness Official

Principals/StaffPrincipals/Staff

CommunityCommunity

Budget Advisory CommitteeBudget Advisory Committee

What are their roles?What are their roles?

Roles of ParticipantsRoles of Participants

Board--adopt and ultimately responsibleBoard--adopt and ultimately responsible

Superintendent--accountable for Superintendent--accountable for recommendationsrecommendations

CBO--accountable for quality of information CBO--accountable for quality of information and day-to-day monitoringand day-to-day monitoring

Principals/staff--determine needPrincipals/staff--determine need

Community--defines prioritiesCommunity--defines priorities

Steps in Budgeting ProcessSteps in Budgeting Process

Policy/GuidelinesPolicy/Guidelines

PlanningPlanning

PreparationPreparation

PresentationPresentation

ReviewReview

AdoptionAdoption

ImplementationImplementation

Control/MonitorControl/Monitor

RevisionsRevisions

EvaluationEvaluation

Oakland USD Budget/FiscalCalendar 2002-2003

Oakland USD Budget/FiscalCalendar 2002-2003

14 Dec--1st Interim 14 Dec--1st Interim Financial ReportFinancial Report

11 Jan--Governor’s Budget11 Jan--Governor’s Budget

___--Employee Group ___--Employee Group MeetingMeeting

___--Community Meeting___--Community Meeting

___--Superintendent's ___--Superintendent's Budget RecommendationsBudget Recommendations

___--Study Session___--Study Session

14 Mar--2nd Interim 14 Mar--2nd Interim Financial reportFinancial report

___--Adopt Guidelines and ___--Adopt Guidelines and update enrollment update enrollment projectionsprojections

___--Budget Hearing___--Budget Hearing

___ Jun--Adoption___ Jun--Adoption

___--Revise budget based ___--Revise budget based on Legislative Actionon Legislative Action

12 Sept--Prior year12 Sept--Prior yearActualsActuals

Budget AssumptionsBudget Assumptions

Scheduled salary improvementsScheduled salary improvements

Revenue growthRevenue growth

Enrollment growth or declineEnrollment growth or decline

Financial reservesFinancial reserves

Fringe benefit amountsFringe benefit amounts

Utility costsUtility costs

Program augmentationsProgram augmentations

Maintenance/replacement costsMaintenance/replacement costs

Estimating Next Year’s IncomeEstimating Next Year’s Income

Enrollment (ADA)Enrollment (ADA)

State revenue limit State revenue limit

LotteryLottery

Special purpose funds Special purpose funds

Local incomeLocal income

Special educationSpecial education

Legal costsLegal costs

Planning Next Year’s ExpensesPlanning Next Year’s Expenses

Actual salary of each employeeActual salary of each employee

Actual benefits of each employeeActual benefits of each employee

New programsNew programs

Ongoing programsOngoing programs

Use assumptions to make estimates:Use assumptions to make estimates:

utility costsutility costs

insurance costsinsurance costs

capital and equipmentcapital and equipment

Legal costsLegal costs

The Board monitors execution of the budget

The Board monitors execution of the budget

4 Concurrent Budget Cycles4 Concurrent Budget Cycles

Closing the past budgetClosing the past budget

Managing the current-year budgetManaging the current-year budget

Developing the budget for the next yearDeveloping the budget for the next year

Planning and goal setting that is reflected in Planning and goal setting that is reflected in the budget in two yearsthe budget in two years

Budget CalendarFor Last Year: Close and Audit

2001-02

August and November

Close; define actuals;determine ending balance

July - December

Audit and review

December

Receive audit; evaluate managementletters

January - February

Follow-up on management letters

Budget CalendarFor this Year: Monitor

2002-03

July

Adopt, analyze

August - September

Amend and Revise

December - January

Amend, measure and report;1st Interim Report

February - April

Amend, measure and report;2nd Interim Report

May - June

Amend, measure, analyze

Budget CalendarFor Next Year: Developing

the Budget2003-04

August and November

Identify goals for next year-- try the new idea

December - January

Project revenues and expenses

February - March

Conclude staffing level; study; include others

April - June

Study; include others; balance; conclude; adopt

Budget Management Requires Concurrent Tasks

Budget Management Requires Concurrent Tasks

Sequential Format of Annualand Interim Budget Reports

Sequential Format of Annualand Interim Budget Reports

A.A. RevenuesRevenuesB.B. ExpendituresExpendituresC.C. Excess (deficiency) or revenues over expenditures (A-B)Excess (deficiency) or revenues over expenditures (A-B)D.D. Other financing sources/usesOther financing sources/usesE.E. Net increase (decrease) in fund balance (C-D)Net increase (decrease) in fund balance (C-D)F.F. Fund Balance, ReservesFund Balance, Reserves

1.1. Beginning BalanceBeginning Balance2.2. Ending Balance (E-F1)Ending Balance (E-F1)

(a)(a) Reserved amountsReserved amounts---- Revolving cashRevolving cash---- Prepaid ExpensePrepaid Expense---- StoresStores---- Legally Restricted BalancesLegally Restricted Balances

(b)(b) Designated amountsDesignated amounts---- Designated for Economic UncertaintiesDesignated for Economic Uncertainties

(c)(c) Undesignated amountsUndesignated amounts

First Interim

Projection SampleFirst Interim

Projection Sample

ProjProj11stst Year Year

2.20%2.20%22ndnd Year Year

2.40% COLA 2.40% COLA 33rdrd Year Year

RevenueRevenue $193,351,075$193,351,075 $197,322,057$197,322,057 $201,809,253$201,809,253

ExpendExpend 195,655,512195,655,512 196,572,560196,572,560 198,930,710198,930,710

Inc/(Dec)Inc/(Dec) (2,304,437)(2,304,437) 749,497749,497 2,878,5432,878,543

Beg BalBeg Bal $13,782,861$13,782,861 $11,478,424$11,478,424 8,427,9208,427,920

Un/RestrictedUn/Restricted 3,826,9333,826,933 3,826,933,826,93 3,826,9333,826,933

Sal COLASal COLA 3,800,0003,800,000 7,800,0007,800,000

2% Reserve2% Reserve 5,391,0575,391,057 5,415,1055,415,105 5,481,0745,481,074

Ending BalEnding Bal 2,260,4342,260,434 $(814,118)$(814,118) $(5,081,544)$(5,081,544)

The Board approves the financial system andits implementation

The Board approves the financial system andits implementation

Approval of the Financial SystemApproval of the Financial System

The financial system is not just computers, it includes:The financial system is not just computers, it includes:Qualified, well trained, highly motivated staffQualified, well trained, highly motivated staffEffective, efficient business practicesEffective, efficient business practicesGood internal controls to prevent and detect errors Good internal controls to prevent and detect errors and possible malfeasanceand possible malfeasanceRegular reporting to the Board and SuperintendentRegular reporting to the Board and Superintendent

Good systems, properly implemented, provide timely, Good systems, properly implemented, provide timely, accurate, relevant information–at least monthlyaccurate, relevant information–at least monthlyThe Board must ensure that the system chosen is both The Board must ensure that the system chosen is both appropriate and implemented properlyappropriate and implemented properlyReliance on unreliable financial information can lead to Reliance on unreliable financial information can lead to disasterdisaster

The Board approvesfinancial statementsThe Board approvesfinancial statements

Approval of Financial StatementsApproval of Financial Statements

The Board approves financial statements at least four The Board approves financial statements at least four times each yeartimes each year

The Budget itself is a financial statementThe Budget itself is a financial statementThe two interim reports are also financial statements The two interim reports are also financial statements (districts that have financial problems are required to (districts that have financial problems are required to do a third interim as well)do a third interim as well)The Board approves the unaudited actuals, also a The Board approves the unaudited actuals, also a financial statementfinancial statement

The Board accepts, but does not approve, the audited The Board accepts, but does not approve, the audited financial statementsfinancial statements

But the Board may find that the financial statements But the Board may find that the financial statements give rise to a number of Board actions and staff give rise to a number of Board actions and staff activitiesactivities

The Board adoptsthe budget

The Board adoptsthe budget

How does the board judge the quality of the budget?How does the board judge the quality of the budget?

Final Budget: What shouldthe Board look for?

Final Budget: What shouldthe Board look for?

Is it balanced?Is it balanced?

Adequate reserves?Adequate reserves?

Programs funded?Programs funded?

Comprehensive?Comprehensive?

Simple to grasp?Simple to grasp?

Other funds?Other funds?

Are salary improvementsAre salary improvementsincluded?included?

Other Funds–These Make aComplete Budget

Other Funds–These Make aComplete Budget

Cafeteria–restrictedCafeteria–restricted

Building–constructionBuilding–construction

State school building–State bond moneyState school building–State bond money

Developer fee–FacilitiesDeveloper fee–Facilities

Adult education–restrictedAdult education–restricted

Child development–RestrictedChild development–Restricted

Self insuranceSelf insurance

Deferred maintenance–restrictedDeferred maintenance–restricted

Special reserve–restrictedSpecial reserve–restricted

School bus replacement–restrictedSchool bus replacement–restricted

Planning Beyond Next YearPlanning Beyond Next Year

Future Salary AgreementsFuture Salary Agreements

Future Program NeedsFuture Program Needs

Technology maintenanceTechnology maintenance

Opening a new schoolOpening a new school

Closing a schoolClosing a school

New textbooksNew textbooks

Oversight and MonitoringOversight and Monitoring

Reviewing the AuditReviewing the Audit

Read the opinion letter in the front of the Read the opinion letter in the front of the auditaudit

Look at the footnote disclosuresLook at the footnote disclosures

Read the findings and recommendationsRead the findings and recommendations

Compare to prior-year findingsCompare to prior-year findings

Are things getting fixed?Are things getting fixed?

Now look at the numbers fund by fundNow look at the numbers fund by fund

AuditAudit

Board’s report on the effectiveness of Board’s report on the effectiveness of Financial OperationsFinancial Operations

ControlsControls

Fiscal health — last yearFiscal health — last year

Historical documentHistorical document

Findings and recommendationsFindings and recommendations

Only glimpses of the futureOnly glimpses of the future

The Audit CommitteeThe Audit Committee

Role is to advise the board on:Role is to advise the board on:

selection of audit firmselection of audit firm

schedule and monitor progress of the auditschedule and monitor progress of the audit

review the draft and final auditreview the draft and final audit

recommend acceptancerecommend acceptance

Direct activities of Internal AuditorDirect activities of Internal Auditor

Membership (adapt to local conditions)Membership (adapt to local conditions)

CBO and/or superintendentCBO and/or superintendent

one or two board membersone or two board members

supplement as desiredsupplement as desired

Internal Audit Can Help YouInternal Audit Can Help You

Role and benefitsRole and benefits

Assists in design and monitoring of Assists in design and monitoring of internal control systemsinternal control systems

Functions as an internal control pointFunctions as an internal control point

Assesses both financial and operational Assesses both financial and operational effectiveness and efficiencieseffectiveness and efficiencies

Conducts special investigations at the Conducts special investigations at the request of the board and managementrequest of the board and management

Internal Audit FunctionInternal Audit Function

Internal Audit Functions–Large and Small

Internal Audit Functions–Large and Small

Considered a luxury position that only the largest of Considered a luxury position that only the largest of districts can afford and yet a good internal auditor can:districts can afford and yet a good internal auditor can:

Strengthen the internal control systemStrengthen the internal control systemFind inefficienciesFind inefficienciesPerform complex financial analyses for special Perform complex financial analyses for special projectsprojectsBe the eyes and ears of the Board, the Be the eyes and ears of the Board, the Superintendent and the Chief Financial Official Superintendent and the Chief Financial Official (CBO)(CBO)Keep external audit costs downKeep external audit costs downBe a problem solverBe a problem solverWrite accounting policies and proceduresWrite accounting policies and proceduresSave the district moneySave the district money

Budget Advisory CommitteeBudget Advisory Committee

Budget Advisory Committee can be helpful for:Budget Advisory Committee can be helpful for:Community buy-inCommunity buy-inAdditional resources and ideasAdditional resources and ideasPolitical insulationPolitical insulationPublicity agents for successesPublicity agents for successes

Budget Advisory Committee, however, requiresBudget Advisory Committee, however, requires::Strong, timely, committed staff resourcesStrong, timely, committed staff resourcesGood leadership/strong chairpersonGood leadership/strong chairpersonConcrete, focused, short term goals and projectsConcrete, focused, short term goals and projectsMembership balance—avoid organization dominanceMembership balance—avoid organization dominance

Budget Advisory CommitteeBudget Advisory Committee

Use the budget committee to assist in budget reduction Use the budget committee to assist in budget reduction analyses. analyses.

““Prioritize these six expenditure augmentation Prioritize these six expenditure augmentation proposals”proposals”““Identify three district services, totaling an expenditure of Identify three district services, totaling an expenditure of $500,000, that should be discontinued”$500,000, that should be discontinued”““Analyze one service area and identify how the service Analyze one service area and identify how the service could be provided less expensively”could be provided less expensively”““Develop a booklet that explains the district’s fiscal Develop a booklet that explains the district’s fiscal issues to others”issues to others”““Identify one program area which has the highest Identify one program area which has the highest measured accomplishment for the least expense”measured accomplishment for the least expense”

Do not leave the task open-ended; provide direction andDo not leave the task open-ended; provide direction andfocusesfocusesAlways make a Budget Advisory Committee advisoryAlways make a Budget Advisory Committee advisory

Assessing the FiscalHealth of the DistrictAssessing the FiscalHealth of the District

Fiscal HealthFiscal Health

Long range projectionsLong range projections

State economyState economy

AB 1200AB 1200

Schools’ financial failures correlate with state Schools’ financial failures correlate with state of economyof economy

Districts need financial professionalsDistricts need financial professionals

District Fiscal CrisisIndicators

District Fiscal CrisisIndicators

Poor leadershipPoor leadership

Ineffective communicationsIneffective communications

Flawed budget development processesFlawed budget development processes

Lax budget monitoring processesLax budget monitoring processes

Lack of controls on positionsLack of controls on positions

Inaccurate management information systemsInaccurate management information systems

Lax monitoring of categorical programsLax monitoring of categorical programs

Source: Fiscal Crisis Management & Assistance Team (FCMAT)

District Fiscal CrisisIndicators

District Fiscal CrisisIndicators

Pay raises over COLAPay raises over COLA

Poor management of long-term debtsPoor management of long-term debts

Personal and professional attacksPersonal and professional attacks

Exits by staff and studentsExits by staff and students

LawsuitsLawsuits

Employee group unrestEmployee group unrest

Community misperceptionsCommunity misperceptions

Source: Fiscal Crisis Management & Assistance Team (FCMAT)

Current Financial Issues

Current Financial Issues

Current Financial IssuesCurrent Financial Issues

Declining enrollment and loss of enrollment to Declining enrollment and loss of enrollment to Charter Schools causes a significant loss of Charter Schools causes a significant loss of revenuerevenueRapidly increasing costs have outstripped revenuesRapidly increasing costs have outstripped revenues

Health benefit costs are at historic highsHealth benefit costs are at historic highsStep and column costs add to salariesStep and column costs add to salariesPast salary increases add to costsPast salary increases add to costsPast budget reductions make future reductions Past budget reductions make future reductions more difficultmore difficult

Reliance on inaccurate information compounds Reliance on inaccurate information compounds problemsproblems

Current Financial IssuesCurrent Financial Issues

Negative trends from past years affect this Negative trends from past years affect this year’s financial positionyear’s financial positionCash flow is a serious problemCash flow is a serious problemAttracting and retaining qualified staff Attracting and retaining qualified staff continues to be a problemcontinues to be a problemThe growing State budget crisis adds to The growing State budget crisis adds to Oakland USD’s problemsOakland USD’s problems

Potential mid-year budget cuts would be Potential mid-year budget cuts would be devastatingdevastating

Oakland USD Three-year Unrestricted Ending Fund Balance Comparison

Oakland USD Three-year Unrestricted Ending Fund Balance Comparison

-65.0

-55.0

-45.0

-35.0

-25.0

-15.0

-5.0

5.0

2000-01 2001-02 2002-03

8.7 M

-31.2 M

TBD

Oakland USD Unrestricted Revenue and Expenditure Comparison

Oakland USD Unrestricted Revenue and Expenditure Comparison

2000-01 2001-02 2002-03

263.5 M

308.6 M

TBD

260.0 M

269.3 MTBD

= Expenses/Other Financing Sources/Uses

= Revenues

Options and ActionsOptions and Actions

Options and ActionsOptions and Actions

District will likely need a loan from the StateDistrict will likely need a loan from the StateConditions of the loan will be spelled out in a Conditions of the loan will be spelled out in a specific bill that authorizes the loanspecific bill that authorizes the loanThe size of the loan will determine how deep and The size of the loan will determine how deep and how persistent budget reductions must behow persistent budget reductions must beThe loan should be sized to also solve cash flow The loan should be sized to also solve cash flow problem for ongoing operational costs for all fundsproblem for ongoing operational costs for all funds

Employee bargaining units will be affected and must Employee bargaining units will be affected and must be involvedbe involvedThe community will also be affected and needs to be The community will also be affected and needs to be involvedinvolvedBut the financial problems are as much a symptom as But the financial problems are as much a symptom as an end in themselvesan end in themselves

Options and ActionsOptions and Actions

District financial systems are still unreliableDistrict financial systems are still unreliableUnless the financial system is upgraded as planned, Unless the financial system is upgraded as planned, the problem will likely recurthe problem will likely recurThe district needs to move toward a new third-party The district needs to move toward a new third-party supported systemsupported system

Keeping district staff and leadership strong will be very Keeping district staff and leadership strong will be very difficult, but equally importantdifficult, but equally important

The district does not have enough sufficiently trained The district does not have enough sufficiently trained financial stafffinancial staffAttracting and retaining financial staff will be harder Attracting and retaining financial staff will be harder than everthan everExpect that attracting high quality people for all senior Expect that attracting high quality people for all senior leadership positions will be difficultleadership positions will be difficult

Options and ActionsOptions and Actions

More outside oversight will come with any More outside oversight will come with any financial assistancefinancial assistance

Interpersonal relationships matter more Interpersonal relationships matter more than everthan everAccurate financial information and Accurate financial information and appropriate actions matterappropriate actions matter

The Board will find its every skill testedThe Board will find its every skill tested

Thanks you