Long-Term Financial Planning for Districts

New sources of fiscal distress, demographic shifts such as the aging population and the increasing size of minority groups, and globalization are transforming the education landscape and creating new curriculum and financial challenges.

Financial planning can help meet these challenges — for those districts that are growing and those that are not. Growing districts need to plan for investments, such as facility construction and workforce expansion, to accommodate an increasing population. Districts that are not growing need to ensure that their current cost structure does not overcommit them to an unsustainable level of expenditures that would later require dramatic and painful cuts if not first scaled back gradually.

A long-term financial plan is commonly associated with its most conspicuous technical element: long-range revenue and expenditure projections. However, true financial planning entails much more. A long-term plan articulates the present and future educational needs of the community, the actions the district must take to meet those needs, and how those activities will be funded.

Long-term financial planning is an indispensable complement to annual budgeting. With a long-term financial plan serving as an overarching framework, annual budgets can be linked in an integrated program to address long-term issues, such as the need to adapt the curriculum to a changing student body and to the changing world. Further, long-term planning allows a consistent and stable provision of educational programs over time and prevents the initiation of projects or programs that may need to be abandoned later because of the district’s inability to finance them.

Long-term planning promotes rigorous financial management by helping the school board and management see the long-term effects of today’s decisions. It strongly discourages unsustainable practices, such as using debt or fund balances to finance operating expenditures. Taken together, these virtues demonstrate to the community that the district is an effective steward of the public’s resources, thereby ultimately increasing the level of trust. As trust increases, citizens are more likely to approve funding for schools, as they are confident that their taxes will be used to create value for the community.

Catalyst for Planning

Long-term financial planning is a comprehensive and considerable undertaking. It is essential to first build a compelling case for planning. The reasons for planning must be the district’s own if it is to sustain the endeavor through the hard work and tough decisions that planning requires.
Crisis often provides a powerful catalyst for planning. In 2002, Geneva Community Unit School District 304, in Illinois, had a deficit of $2.7M in the operating fund and $8.8M in the educational fund, out of the approximately $41M and $32M budgets, respectively. A clear depiction of the problem by the school business officials helped the board realize the need for change.

The board and staff jointly developed two goals: (1) erase the operating fund deficit and create a positive balance by 2006 and (2) stabilize the educational fund by 2008. Setting these goals collaboratively was crucial to the district’s success. The operating fund balance was achieved in 2004, and projections show the district to be on track for the educational fund as well. The board and staff referred back to the shared goals throughout the process to renew their positive momentum and overcome the angst inherent in making difficult financial choices.

Crisis need not be the reason to undertake planning, as the experience in New York’s Lynbrook Public Schools demonstrates. Lynbrook’s board was determined to see the schools run in a manner more consistent with the for-profit businesses they were involved with in their private lives. Lynbrook’s school business official embraced this vision by initiating a long-term financial plan in 2006. The district has already realized more disciplined budgeting as a result of the rigor in financial decision making engendered by long-term planning and looks forward to using its new plan to better communicate to citizens its long-term vision for student achievement coupled with financial stewardship.

Financial planning is essential to meeting the complex challenges that public schools will face in the coming years. It also helps identify and finance long-term strategies to address critical issues that are particular to the district. In short, financial planning enables the district to deliver the best value possible to the community and its children.

If your district would like to learn more about financial planning, a report entitled “Making the Grade: Long-Term Financial Planning for Schools” and other resources are available at www.gfoa.org/ltfp.

Shayne Kavanagh is senior manager of research for the Government Finance Officers Association in Chicago, Illinois.

Reprinted from the January 2008 issue of
School Business Affairs magazine, published by the Association of School Business Officials International.