Financial Allies in Tough Times

Superintendents and business directors collaborate even more closely when revenues fall far short of needs by Kimberly Reeves
Superintendent Rick Berry came to the fast-growing Cypress-Fairbanks school district 11 years ago because of its reputation for high-grade instruction and strong staff, but it would be his school board’s financial decision that would divide his community and dominate his agenda for the next five years.

The Cypress-Fairbanks school system, located northwest of Houston, began as a German farming community so small that children traveled an hour by bus into the city to go to high school. Today it’s a booming bedroom community of eight high schools and 71,000 students, with room to grow. When Berry arrived, developers were putting homes on the ground so fast the district was about to outpace the state tax cap on facilities. Faced with financial constraints, the school board decided to give year-round education a try to maximize use of the district’s existing buildings.

Cy-Fair, as it’s known to locals, would be one of the largest school districts in the nation to move its schools to a year-round schedule, and one of the few in Texas to try a multitrack calendar for financial rather than academic reasons. Early estimates suggest Cy-Fair could save $90 million in avoided facility costs. Berry, a former financial officer, put his business director to work to verify the estimates.

Even when the debate was heated—and there were plenty of board meetings with passionate parents on both sides of the issue—Berry approached the implementation of year-round education with a methodical hand: He studied the academic performance of the school district’s pilot program and tried to build consensus in the community. He hired a then-Big 8 accounting firm to help his staff build various financial models. And Berry brought along his chief financial officer from the Arlington, Texas, school district to figure out how to maximize the dollars and resources for children.

A Financial Fit
Berry had met George Hobson when both were school business officials. Berry was deputy superintendent in Arlington while Hobson was the assistant to the chief financial officer in the larger, neighboring Fort Worth district. Berry hired Hobson when he was named superintendent in Arlington in 1988, and the two honed their common fiscal philosophy in the crucible of a district facing a tough tax cap.

While most school districts in North Texas were capped at $1.50 per hundred-dollar valuation, Arlington voters back in the 1950s chose a tax cap of $1.20. An election in the early 1990s to raise the cap had failed. As the school district grew, its financial capacity was stretched to its limit. Berry knew the skills Hobson learned in Arlington would be valuable in Cy-Fair.

“We had some really significant budget issues, especially that last year,” Berry says. “A lot of the reason why I brought George with me to Cy-Fair was because I knew that he understood my philosophy. He knew how to work the budget on both the revenue and expenditure side, and he was experienced exploring all possibilities as to how to get the most out of every dollar.”

Hobson knew how to cut programs, but he also knew how to generate new district revenues through appraisal protests. Hobson knew how to run the numbers on administrative costs and how to build the fund balance. That cool-headed approach—an even-handed presentation of the facts—would be the way Berry presented year-round education.

“The curriculum was up to the educators,” Hobson says. “What I always tried to do was to provide the specifics on the financial impact of year-round, the savings that we could derive from the calendar. The board never doubted the financial impact numbers we gave them. The concern was always how year-round education divided families.”

Arlington’s tax cap paled in comparison to the overwhelming issue of shifting an entire community to a year-round calendar, Berry admits. By the time the task was completed, a board election coup had left the anti-year-round education lobby in power, and district officials faced with the daunting task for dismantling year-round education even as the school district continued to grow.

So Berry and Hobson went back to the drawing board and drew up a plan to add portable buildings to handle the campus overflow while the school district worked on its next bond issue.

“As soon as the board turned around, we had to come up with options to financially and physically handle the growth immediately,” Hobson says. “We started purchasing portables to enlarge the size of our campuses, which helped us in the interim as we moved from year-round back to a traditional calendar. It took two of the largest bond elections that the district ever had—$765 million in construction—to catch up with our buildings.”

Strong test scores are a given in a suburban district like Cypress-Fairbanks. What set Berry apart—and landed him his job (although he retired in June) was his ability to balance the finances without sacrificing the academics. Berry says that takes focus and a common direction understood by the leaders in both curriculum and finance.

As the paths of the two strongest trends in education today cross—the accountability standards of No Child Left Behind and the spending shortfalls created by shrinking state budgets—a strong and focused relationship between a superintendent and chief financial officer has become more important than ever. Clark Godshall, immediate past president of the Association of School Business Officials, says money is just as important as academics to a superintendent’s future.

“They say the superintendent is the curriculum leader of the school district, but not too many people get fired over curriculum,” says Godshall, district superintendent of the Orleans-Niagara BOCES in Medina, N.Y. “They get fired over financial management.”

A Full Picture
Most school districts still rely on the state for at least half their funding, and revenue in most states looks grim. A report from the National Conference of State Legislatures this spring indicated that states are going into a third straight year of budget shortfalls, closing a cumulative $200 billion budget gap. This year alone, states are facing a $49 billion gap between revenue and reality.

“What’s interesting on a macro-level perspective of budgets is that states have only increased taxes to a third of the extent that they did during the 1990s,” says Steve Smith, NCSL’s senior educational policy analyst. “We have 49 out of our 50 state constitutions that require the state to balance the budget, so in many cases you have zero dollars coming in. Add to that the fact that a third of the taxes that were raised came from tobacco settlements, and you can see that there is a general reluctance to raise taxes on any of the major revenue streams.”

Superintendents like Howard Carlson of the Delano Public Schools in Minnesota recognize the pressure. Carlson says it’s getting harder to pass an operating levy in his district. The 2,000 students in Delano, just 30 minutes from downtown Minneapolis, are in the top 5 percent of the state on test scores and the bottom 15 percent on expenditures. Still, the taxpayers want more.

“We are now entering a period of time where people are much more tax conscious,” Carlson says. “They don’t want to put the money out that they used to. Many times, they don’t want to talk about revenue being increased. They want to talk to you about how you can be more efficient.”

And as the taxpayers in Carlson’s district begin to age—most are baby boomers—they will feel less inclined to spend money on the public school system. To answer questions and build their case, Carlson and his chief budget officer have projected a 5-year financial forecast for the school district. It’s a useful tool to tell Carlson what he may lose, but it doesn’t tell him where he’s going to find more cuts.

“We’ve cut out all those items that might have been on the periphery,” Carlson says. “We’ve cut out the frills. We’ve cut out the administrators. We’re just about to the point where we’re going to have to cut teachers and increase class size. We’re getting to a point now where there’s nothing else to cut. It’s almost at a level where it’s hard to sustain.”

Cost-Benefit Analysis
School districts must combine those limitations with the new standards set out by the No Child Left Behind Act. Anne Miller, executive director of the Association of School Business Officials, says it’s not only critical to make the right cuts but also to make the right purchases. Superintendents and school business officials must work hand-in-hand to make sure the district is getting the best “bang for the buck,” she says.

“Too many districts are purchasing programs without regard to the cost-benefits analysis,” Miller says. “They’re in a rush to comply with the NCLB Act, but they need to be asking the tough questions, ‘Is this the most cost-effective way to improve achievement?’ I think that’s where our members come in. They need to be in a position to ask the educators those tough questions about how the district’s resources are being used and allocated.”

Even as districts are squeezed by shortfalls and standards, some superintendents are loath to ask for more money. Kendy Behrends, superintendent of the Florence City Schools in northwestern Alabama, knows her district’s parents are hurting financially. Behrends joined the 4,200-student Florence school system 25 years ago as a kindergarten teacher when Ford Motor Co. was still the city’s major employer.

Ford left Florence years ago. Clothing manufacturers Teejays and Vanity Fair recently closed their plants. Half of Behrends’ students in Florence’s eight schools now qualify for the federal lunch program. Behrends relies heavily on reduced state funding and a shrinking sales tax base.

“The economy is not thriving. It has not been thriving,” Behrends says. “We have been downsizing. We’re probably half of what we used to be.”

If a stagnant local economy wasn’t enough, Behrends is now faced with Alabama’s budget cuts. Behrends did not know the term “proration” when she came to the central office as an assistant superintendent back in 1992, but it is a term she now dreads. For the last two years, Behrends has gotten a mid-year letter notifying the district of unexpected shortfalls in the current year’s state funding.

Last year the cuts were 6.2 percent. Behrends called her administrative team together, including Business Manager Ken Davis, and they pored over the district’s budget. With $1.6 million to cut before the end of the year, Behrends sliced seven positions out of central administration and 11 teachers from the school campuses. Once that was done, an empty elementary school was sold. An energy management program was implemented. They met their goal.

Behrends will cut another 8.5 percent this year. She and Davis have reviewed expenditure reports and benefit options. They’ve crafted an early retirement plan. They’ve consulted with an attorney to talk about a tax referendum. They’re talking about consolidating campuses or putting the central administration building on the market. Behrends has put almost everything on the table for discussion but points out she has yet to cut an instructional program.

Davis, who has been with the Florence schools for more than 20 years, says the cuts are difficult. In the first year alone, the district came close to depleting its reserve funds. “We can recover if we have funds cut for one year, and then we’re back to normal,” Davis says. “We’re talking about reduced funding for three, four, five years. This is really devastating to our school system.”

If proration continues, Behrends is concerned that some Alabama school districts won’t survive.

“We’ve been told the 2004-2005 school year will truly be the worst,” Behrends says. “I don’t know how some school districts in the southern part of the state are going to keep their doors open. We’re really talking about a state in a crisis.”

Bologna Sandwiches
Like Behrends, Superintendent Kent Barnes faces funding losses in the Holly school system, which covers five townships northwest of Detroit. Barnes arrived in the district as the budget director. He was the one to discover the district had miscalculated the student population and put Holly hundreds of thousands of dollars into debt. His first action was to slash $787,000 in expenditures from the $35 million budget.

Building community trust after that shocking blow was Barnes’ first priority. After school each day, Barnes’ would drive his beat-up ’95 Ford pickup truck across the 124 square miles of the Holly district, throw down the tailgate and talk to parents. It was the only way he could explain, without education jargon, just what was happening in the district.

“I call it the ‘Dr Pepper and bologna sandwich’ syndrome,” Barnes says. “I would sit down and have a Dr Pepper and bologna sandwich and let people get to know me. The best compliment I ever got was a man who told me he didn’t need to know the facts about the budget. He knew he trusted me.”

Barnes cut $750,000 from his budget this year. That shortfall was a prime topic of the “Fearsome Foursome”—the nickname Barnes gives to his business manager, assistant superintendent for curriculum, human resources manager and himself—that meets every Monday to review district issues.

“We’re in this together. There’s no way to separate out the issues,” Barnes says. “If you have budget cuts, it’s going to correlate to curriculum. It’s going to correlate to personnel. Nothing we do stands on its own. One area impacts another. It’s just like dominoes.”

More Politicking
Writing budgets often means playing politics, and nowhere is that more crucial than in states like North Carolina. While North Carolina districts get about 70 percent of their funding from the state, they depend on the goodwill of local counties to levy the balance of their budget. That means new programs, such as those to meet the accountability standards of No Child Left Behind, must be sold to an elected board of county officials, as well as the local school board.

James Merrill was budget director of two large North Carolina school districts before he was named superintendent of the Alamance-Burlington system so he’s keenly aware of the salesmanship. But before he even approaches his county commissioners with his annual request, he has to depend on the General Assembly to determine the allotment for North Carolina school districts.

“It’s absurd, but we didn’t have a budget fully decided by the state until October of last year,” Merrill says. “I think if you told businesses they wouldn’t know their budget until they were a full quarter into their fiscal year, they’d say you’re crazy.”

Luckily for Merrill and Chief Financial Officer Wayne Watts, their revenue estimates were fairly close last year. But that’s only one part of the equation. Once the state is done, school leaders are left to tackle the county. Merrill says he often feels like a beggar when he approaches the county legislature for money. When county lawmakers are not receptive and funding falls short, Merrill cuts spending on maintenance to preserve his instructional programs, and he makes no apologies.

Alamance-Burlington, a countywide school district of 21,500 students and 33 schools, is sandwiched between the wealthier districts serving the Winston-Salem, Raleigh and Charlotte, N.C., areas. Lower pay means teacher turnover is high. District officials have pushed hard for extra funding to compete with Durham and Chapel Hill. Results have been mixed because the county faces so many demands for its funds, Watts says.

“We compete for local funds like all the other county agencies,” he says. “We line up, just like the sheriff’s department and the library and the other county services. If we decide we need new initiatives or we want to pay our teachers more, we’re dependent on an outside agency to get that money.”

Making a case to the school district’s counterparts in the county finance department is critical, Watts says. Merrill and Watts must have concrete arguments to combat the pervasive theory that school districts have money “hiding under every rock,” Merrill says. In the most recent budget cycle, the two presented a 60-page budget document, supported by graphs and charts on test scores, SAT scores and graduation rates.

“Sometimes you make your best argument, and you’re still running into a wall. It’s very frustrating,” Merrill says. “We in the school system are being held accountable for state and federal standards, but we don’t have any control over our money.”

This year, NCLB has made revenues even more critical for Alamance-Burlington. The district has targeted 9 of its 33 campuses with efforts to meet higher accountability standards. The cost will be $1.8 million. Merrill has juggled his budget and will ask county commissioners for $414,000 of that total.

“That’s our top priority,” Merrill says. “Instead of the negative, we’re going to focus on our successful schools. This new academic program will be our first priority this year.”

Common Denominator
Sometimes, the frustration with school funding grows to be too much, and superintendents go straight to the source. In Texas, the school funding redistribution formula known as “Robin Hood” is the subject of debate among superintendents. Guy Sconzo, superintendent of the fast-growing, 26,000-student Humble district north of Houston, is so frustrated by the tax system that he’s ready to utter the two most dreaded words in the Lone Star State: income tax.

Humble is at its maximum tax rate under the Texas school finance system and increasing the tax base will do nothing to help. Last year the formula forced Sconzo to cut $5 million from his $150 million budget. Sconzo has worked in five states, including 11 years as superintendent of the Oklahoma City schools, and he sees no way out except for some good old-fashioned politicking on a subject that has been about as popular with Texas legislators as smallpox: the state income tax.

“The common denominator I see in all the states where I have been is that the funding system fails to recognize the need for inflationary increases in expenditures. It’s a huge dilemma for us in Texas,” Sconzo says. “We are an essential service. We ought to be funded like an essential service.”

Kimberly Reeves is an education free-lance writer based in Dallas. E-mail: kreeves@reporters.net.