Expanding the Fiscal Toolbox

by Ronald Valenti

As today’s global economic crises unfolded, observers were astounded at the wide range of “tools” that Federal Reserve Chairman Ben Bernanke had at his disposal. Well beyond interest rate adjustments, Bernanke had a wide range of strategies to address credit, liquidity and related economic ills.

School officials also should recognize they can expand their fiscal toolbox beyond the traditional instruments.

The most-accepted and safest of these old but reliable strategies for education budget cutters take the “scalpel” or “rapier” approach.

Across-the-board cuts reduce noninstructional budget categories by an identical percentage to achieve an agreed-upon net savings. School districts normally apply reductions between 1 percent and 5 percent to equipment, textbook, contractual and supply codes.

Schools have traditionally made substantial savings by deferring maintenance projects and delaying purchases of buses, furniture and equipment not essential to the core mission of the classroom.

Early-incentive retirement packages and buyouts can eliminate higher-paid personnel who are replaced by lower-salaried staff. A teacher retiree earning $90,000 can be replaced by a new hire at half the cost. When factoring out continuing health insurance benefits for the retiree and incentive payments, each departing staff member can represent $30,000 or more in actual savings.

Clearly, the reduction in force is the most controversial of traditional tools since it leads to increased class size, loss of elective course offerings or, more seriously, wholesale reductions in non-mandated programs, such as, art, music, guidance services or extracurricular activities and athletic competitions — to say nothing about the emotional toll.

Some New Tools
Two new, promising tools — shared services and functional consolidation — could be applied by school district leaders to reduce noneducational costs.

The sharing of services among school districts works because it forces both economies of scale and a reduction in redundancies, driving down expenses.

School transportation provides a perfect example. The Blind Brook-Rye, N.Y., school system this year is busing approximately 1,100 students within district at the fairly reasonable annual rate of $500 per student. Additionally, the district is transporting 90 Blind Brook-Rye students to out-of-district private school and special education placements at $5,500 per pupil, 11 times greater than the in-district cost.

Regional cooperatives, such as a Board of Cooperative Educational Services, have the capacity to coordinate transportation routes to private and parochial schools, as well as special education sites. Shared transportation services, according to our projections, would reduce Blind Brook-Rye’s tab by 50 percent, or nearly $250,000 a year, allowing the district to hold down tax rate hikes while driving more dollars into the classroom.

A second area that shows promise for cost reduction is functional consolidation, which exists when two or more school districts combine such backroom office functions as purchasing, auditing and payroll services, thereby reducing duplicative personnel.

Blind Brook-Rye, with a $38 million budget, today spends $60,000 to purchase internal and external auditing services, required under New York state law. Many neighboring Westchester County districts are paying at least as much, if not considerably more, depending on their budget size.

Working with some local school finance officials, we estimated savings could range from 25 percent to 40 percent if several districts advertised cooperatively for accounting firms and hired the lowest responsible bidder. Even at the conservative estimate of 25 percent savings, Blind Brook-Rye figured to save at least $15,000 a year on the mandatory audit. Extrapolating that to 47 districts throughout Westchester County could realize well over $1.5 million in lowered auditing expenses.