During the 2015 PASA-PSBA School Leadership Conference, Frank T. Gallagher, Souderton Area School District superintendent, and William R. Stone Jr., the district’s director of business affairs, shared best practices for budgeting and financial planning in the era of Act 1.
Five years ago, Souderton, which has some of the top-performing schools in the Commonwealth, was facing difficult budget challenges—a depleted fund balance, a declining student population, the significant budget impact of a bricks-and-mortar charter school, and a new elementary school that wasn’t needed because student population projections didn’t materialize. “It was an ugly storm that hit us in all different directions,” said Gallagher.
The situation forced district officials and administrators to reinvent their budgeting process. The district’s new process offers a roadmap to effectiveness for other districts.
Align Budget with Goals
Gallagher is passionate about connecting the budget with district goals. “I’ve been in education for 23 years and have been involved in many strategic planning and comprehensive planning committees. So many times, that binder just goes on a bookshelf and never gets looked at. That is no longer how we operate,” he said. “If a principal or department head cannot connect the budget items they are requesting to something in the comprehensive plan, it does not get into the budget.”
Base Change on an Evaluation of Program Efficiency and Effectiveness
Gallagher embraces the objective evaluation of programs based on their efficiency and effectiveness. If a program is not working, he advocates eliminating it.
Unfortunately, when districts eliminate programs, the headlines often focus on the loss rather than the strategic decision-making behind the reduction. “We focus on the growth of the organization,” said Gallagher about Souderton’s attitude toward change. “This is not about cutting programs. It’s really about growing our organization to what it needs to be today. And that involves taking risks.”
At Souderton, these tough considerations resulted in a greatly restructured middle school schedule, with associated reductions in workforce created through an early retirement incentive program. Additionally, the district elected to close one of the oldest schools in Montgomery County, an elementary school at which Gallagher himself once served as principal. They also evaluated other programs and eliminated them when justified.
Be Creative with Personnel and Scheduling
Facing tough challenges head on, the district also is thinking innovatively about its hiring processes. District officials have used scheduling consultants to advise them on best practices.
The district has reconsidered its tradition of hiring only full-time professionals. “We have gotten very creative—we’ve hired a half-time teacher. We’ve hired a .2 teacher. This year, we hired a .25 biology teacher,” he said. “We are constantly looking at staffing. We don’t accept the old notion that you can’t get rid of a position once you’ve created it. There were some old notions that we just tossed out the window.”
Souderton also is carefully looking at every retirement. If the position isn’t needed any more, consideration is given to eliminating or repurposing the position. “We look at our needs across the organization first,” said Gallagher. “For example, if a teacher retires and we know we need a psychologist, we’ve repurposed the position to be a psychologist instead of adding another position.”
Consider a Fee-for-Service Model
The district also implemented a fee-for-service model.
After a thorough assessment, the district elected to charge a$150 per year fee for participation in many of its co-curricular activities, such as athletics and other clubs. Scholarships are available for families who cannot afford the fee. The district also charges a parking fee for students who choose to drive to school. It also is considering a technology fee as part of a one-to-one Chromebook rollout to all of its high school students.
Create a Corporate Culture of Budget Development with the Board
Gallagher embraces a collaborative leadership model. “I work on my relationship with my board all the time. We are, I believe, a team of 10,” he says. “My business manager and I meet with our finance chair all the time. When we are not meeting in person, we are talking on the phone and trying to plan the most efficient way to do business.”
The district seeks to create a corporate culture of budget development. “What we’ve done is give the board dashboard reports of revenue and expenditures so every month they can track our transfer tax, our real estate tax, and our earned income tax,” Gallagher explains. “When it comes time for the budget presentations, there are no surprises anymore.”
Like corporations, the district adopts a multi-year, multi-faceted projection. “We’re constantly looking out at a maximum of five years,” Gallagher said. “I’m not a big fan of a five-year plan. I’m a bigger fan of a three-year plan. It’s more reliable.”
Promote a Culture of Transparency
Gallagher says Souderton’s budget process prospers because of its inclusiveness.
“When I became superintendent, I started up a parent advisory council. I also started up an employee advisory council. I wanted employees to hear what our board is hearing and what our community is hearing at board meetings,” he said. “It’s all about transparency. I set up a series of community forums with those groups.”
Empower the District Education Foundation
Gallagher advocates empowering a district’s education foundation with strategic guidance. “Go into a strategic planning process with your education foundation. We’ve totally transformed the board of the foundation. The foundation has hired its own executive director, so it’s not a district employee,” he said. “They’ve gone from an annual budget of $20,000 to almost $200,000. The reason they did this is the strategic plan … and they’re sticking to it. This has been a huge support for us.”
Get Out of the Weeds
Gallagher advises districts to get their budget considerations “out of the weeds.”
“Before we changed our process there was way too much time spent in the weeds,” Gallagher said. “We were spending too much time at the function/object level. How many of these things are you buying? Do you really need 10? Can you do with five? There was a lot of time spent on that.”
Souderton now embraces the materiality concept, which is an expression of the relative significance or importance of an expenditure. “So what we wanted to do when we reshaped the budget process was focus the board and focus the budget presentations on the key drivers within the budget. So we focus on those items that will have a material impact on the budget … things that will make a big difference if we make a change, positively or negatively. What will it do to actually drive a millage rate and a final budget number?
“One of the ways that we wanted to do that is to help the board participate in developing those numbers. So we provided them with the data that was going into how the number was developed. We discussed with them the assumptions that we were using about certain aspects of the budget, so they could participate in those and actually have input into whether our assumptions were reasonable. We have conversations throughout the budget process whether it was reasonable to assume a five-percent increase in this particular line or a five-percent decrease in this particular line. So everybody was participating in that.”
Their revised focus was driven by research, which focused on these two key reports:
Center on Budget and Policy Priorities Report: Improving State Revenue Forecasting
Smarter School Spending, GFOA
Change the Internal Budget Process to Support the Strategic Shifts
“In order to change the process for the board, we had to start by changing the process with the administrators in the district who were responsible for putting the budget together,” Gallagher said. “We wanted to make sure that the principals were thinking of their budgets as comprehensive plan goals … not just numbers in a spreadsheet. “
There were a multitude of changes in what data was gathered and how it was presented. One of the key changes was to identify major impacts.
“We established a form that administrators would have to submit that was for new or non-recurring purchases greater than $25,000. The purpose is that you’re highlighting to the board more of the detailed purchase but they’re at a more significant impact on the overall budget,” he explained. “You’re not focusing on the pencils and the pens. You’re focusing on those items that are going to move the needle on the expenditure budget one way or the other. And, we spent a lot of time working with the administrators on these as a cabinet to make sure that they were vetted. Linkage to the comprehensive plan was very important to us.”