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I NSTITUTE FOR R ESEARCH ON E DUCATION P OLICY & P RACTICE

Informing change & promoting innovation through rigorous & collaborative research

School District Financial Management:


Personnel, Policies, and Practices
By Mary Perry, Isabel Oregón, and Trish Williams, EdSource;
Robert Miyashiro, Ron Bennett, Janelle Kubinec, and Laurel Groff, School Services of California

This study examines financial management in California school districts within the context
of a state-controlled school revenue system. The central questions include:
1. To what extent are California school districts fiscally healthy?
2. How significant are external factors, such as enrollment changes and revenue levels, in
determining the fiscal health of a school district?
3. How do personnel qualifications, management policies, and fiscal practices vary across
districts in California and are those related to districts’ fiscal health?

Summary of Key Findings


The timing of this study has implications Study Methods
Getting Down to Facts for interpreting its findings. During the The authors use data available from state and local
A research project designed period for which state and local fis-
sources, augmented with a survey of chief business
to provide California's policy- cal data were collected—2002–03 to
makers and other education officers (CBOs) in California school districts.
2004–05—California’s financial situation
stakeholders with comprehensive
information about the state’s
was particularly volatile. In 2005–06, the To assess the fiscal health of districts, the authors
school finance and governance year the survey was administered, the use data from California’s system for identifying fis-
systems, and lay the ground- state implemented new regulations re- cally troubled districts. They then augment that infor-
work for a conversation about
lated to fiscal oversight. In addition, the
needed reforms. The project mation by developing a measure of district fiscal
was made possible by grants
year marked a turning point in a two-
health that considers patterns of deficit spending and
from the Bill & Melinda Gates decade increase in student enrollment, a
Foundation, the William and matter of import for the affected districts financial reserve levels. This measurement tool is
Flora Hewlett Foundation, used to evaluate the short-term financial health of
because the amount of revenue provided
the James Irvine Foundation,
and the Stuart Foundation.
in California is closely tied to the number all districts in the state for the period from 2002–03
of students a district serves. to 2004–05.
This summary was prepared
by IREPP.
Based on the measure created for The development of the CBO survey was informed by

For the full text of the author’s this study, slightly more than half a review of existing research on school district finan-
research report and the other of California school districts are cial management, an examination of professional
studies in this project, see: fiscally healthy standards (particularly in Florida and Texas), and a
www.irepp.net
California’s fiscal accountability system consideration of California guidelines related to fiscal
For background on California’s considers a district’s short-run financial solvency. The survey was completed in the spring of
school finance system, see: condition to determine whether the dis-
www.californiaschoolfinance.org
2006 by 135 CBOs in a stratified sample of California
trict is able to meet its obligations (posi-
districts. The authors oversampled districts that had
tive certification), may not be able to
been identified as having fiscal problems.
meet such obligations (qualified certifica-
tion), or will not meet its obligations The study uses comparative statistics to test for rela-
Institute for Research on
(negative certification). Based on this tionships between the health of districts, the survey
Education Policy & Practice measure, from 2002–03 to 2004–05,
responses from the sample districts, and state data.
520 Galvez Mall, CERAS Building 88% of districts received a positive certi-
Rm #518 Where appropriate, the study also applies regression
fication, 7% were qualified, and 5%
Stanford, CA 94305 analysis to examine relationships between the fiscal
were given a negative certification.
650.736.1258 The authors, in consultation with health of all California school districts and selected
IREPP@suse.stanford.edu California’s Fiscal Crisis and Management district characteristics.
Declining enrollments likely to fall in the marginal or un- recommended bargaining practices by
present fiscal challenges healthy categories than elementary negotiating total compensation (salary
for school districts or high school districts. plus benefits) and having a hard cap
State allocations based on enrollment pro- ● Declining enrollment districts are on the per-employee cost of health and
vide an advantage for growing districts be- more likely to be fiscally unhealthy, welfare benefits.
cause they receive additional funding
and growing districts are more
likely to be healthy. Districts are less positive about some aspects
based on an average per-pupil rate but
● Districts with higher revenues are of facilities management and revenue raising
incur costs with a marginal increase, thus
more likely to be fiscally healthy, While respondents largely report that
generating extra funds. Losing funding due and this relationship is strongest their district’s financial software met
to declining enrollment can have the oppo- among districts with higher levels basic accounting requirements, they
site effect: districts lose funding at the av- of general-purpose (revenue limit) were less likely to say it provided capital-
erage per-pupil rate; but they may be funding. project tracking or financial reporting
unable to reduce costs at this same rate, that was easy for the school board to
which threatens fiscal solvency. California school district personnel, understand. They were also less posi-
policies, and practices reflect some tive about the facility maintenance sys-
The impact of changing enrollment takes notable variations, including some tems in place in their districts.
on greater significance as more California that relate to fiscal health CBOs report confidence in their suc-
districts anticipate declines. Slightly more The survey of chief business officers cess at maximizing state, categorical,
than half of the business officers surveyed (CBOs) was designed to identify personnel and federal funds; but they are less
characteristics and practices related to sure about maximizing interest income
expect enrollment to decline, 16.4% predict
governance and decision-making, ac- and generating revenue from private
no change, and 32.1% expect an increase.
counting, compensation, resource allo- sources, such as foundations and busi-
cations, and maximizing resources. ness partners.
The authors find a statistically signi-
Assistance Team (FCMAT), modify the ficant relationship between some Fiscally healthy districts have stable leadership
established state measures to also con- reported practices and their catego- and sufficient administrative staff
sider deficit-spending patterns and the rization of school districts as healthy, Data from all districts and from the
level of funds held in reserve over the marginal, or unhealthy. study sample indicate that fiscally
three years examined. With this new healthy districts are more likely to
rubric, they categorize all districts in the CBOs consistently report appropriate have stable administrative leadership.
state as healthy, marginal, or unhealthy. qualifications and financial procedures Statewide, data indicate that 39% of
Only 53% of districts statewide meet The majority of the CBOs in the sample districts had the same superintendent
the fiscally healthy criteria. That com- hold at least a bachelor’s degree, most for the four years of the study. This
pares to 18% designated as unhealthy have a degree in a finance-related field, was the case in 42% of fiscally healthy
and 28% percent as marginal. Data are and almost all report that they follow districts compared to 25% of un-
unavailable for 1% of districts. appropriate financial control proce- healthy districts.
dures. They also report using cost- Based on survey responses, the level of
Three external conditions—district cutting strategies, such as “piggyback CBO training and education is not
type, enrollment, and revenue bidding” to cut the costs of some pur- clearly related to fiscal health, but
levels—significantly influence chases. In addition, respondents are healthy districts are more likely to have
fiscal health overwhelmingly positive about the use had the same chief business officer for 10
The authors analyze their fiscal health of high-quality estimating and budget- years or more. An examination of state
measurement against a variety of dis- ing procedures, but a substantial minor- data regarding staffing ratios showed
trict characteristics, including district ity (30%) report that their enrollment that healthy districts in the sample
type (elementary, high school, or uni- projections are not necessarily accurate. tended to have more administrative staff.
fied), percent of students in poverty, Respondents also generally report
percent of English learner students, meeting professional standards for col- Fiscally healthy districts pay attention to
district size, district per-pupil revenues, lective bargaining procedures and hav- training, controls, and contracts
and a measure of district enrollment ing positive relationships with their The vast majority of survey respon-
growth or decline. These analyses find: districts’ primary teachers’ union. The dents say their school board members
● Unified districts (K–12) are more majority say their district follows receive some training on school district

2 | School District Financial Management: Personnel, Policies, and Practices | March 2007
budgeting and finance, but only a school-site financial management and and better oversight on the part of
quarter characterize that training as resource allocation. The vast majority county offices of education. But even
being of high quality. of CBOs report that their district if those improvements were made,
CBOs vary more on questions re- clearly communicates to principals the California school districts confront
garding how strategically their districts scope of their financial authority, and revenue and expenditure issues that
make financial decisions. Substantial three-quarters say principals are held make it difficult to both maintain fis-
proportions say their district, to a accountable for sound financial man- cal health and strategically allocate
great extent: agement. However, less than 60% say resources in ways that further student-
● Follows a strategic plan (31%); that principals receive training in these performance goals.
● Links its financial plan and budget areas to a good or great extent, and External conditions related to un-
to priorities (37%); less than 40% say the same is true for equal revenue levels make it is easier
● Regularly adjusts its budget to meet groups such as school site councils. for some California school districts
priorities (42%); and Respondents also indicate that their to stay fiscally healthy than for oth-
● Considers goals closely when imple- districts’ site-level allocation policies ers. But the findings of this study sug-
menting a new program (47%). generally place more emphasis on dis- gest that differences in districts’
Conversely, between 20% and 35% trict control and guidelines than on financial practices and personnel also
of respondents answer in the negative site flexibility. make a real difference. In particular,
regarding the same practices. And less The authors find a positive rela- leadership stability matters as does
than a quarter of CBOs say their dis- tionship between the fiscal health of effective training not only for school
trict is able to cut programs that do districts and respondents reporting district CBOs, but also for superin-
not further district goals. that they pay attention to school site tendents, school board members, col-
The authors’ analysis shows that leaders’ capacity for financial man- lective bargaining teams, and school
CBOs in fiscally healthy districts are agement, expect principals to link principals.
more likely to report that they have fiscal decisions to student perform-
well-trained board members, high- ance, and provide schools with bud- EdSource and School Services of
quality policies, and the ability to cut get flexibility. California each have 30 years of expe-
programs that are not well aligned with rience in California. EdSource pro-
their goals. They more often report ana- Lifetime health benefits for retirees create vides impartial research and analysis
lyzing significant expenditure processes financial strains for fiscally unhealthy districts of education policy issues, including
to ensure appropriate controls and scru- Using statewide data, the authors find school finance. School Services serves
tinizing contracts, financial negotia- that salary levels and compensation as a fiscal adviser to school district
tions, and expenditures for unusual cost practices show little relationship to fis- leaders and lobbies on behalf of
fluctuations. In preparation for collec- cal health. Providing lifetime health school districts.
tive bargaining, fiscally healthy districts benefits to retirees, however, is clearly
are more likely to develop high-quality associated with fiscally unhealthy dis- Mary Perry, project lead for the study
cost estimates and invest in training for tricts. Throughout California, 72 dis- and deputy director at EdSource, has
bargaining team members. tricts have such benefits, and those written extensively on school finance is-
Fiscally unhealthy districts, on the districts serve 1.4 million (about 24%) sues in California.
other hand, are more likely to report that of the state’s students.
their financial software does not track Robert Miyashiro, associate vice
capital projects or produce reports that Authors’ Conclusions president of School Services, is a former
are easily understood by board members. While California maintains a moni- deputy director of the California
toring and certification process that Department of Finance.
School-site financial management practices identifies districts headed for a fiscal
are associated with district fiscal health crisis, those systems could be made This study was completed in
The survey asked a number of ques- more effective through better finan- November 2006.
tions regarding the district’s role in cial planning on the part of districts

March 2007 | School District Financial Management: Personnel, Policies, and Practices | 3