Written Assignment Unit 6:

University of the People

BUS 1102 Basic Accounting

05/19/2021
 Written Assignment Unit6 :

In Michigan, lawmakers warn school districts to prepare for a 10-25% budget cut for the

2020-21 school year (Meloni, R. 2020). This message about budget shortfalls is nothing new

from many school districts across the United States. Schools have been struggling for years to

balance funding from the government and communities and meet educational expectations. It is

up to each district to balance its budgets. This task falls to the school board and superintendent to

obtain additional funding or cut programs.

If my school district found out that our funding would not meet our operating costs, there

are many things we would need to do. The first thing on my list would be to look at the books. I

want to dig deep into our finances to find out what we currently owe and to find out how we are

spending our money and on what. I would look for spending patterns that could be adjusted or

things we are wasting money purchasing. In a study done that compared public schools to

privately-funded schools, private schools operated 63 percent budget, meaning public schools

are making poor choices on their spending(Wenders, 2003).

Once I knew how much we would be short, I would issue more debt. But the issue of

new debt would only be to cover the existing debt. The issuing of new debt beyond covering

what we already owe would be only if absolutely necessary. Debt management is a challenging

path because it can be used for growth, but it has to be paid for at some point, and when you

can’t, it leads to the debt cycle. “A debt cycle is continual borrowing that leads to increased

debt, increased costs, and eventual default” (Pritchard, 2020).

There are many options for the school district to move forward, other than taking on new

debt. These options would result in more work for the board of directors, PTA, and anyone
involved in the education process. We could start by working with the vendors we currently

have and see which ones could give us better discounts or payment terms. If the vendors are

willing to work with us, then they could be awarded priority status. The ones not willing to

work with us could be replaced with others that will work with us or offer better rates. Next, we

would need to partner with community groups to provide resources. The community might be

able to provide us with volunteers who are qualified to coach or instruct extracurriculars instead

of paying for coaches. We could hold fundraisers in an attempt to bring in additional funds.

We would then need to use the resources we have available to us to generate additional funding.

For example, is there a local theater group in need of our auditorium that could split proceeds

from their show. Or are there other groups that may need a meeting facility on weekends or

athletic groups in need of a field to use, and they could pay or barter for services? There are

many options out there, other than taking on new debt, but we may want to look into promissory

notes in case we need to cover the debt.

A promissory note is a legally binding written promise to pay back money borrowed with

interest by a specific date(Weintraub, 2020). Promissory notes have some advantages. They are

usually quicker to obtain because they do not require extensive credit checks and financial

statements. The actual promissory notes are also much more straightforward in terms of the

document. It will contain the borrower, lender, payment terms, principle amount, interest rate

instead of the pages of legal documents required for a standard loan.

They also offer flexibility in paying the loan; monthly, lump sum, or even balloon

payment. A balloon is small scheduled payments during the course of the note and the

remaining balance due on the final date. There are some downsides we need to be aware of when

dealing with promissory notes. They are not suitable for complicated or long-term
arraignments, as the written detail is usually kept to the basics. Then we could face higher

interest rates because the loans are short-term, and a higher interest rate is the incentive used to

get the lender to provide the funding. And lastly, because the loans are more flexible, the

payment terms are as well. And in some cases, because of lump-sum payments or balloon

payments, the borrow has trouble coming up with the money when it is due(Haman, 2021).

Wrapping things up, school districts across the U.S. need to invest more time finding

ways to balance their budget and then take out new debt. If they continue taking on new debt,

they will never be able to pull themselves out of the mess, and the only thing they will be able to

do is to continue to cut programs and ultimately not fund their districts.

Word Count 884

 References

Haman, E. (2021). Pros and cons of using a unsecured promissory note. Legalzoom.

https://www.legalzoom.com/articles/pros-and-cons-of-using-a-unsecured-promissory-

note#:~:text=Some%20possible%20disadvantages%20are%3A,a%20bank%20or

%20other%20institution.

Meloni, R. (2020). Lawmakers warn Michigan shcols to prepare for significant budget cuts.

Click on Detroit. https://www.clickondetroit.com/news/local/2020/05/12/lawmakers-

warn-michigan-schools-to-prepare-for-significant-budget-cuts/

Pritchard, J. (2020). Escape the debt cycle. The balance. https://www.thebalance.com/get-out-

of-the-debt-cycle-4054269

Weintraub, E. (2020). What is a promissory note? The Balance.

https://www.thebalance.com/promissory-note-1798611

Wenders, J. (2003) How much do the public schools waste? Foundation for Economic Education.

https://fee.org/articles/how-much-do-the-public-schools-waste/