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Using Benchmarking as a Budgeting Tool

By Trevor Skelton, Associate Client Manager

June 2019

California charters are full swing into the budgeting season for the upcoming school year, and for brand-new schools to thriving networks, budgeting is never a simple process. We at EdTec often find that benchmarking against historical data as well as data from similar charters is an invaluable tool in assessing whether a budget is built on realistic assumptions. This information should not be used to define an entire budget, but rather as one of many tools used to inform budget formation and key financial decisions. This data also helps school leaders to understand the charter financial landscape, discover inefficiencies in their budgeting practices, and evaluate where and why their budgets may be similar to or different from that of the average charter.

Revenue

From a historical viewpoint, the last five years have seen strong increases in K-12 education funding with the full implementation of the Local Control Funding Formula (LCFF), which was enacted in FY14 to replace the previous California education funding system. Between the five-year period from FY14 to FY18, the average charter’s total revenues grew from $9,513 per ADA to $13,078, or nearly 9% per year.

In FY14, average LCFF revenues for charters were $6,887 per unit of Average Daily Attendance (ADA) – in FY18, they were $9,633c a 40% increase as closing the gap toward target funding progressed ahead of schedule. However, not all schools have benefited equally from LCFF. Funding is distributed to schools based on the number of students who qualify for Free and Reduced Priced Meals, are foster youth or homeless, or qualify as English Language Learners. This unduplicated pupil percentage (UPP) of students is a major funding indicator now that LCFF has been fully implemented, with the intent to direct additional resources to students and schools that need them the most. Funding disparities between schools with low and high populations of unduplicated students have grown significantly, as shown in the graph below. Beyond LCFF, federal revenues, most commonly Every Student Succeeds Act (ESSA) Title funding, also have a direct relationship with unduplicated students. Thus, accurate budgeting, tracking, and reporting of ADA and student demographics via CALPADS are more important than ever in maximizing revenue.

In FY18 the average charter school reported a 64% UPP, so while many have enjoyed increased resources, others have been forced to innovate to acquire resources to make ends meet. For charters, we see that disparities in government funding are often supplemented with local funding where available. In particular and perhaps unsurprisingly, charters located in counties with higher median household incomes, especially the Bay Area and Coastal regions, have the greatest access to these additional resources. Charters with a UPP of below 25% reported an average of just below $1,000 per ADA in local revenue, compared to less than $500 for the average charter.

K-12 education funding is at a point of uncertainty. LCFF has reached target, and FCMAT projects meager 2-3% COLA adjustments in future years – well below the revenue increases of the past half-decade of steady economic growth. An economic recession would certainly impact not just state funding, but local resources as well. Charters will need to be able to adapt and weather a possible storm if they are to survive an uncertain future.

Expenses

In examining statewide charter expenditure data, we see that expenses have grown in a similar fashion to revenue over the past five years. The average charter was spending $8,411 per ADA in FY14 – by FY18, this had grown to $12,011, a 43% increase. Over this time period, California has grown from near the bottom of per pupil spending in all the U.S. to about average[1]. While certainly movement in the right direction, pupil performance indicators, a higher-than-average cost of living, and the uncertain future of LCFF funding all indicate that this is hardly the moment for celebration.

An average charter will spend 60% of its budget on salaries and benefits, so it is essential to understand each piece of the compensation puzzle and to budget appropriately for future considerations. Overall, salaries per ADA have risen 9% a year, a rate of growth charters may no longer be able to afford in the new post-LCFF-target world.

Employee benefits have become a major budget challenge for charters. From FY14 to FY18, the average charter’s spend on benefits grew from 25% of salaries to 29% of salaries. This means the growth in benefits spending has matched and then surpassed the growth in salaries by nearly 20%. As shown in the figure below, this growth was led by STRS, as the mandatory employer contribution rate doubled over this time from its long-standing 8.25% to 16.28% of salaries for certificated staff. This may very well explain why the rate of new charters that chose not to enroll in CalSTRS rose from its steady 10% to 20% in FY15 and 33% in FY16[2]. PERS has also seen rates that have more than doubled in the past decade, while health and welfare benefits continue to soar across the board.

Special education is notoriously difficult to budget for and is extremely underfunded. Based on our experience and data, we estimate the average charter spent at least $1,300 per ADA on special education in FY18. Charters that are a part of a Special Education Local Planning Area (SELPA) may receive SpEd revenues to cover around half of that, but for charters serving their students as a school of the district, it’s not uncommon for district SpEd encroachment fees to exceed $1,300 per ADA.

Finally, we see facilities costs rising across the state for charters with and without SB740 revenues. Facilities costs for charters are rising at a pace of 8-10% per year, translating to over $600 per ADA net of facilities revenues.

For these areas with inherent risk and uncertainty, conservative budgeting with contingencies is imperative in managing school budgets.

Fiscal Health

These data all come together to form a charter’s overall fiscal standing. Overall, California charters have averaged somewhere between $400-$500 in operating income per ADA in any given year for the past five fiscal years, which has allowed them to steadily grow their fund balances. In FY18, new schools saved between 10-20% of expenses, while older schools were able to accumulate greater reserves for future investments and to manage cash fluctuations. Charters had a median of 80 days cash on hand – a comfortable amount for the average-sized charter – and at least 25% had 30 days cash on hand.

While operating income, fund balance, and cash balance are the main indicators of a charter’s financial stability, variance to budget will also be important to monitor. Continuously tracking budget vs. actuals year-to-date for trends and discrepancies can help to identify clear areas of weakness in a school’s financial or budgeting practices. And of course, managing against any debt covenants or authorizer requirements is imperative to staying in good financial standing.

Averages don’t tell the whole story. Every school has variances from the norm, but it’s essential to be able to explain why and understand what the possible financial implications may be. From individual school practices to the California Department of Education’s new LCAP Budget Summary for Parents, we see a trend toward increasing transparency when it comes to California’s education funding and spending. Adopting a practice of regular communication of school budget information and comparative data like this with parents, community members, school staff, lenders, and others can foster engagement and understanding with stakeholders, empowering those most invested in educating California.

 

[1] http://www.teaching-certification.com/teaching/education-spending-by-state.html

[2] https://calpensions.com/2017/09/11/fewer-charter-schools-choosing-calstrs-pensions/

Data Sources: Unaudited Actuals Financial Data (CDE); Public Schools Data Files (CDE); CALPADS UPC Source File (CDE); SB740 grantee lists (CSFA); County Data (U.S. Census Bureau); EdTec Client Data (Note: only includes financial data for charters whose data is available (n = 588 – 927), and thus is not representative of all charters. Sample sizes and composition vary over time.)

California Charters, Stay Calm and Focus on Your LCAP Submission and the 2019 Dashboard!

By Jennifer Reyes, Ed.d., Educational Support Services Manager; Chris Lim, Senior Director of Data Management; and Annice Weinstein, Senior Manager, Assessment Data and Analysis 

April 16, 2019

California charter leaders, as you enter the last few months of the school year, pay attention to these important tasks to help you stay on top of your LCAP submission as well as ensure accurate reporting on the 2019 Dashboard.

CALPADS Submissions and the Dashboard

Demographic data reported to CALPADS informs the subgroup information reported on the CA School Dashboard. The CA Department of Education (CDE) typically extracts this information shortly after CAASPP testing is completed, so review the 8.1 ODS report in CALPADS to be sure the right demographic information is reported for each student: race/ethnicity, socioeconomic status, homeless, foster, English learner, and disability status. For corrections, update the information in your student information system (SIS) first, then push an updated extract up to CALPADS, so the original source of your data (your SIS) is accurate and matches what’s in CALPADS.

We also recommend you push up an enrollment update to CALPADS prior to testing to make sure all students enrolled at your school are represented in TOMS.

The end-of-year submissions (EOY 1, 2, and 3) provide information on program eligibility, chronic absenteeism, suspension rate, and other disciplinary incidents, as well as college and career readiness. EOY information is also used to determine graduation rates along with cumulative enrollment, which the CDE uses to determine which students will factor into each of the Dashboard calculations.

LCAP Annual Update

Coordinate with your staff to gather the data necessary to update all the measurable outcomes defined in your LCAP. You’ll notice that some of the measures may be a year old (SBAC scores or graduation rate from 2017-18),but do your best to gather current data when available (example: local assessment data). Gathering the data early will give you a chance to share progress with your stakeholders and get their feedback, as well as use the data to determine if the actions or services you implemented are showing the results you anticipated. If they aren’t, this is the perfect time to update your plans in the 2019-20 LCAP.

If you haven’t been coding your finances to align with your LCAP goals, actions, and services throughout the year, you’ll need to start reviewing your general ledger to identify how each of the expenses line up with your LCAP. The Annual Update requires you to include your estimated actual expenditures for each action/service, including the funding source (base, supplemental/concentration, title funds, CSI), so this task can take some time.

It’s also a good time to start planning for that final round of stakeholder engagement prior to Board approval.  This will allow you to get quality input on your draft LCAP so that your entire school community is represented in the plan.  You will be able to include these efforts in the stakeholder engagement section and show that you are meeting this LCAP requirement.

One last item to start preparing is your responses to how you’ve addressed each of the local indicators. You will need to present the information at a regularly scheduled board meeting either at the end of this school year or the start of the next school year. Your overall score – Standard Met or Standard Not Met – will be entered by your Dashboard Coordinator next fall, but since you will be including that information in the LCAP Annual Update, it makes sense to prepare your narratives for the Dashboard local indicator reporting at the end of 2018-19.

The end of the school year will be here before we know it! We recommend planning ahead and allotting time to get these items right, as they have a significant impact on your school. For additional questions on the LCAP, Dashboard, or CALPADS submissions, please contact LCAP360@edtec.com.