Building a Line-Item Budget Larry Sigel, Partner

Background  Goal: An easy to update monthly line item budget that allows easy comparison to actual revenues and expenditures and conveys the information in a manner that makes it easy for board members and/or the public to understand.

Overview  Purpose of budgets  Reasons for budgets  Types of budgets  Things to think about when creating a budget  Technique to help you provide enough detail but not too much  Sample line-item budget template

Overview  Budgets should be “living” documents. As new information becomes available, budgets should be updated to represent the latest “reality” (e.g., 10% ATB cut).  Budgets are not an end in themselves. The budget is simply the financial plan of how we are going to accomplish our objective – educating children.

Purpose of Budgets  Purpose Plan expenditures (before) Tells you how you’re doing (during) Tells you how you did (after)  Ever hear the expression “What gets measured is what gets done?”  I prefer: “What gets funded is what gets done.”

Reason for Budgets  Scarcity of funds Budgets ultimately force choice between competing programs/ideas/initiatives. If we had all the money we wanted/needed, we wouldn’t need a budget.  Accountability Budgets force people to be accountable for what they spend.  Informative They inform the administration, board and public on how we are doing financially.  Educational Every month becomes a time to teach about school finance.

Types of Budgets  Certified Budget Budget prepared by April 15 of the year prior to start of fiscal year Sets the property tax rate and the amount of state aid we will receive Sets the maximum spending (without amending) Compliance document Frequency: Annually

Types of Budgets  Program Budget This is a budget that is established by program – think Title I, Special Ed, PD Can be more detailed – for example if tracking your reading initiatives could have a program budget for each initiative:  Reading Recovery  Reading Coaches  2 nd Chance Reading Frequency: quarterly/monthly/annual

Types of Budgets  Line-Item Budget Budget that tracks expenditures and revenue by their type. Revenues: Property Taxes, State Aid, Income Surtax, federal funds, etc. Expenditures: Salaries, benefits, energy, purchased services, etc. Frequency: quarterly/monthly/annual

Types of Budgets  Interesting note: Certified Budget is a hybrid line-item and program budget. On the revenue side it’s line-item (Property Taxes, State Aid, etc.) On the expense side it’s a program budget comprised of functions (Instruction, Student Support Services, etc.)  Certified Annual Report (CAR) is also hybrid financial report in that sense.

Things to Think About When Creating a Budget Document  Intended audience You Other Administrators Board Public  Frequency Daily Monthly Quarterly Yearly  Scope General Funds Other Funds All  Format Numbers Graphs Hybrid

Things to Think About When Creating a Budget Document  Audience helps determine level of detail.  Frequency helps determine difficulty of updating.  Scope helps determine what is more/less important.  Format helps communicate the information.

How Much is Enough/Too Much  Try the 90%/10%/1% rule: Add up the percentage that specific revenue and expenditure line items that are specifically mentioned (State Aid, Property Taxes, etc.) Keep adding specific line items until you reach approximately 90% If none of the other revenues/expenditures exceed 1% of the total, lump them into “other”.

Steps to Create and Maintain a Line- Item Budget Create Budget Create your monthly budget Enter Actuals Close of each month enter actual revenue and expenditures Compare Budget to Actuals Compare budgeted amounts to estimates

Steps 1. Calculate your annual revenues and expenditures. Revenues come partly for Aid and Levy worksheet and some you will have to estimate. If you start with total estimated General Fund expenditures and then allocate those back to each of the categories in proportion that will give you a good start.

Steps 2. Allocate revenues and expenditures to each month. Pay special attention to timing. Some expenditures can be allocated on 1/12 basis, some cannot. If you look at prior year revenues and expenditures, should give you an overall perspective (ie, if last year August was 7.5%, and you get done allocating and August shows at 9.5%, there has to be a reason).

Steps 3. Update numbers monthly (I know, well duh)  Compare Actual to Budgeted by month. Evaluate differences – are they caused by timing issues? For example if you paid the utility bill on the 28 th last year and the 2 nd of the following month this year, will produce differences. Determine whether differences are significant and whether they are a trend.

Comparisons  People love to compare this year to last year. Is that always relevant/accurate?  Works great if we’re the same this year as last but lots of things change, for example: Number of students Revenue per student State policy changes Property Values  With a monthly budget we’re most interested in the comparison of actual to budget for the current year.

Why You Shouldn’t Pad the Numbers  Normal human emotion to want to “come in under budget.” People thinks it make them “look good”. Every budget is an estimate. How many estimates have you hit “on the penny” over your career? For a “good” estimate, you should be over / under the estimate exactly 50% of the time. Padding makes people say, “Aww, we’re always under budget, we’ve got the money.” You don’t need to spend this kind of time fooling yourself.

Goals  Easy to update – doesn’t require everyone to “recreate the wheel”  Conveys information regardless of type of learner  Accurate and provides a good representation to answer the question “How are we doing?” Fund Balance (Cash) Spending Authority

About the Template  Four components Monthly Budget Actual Expenditures Monthly Comparison of Budget to Actual Estimated impact on Unspent Budget Authority

Monthly Budget  Allocate Revenues and Expenditures by month

Monthly Budget Monthly

Monthly Budget  YTD

Actuals  Monthly and YTD

Comparison of Budget to Actual  Easy to read comparison

Monthly Updating of Your Estimate Ending Unspent Budget Authority  Most information needs to be entered on an annual basis.

Monthly Updating of Your Estimate Ending Unspent Budget Authority  Some information in Yellow needs to be estimated:

Monthly Updating of Your Estimate Ending Unspent Budget Authority  Miscellaneous Income should be reviewed monthly.  Expenditures pulls automatically from Actual and Budget section (ie, if there’s an Actual for a month, then it uses that, otherwise it uses Budget for remaining months.

Monthly Updating of Your Estimate Ending Unspent Budget Authority  Budget Estimated v. Actual

Monthly Updating of Your Estimate Ending Unspent Budget Authority  Estimated v. Actual and Impact on Unspent Authorized Budget