1. A PHILOSOPHICAL APPROACH TO BUDGETING
Sorrel R Paskin CMA
Presenter
Resource Associates Inc.
Professional Services to Independent Schools
737 Olive Way Suite 2405
Seattle WA 98101
(206)

2. INTERGENERATIONAL EQUITY
Maintain financial equilibrium
Prepare a strategic financial plan and update the plan annually to reflect changing circumstances
Annual budgets represent annual instantiations of the strategic financial plan
Analyze the specific cost drivers operating in your school

3. INTERGENERATIONAL EQUITY
Optimize faculty and administrative assignments to achieve optimal productivity to cost ratios
Analyze planned additions to plant and enhancements of program services to determine future budgetary impact

4. INTERGENERATIONAL EQUITY
Ensure that growth rates in tuition reflect the growth rates in total expenditures inclusive of reserves funding

5. FINANCIAL EQUILIBRIUM
Annually, revenues equal or exceed expenditures inclusive of total operating expense, reserves funding, transfers to plant and reinvestment in endowment
Year over year, the annual rate of growth in revenues equals or exceeds the annual rate of growth in total expenditures and reserves funding

6. FINANCIAL EQUILIBRIUM
The value of financial capital is preserved or enhanced
The value and functional adequacy of physical capital are preserved or enhanced
The value of human capital is preserved or enhanced

7. FINANCIAL EQUILIBRIUM
The quality of the curriculum, programs and services to students is preserved or enhanced

8. A PHILOSOPHICAL APPROACH TO BUDGETING
Annual budget reveals the priorities and goals of the school – the financial commitments made to faculty support and professional development; to financial aid to maintain goals of access and affordability; and institutional outreach and development

9. A PHILOSOPHICAL APPROACH TO BUDGETING
When viewed over a multi-year period, changes in allocations to the cost centers testifies to the school’s changing needs and the new priorities it develops to meet those needs
Undertaken within the context and prescriptions of the strategic financial plan and its accompanying financial model

10. A PHILOSOPHICAL APPROACH TO BUDGETING
The strategic financial plan and the included financial planning model covers the ensuing three to five years and prescribes the principal objectives to be achieved, the strategies sufficient to their accomplishment, and delineates the specific tasks and responsibility centers for their implementation

11. A PHILOSOPHICAL APPROACH TO BUDGETING
Each year included within the plan represents an “installment” of objectives, strategies and tasks that must be accomplished to ensure that the overall plan is achieved; in this way the annual budget is informed of its responsibilities with respect to implementing the strategic financial plan

12. A PHILOSOPHICAL APPROACH TO BUDGETING
Starting point for budgeting is forecasting the expenditures (inclusive of reserves funding) expected to be incurred in the fiscal year
Planned expenditures are developed from the “ground up”: academic departments and administrative offices forecast needs in priority order

13. A PHILOSOPHICAL APPROACH TO BUDGETING
Uses a variant of the zero-based approach to estimate costs
Provides a significant opportunity to evaluate programs and services to determine quality and cost efficiency instead of merely confirming past decisions

14. A PHILOSOPHICAL APPROACH TO BUDGETING
Asks: what resources will be required to accomplish our mission and achieve our priorities in the year to come?
Then asks: what resources can be made available to support people and programs next year?

15. A PHILOSOPHICAL APPROACH TO BUDGETING
Even if projected resources cannot support anticipated expenditures and reserves funding, the exercise has forced their identification, ranks them with respect to their importance, and in the case of those that must be deferred, “promises” their future realization

16. A PHILOSOPHICAL APPROACH TO BUDGETING
Only after prioritized expenditures and appropriate levels of transfers have been considered are the projected revenues recognized
Results in need for “negotiated compromise” to balance the budget

17. A PHILOSOPHICAL APPROACH TO BUDGETING
Financial planning for
Expenditures and transfers:
Personnel costs
Salaries and wages
Benefits expense
Instructional supplies and expense
Administration and general
Development and fund raising
Occupancy
Auxiliary services

18. A PHILOSOPHICAL APPROACH TO BUDGETING
Interfund transfers:
Transfers to plant – equipment additions
Transfers to plant – PPRRSM
Transfers to endowment -- reinvestment
Total Expenditures and transfers

19. A PHILOSOPHICAL APPROACH TO BUDGETING
Revenue and Support
Tuition and fees revenue
Less: financial aid and remission
Net tuition and fees
Interest income
Endowment investment income
Net gains (losses) on endowment investment return
Other programs fees revenue
Annual fund contributions
Foundation subventions
Other income (net of expense)

20. A PHILOSOPHICAL APPROACH TO BUDGETING
Net assets released from restriction
(restricted gifts and endowment investment return for which the donors’ stipulations with respect to use have been satisfied)
Total revenue and support
Excess (deficiency) revenue and support over
expenditures and transfers

21. A PHILOSOPHICAL APPROACH TO BUDGETING
Fiscal equilibrium is present when, within a narrow range:
The percentage of total revenue allocable to each revenue center remains fixed over time, and
The percentage of total expenditures allocable to each cost center remains fixed over time
Provided that there are no material changes in operating patterns

22. SETTING THE TUITION PRICE
Science not art; relies on the strategic financial plan
Examine the coverage ratios for the previous five years
Establish targets for the coverage ratio of each component of the revenues stream
Determine the target coverage ratio for tuition revenue net of financial aid
Price tuition accordingly

23. SETTING THE TUITION PRICE
Ensure that the tuition price provides for reserves funding including a stabilization reserve to mitigate fiscal distress in the event of a precipitate decline in enrollment
Cost structure of a school is largely fixed, not variable, and thus not subject to material alteration during the school year
Faculty contracts cover the academic year

24. SETTING THE TUITION PRICE
Selling tuition increases
Critical role of transparency and accountability
Communications with parents
Disclosure of prior year operating results and current year budget
Explanation of factors driving the cost structure of the school
Public relations initiatives

25. SETTING THE TUITION PRICE
Tuition as a reflection of value received
Financial aid achieves access and affordability goals
Absent material improvement in family income, in the long run financial aid awards will increase 1% to 1-1/2% over the increase in the tuition price

26. SETTING THE TUITION PRICE
Each student receives an “implicit scholarship” reflecting the fact that the tuition covers only a percentage of the cost of educating that student; the cost is subsidized by foundation subventions, investment income and other revenue streams

27. SETTING THE TUITION PRICE
Role of perception of “entitlement” in setting the tuition price
In the American economy, price is a reflection of value received
Economic consequences of differential rates of productivity growth
Projections of future cost growth in education, health care and other consumer expenditures

28. SETTING THE TUITION PRICE
In future periods, households will need to allocate their total expenditures to the growing, disproportionate increases in education and health care