In Conversation With…features an interview between a leader or figure involved in public education and a representative of the Kentucky School Advocate. This issue’s conversation is with Hiren Desai, the Kentucky Department of Education’s associate commissioner of the Office of Administration and Support; and Kay Kennedy, director of the Division of District Support within that office. Both work closely with school districts that are having financial problems.
Q: What are the common mistakes that school boards make when it comes to district finances?
Desai: What we have noticed is that school boards try to focus on the weeds, in so far as things like hiring personnel and other day-to-day operations. We try to encourage the school boards to look at the bigger picture.
The conversation should be not just about how the district is doing today but next week, next month and next year. A board should really think big picture. Superintendents come and go but board members’ terms are staggered, and they have to take the long-term view.
Kennedy: My impression is that there are some very highly functioning school boards that do that very thing today. They are big picture, they are strategic, they are trying to make decisions that position the district to be successful in the education of students.
They are getting that impetus somewhere and I am going to say it is because, one, they have coalesced in leadership with the superintendent and understand the direction the district is heading, or they had board member training and they understand and are very clear about their role as board member and the fact it is big picture.
What we have tried to help school districts and the finance officers understand is that you need to help your board understand the information they are seeing in terms of financial impact on the total delivery of service to the district. It is not about one job position or one issue.
Q: Is there confusion among board members about what financial information they should ask to see and what kinds of questions they can ask?
Kennedy: In the school districts that I have visited, the overarching issue is “Is it OK for me to ask this question?” Well, the only dumb question is the one that is not asked.
Desai: There really is not a wrong question to ask. Asking questions is where they expand their knowledge.
Q: But are there limits to what a board member can ask to see regarding financial information?
Desai: The short answer is ‘no;’ they are the governing body of the district. But the question becomes, ‘Does the board have the authority to take action on everything they see and the answer is ‘no.’
So it is OK for a superintendent to say that something is not in the purview of the board, but then the board needs to pull back and ask the next question. For example, if the issue is hiring, the board can ask, ‘If we fund these positions, what is the impact on the budget?” They need to have those larger types of conversations.
Q: You’ve said the issue for board members sometimes is not just what questions to ask, but when to ask them.
Desai: Asking a question doesn’t mean you are taking official board action. Let’s say I am a board member, sitting at home, looking over the board minutes from last month, and I have questions. Board members have the misperception that they can only ask questions in a board meeting and that is not true. While you can only take board action at a board meeting, you can ask a question anytime.
Kennedy: I have had school board members come up to me at a meeting and say, “I really wanted to ask about something but I wasn’t sure I could ask.” You can ask anything that you want – before the meeting, during the meeting, after the meeting. When you are learning, you should just pick up the phone and call.
Q: Why is it important to ask questions?
Kennedy: Board members are overcoming the learning curve. It is like when you start a new job. In a new office, there are nuances, reports, things specific to the office you need to get your arms around. Often, people hesitate to ask a question in a public forum because they think “the public thinks I should know this beforehand,” or “someone will think I don’t know something that I should know.”
Desai: We notice that the new board members are not as comfortable asking questions. But the only way to learn the role is by asking questions. The worst that can happen is if you ask a question and your assumption is wrong. Then you learn from the process.
Kay has worked with a handful of districts that have asked for assistance with financial issues and even in those districts, some of the school board members are really good and know the ropes. But being there awhile doesn’t in itself mean you are a good board member. You are comfortable with your role, but that does not mean you should not ask questions. New board members should be inquisitive and ask questions, but even board members who have been there a long time should ask questions because things in education change so quickly.
Q: Finance officers can help by providing good reports, correct?
Kennedy: When you look at a financial report, I would think that a good finance officer would get that boiled down to the essentials to ensure the board members that the district is on target with the budget. MUNIS generates those reports and there should be credibility when a board member sees a report generated out of MUNIS.
Q: What are some red flags board members should be aware of when they look at their district’s finances?
Kennedy: There are several things to look at. What is your student population doing? If it is declining and you aren’t making corresponding cuts in your personnel budget, you are going to be in trouble. Another trend might be cuts in federal programs. A large portion of schools’ budgets are in personnel, and if my student population or my source of grant funding starts to decrease and I don’t make core cuts in staffing, I will have to dip into my contingency fund, and I can’t do that forever.
A budget is a road map and you need to check the map along the way and make sure you are on track with revenue and expenditures. It will vary, depending on what is going on in the district. If there is a large construction project, you will want to know how expenditures for the project are going in respect to estimates. Are tax collections coming in as we thought they would; are personnel costs where we thought they would be? Let’s say we had a bad winter and utility bills shot up.
A review on a monthly basis is really what I think the board should be interested in and then a couple of times in the year the board needs to think strategically about finances. They are the November – December timeframe when the draft budget has to be approved. Then, in May, when they approve the tentative budget after they know about staffing levels for the coming year and any changes like pay increases.
Q: Some school districts are having financial difficulties. How prevalent is the problem?
Desai: I would say out of 173 districts, we are talking about maybe 10 districts or fewer in terms of districts struggling with financial problems. That does not mean that 10 school districts will shut down in the next year.
The state is in three districts – Breathitt, Fleming and Robertson – helping and providing assistance. They need help right now but that does not mean they are going to fail in the short term, but in the long term they might need help. We have taken over Breathitt completely but it has a lot more issues than financial challenges and that situation is unique to Breathitt County at this point.
There are five or six districts that have been struggling to transition to making a balanced budget, not because they have done anything wrong but because they are dealing with declining enrollment, especially in eastern Kentucky, where we have seen a rapid decline in student enrollment. As small districts lose students they lose revenue.
The reason we are in Robertson County is not because it has done anything illegal, but because it is losing so many students. Total enrollment there, K-12 is 320. They had to have a minimum number of teachers in place to survive as a school district and they didn’t know how to do it on their own. They have done the work: they are streamlining transportation, getting dual teacher certification, reducing central office staff – these are things they have to do to survive.
It is going to be a two-three year process to get those districts in shape. It might get to point that we have to merge them with other districts, but we don’t think any are in crisis mode. Robertson is a good example; they have tried to turn things around and manage their finances. But it might get to a point where despite our efforts and their best efforts they might have to consider merging with another school district. We want to avoid that. We think it is healthy to have a lot of school districts. We are going to try to work with all of them to get good processes in place.
Q: But you have said, there is no actual list of schools that are in financial trouble?
Desai: I have been asked by multiple reporters to give a list of districts that are troubled. There is no magic list. What we have done is look at which districts have declining enrollment, a declining fund balance. But that continually changes.
Kennedy: Come fall, when tax revenues come in, it could be down to three districts, or it could to up to 15.
Q: In a recent, and ongoing, case, there was an allegation that a school district employee had embezzled funds by manipulating the MUNIS system. What are the ramifications of the case?
Desai: I can’t comment on that case. The MUNIS system has the normal checks and balances that any system has built in. A lot of times when issues like that occur, it is a people-control issue. We have looked at MUNIS and we think it has the tools in place and if it is used correctly, problems like this can be avoided.
Q: Tell me about the new online School District Finance Report Cards.
Desai: We already have a District School Report Card for all school districts, where anyone can look (online) at how a district is doing in several areas like instruction, assessment, technology, for example. But there is nothing financial on that report card. We will roll out, in September, a finance tab on the report card. You will click on that tab, and it will give you a financial summary of the health of the school district for the prior three years. It will show what happened in the school district in terms of revenues, expenditures, per-pupil costs, what tax rates were in place.
Q: Why is this an important addition to the district report card?
Desai: We want to educate everybody – the public, the school board members, the district finance officer, everyone. You might have a brand-new finance officer and they are not sure what to communicate. They can start with this history and build up from it. The report card might trigger questions you can ask about those areas.
It is not going to fix everything, but we hope it will help everyone have the right kind of conversation about strategies and long-term goals. They can see where the school district has been, where we are today and where we want to go. Those are the three questions a school board member should be asking.
Kennedy: What we are doing is taking information already on the website that is in multiple pages. This report card pulls it together and gives historical perspective. An important point is that it is all district-verified, audited information and is available to anybody.
Q: You say some districts have been using this information to help train and educate board members?
Desai: Yes, for example, Ed McNeel, superintendent for the Corbin Independent school district, told us, “My board wants training on what they should be looking for in financial reports.” We provided an early version of the financial report card and Ed said his board thought it was great and they understood it.
Q: Will the report card evolve?
Desai: Yes, we will be taking feedback from the public, board members and the district. What we are releasing this fall is a first step. The district report card will be about a five-page summary that touches on revenues, expenditures, tax revenues and, at a high level, salaries. The superintendent’s salary is already on the Web, but the report card will have things like average teacher salary, average principal salary, total expenditure on substitute teachers.
Q: So districts will be able to compare their finances with their peers?
Kennedy: Yes, I can look at a district that is my size and similar makeup and see what they look like. How many teachers do they have? There are all kinds of things they can learn from each other.
Desai: For now, it is a district-by-district report, but we hope to build in a tool to allow them to be easily compared.
Q: A law enacted by the 2014 General Assembly will require district finance officers to provide school boards with a monthly financial report. Do we know yet what that report will look like or include?
Desai: We don’t. We hope they will use the School District Finance Report Card as basis for developing that.
Q: The law also requires KDE to review annual financial reports and give them a written report about the district’s finances within two months of receiving the reports. KDE is arguably short-staffed. How will you do this?
Desai: We have already been giving feedback and having conversations with the districts about the annual report, so this just formalizes it. It is going to be a little more work for the department, but nothing we can’t handle.