The budget is the plan for the financial operation of the district prepared in accordance with rules, regulations and various state laws. The budget should reflect what the school district values and deems most important. The care with which the budget is planned and implemented influences the efficiency and economy of the district and should directly support the district’s primary mission-the education of the students. The scope of responsibilities in Kellogg includes financial planning for three elementary schools, one middle school, one high school, a district office, and a bus facility.

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2.2.1    Observation

One of the current school board goals is to "improve the financial condition of the district." This is observed as perhaps the most important single challenge facing the trustees and administration, and one that cannot be postponed or ignored. Since 1990 the 92.4 classroom units have been reduced in number to 78.0 in 1999; resulting in a 14.4 unit shortfall over that time. Students drive units; units drive district funding. The data show fewer students resulting in less state funding. While federal forest monies have traditionally been used to supplement the general fund, that source has declined since 1992-93 from $592,000 to $381,000. Future dependence on this revenue in the general fund may continue to dwindle or dry up completely.

The current Salary Based Apportionment sheet published for the school district by the State Department of Education indicates that the categories of administration, instruction, and non-certified are all receiving less state money than they cost. The cost to the district this year is well over $1,185,000 for 22 positions beyond state funding. These funds must be taken from other available revenue sources. These 22 positions reflect administrative, certified, and classified staff.

Finally, the large supplemental levy has showed solid community support in recent elections, for which the community is to be commended. Property tax levies have not risen due to steady growth in the market value of the district.

Recommendation

It is recommended that action be taken to halt the financial collision course the district is on. Immediate consideration of staff reduction is the first issue demanding attention as the 1999-2000 budget is being developed. Attrition plus ways to more efficiently use current staff may or may not be enough to stem the tide. Some non-essential positions may need to be reduced. The ROTC program, the alternative high school cooperative and the pre-first program are examples of programs possibly needing re-evaluation considering current circumstances.

2.2.2    Observation

The final payment for fiscal year 1998-99 from the State Department of Education is due in July 1999 and will include a significant amount of previously unanticipated funds in the distribution formula and PERSI/FICA areas. The business manager is aware of this and can calculate the estimated amounts.

Recommendation

This one-time windfall needs to be scrutinized and used in the most appropriate manner to implement the previously quoted board goal to " improve the financial condition of the district." Placing all of the unanticipated funds in the salary/benefits package will end up haunting the district the following year as it seeks to maintain and improve on that new higher level of cost. One-time money is best used for one-time uses which do not perpetuate future financial obligations. In the current financial climate, it is recommended that these monies be placed in the contingency fund.

2.2.3    Observation

The district has a competent business manager who is seen as very capable of leading the district’s finances. A budget amendment is prepared each spring to update major budget changes. Additional communication with staff and the public might enhance this area of financial leadership.

Recommendation

A more user-friendly budget document with more information for trustees, staff and the public is recommended. Also recommended is a budget calendar to be adopted by the trustees each January to highlight the important upcoming budget dates and deadlines leading to eventual adoption at the budget hearing. It is recommended that an annual budget amendment be continued each spring to update major changes since adoption of the original budget in June.

2.2.4    Observation

The district is given credit for dealing with declining enrollments during the last nine years. However, the fund balance has now been decimated, going from $89,000 in June 1996 to ($2,400) in 1998, as reported in the audit. This is because the district is spending more than it takes in. Also of concern is the lack of a contingency fund within the general fund to protect against unforeseen negative circumstances. Having no contingency contributes to little or no fund balance carryover. It was a part of previous budgets but has since been unbudgeted, due to difficult financial times.

Recommendation

A contingency fund needs to be re-established as an integral part of the general fund budget. An unused contingency fund provides for a healthy fund balance, which then is available for use the following year as contingency. The upcoming year will prove to be a difficult one for tight budgeting, but an action plan needs to be adopted to eventually increase the contingency to a reasonable amount in each future budget. Auditors and business managers recommend from 1% - 4% of the budget for contingency reserve.

2.2.5    Observation

The district appears to have an imbalance in the numbers of students attending the three elementary schools.

Recommendation

It is recommended that the ratio of elementary student to facilities be addressed in the budgeting phase of district operations. Although a hot potato politically, the discussion of pros and cons is of value as the trustees wrestle with efficiency and economy.