Evaluating Key Data to Ensure Long-term Fiscal Strength

Factor 1: Changes in Revenue

Though districts are funded by by a variety of sources, which can complicate financial organizational management, nearly 90% of K-12 education dollars come from state and local revenues, which are primarily comprised of sales, income, and property taxes. This can cause the mix of revenue sources and the amount of revenue coming from each source to change from state to state and, in some cases, even county to county. By keeping a close watch on local economies, as well as factors that might indicate impending changes to economic health, school business managers can anticipate and plan for potential shifts to budget bottom lines. Economic recessions, loss of local industry, lack of growth in property values, increased unemployment, and decreased income tax can all contribute to uncertain revenue. Chart 1 displays the proportions of total revenue contributed by three different sources in one Pennsylvania district.

Chart 1 – Proportion of total revenue contributed by local, state, and federal sources

While Chart 1 displays a slight increase in revenue year after year, which is often attributed to factors like inflation and organic increases in property taxes, a more drastic increase in federal revenue of nearly 30-40% can be detected in 2021. This coincides with the district’s receipt of the Elementary and Secondary School Emergency Relief fund (ESSER), which attempted to compensate for losses in state revenue resulting from residual economic factors related to the COVID-19 pandemic, like decreased income and sales tax.

By keeping a watchful eye on analytics, school business leaders can keep track of changes to revenue, such as fluctuations in the proportions of revenue contributed by local, state, and federal sources. While the increase in revenue for 2021 and the subsequent school years may follow a natural and historic trend for this district, the proportions of revenue from the three sources are slightly skewed. Once the deadline to spend ESSER funding has passed and federal revenue contributions return to their typical annual amounts, overall revenue may dip below that of previous years, especially if the economic recession persists.

Chart 2 provides a closer look at the breakdown of the same district’s local revenue. While even more sources contribute to this pool of funding, the majority comes from property taxes. This is by far the largest and most stable source of revenue that this district receives and has increased only slightly over the past three years.

Chart 2 – Proportions of Revenue from Local Sources

Factor 2: Changes in Student Population

Projected student enrollment may be the single most important factor influencing the amount of state revenue a district receives. The amount is determined by a statewide formula which aims to account for differences in the costs of achieving equal educational opportunity and for differences in the ability of local districts to cover costs. State revenue increases with need. For instance, states provide more funding to districts with fewer local revenue dollars, such as those situated in high-poverty areas.

Chart 3 depicts the same district’s enrollment breakdown for the past ten years. It shows a stable enrollment through 2017 at which time the number of enrolled students began to decrease slowly, but steadily. Using this trend as a predictor for future enrollment and resource allocation may have led to inaccurate conclusions. This district saw a near 5% decrease in enrollment, or a loss of over 500 students between 2020 and 2021. That number continued to dip well into the 2022 school year.

Chart 3 – District Level Enrollment Breakdown

While overall enrollment decreased in this district, the proportion of low-income students grew consistently until mid 2016 but then hovered around 90% in the years that followed. The proportion of state revenue in Chart 3 mirrors this trend. It shows a steady increase in state funding through 2017 and then a leveling off through 2022, which demonstrates the direct link between district economic need and state funding. District business managers can use population trends, such as these, to anticipate future state funding.

Additionally, while enrollment is decreasing, special populations like emergent bilinguals and special education are rising steadily. This pattern may signify a need to reallocate resources within the district. For instance, this district might consider adding an FTE special educator or EL teacher.

Factor 3: Changes in Staffing

Teacher Vacancies

While it is important for business managers to track revenue sources and potential factors that impact the amount of funding their districts may receive annually, expenditures and aspects that effect need-based line items are equally vital. Human capital management constitutes the largest portion of K-12 public schools’ annual budgets with staff salaries and benefits accounting for nearly 80% of spending.

While districts can project expenditures for a future fiscal year based on the current cost of salaries and benefits, there is no guarantee that staffing will remain consistent from year to year, or even from day to day, resulting from district enrollment demand and job market supply. According to recent data, the current labor shortage, for both non-instructional staff and teachers, is attributed to a decrease in the number of candidates as opposed to a significant increase in the number of open positions. In fact, the National Center for Education Statistics (NCES) reported that as of January 2022, nearly half of public schools (44%) reported a full- or part-time teaching vacancy. School budgets should anticipate and account for turnover, by incorporating salary and benefit costs for all current and anticipated openings, while also factoring in costs related to human capital management processes. The Learning Policy Institute warns that districts can spend up to $20,000 on filling a single vacancy. Included in this cost are dollars spent on processing a former teacher’s departure, as well as those allocated to the recruitment, hiring, and training of new teachers.

When budgeting for unfilled teaching positions, it is important to know that hire rate is influenced by factors like subject area and grade level. Vacancies in physical education, social studies, and elementary education are typically filled much faster whereas foreign language, special education, and gifted and talented could take a longer amount of time to fill. These vacancies could carry over into the following school or fiscal year and will cause districts to accrue additional costs by hiring substitutes to fill in.

For some districts this might result in overspending on substitute teachers and underspending on FTE teacher salaries and benefits. See Chart 4 for expenditures verses budget for certified teachers and substitute teachers. Though this could ultimately produce a budget surplus, it is far from the best-case scenario. Students benefit from the consistency of permanent classroom teachers and district business managers should continue to write in FTE line items until they are filled.

Chart 4 –Actual Expenditures Verses Budget for Certified Teachers (left) and for Substitute Teachers (right)

Substitute Spending

In addition to recruitment challenges, other factors, like widespread illness or teacher strikes could lead to a similar trend in substitute expenditures. While the largest portion of a district’s annual budget is already reserved for teacher salaries and benefits, districts must spend even more to ensure that classrooms are filled when teachers are out. According to data from The Frontline Research and Learning Institute, on average, districts hire approximately six substitute teachers per day to cover teacher absences. By paying substitutes the national mean hourly rate of $18.50, the average district accrues an additional $140,000 per year to ensure their classrooms are staffed with qualified substitutes. Understanding the absence trends of staff helps with accurate spending projections.

Chart 5 displays one district’s spending on teacher salaries and benefits for the 2019, 2020, and 2021 school year. Chart 6 displays the same district’s spending on substitutes in the same timeframe.

Chart 5 – District Spending on Teacher Salaries and Benefits from 2019-2021

Chart 6 – District Spending on Substitutes from 2019-2021

While the data shows that this district’s spending on teacher salaries and benefits remained stable year after year, Chart 6 displays a major increase in spending on substitutes during the 2020 school year. In 2019 and 2021 this district spent approximately $35,000 on substitute teachers. As teacher absences increased during the COVID-19 pandemic, that cost soared to over $65,000 for the year, an amount that the district likely did not anticipate.