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Financial Accounting for Local and State School Systems: 2009 Edition
NCES 2009-325
June 2009

Chapter 3: Budgeting — Preparation of Construction Project Budgets and Related Financing

Following the decision to initiate a capital acquisition program, funding mechanisms should be explored. Funding mechanisms often involve some form of bonded indebtedness; however, building programs may also be funded with accumulated operating funds or with capital leases and installment payments. If bond financing is used, the bond initiative must be reviewed and approved by the governing board before it is placed on the ballot. The size of the bond initiative for a particular program may be determined by estimates of aggregate costs generated during the planning process, and the initiative may not include detailed project budgets until funding has been secured. However, depending on the local political environment, bond initiatives may require detailed cost estimates that specifically identify the projects to be funded from the proceeds before they can be placed on the ballot.

Financial advisers and bond attorneys may be consulted on the size, applicable tax regulations, marketing, and sales of bond issues. Other considerations include tax rate limitations or debt ceilings that may affect the amount of bonded debt that can be undertaken.

After funding has been secured, detailed project budgets should be developed. Individual budgets covering the life of each project are necessary for the proper monitoring of the related activity. Although cost estimates developed during the planning process may be used to determine the size of the bond initiative, actual project budgets must contain more detailed information. Architects, contractors, and staff should be involved in preparing the budget, and it will be necessary to identify factors such as shifts in student populations, additional facility or site requirements, and so on, that may cause significant differences between the actual project budget and cost estimates developed during the planning process. Construction project budgets using a multiyear format should be reviewed periodically by administrators, and regular reports should be provided to the board on the progress of each project. Bond attorneys and financial advisers also need to be informed periodically of the progress of projects using debt funds.

In summary, the budgeting process is an integral part of the sound financial management of any organization. Adequately planning and managing the organization's resources play important roles as the movement for greater accountability expands in importance. Sound budgeting techniques, such as site-based budgeting, are being emphasized as school district administrators and funding agencies require a greater level of justification for annual expenditures and decentralized decisionmaking. Site-based budgeting has gained popularity among administrators for its unique ability to effectively target funding, because campus management largely makes the resource allocation decisions. However, regardless of which budgeting technique is adopted, some benefits of preparing and managing a budget remain the same: greater control and accountability over financial resources as well as the demonstration that administrators are actively planning for future needs.

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