FINANCIAL STRUCTURES USED IN FOUR STATES

Introduction

The currently collects finance data for elementary and secondary education from two main sources: (1) the National Public Education Financial Survey (NPEFS); and (2) the Annual Survey of Local Government Finances School Systems, more commonly known as the F-33. The NPEFS is an annual collection of state-level finance data that contains breakdowns of revenues by source of funding (local, intermediate, state, and federal) and breakdowns of expenditures by functions and subfunctions (e.g., instruction, support services for students and instructional staff, administration, operations and maintenance, student transportation, food services) and objects (e.g., salaries, employee benefits, purchased services, supplies, property, other). The F-33 is also an annual collection of school districts' finance data, with breakdowns of revenues by funding source and breakdowns of expenditures by function and object. Function breakdowns in the F-33 correspond very closely with those in the NPEFS, while object breakdowns are limited to salaries, employee benefits, and other current operating expenditures.[1]

[1]The F-33 collects finance data on a sample basis annually and for the universe of school districts every five years ending in "2" and "7" (e.g., 1987, 1992).

Unmet Information Needs

Although the state- and district-level finance collections provide policy makers, state and district administrators, teachers, and the general public with important information about funding sources and the use of school funds for different functions and objects, they do not permit the analysis of expenditures below the district level. Consequently, it is not possible to determine the proportion of expenditures made at the district and school levels, to assess the extent of variation in expenditures per student among schools within a school district or across a state, nor to compare expenditures in similar types of schools in different states around the nation.

The Improving America's Schools Act of 1994 contained a provision requiring NCES to "study, design, and pilot a model data system that will yield information about spending for administration at the school and agency levels." Such a system — if fully implemented — would provide extensive information about district- and school-level expenditures in all 50 states and the District of Columbia. When linked to other data collections such as the Schools and Staffing Survey (SASS) and the National Education Longitudinal Study of 1988 (NELS:88), a system providing school-level finance data could also be used to explore more fully the relationship between school expenditures and resources, on the one hand, and student and system outcomes, on the other.

Strategies for School-Level Data

Two main strategies potentially can be used by states to collect complete and comparable school-level finance data on a systematic basis. The first is essentially a school-based collection, in which each school is the provider of finance data for the collection. Such a system might be feasible if schools were fiscal agents that raised their own revenues, received revenues directly from state and federal governments, and made direct expenditures for staff and other school resources. However, despite the calls of reformers for a school-based funding system (Odden, 1994), the financing of schools remains a district-based function in all states; financial accounting systems operate at the district — not the school — level. A school-based collection strategy would therefore require not only a decentralization of the accounting function to the school site but a total restructuring of the system of school governance. It would also require states to collect finance data from about 85,000 public schools, instead of 15,000 school districts.

The second strategy is a district-based strategy that relies on finance data in school districts' financial records to account for expenditures at the district level and at each school in the district. The system is essentially an extension of current district accounting practices to the school level. Such a system would routinely produce data on expenditures for different functions and objects, but could also be extended to produce expenditures for different school programs (e.g., regular education, special education, vocational education, etc.) — and, at the secondary level, to different school subjects (e.g., English, mathematics, history, etc.). The move from district-level accounting to a school-level accounting would not require the development of a whole new data collection, but rather the expansion and/or modification of existing accounting systems to permit the attribution of a school district's expenditures to individual schools.

As a district-based system of accounting for school-level expenditures appears to provide a more feasible strategy for collecting school-level data than a school-based system, this chapter explores its potential as a model for NCES to use in responding to its Congressional mandate. The first section of the chapter discusses selected requirements of such a system. The second section reviews the requirements of a school-level financial accounting system and briefly compares the major components of the accounting structures in the four states that currently implement either a universe or sample collection of school-level finance data (Florida, Minnesota, Ohio, and Texas). The third section examines selected aspects of the school-level expenditure collections in two states — Ohio and Texas. It commences with a discussion of the methods these states use to account for different types of expenditures at the school level (e.g., salaries and employee benefits for different types of personnel, supplies, equipment, and other operating expenditures) and concludes with a discussion of the implications of these two states' experience for the design of a school-level collection.

Accounting for Expenditures in a School-Level Collection

A major consideration in adapting district-level financial accounting systems to the school level is how much detail will be included in school-level records. A minimalist approach might only include a measure of total current expenditures. This approach would permit a comparison of expenditures per student across schools, but would not permit an analysis of expenditures for different functions such as school administration, objects such as employee benefits, or school programs such as special education. A more comprehensive approach would include expenditures for different functions, objects, and school programs. Such a system would give policy makers and practitioners the information needed to better understand how money is used in different schools and to improve the efficiency and effectiveness of schools and school programs.

Requirements of a School-Level Accounting System

A school-level accounting system that provides more detailed expenditure data requires several important elements. First, the system requires clear definition of what constitutes a "school" to which financial activities should be assigned. Although the concept of a "school" appears obvious, there are definitional issues that require clarification. For example, some physical sites may contain a complex of schools, e.g., a middle school and a high school. The definition of a school needs to specify for accounting purposes whether the physical site or each entity on the site constitutes a "school." In other cases, school buildings may contain special centers, such as alternative schools or schools within schools. Again, the accounting system needs to specify clearly which entity is defined as the school for accounting purposes. Finally, attention needs to be given to the treatment of such entities as adult learning centers, dropout prevention centers, and special education centers in a school-based accounting system.

Second, the system requires a set of procedures for assigning expenditures to the central office and to individual schools. In some cases, expenditures can be identified with a specific school and accounted for directly at the school site. In other cases, expenditures that support a school's instructional program or operations cannot be identified with a specific school; these expenditures must then be attributed to the school through some method of allocation. In general, expenditures for school personnel who are assigned to specific schools fit the former category; expenditures for other personnel and for school supplies, textbooks, and other school services often fall into the second category.

A third major element of a school-level finance system is a method for coding expenditures to the central office and individual schools for entry into the accounting system. The basic chart of accounts must include building codes for central office operations and separate building codes for each school — or operating unit — in the district.[2] The school building codes should, in addition, distinguish different types of schools (e.g., elementary schools, middle/junior high schools, high schools, special education centers, adult education centers, etc.) and possibly the grade structure of each school or education center. This type of coding structure will permit both the assignment of expenditures to individual schools and the analysis of expenditures in similar schools within a school district and throughout the state and nation.

[2]An optional component of the coding system could be a set of codes for each grade level, which would permit accounting of direct expenditures for teachers' salaries and fringe benefits by grade level.

Fourth, the school-level accounting system should, at a minimum, include a system for coding expenditures into basic functions and objects based on the categories in the NCES Handbook, Financial Accounting for Local and State School Systems. This coding structure is particularly important because it will provide the basis for comparable accounting of expenditures at the school, district, state, and national levels.[3] In addition, the coding system should be expanded to permit accounting for expenditures for different instructional programs at the school level. Such a system would permit the analysis of the cost of different types of administrative and support systems, as well as the cost of different instructional programs.

[3] A coding system could be expanded to include not only expenditures for salaries in each function, but expenditures for teachers' salaries and other types of school staff.

Another element of a school-level accounting system is a set of procedures for allocating expenditures that cannot be assigned directly to individual schools. Allocation procedures may be needed to assign the following types of expenditures: salaries and fringe benefits for teachers and professional staff who work part-time in the central office and part-time in the schools; salaries and fringe benefits of teachers and professional staff who divide their time among different schools; salaries and fringe benefits for support staff such as bus drivers and maintenance personnel who perform services for several schools; textbooks, instructional supplies and equipment (e.g., computers, overhead projectors, etc.) which are purchased by the central office and then distributed to the schools; supplies and equipment to support school operations that are purchased centrally and then allocated to schools; and contracted services that support the instructional program or school operations in multiple schools.

Finally, a school-level accounting system should include a set of procedures for allocating expenditures for school operations (e.g., administration and plant maintenance) to the school and to major programs. These allocation procedures permit the development of total program expenditures, in addition to direct program expenditures. Standard accounting practices permit the use of diverse methods of allocating these indirect expenditures to schools and programs. However, to enhance the comparability of expenditure comparisons across schools within districts and states, as well as across states, a uniform set of allocation procedures is needed.

School-Level Accounting Structures in Four States

Through a review of state finance collections, we identified four states (Florida, Minnesota, Ohio, and Texas) with systems to collect and report school-level expenditure data. Florida, Ohio, and Texas now collect finance data at the school level for all — or nearly all — schools throughout the state; Minnesota collects school-level finance data in several of the state's administrative regions. Florida has collected school-level expenditure data since 1973 and Texas initiated its school-level collection during the 1984-85 school year. Ohio began implementing a school-level collection on a pilot basis in 1991-92, moved to a statewide voluntary system in 1993-94, and implemented the system statewide on a mandatory basis for the first time in 1994-95.

The chart of accounts in each of the four states contains all the required elements to account for expenditures at the school level. In addition to fund codes that are used to account for revenues by funding source and the corresponding expenditures made with funds from these sources, the charts of accounts contain accounting codes for all of the major components of a school-level accounting system, including: functions, objects; and programs. However, the state accounting systems differ both in the detail contained within these codes and in the coding structure for recording expenditures at the building (or school) site. The following discussion compares the main components and details of the four states' charts of accounts.

Accounting for Expenditures at School Buildings and Other Operational Units

Accounting for expenditures at the central office and individual schools requires a coding system that assigns expenditures to the central office and separate codes for each school building or operational unit. The charts of accounts in the four states examined in this study approach the assignment of school building codes in different ways. Texas and Florida take a more centralized approach, specifically assigning "organization" or "facilities" codes to individual schools at the state level. In Texas, code numbers assigned to campus units in the Texas School Directory must be used for coding campus units.

Ohio and Minnesota use a more decentralized approach to assigning codes to schools and other operational units. In Ohio, school districts — rather than the state — assign operational unit codes to each building site; OPU numbers are unique to each school building. Organizational units are sites of a physical plant that includes specific schools, units of transportation and administration, warehouses, etc. Similarly, in Minnesota, the Uniform Financial Accounting and Reporting System Codes do not specify organizational codes for school buildings, but the chart of accounts does contain codes for expenditures at different levels: 100 for elementary services; 200 for elementary/secondary services; and 300 for secondary services.

Accounting for Expenditures for Different Functions

A school-level finance system should be designed, at a minimum, to account for expenditures for the major school functions. In the NCES Handbook, these include five major functions and a host of subfunctions, mostly in the domain of support services. The functions are:

• Instruction
• Support Services
• Operation of Non-Instructional Services
• Facilities Acquisition and Construction Services
• Other Uses

Comparability of School-Level Functions

States' systems for reporting expenditures should ideally be sufficiently comparable to permit analyses of expenditures for major functions in similar schools across state lines. In designing this study, we therefore examined the comparability of the financial accounting structures in the four states to determine whether schools in them could be compared fairly on their expenditures for major school functions.

The comparability analysis involved two main steps. First, function categories were selected for analysis. These included the four main professional functions carried out at the school level: Instruction; Pupil Support; Instructional Staff Support; and School Administration. NCES's definitions of these functions were used as the standard for defining these functions. Second, each of the four states' accounting systems was reviewed to determine how expenditures for staff salaries and employee benefits were coded into different functions. State systems were compared both with each other and with the NCES standard. Exhibit 1a breaks down each of the four functions and indicates where personnel are included in these functions in the NCES standard and in the four states; Exhibit 1b classifies personnel in each state into their appropriate function categories.

As is evident from the exhibits, three states (Minnesota, Ohio, and Florida) have accounting systems with sufficient detail in their function codes to allow regrouping consistent with the categories in the NCES Handbook. Most personnel expenditures in Texas can also be recoded to conform to the NCES function structure, but there are a few cases where such expenditures cannot be recoded. Texas includes speech therapists and reading specialists under Instruction, rather than Pupil Support Services; these expenditures cannot be recoded to the appropriate NCES function. In addition, department chairpersons are included in Instruction, rather than School Administration, and cannot be recoded. Finally, Texas groups attendance staff with other School Administration personnel, making it impossible to move attendance staff to Pupil Support.

Although the categorization of school-level expenditures for personnel in Texas is not fully compatible with the NCES Handbook, the overall differences in category definitions are very small. Compared with the NCES standards, expenditures for Instruction in Texas would be slightly overstated, expenditures for Pupil Support would be slightly underestimated, and expenditures for School Administration would be slightly overestimated.

Selected Aspects of School-Level Finance Collections in Ohio and Texas

States must undertake several activities to implement a school-level finance collection that provides useful and comparable information about school-level expenditures. First, they must develop an accounting structure (more specifically, a chart of accounts) to account for expenditures at the district level and at individual school buildings. As indicated above, most states can basically use their basic chart of accounts for this purpose, but need to expand the chart of accounts to include school building codes, so that expenditures can be attributed to specific school buildings. Second, states must collect detailed data on expenditures and attribute these expenditures to specific schools. The data collection should be able to differentiate expenditures for salaries and benefits for professional and support personnel, employed at the central office and specific schools, and for the full range of non-personnel expenditures, including supplies and equipment, contracted services, utilities, and other operating expenditures. Finally, all of the detailed expenditure data must be aggregated into categories (e.g., functions, programs, subjects) that can be used to analyze expenditures at the school, district, and state levels.

The implementation of a school-level finance collection requires that states make a number of important decisions. These include decisions about the categories that will be used to aggregate and analyze school-level data, the procedures that will be used to allocate detailed expenditure data into categories for analysis, as well as the level of the system at which the aggregation will take place. A state could establish uniform procedures for all school districts to follow or could give districts more discretion to make these decisions based on their specific needs and conditions. The following discussion provides an overview of the approaches used to implement a school-level finance collection in Ohio and Texas.

Ohio's School-Level Finance Collection

Ohio began implementation of its school-level finance collection on a pilot basis in 1991-92 and conducted its first mandatory statewide collection in 1994-95. In the Ohio system, each school district assigns operational unit (OPU) codes to each building site. These OPU codes are used to account for expenditures at that school site; OPU numbers are unique to each school building. The Ohio Department of Education (ODE), at the request of school districts, assigns an Institutional Record Number (IRN) code to each school building. The state also assigns an IRN to the central office to account for expenditures that are for overall district operations. Staff responsible for reporting these expenditures to the state are encouraged to assign as much of their expenditures as possible to specific buildings to ensure the most accurate reporting of expenditures at each school building.

The assignment of expenditures to the school building involves the assignment of personnel expenditures (salaries and fringe benefits) and other expenditure objects. School districts generally do the former through payroll records that have appropriate building codes attached to them; expenditures for supplies, materials, textbooks, equipment, and contracted services that support student instruction, programs of student support and instructional staff support, school administration, and operations support are accounted for directly by school districts, if possible, or are allocated to individual schools by formula, if they cannot be accounted for directly by school building.

A small number of school districts in Ohio do not account for all expenditures for student transportation and food services by school building, but instead maintain records of unallocated district expenditures for these functions. These unallocated expenditures are reported to the ODE which then prorates expenditures for each of these functions to individual schools. Transportation expenditures are allocated based on the proration percentage provided by each school district to the ODE for each school. This percentage is calculated in each district by dividing the number of students bused per building by the total number of students bused in the district. Food service expenditures are also allocated based on the proration percentage for each school provided by each school district to the ODE. This percentage is calculated in each district by dividing the number of meals served for the year in the building by the total number of meals served during the year in the district. In the case of both transportation and food services, alternative allocation methods may be substituted by the district if these methods are inappropriate for the district and if substantiating documentation for the alternative method is provided by the district to the ODE.

The Ohio Department of Education aggregates school-level expenditure data into five reporting categories based on the Expenditure Flow Model (EFM) developed by Bruce Cooper of Fordham University. The EFM organizes expenditures into five functions, each of which has a central office component and a school component. These functions are: instruction; pupil support; staff support; administration; and operations support. The first four functions correspond quite closely with their counterparts in the NCES Handbook, while operations support includes several sub-functions in the Handbook — plant maintenance and operation, student transportation, and food services.[4] In addition, a number of district expenditures including capital outlay, idle school buildings, tax anticipation notes, tuition, and selected other items are excluded from school building and central office expenditures.

[4] The endnote to this chapter contains the definitions of the functions in Ohio's Expenditure Flow Model.

The Expenditure Flow Model is utilized by the state to produce several reports to all school districts. In addition to more detailed reports that itemize the expenditures that are included in and excluded from each school's record, the system produces a Building Expenditure Report, an Expenditure Per Pupil Report, and a Percentage of School Cost Report. These reports provide data on total school expenditures by function, expenditures per pupil by function, and the percent of total expenditures for each function, respectively. Sample reports are provided at the end of this chapter.

Texas's School-Level Finance Collection

Texas initiated its collection of campus-level finance data in the 1984-85 fiscal year and has been collecting data for all schools through the Public Education Information Management System (PEIMS) since 1985-86. In contrast with Ohio, each school building or facility in the state is assigned a campus code in the Texas School Directory; these codes must then be used to assign expenditures to each campus.

School district staff attempt to assign as much expenditure as possible directly to specific campuses, but also allocate expenditures to schools when direct accounting is not possible. Direct accounting is generally used to assign most personnel expenditures to the campus, since payroll records generally have school codes attached to them. The payroll records are used to assign both salaries and employee benefits, since both types of compensation are included in each staff member's payroll record. However, where staff divide their time among several sites, school district staff use a number of different procedures to assign expenditures to individual schools. If information is available, expenditures are divided among campuses based on the number of hours worked in each campus. Salaries and fringe benefits for a curriculum coordinator who works in more than one campus would be split proportionately among the campuses; similarly, for a school principal who splits his/her time between the central office and one or more campuses. If information is not available, expenditures are assigned either to the central office/generic code or to one campus. The code 700 represents central office or generic expenditures.

Personnel expenditures are directly assigned to campuses — or to the central office/generic code — for most of the major school functions (administration, instruction, pupil support services, instructional support services, and building maintenance and operations). However, expenditures for bus drivers are retained as central expenditures, rather than assigned to specific schools. In contrast with Ohio, the state education agency in Texas does not take total expenditures for transportation and allocate expenditures back to individual schools.

Non-personnel expenditures such as supplies and materials, equipment, utilities, and contracted services to school buildings are supposed to be assigned directly to school buildings, whenever possible, to permit the most accurate and complete accounting of schools' expenditures. However, when direct accounting is not possible, school districts are given wide latitude by the Texas Education Agency (TEA) in their choice of allocation methods. According the TEA staff, the use of allocation procedures is much more common in large school districts than small districts; small districts can generally account for most of their non-personnel expenditures directly by school building because of the small number of transactions.

Although Texas uses the PEIMS to collect school-level expenditure data statewide, Texas has not yet developed a production system for reporting school expenditures to the education community and the public. However, according to TEA staff, a prototype system has been designed by Deloitte and Touche for reporting this type of information. In addition, data for individual schools are aggregated into reporting categories such as functions and programs and reported to the education community and the general public through the Academic Excellence Indicator System (AEIS).

Similarities and Differences between the Systems

Ohio's and Texas's approaches to a school-level collection share several common elements. Both systems contain coding structures to account for expenditures at the central office and school site and both use charts of accounts that contain substantial detail on education functions, programs, and objects of expenditure. Both systems attempt to account for as large a proportion of both personnel and non-personnel expenditures directly at the school building level, and both permit the use of different types of allocation methods to assign other expenditures to the central office and to individual schools.

The two states differ, however, in their approach to reporting school-level expenditures to the public. Ohio uses the Expenditure Flow Model to produce several reports to all school districts, including reports on total school expenditures by function, expenditures per pupil by function, and the percent of total expenditures for each function. Texas, in contrast, has not yet developed a production system for reporting this type of information, but does report data on functions and programs to the general public through the Academic Excellence Indicator System. The experience of both these states should, however, provide guidance to NCES as it initiates its work in designing and assisting other states implement school-based finance collections.

Concluding Remarks

The recent experience of Ohio and Texas demonstrates the feasibility of enhancing a district-based finance collection to permit the collection of data on expenditures at the school level. However, this experience also raises questions about the costs and burdens of detailed finance collections at the school level and the use of the data that have been collected. In our limited discussions with state staff in the two states we learned that both the design and implementation of these of the school-level finance collections required a significant investment of time and resources. An expanded chart of accounts had to be developed to code expenditures at the school site and procedures had to be specified for treating different types of expenditures. Once the overall system was designed, school district staff required training to implement the system and report school-level expenditures in the correct format to the state. The collection system then had to be pilot tested in a small number of districts before it was implemented statewide; in Ohio, the phase-in period extended over four years. Finally, once the system is in place, verification of the accuracy of data reported by school districts can require substantial time from state agency staff.

The cost of data collection, however, must be weighed against the information that such a collection produces currently, as well as the potential uses of the data. Ohio is currently using data from the school-level collection to provide a variety of reports to help state and school district policy makers make better decisions about school funding and the use of school resources. Texas has incorporated some school-level finance information in its Academic Excellence Indicator System. But these reports represent just the tip of the iceberg in terms of potential uses of the data. Some of the additional uses of school-level expenditure data to address issues of interest to policy makers and educators are explored more fully in the next chapter.

ENDNOTE

Definition of Functions in Ohio's Expenditure Flow Model

Instruction - The core technology of education is teaching and learning which generally occurs in the School and in the classroom. This instruction often includes teachers, teacher aides, or paraprofessionals, as well as materials, computers, books and other disposables that are used with students in the classroom setting. At the Central Office, some staff may also be preparing materials for children to use.

Pupil Support - Students need support outside the classroom and beyond their academic instruction. They need guidance counseling, help in the media center or library, college advising, field trips, and psychological testing. Pupil support may be operated out of the district office, though these functions must ultimately serve the child in the School.

Staff Support - The adults in the Schools and in the Central Office need support, staff development, training, re-training, additional college courses, and advice. Teacher support may be handled in the Central Office, where planning a staff development conference goes on, or it may occur in the School, where direct support for teachers, and other staff receive their help.

Administration - This function, whether in the superintendent's or the principal's office, sets the goals, direction, and other key decisions, motivates staff, hires, evaluates, fires, deals with crises, and concerns itself with the surrounding environment.

Facilities and Operations - Schools and Central Offices require direct maintenance. These facilities must have cleaning, lighting, heating, water and renovation, buses and other heavy equipment, stadiums, ball fields, and other hardware. Infra-structure, and materials must be purchased, maintained, stored and transported. This function combines both capital goods (building, buses, heating equipment, etc.) and the resources necessary to operate clean, repair, and improve them. Hence, building support includes both facilities and operation at both School and Central levels.

Exhibit 1b-- School-Level Personnel

Assessment and Analysis of School-Level Expenditures