My friend Peggy, retired educator of many including a child of mine, invited me to talk with a group about Oklahoma school finance. I agreed and decided to incorporate my preparation into three posts leading up to that discussion. Hopefully this information will guide a patient reader, with further study, to more fully comprehend Oklahoma school finance. Sadly, such a reader would be well ahead of the fellows at the Oklahoma Council of Public Affairs who seem destined to uselessly flail away without real progress toward understanding and being baffled by what is a pretty straightforward regime.
The first step, and the focus of this post, is to learn how the Oklahoma Cost Accounting System (OCAS) works. The manual is available on the State Department of Education website here. The system uses understandable codes to classify all school district revenues and expenditures. Every school district is required to report its revenues and expenditures, properly coded, to SDE within two months after the end of each fiscal year. You can find abbreviated versions here on the SDE site. School districts are also required to have their revenues and expenditures, properly coded, audited by an outside auditor. School district audits are posted online by the State Auditor and Inspector’s office. Audits have their purpose and place but I recommend the OCAS data as the place to begin.
Initially I’m going to use statewide data, however even though complete summary data is presented for individual districts, SDE does not provide complete statewide summary data for FY 2017 expenditures (capital expenditures are excluded) so I’m going to use FY 2016 tables as examples for both revenues and expenditures. Here’s the first of three pages for FY 2016 statewide revenue.
Across the top are separate funds, namely General, Co-op, Building, Child Nutrition and Maps, which organize revenues and expenditures for particular purposes. General fund moneys can be used for most everything except capital expenditures. Co-op funds account for activities jointly financed by more than one district. The Building fund collects part of the district’s local property taxes and must be used for the construction, operation, repair and maintenance of facilities. The Child Nutrition fund accounts for school lunch and breakfast operations. Maps is one of five funds that are tiny, about 1% of the total, and can be ignored to keep our review simple.
On the left side are revenue sources listed with OCAS codes in the thousands. The codes organize revenues broadly by the level of government from which they come. 1000s are Local District Revenues, 1100 is property tax collections; 2000s are Intermediate, usually through the County Treasurer; 3000s are State Revenue with three subgroupings: 3100s are state dedicated revenues that are paid directly to districts, 3200s are State Aid and direct payment for employee insurance, and 3300 and above are other state grants and revenues; 4000s are Federal Revenue; 5000s are “nonrevenue” flows, primarily transfers from other funds where the revenue is already accounted for; and 6000s are fund balances.
Look at the remaining two pages and then I’ll suggest how to greatly simplify the revenue summary.
The General (11) and Co-op (12) funds for school districts are available for general operations, i.e. teachers, principals, counselors, teacher assistants, custodians, bus drivers, maintenance workers, utilities, gas and diesel fuels, insurance, etc., but not construction of facilities. So we can simplify by combining General and Co-op. The Building Fund can also pay for operations, but we’ll leave it separate for now.
As I said above several funds are specific to only a few districts and are insignificant in amounts so we can set them aside for now, namely 24, 25, 26, 50 and 81-86; these are just 1.1% of total revenues. Also the Student Activity Fund (60) is easily distinguished because it does not receive tax revenue and is limited to the activities that generated the revenue; it is 4.1% of total expenditures. Removal of these funds decreases the total FY16 revenues by $419,078,744 to $7,642,007,347 including the fund balances.
Another adjustment that makes sense is to move Child Nutrition revenues, namely 1700, 3700 and 4700, from the General and Co-op funds and add to the same sources in the Child Nutrition fund. Districts have the choice to record child nutrition revenues and expenditures in the General/Co-op or Child Nutrition Fund. There is no significant policy decision involved so we can simplify the overall picture by having all Child Nutrition financial activity in the same fund. What is there are revenue sources 1700 for local (family payments for lunches), 3700 for state (the small state match that is required) and 4700 for federal (the federal funds that drive the school lunch and breakfast programs).
Next we can consolidate similar and/or minor revenue sources to further simplify our revenue summary. Local, 1000, can be just property taxes (1100) and everything else (1200-1600); remember 1700 has been moved to Child Nutrition and 1800 and 1900 are removed with the Student Activity fund. Minor County sources, 2300, 2400 and 2900, can be consolidated as can minor dedicated State sources 3111, 3150, 3160 and 3190. Similar sources for Alternative Education 3310 and ICTE 3360 can be combined; remember 3700 amounts are in Child Nutrition now. Lastly federal minor sources 4400, 4500, 4600 and 4800 can be consolidated, while 4700 also is now all in Child Nutrition.
The result is a statewide school district revenue summary that fits neatly on one page and captures all revenue sources that should arguably be part of policy discussions.
I’ve included a few percentage calculations for each fund of its total new revenue. Here are the essential take-aways:
Operational expenditures, such as paying for teachers, principals, bus drivers and diesel/gasoline, are supported from the General and Co-op funds primarily with State tax revenue (60%) and Local property taxes (26%). The largest single entry is almost $2 billion for State Aid which will be the topic of my next post.
Additional local property tax revenues are available in the Building fund (92%) for operation, maintenance and acquisition of school facilities and equipment.
Child Nutrition (school breakfast and lunch) services are paid for with special Federal (75%) revenue and local charges (19%).
The Bond funds work in tandem with the Sinking fund. Expenditures, as we will see, are recorded as Bond projects which are paid for with local property tax collections through the Sinking fund.
We can now turn to the expenditure side. Here are the broad OCAS “Function” categories used along the left side of the following statewide FY 2016 expenditure tables for certain funds:
1. Function 1000 Series – Instruction (teachers, teacher assistants, textbooks, etc.)
2. Function 2100 Series – Support Service/Students (attendance clerks, counselors, nurses, OTs & PTs, speech path, etc.)
3. Function 2200 Series – Support Service/Instruction Staff (library & staff, training, instructional labs and software, etc.)
4. Function 2300 Series – Support Services/General Administration (superintendent & assistants, board, legal, audit, etc.)
5. Function 2400 Series – Support Services/School Administration (building principals & assistants, school secretaries, etc.)
6. Function 2500 Series – Central Services (financial and technology operations, insurance, etc.)
7. Function 2600 Series – Operation and Maintenance of Plant Services (custodians, maintenance staff, utilities, etc.)
8. Function 2700 Series – Student Transportation (school buses, drivers, mechanics, fuel, etc.)
9. Function 3100 Series – Child Nutrition Program Operations (cooks, servers, food, kitchen equipment, etc.)
10. Function 3200 Series – Enterprise Operations
11. Function 4000 Series – Facilities Acquisition and Construction Services
12. Function 5000-8000 Series – Other Uses and Repayments
Across the top are broad Object series codes; 100 is for employee compensation and 200 is for benefits like health insurance and Social Security. 100 and 200 added together are the cost of personnel.
Let’s look for the largest dollar amounts in each of the major funds.
The largest function total for the General fund is upper right, $2.8 billion for Instruction. Scan clear to the left and you see the 100 and 200 personnel costs, i.e. classroom teachers, account for almost all of the total.
The largest function total for the Building fund is toward the upper right, $140.8 million in 2600 Operation and Maintenance of facilities. The largest Object column totals are 300-500 which include water/sewer/refuse utilities and contracting for custodial and maintenance work, 600 which includes electricity and natural gas utilities, and 100 & 200 personnel costs for custodians and maintenance employees. All of these expenditures could, if there was enough revenue, instead be paid for in the General fund. Note how little is actually used for construction, Function 4000.
Child Nutrition, as you would expect, is about Supplies, i.e. food, in Object 600 and the workers who prepare and serve the meals, again Objects 100 and 200.
Bond fund expenditures are dominated by Function 4000, construction and acquisition of facilities and building improvements, with most of that being paid to outside contractors as recorded in Object 300-500. These expenditures are made with the proceeds from selling general obligation bonds, i.e. borrowing money. The borrowed funds, plus interest, are paid back from Sinking Fund revenues. Because the actual expenditures have already been recorded in the Bond funds, in the Sinking fund the bond payments are recorded as Function 5100 Debt Service and are NOT included in any traditional totaling of school district expenditures. The value received by the district is through the expenditure of the bond funds; to include the bond payments, other than the interest cost, counts the same spending twice and exaggerates the overall total.
Next time we’ll see how the State Aid Formula affects the major funds.
As always lunch is on me to the first to ID the photo location (sorry about the graffiti, not).