More Accurate Reporting of School District Finances Planned

In an effort to provide the public a more accurate picture of school district finances, the State Board of Education is reviewing a new School District Financial Profile that would assign all districts a rating based on multiple indicators of financial stability.

The current system, known as the Financial Assurance and Accountability System (FAAS), uses only one measure, the fund-balance-to-revenue ratio, to determine the financial recognition of school districts. Using the FAAS, only 11 of Illinois’ 893 school districts are on the 2002 “Financial Watch List,” which was released in March.

“It is clear that our current system does not adequately portray the severe financial problems facing school districts,” said State Superintendent of Education Robert E. Schiller in presenting a prototype of the new system to the State Board. “We know that more than 60 percent of Illinois school districts are operating with deficit budgets and 163 of those had budget deficits for at least three years. Yet, reporting only 11 on the Financial Watch List gives the impression that severe financial problems are rare.”

School districts are placed on the Financial Watch List if they have a fund-balance-to-revenue ratio of less than 0% on the Annual Financial Report for the previous year ending June 30. The proposed Financial Profile uses fund-balance-to-revenue ratio as one of the indicators of financial condition and adds four other measures to complete the picture of school district financial health. The other four measures include:

1. Expenditures to Revenue Ratio: indicates how much the district spent for every dollar received. The total expenditures for the education, operations and maintenance, and transportation funds (the main operating funds of districts) are divided by the total revenues for those funds to arrive at this ratio.
2. Days Cash on Hand: an estimate of the number of days a district could operate without additional revenue.
3. Percent of Short-term Borrowing Remaining: the total short-term borrowing allowed by law minus the percent of Tax Anticipation Warrants outstanding.
4. Percent of Long-term Debt Margin Remaining: District incur long-term debt (repaid over more than one year) for major expenses such as construction, long-term leases, installment purchases of land, etc.)

Using data from these five categories, district receive a numerical score that places them in one of four categories: Financial Recognition, Financial Review, Financial Watch and Financial Warning. The first two indicators (fund-balance-to-revenue ratio and expenditures to revenue ratio) are assigned the most weight in arriving at the numerical score.

Based on FY2001 data (2000-2001 school year), State Board staff estimate that as many as 250 school districts could be in the two categories indicating the most severe financial problems, Financial Watch and Financial Warning. The State Board is currently surveying school districts to get an up-to-date estimate of the financial condition. Respondents to the survey indicate that as many as 85 percent of Illinois school districts may be operating with deficits in the current school year. For many, that would be five consecutive years with deficits, since the last official data showed 163 districts operating with deficits for the third consecutive year in the 2000-2001 school year.

The proposed Financial Profile was developed with input from several groups, including the Illinois Association of School Administrators, Illinois Assoc. of School Boards, Illinois Association of School Business Officials, School Management Alliance, Large Unit District Association, Ed-Red, Chicago Public Schools, Illinois Financial Advisory Committee and the State Board’s Finance Committee. The State Board is scheduled to take action at its November meeting on a final structure for the Financial Profile, which will be available on the Internet when it is fully implemented.