Superintendent's Blog

Big Report (Part 2)

Greetings,

Last week I sent out an email to parents that have active emails associated with their student’s enrollment information. This week we are continuing the effort to share information about what we are doing, and the ways Pima Schools are changing and developing. As mentioned in Part I of this report, one of the steps we have taken to positively affect their experience involves increasing the stability of the leadership team that runs our schools. This week we will focus on the steps that have been taken to improve the financial stability of Pima schools. Future installments will address efforts to improve the delivery of special education services; demonstration of academic proficiency; ability to attract and retain quality teachers; and ability to affect the policies, rules, and laws that affect our students and our schools. The goal in each area is the same — improve student achievement and our capacity to prepare students to be college or career ready by the time they graduate. Everything we do must be focused on this vision if we are to accomplish the mission our community has charged us with; “To provide a quality education for all students, in a safe and nurturing environment, in partnership with parents and our community”. Since this report is extremely lengthy, I am breaking it up into six segments and sending out one a week. The segments will also be posted on the Superintendent’s blog at www.pimaschools.org.

Part 2 - Financial Stability

Anybody who has read anything in the paper or online about Arizona public schools probably knows that Arizona spends less per pupil than almost any state in the nation. This is based on the amount of money from state and local sources that goes to support public education. Arizona also receives a large amount of Federal education funding. What most people don’t know is that the lion’s share of that money goes to schools serving populations living on federal reservations. This includes military reservations and Indian reservations. Pima does

not receive any of these Impact Aid funds. It is also not well understood that districts with enrollments below 600 students also receive a much higher per pupil allocation. So, Pima is not only underfunded because of Arizona’s approach to education funding, but we are among the poorer funded districts in Arizona. Another factor that affects our financial health is our mechanism for providing special education services. The federal government provides funds to schools for special education under the Individuals with Disabilities Education Act (IDEA). For many schools this funding has provided an increasing proportion of their budget. For Pima this has not been the case. All of our IDEA funds go to support the Dan Hinton school which provides necessary services for our profoundly disabled students and the students in our regular schools who need specialized services. Figure 2.1 shows per pupil spending for Pima, Arizona and our peer group. The peer group is established by the Arizona Auditor General and includes medium sized districts in rural areas across the state. Where the state average per pupil expenditure for 2015-16 was $9,136, Pima spent $7,381. What we spend is determined by Arizona’s school funding formula, and we utilize the funding allowed. We can only spend 80% of the state average expenditures. When we are compared to other small and medium sized rural schools the difference is even greater. Our peer group average per pupil expenditures are $10,384. Part of this increase is driven by the fact that a large percentage of our peer schools receive federal impact aid. Our commitment to student achievement is evident in the high percentage of dollars we dedicate to the classroom. As Figure 2.2 shows Pima has consistently spent more of its total operational budget on instruction. This does not include money spent on instructional supports like administration, student supports like nursing services, transportation, or food services.

For the last 10 years we have averaged 59.6% of operational spending on classroom instruction. During the last five the average is 59.8%. When we look at the entire state we see the trend moving the other direction. The ten year average is 55.4% and the five year average is 53.8%. This can be explained by the fact that as costs have risen and budgets have not increased a larger percentage of budgets is consumed by non-instructional costs. Pima has made instructional spending a priority and has successfully bucked this trend. 

During the last five years we have made positive changes to strengthen our overall financial stability by controlling our cash flow. Figure 2.3 shows how the steps we’ve taken have affected our cash flow. In July, 2012 we began the fiscal year in debt. We spent almost $30,000 on interest to service that debt. The debt was partially the result of financial practices put in place by the state which made it hard for districts to cover their bills. One-third of a school district’s payments from the state are rolled over to the next year. For a district like Pima which receives 87% of its operating revenue from the state, this creates a significant cash shortfall. While the state continues this practice, we have made adjustments to our financial practices so we are not longer borrowing money to get through the year. For example, Pima was in the practice of leasing equipment and buying vehicles on credit. These monthly payments placed a strain on the budget and forced us to borrow to cover the payments. Today

we spend zero dollars on lease agreements, and all of our vehicles are owned outright. This last year we determined that we needed a new bus. Our fleet, like most in Arizona, is aging. We had one bus that blew a head gasket and another that was leaking badly from many worn seals. The cost of repairing either bus far exceeded its value. We had three options - buy a new bus, lease a new bus, or buy a used bus. A new bus would cost $130,000 or more. Purchasing a new bus would mean that we would be unable to meet other needs. We could finance the purchase, but that would encumber future years funding, closing off options for solving future problems. We decided to end the practice of leasing buses because that option also limits options for the future. Used buses are available and we found three ranging from $30,000 to $50,000 a piece. This seemed like a much better alternative, but we kept looking. Fort Thomas schools uses a portion of their federal impact aid funds to purchase new buses on a regular basis. They had two buses they were planning to auction this year. One of them needed some service, but with the estimated service costs we could still acquire both buses for $20,000. Both buses are newer than most of the route buses we currently operate.  By working with our neighbors, we were able to meet our needs without taking on payments that could force us to borrow money to get through the year. These types of strategies have ensured the money we were paying to banks in the form of interest and lease fees can be better used to address the education needs of our students.

Another strategy we use to control costs relies on our growing network of relationships with vendors and government agencies that provide alternative funding streams. Arizona has established an entity know as the School Facilities Board that provides funding to schools for construction and building renewal. In 2016 we determined that our phone system was going to have to be replaced. The initial cost estimate based on estimates from vendors that Arizona guarantees are competitively priced through the vendor contracting system was $90,000. We have worked with a local provider of technology services in the past, and this provider, nVision, was able to help us out with significantly discounted pricing on equipment and labor. We then took that estimate to the School Facilities Board and successfully argued that a two-way communications system is an essential piece of equipment for safely operating a school. They approved our application for a building renewal grant to pay for most of the cost of the system. In the end we were able to purchase a $90,000 phone system for just over $12,000. This is the same strategy we used when we purchased the shade over the Kindergarten playground in 2013, the elementary school playground in 2014, and the construction of the Pima Activity Center north of the football field in 2015. We strive to leverage whatever assistance we can get to provide facilities and equipment we need while maintaining a secure financial position.

As Table 2.3 shows we have been able to dramatically strengthen our cash position year over year. This has been important for a number of reasons. First, it keeps us from having to use our line of credit to cover our expenses saving us the interest we would pay to the bank. Second, it provides us with cover against future economic uncertainty. Some analysts are projecting that energy markets are likely to produce a shock similar to what was experienced during the 1970s and 2008. While the next downturn may not be right around the corner, it is wise to prepare for the eventuality. The need for ensuring greater financial stability is even greater since Arizona moved to a funding formula based on current year enrollment. In the years before 2015-16 a school’s budget was based on the number of students enrolled on the 100th day of school during the prior year. If enrollment declined during the year, the district would have to adjust the following year’s budget. In its 2014 session the legislature determined that the state would pursue $40 million dollars in savings to the general fund by shifting schools to a formula where their budget would be based on the enrollment at the 100th day of that school year. This means that we do not know what our actual budget limit will be until March of this year. The only way that schools can protect themselves from the possibility of overspending their budget limit is to build a budget based on the lowest enrollment they think is possible. Then when the actual numbers are calculated they will have funds that can be carried forward to the next year. At the same time there are numerous forces pushing for greater expenditures. Salaries and benefits account for more than 80% of all spending. Utilities and fuel costs also make up a large portion of our operations budget. These costs are not fixed. If we are going to be confident that we can continue to provide students a quality education and work to improve that quality year over year, we must ensure that we can continue to cover those cost increases even in times of economic contraction. The cash position depicted in Table 2.3 does just that. In Part five of this series we will look closely at teacher retention issues, but our ability to guarantee that we can provide teachers with raises year over year is an essential part of ensuring that we can move down the path we are following today.

This is the second in a six part series aimed at helping those who want to know more about the steps being taken at Pima Unified School District to achieve the mission  by providing a quality education for all students, in a safe and nurturing environment, in partnership with parents and our community. The other parts will be sent in coming weeks, and the entire report will be available on the district website at www.pimaschools.org