In this essay, my colleague Dr. Tom Aberli and I discuss three forces that shape and influence district budget decisions. Next, we present how we can build on the existing infrastructure and processes with a new lens and framework to overcome the challenges brought about by those forces. This is a long essay and will be posted in two installments. In this first post, we discuss the three budgetary forces: 1) needs-based framework, 2) existing financial management practice, and 3) human nature. We welcome and appreciate your critiques and suggestions.
Every winter, school and district leaders have the daunting task of developing a budget for next school year. Often, they will perform a series of pre-choreographed tasks which Dr. Roza of Edunomics Lab calls the “budget dance” (Roza, 2022). Usually running on something close to autopilot, these dance moves involve projecting enrollment and revenue, then allocating funds to schools and central office departments. At the same time, school and district leaders determine what adjustments to district spending are required to better execute district’s strategic plan. Generally, this starts with some type of needs assessment and results in new initiatives or programs to address the most urgent needs. However, this process rarely involves leaders scrutinizing existent programs through the critical lens of alignment with district goals and return on investment that could lead to a systematic approach to expansion, downsizing, or termination. Once the budget is approved by the school board, most expenditures simply become district fixtures and are carried over year after year.
As a result, it is not uncommon for districts to have a budget that is sedimentary, with programs initiated by various administrations and reflective of differing, and sometimes conflicting, district goals. Furthermore, investments may lack cohesion as they involve competing strategies and even different understandings of what truly are the problems being tackled. Yet, far too often those programs just keep being continuously funded, competing against each other for attention and potentially even interfering with each other’s effective implementation. This can result in conflicting directives for schools and confusing messaging to families. Without regular review and adjustments, some investments may no longer be aligned with the current district priorities nor show any measurable return on the investment. Despite all this, cutting or downsizing programs is somehow not considered an improvement strategy.
When districts do need to cut spending due to budget shortfalls, they tend to make across-the-board cuts. Usually, a percentage of reduction is determined to balance the budget. Then, all schools and departments are asked to sacrifice by cutting their budget by that percentage, irrespective of the varying adverse impacts on department operations or services to students and families. As the economy improves and revenue increases, districts return to expansion with the automated process described above. Unlike the strategy of across-the-board cuts, however, we usually don’t do across-the-board increases. Over time, this can exacerbate inequity among departments and across schools.
Perhaps over-simplifying a complex process, the above description nevertheless characterizes how budgeting is generally approached by many school districts. That is, when funding is tight, we tend to make non-discriminant cuts which can inadvertently lead to greater inequity and lack of cohesion among investment strategies. When funds are available, we mainly focus on spending money by adding new programs without examining existing spending and anchoring any new investment decisions on the results of that analysis.
The limitations of this approach to developing and executing district budgets are all too well known among school and district leaders. There have been many efforts to address the problems that come with this approach. However, we somehow have not been able to navigate out of repeating the same pattern year after year. That begs the question of why.
Three fundamental forces drive and shape how we have been approaching budgeting. The first is a needs-based framework we use for making budgetary decisions. The second is how district finances are managed. The third is the force of our human nature when it comes to problem solving and change.
During each budget season, discussion and deliberation often revolve around district priorities and needs. Throughout the budgeting process, funding needs play two prominent roles. First, they are used to prioritize requests for new spending. Under this framework, each new spending proposal is justified by the rationale of how it will address an identified need. With multiple needs and competing strategies but a finite amount of funding, proposals that address the most urgent needs are usually funded.
Second, needs are routinely employed to challenge or delegitimize spending realignment efforts that involve discontinuing existing expenditures. Any attempt to discontinue a program is likely facing the accusation of taking resources away from students in need. That is a position few leaders would want to put themselves in, especially when money is available. As a result, needs seem to recede to a non-factor when it comes to making changes to existing spending items. This is true even when district leaders are forced to cut spending under a budget crunch. Instead of prioritizing cuts based on needs, across-the-broad cuts tends to be the way out.
Financial management in most districts often reinforces the typical “budget dance” described above in several ways. While multiple teams are usually involved in decisions on launching new programs, managing money and managing programs become separate businesses once the new spending is approved. The finance team is often relegated to simply monitoring compliance with accounting practices while the program team centers their effort on program implementation. These two teams have different schedules, which are often not aligned, when it comes to reviewing expenditures and program goals. Throughout the year, any interactions between the finance and program teams are usually limited to making sure funds are spent appropriately and timely. One exception is, of course, when the two teams must meet to discuss budget cuts.
The lack of regular, scheduled interactions between the finance team and program team is partly due to the fact that the chart of accounts, on which the finance team rely for managing funds, are not designed to facilitate and obligate the two teams to engage in discussions around spending based on outcome and evidence. It only categorizes expenses for accounting and compliance purposes but does not differentiate them for systematic review and continuous improvement adjustments. That is, there is no financial difference between spending on mental health, academic intervention program, or curricula and textbooks other than that they are conceptually meeting different needs. District leaders cannot use the account codes to decide which spending items should be reviewed at what time nor what goals are being achieved by these funding decisions.
Finally, in accordance with a needs-based framework, districts implement two choice options when making budget decisions: approve or decline. The first option ratifies a spending item as being a high need and the second option indicates an expense being a low need or no longer needed. When it comes to annual district budgeting with these dichotomous choices, the default is to reaffirm most if not all spending items as needs and continue to fund them, usually without asking any questions or demanding any changes. Unfortunately, the process of making budgetary decisions is not designed as a tool to create pressure and incentives to promote continuous improvement.
As educators, we care deeply about making things better for students and families. But somehow improvement is falsely equated to the adding of new things as the only way to improve. Low attendance? Let’s launch a new attendance initiative. Behavior problems? How about a new behavior intervention!
It is not clear to what extent this is guided (or misguided?) by research where the main focus is on studying effectiveness of novel interventions and strategies. The potentially positive impact of streamlining or consolidating services is usually overlooked, if not entirely ignored. There is evidence suggesting that this tendency of over-relying on addition and overlooking subtraction is built into our instinct (Adams et al., 2022).
To compound our predisposition to additive changes, we are also biased against subtractive changes. Evidence from behavior economics suggests that, when confronted with options, people tend to take the option that “requires the least effort, or the path of least resistance” (Thaler & Sunstein, 2009, p. 85). If discontinuing a program means upsetting colleagues, creating enemies, and facing angry parents, why would anyone pursue reduction unless being mandated?
With the budgetary forces described, our current system is clearly producing exactly what it is designed and destined to produce. There are neither structures nor incentives for districts to make systematic examinations of its use of limited resources and engage in routine, systematic adjustments over time. Unless we break free from the detrimental side of these forces and change the process for budget decision making and management, we are likely to see the same budget dance year after year.
In the second installment, we present three changes districts can make to overcome these issues: 1) differentiating between operation and investment expenditures, 2) track investments and account for continuous improvement, and 3) re-orient how improvement is practiced. Stay tuned…