Board Practices Focus on Finances and Structure
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Non-Profit Board Best Practices for Charter Schools, Robert Di Bacco [Presentation], Arizona Charter Schools Association.
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Board Practices Focus on Finances and Structure
- 1. May 15, 2018 BOARD PRACTICES Robert Di Bacco Chief Operating & Financial Officer
- 2. Introduction 1. Who are you & how long have you been involved with the board? 2. What is your role and expertise? 3. What is the role of this board? One important issue the board needs to focus on?
- 4. ARS 15-181 Charter schools may be established pursuant to this article to provide a learning environment that will improve pupil achievement. Charter schools provide additional academic choices for parents and pupils. Charter schools are public schools that serve as alternatives to traditional public schools.
- 5. Guiding Questions 1. What phase are we as a board? Startup, Transition, Mature 2. What are we trying to accomplish? Do we have the best structure to achieve our goal?
- 9. Corporate Structure LEA CHARTER SCHOOL LEA CS1 CS2 CMO CMO
- 10. Corporate Structure CMO CS1 CS2 CMO CS1 CMO SERVICES • Curriculum • Facilities • Staffing • Back-office services
- 11. Auditor General Opinion From the: ARIZONA Auditor General In response to questions our Office has received regarding the intended 1.06% teacher salary increase for eligible teachers, we are providing the following reminders related to the requirements described in the Expenditure Budget, Page 2 instructions. Determining eligible teachers – Teachers who were purchased services personnel or substitute teachers in FY 2017, or who will be such in FY 2018, are not eligible for the increase. Laws 2017, Ch. 305, §33 specifically defines teachers for the purposes of this increase as: “a person who was eligible to be included in the year-end full-time equivalent teacher count of a school district or charter school for the 2016-2017 school year in the annual financial report of a school district or charter school for fiscal year 2016-2017 and who teaches at a school district or charter school during the 2017-2018 school year. Teacher does not include purchased services personnel or substitute teachers.” Amounts to include in Total FY 2017 eligible teachers’ salaries line: Include all compensation paid from all funds in FY 2017, including the encumbrance period, that was: · paid to eligible teachers, · appropriately coded to Function 1000—Instruction, and · appropriately coded to a program in the 100-630 range for PSD-12 education. Classroom Site Fund performance pay, and any other payments related to FY 2017 that were not paid to eligible teachers by the end of the FY 2017 encumbrance period, should not be included in the Total FY 2017 eligible teachers’ salaries for the calculation of the intended 1.06% increase. Such payments related to FY 2016 that were paid to eligible teachers in FY 2017 should be included.
- 12. Financial Focus
- 13. Financial Focus 1. Sustainability 2. Better lending opportunities 3. Philanthropy 4. Steward of public funds 5. Authorizer requires it
- 14. Financial Focus
- 15. Dashboard
- 16. Financial Focus What is board’s role in finance? The board is ultimately responsible for the schools finances.
- 17. Financial Focus BUDGETING: How do charter schools prepare their budgets? What is board’s role in preparing budget?
- 19. Financial Focus
- 20. Financial Focus Base Level Increase · $3,683.27 to $3,960.07 per student ($276.80 per pupil, unweighted) Additional Assistance Inflation Increase · For K-8: $1,775.05 will increase to $1,807 per student ($31.95 per pupil) · For 9-12: $2,068.79 will increase to $2,106.03 per student ($37.24 per pupil) Additional Assistance Restoration Increase FY19: restoration includes $26.87 per pupil, assuming we have 185,000 charter students.
- 21. Financial Focus PREPARING BUDGETS • Ensure consistency year over year • Accurately estimate student numbers • Following academic model • Involving school personnel • Static, Dynamic, Zero-based budgeting
- 22. Financial Focus
- 23. Financial Focus
- 24. Financial Focus
- 25. • Reporting budgets re: teacher salaries • Health related laws (Epipens, Diabetes, Concussions, Inhalers) • Public Meetings Charter Laws Update
- 26. Questions??
Notas del editor
- Talk about my background -Graduated from Tbird MBA -have served on nonprofit boards including one of our charter schools -led the Association for the past 8 years
- Why do charter schools exist? They exist, according to statute, to improve student achievement. That’s as simple as it gets. Next slide has language from the statutue.
- Here is the actual statute. Why do I bring this up – well, if this is the reason for existence of a charter school, then a charter school board has to be driven to achieve this goal. Therefore, every decision you make, whether it’s who to hire, a financial decision, a school structure decision, you have to ask yourself, “Will this decision help improve pupil achievement” in other words, “Will it lead to better student outcomes?” This makes decision making an easier process, because this is the first question you should be asking. Board ensures and leader executes – no matter what you do you need to ensure as a board that the leader is executing the vision to improve student achievement. All resources should be allocated to this mission of improving student outcomes. This board should also be looking at decisions made in the past and evaluating whether those decisions have led to better student outcomes. Are you ready to ask yourselves some difficult questions?
- Startup – new board, chance to establish practices, systems, etc. Transition – changing roles, better systems in place, school leader performance, more emphasis on planning, strategy, infrastructure Mature – highly effective: sound governance practices, confidence & trust in school leader, diverse board, performance evaluation systems, functioning committees The second question is a bit more complex in that we have to look at look at many of our goals – but let’s simplify the goal to just improving student achievement (overall I think we can all agree we want the school to be successful). And what do we mean by structure, well… many things, structure of the board (committees, relationship with school leader/personnel), also corporate structure – does this help improve results
- Let’s talk about board structure quickly: who is on the board? Is this the best makeup? What are the gaps currently, and for our future plans? a quick glance at board meeting agendas and I only saw Dr. Greg Fowler’s name appear a couple times – does he attend every meeting? Should the principal be a member of the board? Maybe not a voting member but they should be present to help guide the board. Who evaluates the principal? Committees: Academic committee, Financial Committee, Growth Committee, Executive Committee – have a committee that works with a staff member to get a better connection with the school: example, Academic committee liaisons with the Academic leader, Finance committee liaisons with business manager, etc.
- What is the typical structure of a charter school?
- In it’s simplest form a charter school exists under an LEA (Local Education Agency), why? Because it’s the LEA that is the entity that is paid by the government. In Arizona, single LEA’s are permitted for each charter school or many of our schools create one LEA and have multiple charters underneath it. Different reasons for different structures (multiple CS’s under one LEA aggregates numbers for small school weights), separate LEA’s with separate boards, etc. could allow small school weights. One LEA allows for resources to be distributed where they are needed, easier to do this & easier to manage.
- Adding a layer of complexity is the CMO/EMO model. Many schools setup this structure to reap the benefits of scale & efficiency. Discussion around if this is the best model for ROP? What expertise does ROP have in school management? In most cases the CMO is created for the sole purpose of managing a school – is this the case for ROP? Does this help or hurt the school’s performance? How does the board evaluate whether they renew the CMO contract with ROP?
- What services is ROP currently providing and are they doing an effective job at it? Pros & Cons of Leased Staff: -may not be eligible for teacher incentives (law firm deemed 301 funds are not allowed for leased teachers) – we do not think this is accurate but it remains to be seen. -teacher raises, auditor general language regarding 1.06% teacher increase last fiscal year – leased teachers were not eligible -leased employees were not eligible for ASRS – may be a problem in recruiting & maintaining teachers. Also a problem for loan forgiveness programs from government, employees must work for a nonprofit organization for 10 years – teachers don’t understand 401k/403b benefits vs ASRS even if they are richer (because most teachers don’t stay with 1 school long enough to get all benefits, but ASRS is district wide & for most schools) over 50% of charters participate in ASRS – better for employer not to, but better for employee to be part of ASRS
- Let’s look now at the financial aspect of governance – why do we need to worry about financial performance? Operational/Financial excellence + academic performance = quality school. Obviously, if it were just that easy to change the numbers or replace the red ink cartridge we wouldn’t need any oversight at all However, charter schools are being heavily scrutinized right now – article after article is appearing in the AZ Republic targeting the practices of our schools. So if you need a good reason to focus on financials that it is – you don’t want to be the next school that is talked about.
- Main reasons why strong financials are important: 1.for a sustainable school since a school without $ cannot serve its students 2.Lenders want to see strong statements and it reduces the cost of capital (less risk) 3. Philanthropic supporters want to see strong financials because they look at their donations as an investment. Who wants to give to an organization that may be out of business in a year or so. Or has the risk of the school name being in the headlines for a negative purpose. 4. The public is watching as these are their funds, be good stewards 5. State board for charter schools requirements solid financial performance for any change to your charter (enrollment/grade level Caps’s, expansion, etc.)
- Less than 1 in 5 charter schools have closed for academic reasons, but two-thirds closed because of financial or management failure.
- NEAR-TERM FINANCIAL HEALTH Designed to depict a charter holder’s financial position and viability for the up coming fisc al year Specific measures Going Concern Default Unrestricted Days Liquidity “Falls Far Below” rating possible LONGER TERM FINANCIAL SUSTAINABILITY Designed to depict a charter holder’s financial position and viability over time Specific measures Cash Flow Net Income Fixed Charge Coverage Ratio “Falls Far Below ” rating not possible
- Charters follow many practices when it comes to creating their budgets – however; you need to keep in mind what you are trying to achieve as a school. Excellent student achievement! First the board needs to understand what the budget is made up of: let’s talk first about the revenue
- Remember, these are estimates because there are too many variables to give an exact per pupil amount. It may seem insensitive to explain the budget this way but in a nutshell this is the budget of any school – there are 2 main drivers. 1. the driver of revenue for every school: students. You can paid for every student that attends. 2. the main driver in all school budgets is what? Employees – this is 50-60% of the expense budget, facilities 15-18% of budget
- Here’s a snapshot of how charter schools get funded
- Charter schools have been subject to an annual reduction in charter additional assistance of $18.6 million, and this budget reduces the reduction to $13.6 million for FY2019 and establishes these cuts will be zero in FY2023. For FY19, that restoration includes $26.87 per pupil, assuming we have 185,000 charter students.
- Ensure consistency year over year – done with side by side comparison of yearly budgets, I like % (managerial accounting) Accurately estimate student numbers – board needs to be engaged to spot red flags in attendance/ school principal input Follow academic model – teacher to student ratio, programs that are essential, supplies, etc. Involve school personnel – they know what is needed & can help evaluate programs Line item for reserve 8%, 4-5% should be reserved for unexpected expenses
- School Based budgeting: Attendance consistency was down and programs targeting this problem only had small impact – tried engaging students better, etc. Realized that attendance was dipping later in the week and the reason was kids weren't coming to school because they did have clean uniforms. School based budgeting allowed the principal to identify this problem and use resources to purchase a washer & dryer and attendance went up!
- Reporting budgets re: teacher salaries, ARS 15-903 requires charter schools to post on their website the average salary of all teachers employed in the previous year & average salary in current year. Also, dollar & percentage increase in average salary for teachers in the current year. By Nov. 30 the ADE has to submit to JLBC this teacher info. (Epipens – permitted to have epi-pens not required, Diabetes-even if diagnosed by a pharmacist. Concussions-schools must have protocols/policies (must notify parent/guardian), inhalers – list of people that can administer inhalers is expanded Public meetings: include one-way communication to a quorum of board members, even text messages
- Attendance consistency was down and programs targeting this problem only had small impact – tried engaging students better, etc. Realized that attendance was dipping later in the week and the reason was kids weren't coming to school because they did have clean uniforms. School based budgeting allowed the principal to identify this problem and use resources to purchase a washer & dryer and attendance went up! What squares with your thinking? What questions are still circling? What are 3 points you’ll take away?