The Budget Process

We provide a step-by-step description of the process of developing a budget in Michigan’s conventional public school districts. For various reasons, charter schools and intermediate school districts are not part of this discussion.

Graphic 26: Budget Process Flow Chart

Graphic 26 - click to enlarge

Both charter schools and intermediate school districts are subject to the requirements of the Uniform Budgeting and Accounting Act, the Michigan Public School Accounting Manual, GASB standards and other state budget and accounting laws. Nevertheless, charter schools are generally much smaller than conventional local school districts and may need less time to gather data and reach consensus. At the same time, charter schools must satisfy any additional budget and accounting requirements promulgated by the schools’ authorizers. These requirements may vary depending on the authorizer and may lead to different budget timelines.[ccxvi]

Intermediate school districts, on the other hand, must track not only their internal expenditures, but numerous, complex financial and budgeting interactions with their constituent local school districts. ISD accounting and budgeting requirements outside the description provided below go beyond the scope of this primer.[ccxvii]

The budget process described here for conventional public school districts is not an exact timeline for any single district. While the state does place certain mandates on school districts to ensure responsible budgeting, the state does not always stipulate the process through which these mandates should be met.

For instance, the state requires that a school board hold a final budget meeting to approve the budget and that the board notify the public of this meeting in advance. Some districts may do only this much, while others, such as the Traverse City Area Public Schools, actually visit local civic groups to explain the district’s budget projections for the forthcoming year and solicit feedback before the final budget meeting. In addition, districts employ different numbers of central office administrators. Some districts have a superintendent, business officers and academic officers; other districts have only a superintendent. Hence, the budget process can be as varied as the 552 conventional public school districts themselves.

In addition, not all districts possess a written description of their budget process. District business officials and superintendents may be able to rely on their own institutional knowledge of the process and have little need to outline the steps formally. Still, many districts have formalized the process in written documents, and their schedules, along with our interviews with dozens of district officials, allow us to provide a general description of the budget process that occurs in Michigan school districts.

District budgeting for the next fiscal year is usually based on several factors:

  1. an evaluation of existing and proposed educational programs, as well as any programs newly mandated by the Michigan Legislature or by the local school board;

  2. a review of the district’s financial reports and audits from the immediately preceding fiscal year and a review of current fiscal year accounts to determine the district’s financial strength;

  3. a review of current and upcoming employee union negotiations and contracts; and

  4. projected revenues for the next fiscal year.

Different districts will place varying degrees of emphasis on the four factors listed above. Some might emphasize the educational program reviews described in point No. 1 above. Such districts might use “program budgeting,” which is described by the Michigan School Business Officials organization as budgeting in which “[d]istrict funds are organized according to their specific objective or purpose.”[367] These districts might also use “zero-based budgeting,” in which “[a]ll budget categories must be completely rejustified each fiscal year to ... improve organizational and fiscal efficiency.”[368]

Other districts might emphasize the projected revenues described in point No. 4 above. Such districts might employ “incremental budgeting,” in which each line item receives similar percentage increases or decreases.[369] Yet other districts might combine revenue and program concerns, perhaps using “line item budgeting,” in which “[e]ach line item receives separate consideration and may be increased or decreased by different amounts.” [ccxviii][370]

Regardless, one milestone in the local school district budget process is the governor’s budget recommendations for the coming fiscal year, since these help the districts project district revenues for the coming year. These recommendations are typically made in early February. Another milestone is the state’s January “Consensus Revenue Estimating Conference” (see "Revenue Estimating Conference.") The conference produces estimates of expected revenue to the state and all of its funds, such as the state’s general fund and school aid fund. The general fund is the state money over which Michigan legislators have the most discretion, and they may allocate some of it to public schools. As discussed earlier, however, the vast majority of public school money comes from the state school aid fund. For district budget officers, the school aid fund estimate is the more important of the two. In fiscal 2007, the school aid fund totaled approximately $13.1 billion,[371] according to the Michigan House Fiscal Agency.

Once such numbers are announced by the revenue estimating conference, school officials typically begin to forecast the district’s revenues for the coming fiscal year or update their own existing projections, since many districts will have begun to make such revenue projections in the autumn of the previous calendar year. For instance, the January 2006 edition of the Michigan School Business Officials monthly newsletter published predictions for a $7,075 state foundation allowance in fiscal 2007; this projection was originally made by a group of 59 Grand Valley School Business Officials (from western Michigan) in November 2005.[372]

Such estimates, which can include projected school cost increases,[ccxix] may be used by other school district business officials when preparing a budget. One business officer remarked in an interview with the authors that district business officials frequently contact each other to discuss possible future school revenues long before the state estimates are released (there are about 1,900 members of the MSBO in the state).[ccxx][373]

Hence, the budget process often begins as early as the autumn of the year before the new school fiscal year begins,[ccxxi] frequently when the audit of the previous year’s budget is complete. For instance, in August 2007 (which falls in fiscal 2008), districts will receive from outside private accountants a complete audit of the fiscal 2007 budget year, which will have finished in June 2007 (audits must be filed with the state treasurer by Nov. 15 each year[374]). At that point, many district officials will immediately commence building their budgets for fiscal 2009. That process will continue until the local board of education approves the budget.

Graphic 26 provides a flow chart based on the authors’ research of numerous Michigan districts. Many districts employ timelines or calendars, complete with critical dates, to guide their planning; the Detroit City School District posts its calendar online in its adopted budget.[375]

[ccxvi] Readers interested in the budget process for charter schools may wish to review the Michigan Council of Charter School Authorizers’ “Public School Academy Oversight and Accountability Standards,” (Michigan Council of Charter School Authorizers, 2005), (accessed April 20, 2007).

[ccxvii] For more on ISD budgeting, see, for example, “Accounting and Fiscal Reporting Requirements for Intermediate School District Use of Special Education Funds,” State Board of Education, 1993.

[ccxviii] This discussion is not meant to imply that the district’s method of budgeting — program budgeting, incremental budgeting and so on — is determined by the emphasis the district may place on any one of the four factors listed above. For a complete list of budget methods a district might use, see “MSBO School Finance Reference Manual,” (Michigan School Business Officials, 2007), 7-3.

[ccxix] For instance, the officials also predicted an 18 percent increase in the cost of employee health insurance and a 10 percent to 15 percent increase in the cost of energy in fiscal 2007. See “A message from your president: Budgeting for 2006-2007,” (Michigan School Business Officials, 2006), 2, (accessed Jan. 2, 2007).

[ccxx] In the autumn, school business officials may be analyzing numbers from three different budgets simultaneously: the past year’s budget, which has been recently audited; the current year’s budget, which is usually under revision; and the coming year’s budget, which is already being estimated. Midyear revenue corrections from the state may complicate current-year budgets. On April 30, 2007, just as this primer was going to press, the governor issued an executive order that reduced the basic foundation grant by $122 for fiscal 2007; see “Cut May Force Schools To Close Early,” MIRS Capitol Capsule, April 30, 2007. (Membership required.)

[ccxxi] Recall that the school’s fiscal year begins on July 1 and ends on June 30. Fiscal 2007 thus began on July 1, 2006.