Budget Forecasting by Joseph Tramontana
Financial forecasting involves quantitatively projecting changes in future operations while analyzing the impact of trends and economic data. Current and historical data are used to estimate changes that may dramatically affect a school district’s ability to meet its goals. This is an important part of the planning process.Financial forecasting is important for several reasons.
Forecasting facility related issues, by quantifying future costs, is essential for both short term and long term planning. At some point if these issues are not addressed in the budget cycle they will eventually force a district into making emergency decisions. Forecasting can also identify trends that bring issues to the forefront that must be analyzed and evaluated during the budget process. Is revenue going down or is it stable? Are we containing salary and benefit costs or are they increasing by double digits? Finally, forecasts provide insights into important issues allowing administrators to be proactive instead of reactive. Forecasting is particularly important in setting a baseline during the budget process. Projecting student enrollment is critical in determining the costs of educational programming. Critical revenues such property taxes, surplus funds, and salary related expenses give a school district a baseline to begin building their budget. Salary and benefits are legal commitments that cannot be ignored.
Budget forecasting is an ongoing process and a critical part of budget development. Forecasting creates a model for reasonable assumptions to be made during the budget process. Projecting student enrollment, tax revenues, fund balance, salary and benefit increases are key elements in establishing a baseline for school districts. In addition, forecasting provides financial impact analysis that can be combined into the development of the budget. Current budgetary decisions should be evaluated for their long-term impact.
A variety of financial and related data are used for budget forecasting during the budget development process. These forecasts include, but are not limited to:
Enrollment – How does student enrollment impact state aid, class size, and future construction projects? Is their adequate space or too much?
Revenue – This really comes down to property taxes, state aid, and fund balance. A projection of three to five years is always a good idea.
General Fund Expenses – Salaries, contracts and benefits compromise close to ~80% of the budget. The projections of potential retirements, contracts and benefit trends should also be projected out three to five years.
Capital Costs – A long term facility plan and comprehensive maintenance plan are mandatory in all districts. What are the expenses to maintain school buildings and what capital projects need to be considered?
In preparing forecasting models, basic assumptions need to be made. These include levels of state and federal funding, inflation rates, class sizes, and surplus levels, etc. Historical data is used from a variety of sources to aid in the development of these assumptions.