Winter 2012 Update

FINANCE & BUDGETING FACILITIES ISSUE / WINTER 2012

INDISPENSABLE TOOL for SCHOOL BUSINESS MANAGEMENT

LAYING A STRONG

FOUNDATION FOR A SOLID FINANCIAL FUTURE GETTING THE BOARD ON BOARD PG. 24 PROACTIVE COLLECTIVE BARGAINING PRACTICES PG. 34 www.iasbo.org | 1

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Last year, 289 speakers volunteered their time to present at an Illinois ASBO seminar or conference.

That's 289 experts invested in the success of your district.

Illinois Association of School Business Officials

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INSIDE

Illinois Association of School Business Officials Update Magazine / Winter 2012 / v.20 / i.02

FINANCE + BUDGETING ISSUE

A FIRM

FOUNDATION

24

LEGISLATIVE ISSUE / SPRING 2013

INDISPENSABLE TOOL for SCHOOL BUSINESS MANAGEMENT

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24 24

Integrating Strategic Planning and Decision Making at the Board Level to Ensure Academic Stability Understand how to “get the board on board” so that decisions made will better meet the challenges facing your district.

NAVIGATING THE SYSTEM

Update Magazine / Fall 2010

Step by step, we’ll show you how | 24

THE NEXT ISSUE: LEGISLATION Implementation of the most recent legislation and staying ahead of future legislation.

Cover Story by Robert G. Grossi

Thinking Outside the Box For Lemont HSD 210, loaning money to a neighbor district in need was a creative solution that benefited all. Find out how it all went down and learn from their experience.

By Joseph P. Murphy

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www.iasbo.org

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PERSPECTIVE

ARTICLES

FROM-THE-PODIUM Cover All Your Bases: A good

strategic plan connects the goals of the community with daily operations. 07 FROM-THE-OFFICE Forging a Foundation: A new

partnership will help districts to build intelligently. 09 FROM-THE-FIELD Maximize Your Interest and Investment Potential: Regular review of account

structures is crucial. 11 CASE STUDY

All that Glitters is Not Gold:

The Hidden Cost of Grants. 14

Effective Community Engagement: Communication That Goes Two Ways Careful thought and planning is needed to ensure that a community engagement program creates a two-way dialogue and leads to solutions that support the activities of the district.

By Linda M. Matkowski

FROM-THE-DISTRICT

30

Fund Balances and Available Reserves: Reporting, Planning and

Maintaining. 16

FROM-THE-TABLE Money Saving Surveys: Members

share solutions that have helped their districts' bottom line. 18 SCHOOL BUSINESS 101 Out of the Box Budgeting Solutions:

Printing, investments, HVAC systems and more. 19

Avoiding Pitfalls in Collective Bargaining School business officials must be active in the bargaining process from start to finish to avoid costly outcomes. Gain 13 proactive practices that can help along the way.

By Shawn M. McLain

34

Building Your Case:

CAN YOU FINANCE EMPLOYEE COSTS RELATED TO CAPITAL PROJECTS WITH TAX-EXEMPT BOND PROCEEDS?

Understand which situations you can use the proceeds of tax-exempt obligations to finance employee, service or administrative costs.

By Brent L. Feller and Anjali Vij 4 |

Update Magazine / Winter 2012

40

RESOURCES

ON MY LIST

GET YOUR DUCKS IN A ROW TOP 10 THINGS REVIEWED FOR BOND RATINGS

Take a closer look at what rating agencies are looking for in today’s economic environment.

By Elizabeth M. Hennessy

From Attack to Advantage:

38

Strategies for moving great ideas forward despite the best efforts of “naysayers and nitpickers.”

43

THE FINAL WORD Great Ideas from Great Illinois ASBO Members Jane A. Lair

Dir./Business Services Lake Bluff SD 65 As a leader in her district, part of Jane’s role is to set standards of best practices and provide guidance to the board. She believes that administrators, boards and communities are going to need to work together more collaboratively than ever before to find the financial solutions that best fit the needs of all students.

Contributors’ Picks: On

negotiating, decisionmaking and what it takes to be a top rated district.

44

46 www.iasbo.org

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CONGRATULATIONS

TERRIESIMMONS Vice President, ASBO International

Illinois ASBO member Terrie Simmons has been elected Vice President of ASBO International.

Terrie will become VP on January 1, 2013 and succeed to President in 2014.

We are so proud to have one of our own selected by her peers from around the world to lead our international association.

If you are not a member of ASBO International please consider joining. Illinois is the largest member affiliate of ASBO and your membership can support Terrie as she leads ASBO into the future.

ENERGY COSTS

UNDER CONTROL.

Helping our members more effectively control their energy costs, usage and budgetary risk over time.

Electric Power and Natural Gas Energy Efficiency ~ Renewables ~ Load Response

Sponsored By:

6 |

Update Magazine / Winter 2012

An Illinois Not-for-Profit Corporation

www.illec.org Join a Program by Contacting Ron Steigerwald, Statewide Marketing Director 847.567.3051 | rsteigerwald@hotmail.com

PERSPECTIVE / Board President

FROM–THE–PODIUM This issue of UPDATE concentrates on a number of areas you need to be focusing on as the chief business official for your district. Your job is very challenging and we know it. It is very difficult to cover all the bases at once – planting seeds for long-term projects at the same time you are attending to daily operations. We hope this issue provides some new tips and ideas that will make you more effective at accomplishing the wide spectrum of tasks that come with your title.

In my opinion, a good strategic plan is the best device for identifying and prioritizing all the key elements you need to cover in your job. Some individuals might think a strategic plan is only used for identifying long-term goals of the district. However, a properly developed and executed strategic plan acts as the linchpin that connects the primary educational goals of your community with the daily operations of your administration. In District 99, our strategic plan recognizes that certain foundational objectives need to be in place before longer-term goals can be realistically considered.

Mark E. Staehlin DISTRICT CONTROLLER COMM. HIGH SCH. DIST. 99

SIMPLY SAYING

Your current annual budget sets the foundation to consider if and when other long-term goals identified in your strategic plan might become a reality.

Setting strategic goals that address the district’s fundamental operations also helps assure that the strategic plan remains relevant to your day-to-day responsibilities.

For example, in our district, we have identified developing and maintaining a balanced annual budget as a fundamental goal.

Through effective long-range forecasting, your current annual budget then sets the foundation to consider if and when other long-term goals identified in your strategic plan might become a reality. Accordingly, our plan also requires the annual development of a five-year forecast demonstrating how well our current annual budget supports the expectation that future goals are realistic and attainable.

Sustaining a link between the properly vetted goals of the community you serve and your daily work is a powerful and fulfilling stimulus. If you are like me, you will find yourself looking for creative options or changes in your operations that might expedite the integration of those longer term goals, at least in part, into each year’s new budget. This edition of UPDATE offers some new tools, ideas and information aimed at helping you more effectively manage your operating costs and/or enhance your district’s revenue stream. With the right pieces in place, you will feel confident and pleased, knowing how addressing your daily responsibilities helps to achieve the most critical aspects of your community’s educational goals.

www.iasbo.org

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THE

UPCOMING WINTER

SEMINARS

Check out www.iasbo.org/events or the latest Calendar of Events included in the current UPDATE for full seminar listings including location and PDC sponsorship and register for professional development today.

MAGA ZINE Illinois Association of School Business Officials Northern Illinois University, IA-103 108 Carroll Avenue DeKalb, IL 60115-2829 P: 815.753.1276 / F: 815.516.0184 / www.iasbo.org

Update Editorial Advisory Board PDC COORDINATOR MEMBERS Richard A. Lesniak, Ancillary Services Kristopher P. Monn, Educational Enterprise Grant L. Sabo, Facility Management

December 2012

S 25 2 9 16 22 29

M 26 3 10 17 23 30

T 27 4 11 18 24 31

W 28 5 12 19 25 1

T 29 6 13 20 26 2

F S 30 1 7 8 14 15 21 22 27 28 3 4

January 2013

February 2013

S 30 6 13 20 27 3

S 27 3 10 17 24 3

M T W T F S 31 1 2 3 4 5 7 8 9 10 11 12 14 15 16 17 18 19 21 22 23 24 25 26 28 29 30 31 1 2 4 5 6 7 8 9

M 28 4 11 18 25 4

T 29 5 12 19 26 5

March 2013

W 30 6 13 20 27 6

T F S 31 1 2 7 8 9 14 15 16 21 22 23 28 1 2 7 8 9

S 24 3 10 17 24 31

M 25 4 11 18 25 1

T 26 5 12 19 26 2

W 27 6 13 20 27 3

T F S 28 1 2 7 8 9 14 15 16 21 22 23 28 29 30 4 5 6

Cathy L. Johnson, Financial Resource Management Ann C. Williams, Human Resource Management Robert J. Ciserella, Information Management Paul A. O'Malley, Sustainability

BOARD & EXTERNAL RELATION MEMBERS Mark E. Staehlin, President

Aimee L. Briles, SAAC Chair

Date

Time

Session

Location

12/07/12

7:30AM

Educational Support Professionals Conference

Naperville

12/10/12

8:00AM

Leadership Requirements for Moving from Good to Great - AAC #481

Collinsville

12/10/12

8:30AM

Illinois Energy Consortium (IEC) Workshop

Downers Grove

Michael Jacoby, Executive Director

12/11/12

8:00AM

Custodial Operations (Webcast)

Downers Grove

Susan P. Bertrand, Assistant Executive Director

12/11/12

12:30PM Maintenance Operations (Webcast)

12/11/12

8:30AM

Illinois Energy Consortium (IEC) Workshop

Moline

01/11/13

8:30AM

Introduction to School Finance - Support Staff

Downers Grove

01/15/13

8:00AM

Public Relations & Internal Communications (Webcast)

Downers Grove

01/23/13

8:30AM

ISDLAF+ User Group Seminar - Mid-Year Budget Review

01/23/13

9:00AM

Delegate Advisory Assembly Meeting

8:30AM

ISDLAF+ User Group Seminar - Mid-Year Budget Review

Fairview Heights

01/29/13

8:30AM

ISDLAF+ User Group Seminar - Mid-Year Budget Review

Naperville

02/06/13

10:00AM PDC Meeting of the Whole

02/13/13

8:00AM

Grounds Care Planning and Playgrounds (Webcast)

Downers Grove

02/22/13

7:30AM

Seminar on School Finance - AAC #1062

Downers Grove

02/28/13

8:00AM

Legal Implications of the Use of Technology in a School District - AAC #686

Downers Grove

Editorial Advisory Board (EAB) Meeting

Downers Grove

01/24/13

03/12/13

Downers Grove

East Peoria Naperville

Lisle

03/12/13

8:30AM

ISDLAF+ User Group Seminar - Collective Bargaining Symposium

Naperville

03/13/13

8:30AM

ISDLAF+ User Group Seminar - Collective Bargaining Symposium

East Peoria

03/14/13

8:30AM

ISDLAF+ User Group Seminar - Collective Bargaining Symposium

O'Fallon

03/20/13

8:30AM

Leadership Series: Situational Leadership

Downers Grove

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Update Magazine / Winter 2012

AT-LARGE MEMBERS Angie Peifer, Illinois Association of School Boards Phyllis A. Hanna, Glen Ellyn SD 41

John A. Gibson, Homewood SD 153

STAFF MEMBERS 815.753.9366, mjacoby@iasbo.org 815.753.9368, sbertrand@iasbo.org Angela D. Lehman, Communications Coordinator 815.753.9371, alehman@iasbo.org Rebekah L. Weidner, Staff Writer/Editor 815.753.9270, rweidner@iasbo.org Brett M. Olson, Designer 815.753.7654, bolson@iasbo.org Tammy A. Curry, Designer 815.753.9393, tcurry@iasbo.org

Illinois ASBO Board of Directors Mark E. Staehlin, President

Hillarie J. Siena, President-Elect Nelson W. Gray, Treasurer

Richard A. Lesniak, Immediate Past President 2010–13 Board of Directors

Susan L. Harkin, Beth L. Millard, Curtis J. Saindon 2011–14 Board of Directors

David Bein, Jennifer J. Hermes, Glayn C. Worrell 2012–15 Board of Directors

David H. Hill, Luann T. Mathis, Ann C. Williams

Illinois ASBO Board Liaisons Aimee L. Briles, Service Associate

Advisory Committee Chair Kurt Hintz, Service Associate Advisory Committee Vice Chair Terrie S. Simmons, ASBO International Liaison Gil Morrison, Regional Office of Education Liaison Debby I. Vespa, ISBE Board Liaison Dean M. Langdon, IASB Board Liaison

Privacy Policy All materials contained within this publication are protected by United States copyright law and may not be reproduced, distributed, displayed or published without the prior written permission of the Illinois Association of School Business Officials.

You may not alter or remove any trademark, copyright or other notice from copies of the content.

References, authorship or information provided by parties other than that which is owned by the Illinois Association of School Business Officials are offered as a service to readers. The editorial staff of the Illinois Association of School Business Officials was not involved in their production and is not responsible for their content.

PERSPECTIVE / Executive Director

FROM–THE–OFFICE The theme for this issue, “Laying a Strong Foundation for a Solid Financial Future,” has me thinking about two relevant perspectives for us today.

The first is somewhat tied to this quote by Benjamin Franklin: "Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones."

This certainly describes what has taken place in Illinois over the last 30 years. We exist in a financial culture in Illinois that is anything but firm. Our esteemed state leaders have added up so many bad habits that we are left with pro-ration of General State Aid, severe cut backs in transportation funding and a pension system that is more than $83 billion underfunded. Not an ideal situation to begin building a firm foundation or protecting one for local school district finances.

Michael A. Jacoby EXECUTIVE DIRECTOR ILLINOIS ASBO

SIMPLY SAYING

“Making every dollar count” is no longer just a nice saying – it is a required reality.

Second, most school districts are doing everything they can to not let the foundation they have built be “chipped” away.

But the forces against good financial management are many: citizens and board members calling for lower tax rates, union demands on the rise, parental pressure to better serve every child, rising accountability for student achievement and declining property values on top of declining state and federal revenues.

These are surely tough times for everyone – in my opinion, the most difficult in a generation. But it is still important for school business professionals to help their districts prevail.

“Making every dollar count” is no longer just a nice saying – it is a required reality and in this issue you will benefit greatly from the wisdom of our authors as they focus your attention on how to do just that.

To that same end, I want to make you aware of a new partnership we are working on where Illinois ASBO members will be able to plan their financial future with the kind of business intelligence and analytics that will absolutely result in exceptional efficiencies and savings. If you are looking for how to reallocate resources to the most vital elements of your budget, this is a tool you will love.

Forecast 5 Analytics is a new company and the creator of this software engine. Right now some early Illinois ASBO adopters are forging the foundation for everyone to embrace when the product is officially launched in January.

With Forecast 5 participants will be invited to: •

Participate in a collaborative business analytics/ intelligence environment where everyone can share their work to the benefit of others;

•

Gain access to interactive visualizations that will make data comparisons literally jump off the page; and

•

Engage in additional opportunities to link analytics into a strategic five year plan one based on data not just broad assumptions.

I love this thought by Edgar Fiedler; “If you have to forecast, forecast often.” With this new product, I guarantee that each participant will be in a continual state of analysis. Not to paralysis – but to real decisions that will restore or build a firm financial foundation.

www.iasbo.org

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MAKING INVESTMENTS FOR THE NEXT GENERATION Participants Enjoy: • Dedicated assistance with Cash Flow and Investment Planning • Unique Bond Proceeds Management Services through PMA Securities • Exceptional Fixed Rate Investment Options • Educational seminars co-sponsored by Illinois ASBO designed to further develop your financial knowledge

Fund Co-Sponsors 10 |

Update Magazine / Winter 2012

Toll-Free: 866.747.4477 www.isdlafplus.com

Fund Administrator

See: www.pmanetwork.com/about

PERSPECTIVE / SAAC Chair

FROM–THE–FIELD Maximize Your Interest and Investment Potential Budgeting for your district’s interest income the past several years has been a challenge to say the least. When rates dropped to historically low levels in 2008, most of us wouldn’t have predicted that they would still be next to zero four years later. Unfortunately, early this year the Federal Reserve announced that they plan to maintain near zero rates through at least 2014.

In light of the difficult financial environment, it is more important than ever to have regular discussions with your financial services providers in order to maximize your interest potential.

• A review with your banker of your monthly account analysis statements has the potential to uncover funds that could be moved to an interest-bearing vehicle.

• An evaluation of your current account structure and how disbursements are handled may reveal that there are idle funds in your payroll or accounts payable accounts and will help quantify any excess balances in your operating account.

Aimee L. Briles VICE PRESIDENT WINTRUST GOVERNMENT FUNDS

SIMPLY SAYING

…Regular conversations about your current practices may help you add a few extra dollars to your annual bottom line.

The discussion may also highlight current inefficiencies in processes that can be replaced with cost saving services.

Additionally, you may determine that it is more beneficial to take advantage of a higher earnings credit rate to offset service charges, than earn a nominal interest rate on your operating funds. This could potentially increase the balances that can be placed in an interest bearing account.

It is also beneficial to review your current Investment Policy and collateral requirements with your banker and investment advisor. Although safety of principal should always be the first priority of an Investment Policy, the requirements therein may be limiting your access to both depository institutions and higher yielding investments. Best practice is to review and update your policy at least every two years; if the district has not revisited its policy since the beginning of the financial downturn, now is the time to do so, as the ability to collateralize deposits has evolved over the last several years.

Talk with your financial advisors about what is reasonable in terms of both allowable securities and the percentage required, as both can affect your investment yields. Many financial institutions have had to adjust their approach to collateralizing deposits due to fewer securities available to be pledged, the historically low rates those securities are yielding and new policies on how collateralized funds are accounted for by examiners, which affects the liquidity ratio of the institution.

Your financial partners recognize that all districts are struggling to make every penny count. Although it appears we will have to endure this rate environment for several more years, regular conversations about your current practices may help you add a few extra dollars to your annual bottom line.

www.iasbo.or g

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CONTRIBUTORS

Kathryn Clayton

Brent L. Feller

Robert G. Grossi

Credit Analyst Standard & Poor’s

Partner Chapman and Cutler LLP

Treasurer Bloom Twp. Trustees of Schools

An Associate in the Standard & Poor’s Ratings Services Chicago Office, Kathryn works in the U.S. Public Finance State and Local Government Group. In her role, she works as primary analyst on bond issues across the Midwest.

A partner in Chapman and Cutler’s Tax Department, Brett has been practicing law since 1998. Prior to joining Chapman and Cutler LLP, he was employed at Blank Rome LLP in Philadelphia and was a law clerk for the Honorable Stanley J. Goldberg at the United States Tax Court. feller@chapman.com

Has served at Bloom Township since 1986 and as President of Crystal Financial Consultants, Inc. since 1989. Appointed by ISBE to serve as the CEO of the Hazel Crest School Finance Authority and recipient of the 2011 Monarch Award from the Illinois ASBO Foundation. crystalfinancial@yahoo.com

kathryn_clayton@sandp.com

Elizabeth M. Hennessy

Cathy L. Johnson

Michael Kuzniewski

Principal William Blair & Company, LLC

Chief Financial Officer J. Sterling Morton HSD 201

Superintendent J. Sterling Morton HSD 201

As the Chair of the Accounting, Auditing and Financial Reporting Professional Development Committee and overseer of more than $4,000,000 in grants just last year, Cathy has solid experience in grant administration. cjohnson@jsmorton.org

Has served as superintendent, principal and teacher, in both Illinois and Florida. He is a professional development provider and passionate educator who has managed grants and entitlements in urban and suburban settings. mkuzniewski@jsmorton.org

Has worked with Illinois school districts on bond issues and bond ratings for more than 24 years. William Blair works with 19 of the 23 Illinois school districts currently rated “AAA”

by S&P and 13 of the 20 districts rated “Aaa” by Moody’s. ehennessy@williamblair.com 12 |

Update Magazine / Winter 2012

Linda M. Matkowski

Shawn M. McLain

Joseph P. Murphy

Executive Vice President City Securities Corporation

Attorney Guin, Martin & Mundorf, LLC

Dir./Business & Finance Comm. High Sch. Dist. 155

Recently joined City Securities to manage the Fixed Income Capital Markets division, which comprises Public Finance Banking, Underwriting, Institutional Trading & Sales, and Retail/Taxable Trading. She is currently on the Financial Oversight Panel for East St. Louis School District 189. lmatkowski@citysecurities.com

Practicing within a full service education law firm, Shawn exclusively represents Illinois public school districts in a variety of education, labor and employment law matters.

With a master’s degree in School Business Management from NIU, Joseph has nearly 30 years in the commercial and financial industries. He has received several service awards and serves as chairman of the board of Moraine Valley Community College.

smclain@gmmschoollaw.com

jmurphy@d155.org

Would you like to be an UPDATE Contributor?

Contributions to the UPDATE Magazine are solicited periodically to enhance the content of the Magazine. If you have an issue that you feel needs to be brought to the forefront, present your article ideas to Angie Lehman at alehman@iasbo.org.

Anjali Vij Bond Counsel Chapman and Cutler LLP

As an associate in Chapman and Cutler’s Public Finance Group, Anjali serves as bond counsel and disclosure counsel in numerous governmental purpose bond transactions throughout Illinois.

Keep in mind that issues are themed and so your contribution may not appear for some time, or we may choose to distribute it in some other format. The issue themes that we will be soliciting articles for next year include: • Leadership and Wellness • Accounting and Legal Issues • Facilities and Sustainability • Purchasing and Human Resources We look forward to seeing new faces on this page as we continue to make the UPDATE an indispensable resource for school business management.

anjvij@chapman.com www.iasbo.org

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ALL THAT GLITTERS IS NOT GOLD:

THE HIDDEN COSTS OF GRANTS In a time of dwindling resources for schools, many community members, school board members and school personnel look to grants to help offset costs. Many see grants as the panacea to their funding woes only to find that without proper planning they can easily fall victim to the hidden costs of these grants. While many times schools and other grant writing entities forget about the indirect costs, there are many costs in plain sight that are overlooked as well.

PREPARATION OF THE GRANT One of the first “hidden costs ” lies in the beginning of the process. Cash strapped entities often times do not have the resources for full time grant writers, so these duties fall on a current employee, which can detract from their primary responsibilities. Hours upon hours of employee time can be spent researching, attending required bidders’ conferences, planning and writing before the reality of any new revenue ever exists.

In our district we always say there is no “free” money and that “all money is not good money.” Common sense says that if someone is giving money to you, they expect you to achieve a goal, their goal. It is important that districts create a rubric when considering applying for a grant that includes guarantees that the goals of the grant meets the values, mission and vision of the school district and does not run contrary to your efforts.

GRANT MANAGEMENT There is always management involved, and many times grant writers neglect to plan for who will oversee the management of these grants; the task is then left to an already overburdened administrator or clerical support person. In some instances, unsuspecting grant writers put in money for stipends and still the role and stipend are given to that already overburdened individual.

“MATCHING” Most grants do not fund the full cost of a particular project or activity; one part the grant doesn’t cover is the matched funding. Matched funding is not always matching the grant dollar for dollar but is more often a percentage of total costs associated with the project or activity for which you are applying for the grant. For example, many grants will fund 90% of a project. The applicant then has to contribute at least 10% matched funding towards the project and sometimes more.

Some grants require the matched funding to be available in cash; some will, however, allow an in-kind contribution such as the building usage, the time of people involved in the project, etc. Knowing the type of matching that is allowable for a particular grant application is vital so that time is not wasted applying for a grant that you cannot match, or worse, getting caught having to provide matching funds for which you were not prepared to pay.

By Michael Kuzniewski

CASE STUDY

SUPERINTENDENT J. STERLING MORTON HSD 201

Cathy L. Johnson

CHIEF FINANCIAL OFFICER J. STERLING MORTON HSD 201

INDIRECT COSTS These are those expenses of doing business that are not easily identified with a particular grant. If districts could deploy measures to accurately record minutes/values for costs like utilities, security, maintenance of space and equipment, accounting and certain personnel required for each specific activity could be charged directly.

Such an approach is not practical. Therefore, some grants allow for indirect cost rates to be charged to the budget, but many do not. Knowing which is applicable saves you from being surprised by the additional indirect costs of the grant.

EVALUATION AND REPORTING PROCESS When a grantor provides resources, it undoubtedly will want to know if the grantee accomplished what they promised to do. Many grantees allocate money for an evaluator only to find that this evaluator will require data, and data collection costs money that might not have been in the budget.

SUSTAINABILITY This is a real issue, as many grants require some measure of sustainability to be incorporated within the proposal. Many times grant seekers neglect to see the true cost in these sustainability requirements. In this area lies the most hidden of costs, those that are not directly tied to sustaining the grant, but rather after effects of the grant implementation. One such example was the costs associated with unemployment claims following the ARRA funds given to school districts. While the grant provided funding for much needed staff, those districts that used it to hire, only to release the staff when funding was exhausted, were served with higher unemployment claims.

To avoid the “hidden costs” a district needs to look at the costs discussed in this article when any grant application is being evaluated and considered. It can be very difficult to explain to community members, school board members and school personnel that you have turned down a source of revenue, but hidden costs and administrative burdens placed upon the district may make it the wisest course of action.

TAKEAWAYS > > > » If someone is giving money to you, they expect you to achieve a goal: their goal.

» Plan who will oversee the management of the grant and whether they have the time and resources to do so.

» Knowing the type of matching allowable for a grant application is vital.

» Sustainability requirements can become the largest hidden cost.

www.iasbo.org

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FROM-THE-DISTRICT FUND BALANCES AND AVAILABLE RESERVES: REPORTING, PLANNING AND MAINTAINING At Standard & Poor’s Ratings Services, we evaluate an issuer’s creditworthiness primarily by examining four factors specific to that issuer: the local economy, administration, finances and debt. Any of these areas can influence a bond rating, but one of the leading factors continues to be the entity’s financial health. One key metric to measure the fiscal health of an issuer is to examine the issuer’s fund balance, or available reserves, in the context of its historical financial operations.

In the past, we examined Illinois school districts’ unreserved balances and trends in the districts’ education, operations and maintenance (O&M) and working cash funds. However, in 2009 the Governmental Accounting Standards Board (GASB) released Statement No. 54, which was intended to make fund balance reporting more consistent and transparent. GASB No. 54 assigns classifications to the governmental balance based on specific purposes for which the reserves can be spent. The classifications, in order of most to least restrictive, are non-spendable, restricted, committed, assigned and unassigned.

For districts that have adopted GASB No. 54, we typically consider the assigned and unassigned balance in the education, O&M and working cash funds as available reserves in our credit analysis. For districts that have not adopted GASB No. 54, we still examine unreserved balances in the same three funds.

16 |

Update Magazine / Winter 2012

By Kathryn Clayton CREDIT ANALYST STANDARD & POOR’S

HOW REVENUE AFFECTS RESERVES

The level of the general fund balance and other operational reserves — and whether they are stable, growing or decreasing — are important credit factors in our analysis of the creditworthiness of all government entities, including school districts. When evaluating Illinois school districts, we consider several factors when determining how much available fund balance is sufficient to support the rating.

The main two are property tax caps and the level of dependence on state aid. Due to levy limitations for districts subject to the Property Tax Extension Limitation Law and to maximum property tax rates, most Illinois school districts’ revenue-raising flexibility is minimal.

SO HOW MUCH IS ENOUGH?

We do not rely on exact numbers to determine what fund balance level is sufficient but instead look at each district on a case-by-case basis. Each district should examine its own cash flow/operating requirements and the historical volatility of revenue and expenditures through economic cycles to determine the appropriate level of available fund balance for its own operating needs. A reliance on economically sensitive revenue or historically volatile revenue increases the need for a strong level of reserves, in our view. Still, the following ratios for districts reporting on a modified accrual basis of accounting provide a guideline for what we consider to be a high or low level of available reserves.

Also, the state’s funding for education has declined steadily, and payments have been delayed to school districts during the past several years due to the state’s weak economic and revenue performance during and following the Great Recession. Because of these revenue limitations and ongoing expenditure increases, many districts have found it necessary to utilize a portion of their fund balance as a source of one-time revenue until they can adjust their expenditures through budget cuts. As a result, a number of districts have experienced budget and liquidity imbalances.

Strong

DO YOU HAVE A PLAN B?

Good

Prioritized spending and contingency plans have always been important risk management tools because they allow state and local governments to adjust to changes in economic and revenue environments. We evaluate whether a government has contingency plans and options to address a budget imbalance when it occurs, no matter the reason. Specifically, we consider whether a district has a spending or contingency plan that takes into account the discretionary portion of the budget, non-mandatory expenditures and the amount of revenue flexibility.

In addition, we view a formalized, adopted fund balance policy that considers the district’s cash flow/operating requirements and historical volatility of revenues and expenditures through economic cycles as a credit strength.

In our opinion, school districts that do not have a formal reserve policy run the risk of relying on the use of reserves to balance their budgets, which weakens credit quality and may eventually lead to the depletion of reserves.

Available Fund Balance as % of Operating Expenditures Very Strong

Above 15%

8% – 15% 4% – 8%

Adequate

1% – 4%

Low

Below 0%

FOR ADDITIONAL STANDARD & POOR'S RESOURCES, PLEASE SEE PAGE 45. www.iasbo.org

| 17

FROM-THE-TABLE Money Saving Surveys:

Members share simple solutions that have helped their districts’ bottom line This summer, we called out to members through online surveys and the peer2peer Network to get a glimpse of just how valuable school business officials are to their districts.

Here are some of the solutions that made a difference.

FOOD SERVICE “Consolidation and reduction of freezer contents through summer months saved our district $3700.00.”

“As soon as I turned a light on it by mandating monthly reporting, money spent on lunches for staff went down.”

SUSTAINABILITY “Good filters, MERV 8 and above, are still a simple solution to energy savings and reduced equipment repair.”

“We’ve reduced utility copier/paper cost by creating a district-wide environmental committee that focuses on the reduction of kilowatts, therms and copying. This committee has been very successful in creating excitement about reductions, which has resulted in a 10% drop in utility use and an 8% drop in copying.”

TRANSPORTATION “We went out to bid with several other surrounding districts in the area to realize some cost savings. We also implemented a new pay-to-ride bus program following the shortfall of transportation funding at the state level.”

“Shared transport to an area vocational center with another district.”

“We were able to execute a pay-to-ride transportation program.”

“We re-lamped four heavy use gyms last year with high bay fluorescent lights. It’s hard to measure the actual savings… but our engineering consultant believes, based on usage, that our annual savings are close to $3,000.”

Some other sustainable solutions: • Shutting down buildings not used in the summer to lower air conditioning bills.

• Installing occupancy sensors.

• Staggering start times for start up of heating/cooling to lower peak charges.

• Having a wax-free flooring product you can reduce the time/ energy needed to clean your floors on a regular basis.

TECHNOLOGY “Going to a wireless link to the community college and saving the monthly cost of T-1 lines.”

“We have been purchasing refurbished computers for the last seven years from a company that configures them, images them and gives us a multi-year warranty on all parts. The savings are about 3 to 1.”

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“Purchased an existing manufacturing facility and converted it to fit our transportation needs at one-third of the cost to build new.”

The Bottom Line?

When we asked school business officials how much they saved their districts in the past year, the total average savings of respondents ranged from around $800,000 to over $1,100,000.

PERSPECTIVE / School Finance and Budgeting

SCHOOL BUSINESS 101 What is an out of the box budgeting solution you have used in your district?

David Bein

EXEC. DIR./BUSINESS SERVICES, EAST MAINE SD 63

Have a question or issue that needs to be addressed by School Business 101?

Submit your ideas or questions to Rebekah Weidner at rweidner@iasbo.org

A: We eliminated most classroom printers across the district. We also implemented a system that allows “follow-me” capabilities for printing to copiers. As a result, staff can print to a single generic copier print driver and then swipe their badge at any copier in the district to retrieve (print) their print job. If the print job is not retrieved within three days, it is deleted out of the print queue, avoiding old, unnecessary print jobs from printing. We have dramatically reduced our spend on inkjet cartridges by shifting printing to low cost copiers.

Eric Trimberger

ASST. SUPT./FINANCE & OPERATIONS, RIDGELAND SD 122

A: District 122 was interested in earning higher yields on investments and saving money on interest and issuing costs of upcoming working cash bond sales. The district bought their own bonds as part of a $5.2 million dollar working cash bond sale, saving over $500,000 in interest and issuing costs.

Jay Kahn

DIR./FISCAL SERVICES, ROUND LAKE AREA SD 116

Want to add to the discussion?

Add your response in the Hot Topics Group within the peer2peer Network. Then, watch for the next School Business 101 discussion for a chance to be featured in the UPDATE Magazine.

A: We are working on allocating out as much of the costs to individual department budget managers as possible. An example would be copying and printing costs. The printers are all connected to a network so you can measure the volume of each machine. Measuring the hidden costs and making people responsible for them is a way to reduce waste.

Daniel Barrie

DIR./OPERATIONS & MAINTENANCE, EAST MAINE SD 63

A: A way to achieve savings is to make sure the district HVAC systems are programmed to run only when the building is occupied. I always make sure that I change the schedules during summer, winter and spring breaks to reflect the custodial hours, as well as have the units set in night mode during school holidays. By doing this, I was able to cut our energy usage by 25% compared to the last operations director. It’s time consuming, but 25% of a district’s utility cost is quite significant.

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Thinking

Outside the Box For Lemont HSD 210, loaning money to a neighbor district in need was a creative solution that benefited both sides and was simply the right thing to do.

ARTICLE / POINT of VIEW

By Joseph P. Murphy

DIR./BUSINESS & FINANCE COMM. HIGH SCH. DIST. 155

Your parents probably always advised you against loaning money to siblings. It never seemed to make sense to me at the time, but as we age, we learn that finances can sometimes become real issues in family relationships, as well as marriage. That being said, it was difficult for me to watch the financially struggling Lemont-Bromberek SD 113A attempt to right a ship that was off course by asking voters of Lemont for an operating rate referendum in April 2010, a working cash bond referendum in November 2010 and then again in April 2011. Each time, the referendum failed.

Prior to this situation I had a conversation with investment professionals about investigating the feasibility of one school district purchasing the Tax Anticipation Warrants (TAWs) of another school district. Upon District 113A officials checking with Chapman and Cutler, bond counsel, it was determined that there was a legal provision for this to occur.

Due to its financial distress, District 113A needed to secure a short-term borrowing in the form of TAWs in order to meet its cash flow needs. District 113A reached out to a number of financial institutions; however, the District was unable to secure bank financing for its TAWs due to timing constraints in its cash flows and the hesitancy of banks to lend money during the national credit crisis. With no other financing options available, the Illinois State Board of Education (ISBE) was beginning to take the necessary steps for intervention of District 113A financial affairs.

As the Business Manager for Lemont HSD 210, I felt like the big brother watching his little brother in need continue to try and borrow money from mom and dad but being told “no,” when I had the funds to loan the money myself! (Well not me personally, my district.) I felt like saying, “Don’t go to mom & dad, I’ll loan you the money.” Thinking outside the box? I think not, I just felt it was the right thing to do.

Setting the Wheels in Motion

The Superintendent, local counsel and eventually the Board of Education were approached about “investing” in District 113A by loaning the necessary funds to get it through its current financial situation. Our district had fund balance reserves and they are mostly the same tax payers’ funds.

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Our investment policy needed a few minor revisions in order for this to happen: Under the Authorized Investments section of the investment policy, the last paragraph (in this case paragraph 11) was revised to read: “Any investment as authorized by Illinois State Statute and Acts amendatory thereto. Paragraph 11 supersedes paragraphs 1-10 and controls in the event of a conflict.”

Also, the investment policy needed to reference 50 ILCS 340/1, which is the “Investment of Municipal Funds Act" stating: “Every county, park district, sanitary district or other municipal corporation, holding in its treasury funds which are set aside for use for particular purposes, including any funds that are disbursed to a county or municipality as their share of the taxes collected under the “Motor Fuel Tax Law,” but which are not immediately necessary for those purposes, by ordinance, may use those funds, or any of them, in the purchase of tax anticipation warrants issued by the county, park district, sanitary district, or other municipal corporation possessing the funds against taxes levied by that county, park district, sanitary district or other municipal corporation.”

Once the investment policy was revised and approved by the Board, the door was opened to allow District 210 to purchase District 113A’s TAWs.

Assessing ROI

As Treasurer for District 210, I had the responsibility to safely achieve the best return on the investment (ROI) of the school district’s and ultimately the taxpayers’ funds.

However, at a time when the average rate on a three month investment was yielding about 0.2%, my motivations were not guided by ROI. Based on a formula partially derived from LIBOR, the financial advisor to District 113A calculated the initial interest rate as 2.79% – a nice rate of return, as well as a competitive borrowing rate for District

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113A given the credit environment. This was a win-win for all parties. District 113A received their financing, Lemont 210 received a nice rate of return, the taxpayers of Lemont were not asked to finance a long-term bond issue and most importantly District 113A retained local control of its school district.

History in the Making

After District 113A paid off the TAWs in June 2011, I consulted with Chapman and Cutler as to what I was to do with the bond certificate I had received at the time of closing. I was advised that once it was paid in full the bond certificate could be destroyed. Just as I was about to feed the bond certificate into the shredder, it dawned on me that District 113A and District 210 had made history.

To the best of anyone’s knowledge, they had become the first Illinois school districts to sell and purchase the TAWs of another district. I quickly removed the TAW from the shredder and called the Superintendent of District 113A and asked him if I could present him with this certificate as a historical document for the Lemont archives. Since then, the two districts have gone on to do two more TAW transactions to date with each one getting smaller as District 113A took the necessary steps to right its ship.

The feel good story doesn’t end there. The financial picture of the elementary school district is still improving.

Its bond rating was recently moved from credit watch negative to credit watch positive by Standard & Poor’s.

Current cash flows indicate it may not need to issue TAWs this fiscal year, which will be another step on its road to financial health.

To think, this was made possible by District 210 coming to the aid of District 113A at a time of need and providing not just a financial resource, but more importantly, time and support. It was nice to have been in a position to be of assistance to our associate elementary school district.

As Business Managers, Treasurers, CFOs and Superintendents, we are continually challenged to “think outside the box” and find creative solutions to our problems.

An Example for Others to Follow

Since word of this investment option has gotten out, other school districts have availed themselves to helping their neighbors. Controller Mark Staehlin of Comm. High Sch. Dist. 99 (Downers Grove) bought the TAWs of CreteMonee CSD 201-U in 2011, and Comm. Unit Sch. Dist. 300 (Carpentersville) and Johnsburg CSD 12 in 2012. As Mark points out, “Seeing how Joe ‘helped out’ his feeder school district caused several of us to think about reaching out to other schools throughout the state.”

Mark further states, “I hope this catches on with other schools getting into the investment side. While District 99 was able to bolster our interest income a little by getting short term returns closer to 1% than the usual 0.2%, the actual dollars earned were relatively small. So I am not really in it for the profit side. My primary motive is to assure that a very competitive market exists for those districts that need to

cover their cash flow shortages. I believe that in many cases banks, from a risk perspective, look at loans to local school districts too much like a for profit entity. It is as if they do not fully understand the tax collateralization aspect. I feel that, although not all TAWs are risk-free, the tax collateralization aspect makes them very safe investments.”

Additionally, Gary Grizaffi, Asst. Supt./Admin. Services at Valley View CSD 365-U explored and ultimately purchased the General Obligation School Refunding Bonds, Series 2012, from Johnsburg CSD 12. This transaction allowed Valley View to achieve a higher rate of return and for Johnsburg to exceed its debt service savings target on a $3,000,000 refunding amortized for approximately two years.

As Business Managers, Treasurers, CFOs and Superintendents, we are continually challenged to “think outside the box” and find creative solutions to our problems. With a little creativity and research a solution was developed that helped both parties in the end. As a result, many school districts have benefited on both sides of this transaction. Reflecting back, I still ask “Was it thinking outside the box or simply doing the right thing?” In a win-win solution like this, it was both.

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A Firm

Integrating Strategic Planning Fiscal and Academic Stability

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COVER STORY

By Robert G. Grossi

TREASURER BLOOM TWP. TRUSTEES OF SCHOOLS

Foundation

and Decision Making at the Board Level to Ensure

A

s elected officials of the entire community, the board of education has a unique role that is often overlooked. They are not only responsible for the students that are currently in their buildings; they are responsible for the little brothers and sisters of those students who are still in diapers and for the children who will become part of the community five, ten and twenty years down the road. Without a solid plan and vision to navigate through an extended fiscal crisis, school boards are making decisions, often on the recommendation of their administrators, which are putting their district on a path of unsustainable deficit spending. The end result will be that future boards will be forced to eliminate critical programs and valuable staff members in order to pay for these poorly made decisions. We are seeing from countries in Europe the impact of policies that have no focus on long-term implications. This “kick the can down the road� form of governance is threatening to destroy many once great countries.

I am convinced that this same type of management philosophy will similarly destroy school districts in our State unless immediate systematic changes are made to the decision processes within school districts.

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The Role of The School Board Most of us have heard the analogy that the role of the school board member should be similar to that of a person sitting in the balcony and observing the dance to make sure it looks good. The implications are that the board should not be “on the dance floor” micromanaging the district, but rather should rely on the superintendent to manage the district and ensure quality education. I couldn’t agree more. Micromanaging by board members, whether with good intentions or bad, can adversely impact a district both financially and academically and can unnecessarily distract administrators from their mission.

However, I often think that this analogy is misunderstood, with some people believing that not micromanaging means that the board should be in a separate, windowless room rather than an open balcony – watching, listening and evaluating the dance.

Not being involved in establishing what the dance should look like or not being able to effectively evaluate the quality of the dance can be as destructive as micromanaging the district, especially during these difficult times.

Laying the Groundwork: Getting the Board on Board Build A Sense of Urgency In order to integrate the value of strategic planning and a culture of long-term fiscal and academic stability within the organization, there must first be a real sense of urgency developed at the board of education level. The challenges facing our schools are harsh. Our students are entering a work force that has over 23 million people either unemployed or underemployed. Individuals with less than a high school diploma are unemployed at a rate three times greater than that of individuals with at least a bachelor’s degree. We must improve the skills of our students in order for them to have a chance to successfully compete in a global workforce and give them a chance to live the “American Dream.” This is only half the challenge. Not only must we improve the quality of education we provide, we must do so during a time of decreasing financial resources.

In a perfect model, effective superintendents work with staff to develop a plan to address student needs. The superintendent would then add staff, programs and professional development as necessary with the goal of improving student learning.

During times of increasing revenues, school districts can both implement these plans and balance the budget. In this

new world where revenues do not increase, the objective of improving the quality of education and the objective of balancing the budget will often clash. This is the new dynamic that all school districts must effectively navigate to survive. This is the new dynamic that must redefine the role of the school board member as a critical partner in establishing long-term financial and academic stability in the school district.

Embed Long-Term Fiscal and Academic Stability Within District Goals The only way to effectively integrate long-term stability and success into your district’s decision-making process is to embed those objectives within the district’s stated goals. In effective school districts, every part of the organization is aligned with the district’s mission, vision and goals as articulated by the school board in its strategic plan. The strategic plan must focus on improving the current level of student learning while ensuring all goals and objectives can be met efficiently. With a focus on efficiency and effectiveness, districts can preserve quality programs, staff members and facilities so that future students will continue to be afforded the level of education they need to succeed in life.

“Those who are most successful at significant change begin their work by creating a sense of (real) urgency among relevant people. Without enough urgency, large-scale change can become an exercise in pushing a gigantic boulder up a very tall mountain.”

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Building on your Strategic Plan Provide Quality Data to Make Quality Decisions In order for school boards to make better decisions, administrators must provide their boards with data that is clear, timely and relevant to the decisions required of the board.

The Financial Projections and Financial Plan Before making any major financial decisions, the district must have a living document that projects the future financial condition of the district over the next three to five years based on reasonable assumptions. The document must include threats that are specific to the school district and a plan to stabilize the district’s financial condition should one be needed. This document should be shared with and understood by all stakeholders in the district. Note that the financial projections/plan is worthless unless the information is grounded in reality and in a format that is clearly understood by the board of education and other stakeholders.

Collective Bargaining Agreements The most difficult question business managers are ever asked by a board of education during contract negotiations is, “What can we afford to give?” The board must know the anticipated long-term impact of a proposed contract offer before it is made, both in terms of its impact on the district’s future financial condition and its impact on the stated goals of the district. The board must know, for example, if staff or program reductions will be required to cover an anticipated deficit generated from a contract offering before the offer is given. It is irresponsible to simply offer a 2.5% raise because that is the average salary increase in the surrounding area.

The Budget The budget must be discussed in conjunction with the long-term financial plan. An effective presentation of the budget should be able to convert this collection of numbers into an understandable document that links the district’s resources to an expenditure plan that best matches the established goals of the district, especially its educational goals.

Major Capital Expense Decisions Every school district should have a long-term facilities plan that includes a list of major capital needs and wants over the next ten years. Again, the district must weigh the decision of addressing these items in alignment with the district’s stated objectives. If long-term financial stability objectives are threatened, the district may want to postpone addressing items on their “wants” list until their financial condition stabilizes. Conversely, it may be prudent and necessary to address items on the “needs” list generated from overcrowded or unsafe facilities even during difficult economic times in order to maintain academic and safetyoriented objectives.

The Tax Levy The board of education should be provided with information on how the proposed tax levy impacts the average taxpayer and how the tax levy supports the vision, mission and goals of the district. By having a focus on long-term stability when considering the tax levy, the board of education can better justify decisions that may include maximizing its tax levy during difficult economic times.

Make Decisions In Alignment With Stated Goals Once the board is provided solid data to make well-informed decisions, the board must then ensure that all decisions are made in alignment with the district’s purpose, direction, priorities and desired outcomes, including long-term goals. This is critical as decisions become more difficult, more impactful and more emotional. Before any decision is made at the board of education level, each board member must know the answer to the following questions: • What is our district’s vision for its children?

• What is our district’s strategic plan?

• How does the strategic plan support our district’s vision for its children?

• How will the success of the strategic plan be measured?

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Building Blocks: Additional Board Responsibilities In addition to aligning major financial decisions to a strategic plan focused on long-term stability, boards of education must refine and expand other critical responsibilities to best meet the great challenges facing their school districts.

Embrace the Role of Community Liaison School board members must be advocates for district improvement and must be willing to engage people in conversations about the importance of quality schools within their community. Times of great challenge often create times of great emotion. Making tough decisions in alignment with the long-term goals of fiscal and academic stability will likely invoke greater public participation. In order to navigate through these emotional times, it is critical that the board of education speak with one voice and that individual concerns from community members be appropriately directed to the superintendent to ensure consistency and clarity.

Develop an Effective Process to Evaluate the Superintendent IASB states, “The board employs and evaluates one person – the Superintendent – and holds that person accountable for district performance and compliance with written Board policy”. IASB also stresses that the board must constantly monitor progress toward district goals and compliance with written board policies using data as a basis for assessment.

The superintendent needs to know what is expected of him/ her and the board must know how to effectively evaluate whether he/she meets these expectations.

It is a great challenge to improve student learning during a financial crisis, and it will take a special skill set for the superintendent to succeed. The board must have the training necessary to effectively and fairly evaluate

the superintendent and hold him/her accountable for performance. This process must be taken very seriously. It is recommended that boards of education work closely with their association on this essential responsibility.

Provide Support to the Superintendent The growing needs of students, the raised expectations on student performance and the challenge of meeting goals with less resources has raised the stress level on many superintendents to dangerous levels. It is easy to be popular with your staff when the district is giving 5% raises and lowering class sizes. It can get awfully lonely when your staff is forced to work harder for less money.

Maintaining the physical and emotional well being of the superintendent is critical to achieving all the goals and objectives within the school district. School boards must; •

Provide the superintendent with a clear understanding of their expectations.

•

Give the superintendent the time and support to “do their thing.”

•

Recognize both publicly and privately the superintendent’s hard work and accomplishments,

•

Be cognizant of the superintendent’s personal health by making sure they take time away from the district and maintains balance in their life.

In order to navigate through these emotional times, it is critical that the board of education speak with one voice…

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Putting It All Together In order for a school district to succeed during this time of great challenge, the district will not only need great teachers and great administrators; it will need great school board members. School boards that are making critical decisions during periods of great challenge based on emotion, self-interest, past practice or conflict aversion are putting the future of their districts at risk. School boards that are making decisions using sound data in alignment with a well developed strategic plan focusing on long-term stability will serve as the district’s rudder, allowing it to effectively navigate through the great financial and academic challenges facing the district.

TAKEAWAYS > > > » Without a solid plan and vision to navigate through the fiscal crisis, school boards can make decisions that put districts on the path of unsustainable deficit spending.

» Administrators must provide their boards with data that is clear, timely and relevant to the decisions at hand.

» School board members must be advocates for district improvement and willing to engage people in conversations within the community.

» The well being of the superintendent is critical to achieving all the goals and objectives within the school district.

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EFFECTIVE COMMUNITY ENGAGEMENT: Communication That Goes Two Ways

Community engagement programs hold the promise of uniting a community behind a school district. Too often however, the results are mixed. Many districts have held community engagement programs only to find that their community is even more distrustful than when they started. Others have resulted in substantive changes in district policies and procedures.

Successful programs do exist, and by understanding them school district personnel and community members can both be better prepared and reach positive outcomes.

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ARTICLE

By Linda M. Matkowski

EXECUTIVE VICE PRESIDENT CITY SECURITIES CORPORATION

Is a Community Engagement Program the Answer to Win a Pending Referendum?

In his 1987 book, Thriving On Chaos, Tom Peters said, “Communication is everyone’s panacea for everything.” For many school districts that quote represents a strong rationale for establishing a community engagement program.

In its most basic form, community engagement is a process of communication that can establish a two-way channel between school districts and their constituents. It provides an opportunity for community members to provide credible solutions to problems proposed by the district.

All school districts will tell you that they began their community engagement programs believing that the result would be the community and the district in relative syncopation. Lines of communication would be open, and productive and useful data would be exchanged. Everyone would make better decisions because they were using valuable information developed during the engagement program to develop meaningful solutions to problems that were necessary and achievable.

Unfortunately, many community engagement programs end in a different way. Wary school personnel, distrustful community members, frustrated parents and baffled staff all try to understand what went wrong with the process. The influence of newspapers, TV, social media and people’s differing perceptions often collude to create a worse situation than if no community engagement program had been started.

There is no one successful formula for community engagement. In fact, many districts that have a successful community engagement program one year, find that they struggle with a program in a future period. Having been involved in a large number of community engagement programs as a school board member, facilitator/consultant and a community member, I’ve seen many different approaches to community engagement.

Unfortunately, in today’s economic environment, voter apathy is profound and voter distrust is even more prevalent. If the school district already knows that it wants to conduct a referendum, holding community engagement to “win” the support of the voters will be seen as disingenuous at best and dishonest at worst. Community member participants will feel let down by the district for using their time inappropriately and may face questions of credibility leading up to the referendum.

Rather than establishing a community engagement program, a district may be better off holding a series of well orchestrated informational meetings. In those meetings, the communication will flow from the district to the community.

While the district will be receptive to feedback, the feedback will not be used to establish a different course of action, i.e. pull a referendum off the ballot.

One Way Communication: Audience to Visitors The simplest form occurs at each board meeting during the period known as “Audience to Visitors.” Public school board meetings in Illinois are required to have a portion of the meeting agenda dedicated to receiving public comments.

The public can approach the board and address them on a topic (or topics) for a prescribed period of time.

Some of the best practices surrounding “Audience To Visitors” involve having two portions of the meeting dedicated to this activity: • One portion at the start of the meeting is dedicated to comments on items being considered on the agenda. The opportunity to discuss matters before potential board action assists the district in allowing the community to weigh in on official business.

• Another portion at the end of the meeting allows for comments on any topic not on the agenda. This allows public meetings to move along more efficiently without denying the community the opportunity to address their broader concerns.

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School administrators would be wise to research theories on small group communication and dynamics prior to starting a community engagement process.

See Resources on page 44 for some suggested reading!

This basic form of engagement allows community members to speak and board members (and administration) to listen.

This type of engagement is often one way, the community to the district. While this approach can be time consuming initially, it ultimately provides better feedback to the school board about the community’s involvement in the district.

Two-Way Communication: Group Problem Solving For community engagement to be truly successful there needs to be communication in both directions. The district needs to communicate to the community, and the community needs to communicate back to the district.

For most districts, community engagement programs are structured similarly: The district provides a shared learning experience followed by a series of group activities which are designed to solicit ideas to solve a stated problem.

Keys to a Successful Community Engagement Program Successful community engagement programs are sincere in their attempt to develop working solutions to identified problems. The simplest question that district administrators and boards can ask themselves prior to agreeing to a community engagement program is, “Why?” What problems are the district grappling with that they would like the community’s involvement in solving? Will the district be willing to use the recommendations that may be developed during the program or will they selectively choose recommendations that best fit what they believe needs to be done?

If a decision to go through a community engagement program is agreed upon by the district’s administration and board, then careful planning should be conducted.

(School boards need to be in complete agreement on the establishment of a community engagement program.)

Some things to consider when planning a program: 1. COMMUNITY ENGAGEMENT IS SUCCESSFUL WHEN GROUPS WORK TOGETHER TO DEVELOP A SOLUTION. While school districts are often comfortable with using small group settings for curricular activities, not all of those approaches work well with community engagement programs. Careful consideration, for example, should be given to who should be included. Developing the list of participants is a little like playing Goldilocks. Too much or too little of one thing will doom the program. Having just the right mix will allow the groups to develop productive ideas and solutions.

3. A CROSS SECTION OF PERSONALITIES NEEDS TO BE INCLUDED. Having everyone thinking identically does not yield enough diversity to look at counter arguments to proposed solutions. Alternatively, having too many dominant personalities does not allow more passive individuals to express themselves. “Stacking” the group with only the administration’s most favored parents will not allow unfamiliar community members an opportunity to provide input. Look at the surrounding community and work to bring together an equal representation of its members into the process.

2. SCHOOL ADMINISTRATORS ARE AVAILABLE TO PROVIDE INFORMATION, BUT SHOULD NOT PARTICIPATE IN THE GROUP ACTIVITIES. One exception may be that building level principals should be allowed to work with the groups. In many districts, the building principal is better known than the superintendent. Superintendents might want to reserve the right to simply observe the program. Observation will allow a superintendent to remain relatively neutral and identify potential issues with the group’s dynamics and the facilitation process.

4. CAREFULLY EXAMINE THE QUESTION OF DIVERSITY

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WITHIN THE COMMUNITY ACROSS VARIOUS SOCIAL, ECONOMIC AND ETHNIC GROUPS. Ethnic diversity in many Illinois communities is increasing, and developing community engagement programs that reflect this is critical to communication between the district and the community. The idea that certain groups “don’t vote” or “don’t participate” simply isn’t true. Each diverse group brings its own cultural concepts into the process, and understanding how to bring them into the group setting requires additional attention but yields tremendous results. Reaching across various groups will ensure that the district is engaging the entire community.

5. THOUGHTFULLY PLAN MEETING AGENDAS AND ACTIVITIES. Start with the goal at the end of the community engagement program and work backwards to the first meeting. Each meeting should have a carefully constructed agenda that involves people getting to know each other, provides a common learning activity and then moves into a small group activity that allows for development of some action item(s) or idea(s). As the group meets over a period of time, the ideas and/or action items are brought together to create a framework for direction that can be provided to the district as a “plan.”

6. GIVE CONSIDERATION TO THE SHARED LEARNING ACTIVITY BEING CONDUCTED AT EACH MEETING. We have spent years developing differentiated learning techniques in classrooms; the creation of shared learning in a community engagement group shouldn’t be much different (See Sidebar: Catering to Your Audience).

7. SMALL GROUP ACTIVITIES SHOULD HAVE AN IDENTIFIED PURPOSE. They should be creating some idea or action item that the district can use either immediately or in the future.

Do not waste the group’s time together with activities that do not provide the connection between the community and the district. This is often the point that community engagement programs start to break down.

8. BUILD STRUCTURE THAT HELPS GROUPS REMAIN FOCUSED. Group activities have to have meaning, but also have to end with a resolution towards action. Be mindful of group dynamics so that one member does not lead the rest of the group towards a resolution that is not consistent with what the goals or objectives are for the larger process.

Many community engagement programs utilize a subcommittee type structure and assign each sub-committee a specific area of concentration. This allows the small group activities to be focused around a common concept and provide resolutions that are tailored appropriately.

9. USE THE INFORMATION OR OUTCOMES THAT THE PROGRAM DEVELOPS. In order for the larger community to see value in participating in community engagement, there needs to be concrete evidence that the district is “using what it’s been told.” Nothing frustrates community members more than participating in a community engagement process that results in a great report that ends up sitting on a shelf.

SHARED LEARNING: CATERING TO YOUR AUDIENCE People learn and understand ideas differently so be sure to use different approaches to your shared learning activities: • Present information in a variety of mediums.

Store your documents online and allow them to be accessible to members of the community engagement group and others in the community. If necessary, keep a hard copy set of materials available around the community for people to view that do not have ready access to computers.

• Consider your presenters/facilitators carefully. Sometimes on complex topics, the best presenters are not the “subject matter experts” but rather community members.

Presenters should be engaging and capable of taking a subject and making it understandable to a broader audience.

• Ask the presenters go through a dress rehearsal prior to actually presenting to the group. A practice session helps work out the problems in presentation style, content information and use of materials.

There are many ways to approach community engagement depending on how complex and involved the district wants the program and whether they want to run the program internally or use external consultants. No matter the approach, community engagement requires community participation. Its purpose is to create a two-way dialogue between the district and the community and to develop a set of solutions or ideas to support the activities of the district.

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e v i t c a o r P 3 1 d a e L t a h t s e s c e i t m c Pra ter Outco ct i t r e t s B i D to e h t r o f

Update Magazine / Winter 2012

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ARTICLE

By Shawn M. McLain

ATTORNEY GUIN, MARTIN & MUNDORF, LLC

Collective bargaining agreements dictate a large part of a school district’s finances for the length of the contract. As a result, school business officials should be active in the collective bargaining process during preparation and planning, collective bargaining negotiations and during the administrative phase of a collective bargaining agreement.

Financial Models Prior to PBuild Bargaining Preparation for collective bargaining should begin by building financial models that show the historical trends of fund balances and projections for the coming year.

These financial models should be shared with the union early and often. This will present to the union an objective criteria that the school district will use and give the district a degree of credibility when presenting proposals during negotiations.

Additionally, the bargaining team and administration should be aware of the school district’s financial situation during negotiations. If there are variables that might affect the budget during the upcoming years, then the bargaining team should be fully aware of how the variable might affect the budget. With that information in mind, the school district should have an idea of how much money, if any, is available for the contract. This allows the school district bargaining team members to know where to start with their first offer and where they will want to end.

a Scattergram in PPrepare Advance of Bargaining Prior to negotiation or very early during negotiations, the union and school district should prepare and agree on a scattergram that identifies where each teacher is located on the salary schedule. This allows the parties to bargain from the same set of numbers throughout the negotiation process. The parties should also stick to the scattergram throughout negotiations, as any changes to the scattergram numbers have the potential to cause unnecessary confusion and potential conflict over side issues.

PCost Out All Proposals

School business officials should work closely with the bargaining team to carefully and accurately cost out each proposal that the bargaining team intends to bring to the table. Costing out each bargaining proposal should include not only the economic proposals, but also any language proposals that might add a cost to the district. Knowing the exact cost of proposals ahead of time will aid your school district’s bargaining team in their efforts to secure a financially sound and sustainable collective bargaining agreement.

Costing out proposals should continue throughout the negotiation process and should occur for both school district and union proposals. It is important to understand that some seemingly small changes in language can have a big impact on the numbers, and the bargaining team should be aware of those changes as soon as possible. Adjustments to economic proposals will generally require more focused and continued analysis of cost than language items, but neither should be overlooked.

Costing out proposals should continue throughout the negotiation process and should occur for both school district and union proposals.

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PAlways Include the Cost of Step

When building financial models, costing out proposals and during negotiations, a school district should always include the cost of the step. Many unions believe that step movement is an entitlement, but that is inaccurate because step movements are negotiable terms of the collective bargaining agreement. A school district should first determine if a step is feasible given the current financial models, and if a step is not feasible then consider no step movement as a reasonable, good faith offer.

In most cases, economic proposals should be combined to require the acceptance of all or none of the individual components. and Avoid Costly PModify Language Some language items in a collective bargaining agreement can be extremely costly. For example, class size language can be extremely costly. When certain contractually agreed to class sizes are reached, then the school district will be forced to hire another certified teacher. School districts should identify and modify costly language items and avoid including them into the collective bargaining agreement in the first place.

In the event that costly language is already present in the contract, the school district should seek to modify the language and seek cost containment alternatives.

For example, if a school district pays a set percentage contribution to health insurance, then the school district may want to consider setting a dollar cap instead. A dollar cap would more adequately contain an unknown, rising cost to the school district, as compared to a percentage contribution.

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PAddress Pension Reform

Given the current uncertainty surrounding pension reform in Illinois, school districts should review their collective bargaining agreements to determine if any current language contains an uncapped TRS contribution provision. TRS language that does not contain a cost containment mechanism, such as a cap, is a costly language provision that should be addressed. Adding a cap into current TRS language is highly advisable.

Piecemeal Bargaining by PAvoid Packaging Proposals In most cases, economic proposals should be combined to require the acceptance of all or none of the individual components. Proposals involving salary and health insurance, in particular, should be combined into one package as opposed to separate pieces. This method of bargaining allows a school district’s board of education to control the overall amount of funds being allocated to economic proposals. Packaged proposals may also have the effect of demonstrating to a union the importance of a school district’s interests when a school district proposal is packaged with a union demand.

Read Proposals and PCarefully Verify Facts and Assertions There are times when a bargaining proposal may appear to have little effect on a school district’s bottom line. However, no proposal should be taken at face value. A close and focused reading of each bargaining proposal is essential to understanding whether that proposal contains any actual or potential costs to the school district. Further, a close reading can also identify any mistakes that need to be addressed. All assertions and facts should be independently verified no matter how much you trust the union’s bargaining team. Missed mistakes can be costly if not discovered and addressed.

If you find that there is a mistake, inconsistency or discrepancy, bring it up at the bargaining table and show how you arrived at your conclusion.

Cost Calculations During PShare Bargaining During bargaining it can become easy for some bargaining team members who are also members of the bargaining unit to look only at how a proposal will affect them personally, as opposed to the aggregate cost to the school district. For example, a pay increase of 1% might seem small to a bargaining unit member, but if there are 300 bargaining unit members then that 1% creates a substantial new cost that will have to be managed each year going forward. If a union’s bargaining proposal is going to cost the school district too much money or is outside of the budget, then share that information and place it in context of the school district’s budget and financial models.

Demonstrating the larger aggregate effect of small or incremental changes in language can be very effective during negotiations.

PDo Not Bargain Your Budget

School districts should also avoid bargaining their budget with unions during collective bargaining. Some unions will compare the base year’s salary with the next year’s salary. Typically due to retiring teachers, it will appear as if there is more money available. This approach to calculating costs should be rejected because it gives any theoretically saved money back to the teaching staff, while actually increasing the long term cost of personnel due to the pay raise.

Demonstrating the larger aggregate effect of small or incremental changes in language can be very effective during negotiations.

and Exclusion of PInclusion State and Federal Law Another potentially costly language item is the inclusion of a language proposal that mirrors some state or federal law. For example, the inclusion of language identical to the Family and Medical Leave Act (FMLA) into the collective bargaining agreement is unnecessary. The law already protects employees.

However, if a legal issue with FMLA or a claim under FMLA should arise, then the employer may be spending attorney fees in not one but two forums (grievances and court). For that reason, language already covered by the law should be excluded if possible.

PRead the CBA, Follow the CBA

Collective bargaining agreements are usually long and complicated contractual instruments. Take the time to read the final collective bargaining agreement.

Familiarize yourself with any procedures that are contained in the agreement. Sometimes half of the battle is recognizing that the agreement contains procedures that will need to be followed in a given situation, knowing when to look up those procedures, following them and knowing when to ask for help.

PSeek Legal Advice

Finally, you should know when you should seek counsel with questions before, during or after negotiations.

The advice of trained and competent counsel can and will save the school district money in the long term by helping the school district prevent problems before they arise. This seems like a no-brainer, but too many districts attempt to make heads and tails of complicated situations, contracts and laws all on their own without the advice of counsel. Making a decision on a hunch and without the advice of trained and competent counsel can turn into a grievance or costly and protected litigation.

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Get Your Ducks in a Row Top 10 Things Reviewed for Bond Ratings:

In an economic environment where school districts are facing increasing budgetary pressures, credit-rating agencies are looking at school districts more closely than ever. For the 12 months ending on June 30, 2012, Standard & Poor’s and Moody’s—the two most influential ratings agencies—downgraded 11 Illinois school districts and upgraded 15 school districts.

Credit Ratings of Illinois School Districts IL School Districts

Aaa/AAA

Aa/AA

Standard & Poor's

6%

43%

Moody's

8%

57%

A/A

Baa/BBB

48%

2%

34%

1%

Maintaining or improving a credit rating can result in significant savings for a school district. But doing so in today’s economic climate depends on the ability of the district’s leadership to control expenses and implement budgetary limits and tax caps and to make the difficult budget cuts necessary to balance the budget,” said John Kenward, a Director at Standard & Poor’s Ratings Services.

To help public issuers better understand the credit-rating process, S&P issued a report in July titled “The Top 10 Management Characteristics of Highly Rated U.S. Public Finance Issuers.”

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ARTICLE

Here is a closer look at each of those characteristics and how they relate to school districts: 1. Focus on structural balance Structural balance—where revenues match expenses with the exception of one-time capital or extraordinary expenses—is an essential attribute of highly rated school districts. Budgets that rely on debt restructuring or the issuance of working cash fund bonds to create structural balance are viewed negatively, as is a reliance on one-time savings measures.

2. Strong liquidity management Managing cash flow and identifying potential issues are vital to securing a strong credit rating. Cash-flow financing or the use of tax anticipation warrants for liquidity needs is a common sign of fiscal stress. The use of interim cashflow financing, however, may be more acceptable if the loans are cyclical in nature and don’t increase in amount or length of maturity over time.

3. Regular updates on revenues to identify shortfalls early Obtaining information from state and local assessors on future property assessments and staying in touch with state legislators regarding state funding enhances the reliability of budgets and financial projections. This is especially true as property values fall and tax-rate maximums limit some school districts’ property tax revenue. (Ironically, districts governed by the Property Tax Limitation Law (PTELL) have moredependable and more-sustainable revenues from property taxes because of the CPI increase in the PTELL formula, assuming they are not at their tax rate limits.) Illinois’ economic difficulties affect the credit quality of the districts that are the most dependent on state funding. The state remains delayed on categorical payments dating back to 2010 and more recently has begun pro-rating General State Aid. 4. Formalized fund balance policies A fund balance policy is a common feature of highly rated credits. The Illinois State Board of Education recommends a minimum fund balance of 25% of annual operating expenditures. A school district’s fund balance policy should factor in the monthly cash-flow needs and the volatility of revenues and expenses. It also is important to define when the fund balance can be drawn down and how it will be replenished.

By Elizabeth M. Hennessy PARTNER WILLIAM BLAIR & COMPANY, LLC

revenue constraints. Conservative multi-year financial planning is an essential part of the budget process and provides transparency for the community.

7. Long-range capital planning Having a multi-year plan for capital expenditures (and the associated funding sources) is essential for highly rated school districts. Projecting enrollment and the need for new facilities is critical. School districts should also have a replacement plan for all assets and avoid deferred maintenance. Using a combination of pay-as-you-go and debt financing is a sound policy because it lowers debt service costs and provides the operating budget flexibility when growth slows.

8. Debt management plan Highly rated school districts often have a debt management plan that incorporates a systematic review of how existing and proposed debt will affect the district’s financial profile. Debt management plans often match the average life of bonds with the assets being financed. A plan can also address the use of variable rate debt, swaps and derivatives. Tax-capped school districts with nonreferendum bonding capacity are viewed positively by the rating agencies.

9. Long-term liability management The annual cost of long-term liabilities, such as health insurance for retirees, and the amount of the unfunded liability must be addressed in the financial planning and budgeting processes. If the State requires local school districts to pay the State’s share of pension costs for certified staff and administrators, it is important for the district to show that it is properly managing this contingent liability.

10. Investment management policy School districts should have a formal investment policy in place that addresses important aspects of how the district will manage and monitor its assets. The policy should address topics such as asset allocation, risk parameters, the selection of financial advisors and investment managers, benchmarking and disclosure. Stakeholders should be provided a monthly treasurer’s report showing investment holdings and performance.

5. Budget prioritization and contingency planning Highly rated school districts do a good job of planning for contingencies and prioritizing expenditures. A clear understanding among stakeholders of the district’s educational and programmatic priorities and delineation between mandatory and discretionary expenditures allows a district to adjust nimbly to revenue downturns.

In addition to these 10 factors that the district can control, ratings agencies also pay close attention to the size of the tax base, largest taxpayers, local employers, median income and home values. Even though these factors are not within a school district’s control, strong academic programs can have a positive effect on home values by attracting families to the district.

6. Long-range financial planning Financial projections help a school district consider the affordability of actions before they become part of the annual budget. For example, contractual obligations negotiated with bargaining units must fit within the district’s

Special thanks to John Kenward, Director, Standard and Poor’s Ratings Services and Mark Lazarus, Analyst, Moody’s Investor Services for their help on this article.

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Building Your Case:

Can you Finance Employee Costs Related to Capital Projects with Tax-exempt Bond Proceeds?

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Update Magazine / Winter 2012

ARTICLE

By Brent L. Feller

PARTNER CHAPMAN AND CUTLER LLP

Anjali Vij

ASSOCIATE CHAPMAN AND CUTLER LLP

Many governmental entities issue tax-exempt bonds to finance projects involving the acquisition or construction of capital assets. Staff members and employees are usually involved in the coordination and completion of these projects. For example, employees may participate in negotiating the acquisition of land, buildings or equipment.

Employees may also review documents regarding such proposed acquisition, including searching title and negotiating purchase contracts. It is also common for an employee to visit the construction site and supervise the project as the project manager.

These scenarios raise the question: may a governmental entity use the proceeds of its tax-exempt obligations to finance employee, service or administrative costs? The answer is yes, so long as such costs are: (i) paid to a third party (such as employees) AND (ii) directly or indirectly incurred in the acquisition or the self-construction of capital assets (such as land, buildings or equipment) THIRD PARTY COSTS First, the tax-exempt bond proceeds must be used to pay costs to a third party (such as an issuer’s employees) to be considered spent. Costs of an issuer not paid to a third party (such as costs paid by one state or local government to another department of the same state or local government for a construction permit) will not be considered spent for tax law purposes and generally cannot be financed with tax-exempt bond proceeds.

CAPITAL EXPENDITURES Second, in order to be financed with tax-exempt bond proceeds, amounts paid to employees must be a part of the cost of the acquisition or the construction of the capital asset and, thus, a capital expenditure.

Costs incurred to acquire, construct or improve land, buildings and equipment generally are capital expenditures. Note that if employee costs are not a capital expenditure, a de minimis amount of such costs may still be able to be financed as working capital with the proceeds of tax-exempt obligations.

ACQUISITION OF PROPERTY As discussed, acquisition costs of a capital asset are generally capital expenditures. For purposes of this article, the acquisition of a capital asset means either the purchasing of an existing asset (such as equipment) or the construction of an asset (such as a building) using an outside construction firm.

Determining which employee costs are a capital expenditure is complicated by that fact that many employees only dedicate a portion of their time towards the coordination or completion bond-financed capital projects. Employees’ salaries and benefits can only be capitalized to the extent such costs can be allocated to the bond-financed capital projects. For example, if the director of construction spends 25% of their time managing and implementing the bondfinanced capital projects and 75% of their time managing and overseeing other facilities, then 25% of the director’s salary may be capitalized to the project. In order to finance such costs with tax-exempt bond proceeds, the issuer will need to carefully track such costs and keep records to substantiate that such costs were used to acquire or construct the capital asset.

Recently released Treasury Regulations that have not yet been finalized, but are currently effective (the “Temporary Regulations”) generally provide that amounts paid to facilitate the acquisition of real or personal property (such as costs of investigating or otherwise pursuing the acquisition of an asset) are capital expenditures related to such property.

The Temporary Regulations also permit taxpayers to make an election to treat amounts paid for employee compensation or overhead as amounts that facilitate the acquisition of property. Employee costs attributable to the acquisition of real property or equipment is generally a capital expenditure for a state or local governmental entity whether or not the entity makes a formal election.

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In determining whether an amount is paid to facilitate an acquisition, the fact that the amount would (or would not) have been paid but for the acquisition is relevant but not determinative. Amounts paid to facilitate an acquisition include, but are not limited to, amounts paid for the following: I. Securing an appraisal or determining the value or price of property; II. Negotiating the terms or structure of the acquisition and obtaining tax advice on the acquisition; III. Preparing and reviewing the documents that effectuate the acquisition of the property (for example, preparing the bid, offer, sales contract or purchase agreement); IV. Examining and evaluating the title of property; and V. Architectural, geological, engineering, environmental or inspection services pertaining to particular properties.

However, the Temporary Regulations generally do not treat amounts incurred to determine (i) whether to acquire real property, and (ii) which real property to acquire, as capital expenditures if they are not the type of facilitative costs set forth above.

SELF-CONSTRUCTION OF PROPERTY As discussed above, costs of the self-construction of a capital asset are generally capital expenditures. For purposes of this article, self-construction of an asset means the construction of an asset using the employees of the issuer (such as constructing sidewalks or parking lots using the employees of the issuer, as opposed to an outside construction firm). With respect to the self-construction of a capital asset, the direct costs of such property and the indirect costs allocable to such property can be financed with tax-exempt bond proceeds.

It is usually clear what constitutes a direct cost of producing property — for example, engineering costs and material costs. As for indirect costs, the Treasury Regulations provide the following list: (i) indirect labor costs, (ii) officer’s compensation, (iii) pension costs, (iv) employee benefit costs, (v) purchasing costs, (vi) handling costs and (vii) storage costs. Indirect costs also include so-called service costs, such as general and administrative costs. Such service costs are capitalizable only if incurred for the selfconstruction activities.

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Determining what service costs are a capital expenditure may be complicated because service costs are often only partially allocable to the bond-financed project. For example, a personnel department may incur costs to recruit workers for a project, the costs of which are allocable to selfconstruction activities, and it may also incur costs to develop certain wage, salary and benefit policies, the costs of which are allocable to non-construction activities.

A reasonable allocation method must be used by an issuer to allocate direct and indirect costs to property.

Notably, certain de minimis rules may apply to make all such costs capitalizable when 90% or more of a mixed service department’s costs are capitalizable. Allocating costs becomes more difficult the less direct the relationship between the employee duties and the bond-financed project becomes. In order to finance such costs with taxexempt bond proceeds, the issuer will need to carefully track such costs and keep records to substantiate that such costs were used to construct a capital asset.

CONCLUSION In summary, an issuer may finance employee, service or administrative costs with tax-exempt bond proceeds if such costs are paid to third parties (such as an issuer’s employees) and are directly or indirectly incurred in the acquisition, construction or self construction of a capital asset (such as land, buildings or equipment). However, caution is required when only a portion of an employee’s duties relate to bond-financed property. The issuer will need to keep very detailed records as to how employee time is allocated to bond financed improvements.

The determination of whether an employee, service or administrative cost constitutes a capital expenditure is based on all of the facts and circumstances surrounding a particular transaction. Therefore, in the event questions arise with regard to specific costs, please consult with counsel, your external accounting firm or internal accounting staff.

RESOURCES Responding to Naysayers and Nitpickers You believe in a good idea — one that can solve a problem or bring about a needed outcome for your district.

However, making that idea a reality is not all up to you. You need the support of the school board, community and other district stakeholders.

Four ways to kill an idea According to Kotter and Whitehead, the key to getting buy-in is, “understanding the unfair attack strategies that naysayers, nitpickers and handwringers deploy with great success time and time again.”

Even with the solid foundation of integrating strategic planning at the board level (see article, page 24) and a stellar community engagement program (page 30), you are still not immune to common attacks that can overtake the best of ideas.

They believe that most of these attacks can fit into one of four categories:

• • • •

Confusion — muddling an idea in people’s minds.

Death by Delay — raising concerns that require time and effort to reconcile.

Fear Mongering — pushing emotional “hot buttons.”

Ridicule and Character Assassination — going after the person rather than the idea.

From attack to advantage They go on to demonstrate what they call a “counter intuitive” strategy to achieving buy-in. Instead of turning the naysayers away, they suggest using opposition as an opportunity to win over the minds and hearts of the audience.

Getting your audience’s attention is the first hurdle — and attacks can actually work to your advantage by doing just that. By engaging the attacks in a respectful and thoughtful way, you can gain intellectual and emotional commitment to your idea that is “at the heart of true support.”

When your good ideas prevail you won’t be the only winner – your school district and students will ultimately win too.

On My List Buy-In: Saving Your Good Ideas from Getting Shut Down

By John P. Kotter and Lorne A. Whitehead

Overview: Blinding rhetorical ability is not the secret to getting great ideas approved and implemented; it is a skill that anyone can learn.

In Buy-In, Kotter and Whitehead summarize years of observation and research to help the reader identify and respond to common attacks that lead to the death of great ideas.

Beginning with the story of a public meeting gone awry, the reader understands how to apply principles that can achieve buy-in even in the most contentious circumstances.

What is at stake After outlining the problem and a basic strategy to achieve buy-in, the authors take the reader through twenty-four specific attacks and twenty-four responses that can lead to better outcomes for their ideas.

Learning to dismantle your naysayers’ attacks is a skill that takes time and practice. Yet, with so much at stake in today’s educational environment, when your good ideas prevail you won’t be the only winner – your school district and students will ultimately win too.

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Get Better Outcomes: Board, Community and Collective Bargaining

Getting to Yes: Negotiating Agreement Without Giving In Roger Fisher and William Ury A good introductory book in negotiation tactics based on the work of the Harvard Negotiation Project, a group that deals with all levels of negotiation and conflict resolution.

Recommended by Shawn McLain. See his article on collective bargaining on page 34.

The Heart of Change: Real Life Stories of How People Change Their Organization John P. Kotter and Dan S. Cohen Learn to go beyond facts, figures and charts — getting your stakeholders to “see” and “feel” the changes that you propose. Loaded with real-life examples and practical advice.

Recommended by Rob Grossi. See his article on effective school boards on page 24.

Functional Perspective on Group Decision Making Randy Hirokawa and Dennis Gouran Learn four functions that need to occur to have a highly functional group – an analysis of the problem, goal setting, identification of alternatives and an evaluation of positive and negative characteristics.

Recommended by Linda Matkowski. See her article on community engagement on page 30.

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RESOURCES

Tools and Trends: Becoming a Top-Rated District After reading the article on fund balances from Kathryn Clayton on page 16 and bond ratings from Elizabeth Hennesey on page 38, head to the peer2peer Network Resources page and select UPDATE to gain more insights through these articles:

The Top 10 Management Characteristics Of Highly Rated U.S. Public Finance Issuers What A School District Needs To Rank Top Of The Class

Standard & Poor’s, July 23, 2012 Dive deeper into the “Top Ten” qualities that credit-rating agencies are looking for.

Standard & Poor’s, May 12, 2011 Of the thousands of school districts rated by Standard & Poor’s, only a select few reach top of the class and are rated ‘AAA.’ Find out what it takes to gain admittance!

Key General Obligation Ratio Credit Ranges :

Credit Trends: Illinois Schools Bear the Brunt of State Budget Cuts and Potential Pension Reform; Limited Impact on Most Cities and Other Local Governments Moody’s Investors Service, July 12, 2012 The FY2013 budget has significantly reduced spending in several areas, including aid to school districts. Read this special comment on the situation for the State and for schools.

Standard & Poor’s, April 02, 2008 Read “behind the numbers” to understand key general obligation (GO) performance measures for municipal governments.

Financial Management Assessment Standard & Poor’s, June 27, 2006 Learn about Standard and Poor’s analytical methodology that evaluates established and ongoing management practices and policies.

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THE FINAL WORD Great Ideas from Great Illinois ASBO Members Jane A. Lair Dir./Business Services Lake Bluff SD 65 jlair@lb65.org

What is your role as a professional with regards to education?

As the business and operations professional in the district, I have a couple of roles. First of all, my role is that of “support” to the educational process. Our departments need to be flexible enough to provide the resources and support needed to deliver the best possible services to students. Secondly, I have the role as a leader to set standards of best practices, to provide guidance to the board, to be a team player and to make every decision with the best interest of children as the ultimate goal.

What will impact school finance and budgeting most significantly in the next 5-10 years?

Decisions made by our legislators have the potential for making the most impact on school finance, both positively or negatively. Pension reform is still the great unknown for the moment and could have devastating impact on not only a district’s budget and ultimate financial health but also on the recruitment and development of future teachers and administrators. School districts will be challenged with how to balance budgets and recruit the best staff while trying to meet always increasing educational mandates, while being good community partners. Districts have always faced these challenges, but the rules seem to change and become more stringent by the day.

What is the most important school finance or budgeting issue to address immediately?

I can say from experience, that depends upon the geographic location of the district within the State. For most districts, the State’s economic condition is causing revenue shortfalls that are forcing them to borrow money and/or eliminate programs and staff. The State’s inability to pay its bills along with declining property values have played major roles in school district budget cuts. School districts, along with their communities, have to prioritize their needs in an effort to have the least amount of impact on kids as possible due to ever decreasing budgets. Administrators, boards and communities are going to need to work together more collaboratively than ever before to find the financial solutions that best fit the needs of all students. We can no longer wait for the State of Illinois to change the way it funds schools. Illinois doesn’t have the money, and we’ve been “talking” about it for decades.

If you could change one thing about Illinois school finance, what would it be?

JIM WOMACK / NIU

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Update Magazine / Winter 2012

It needs to be fair for all children. Wealthy property districts should not have an advantage over districts with low property values and a large proportion of low income students.

GET ON A

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The ILLINOIS ASBO LEADERSHIP INSTITUTE is a year-long process that starts with an honest evaluation of where you stand in your leadership practices through 360-degree feedback from your peers.

FOUR SCHOLARSHIPS ARE AVAILABLE! Half-tuition scholarships are now available for THREE school district members and ONE Service Associate member to join the 2013 Leadership Institute Cohort.

SCHOLARSHIP APPLICATIONS ARE DUE DECEMBER 15. APPLY ONLINE AT: IASBO.ORG/SCHOLARSHIPS YOUR LEADERSHIP INSTITUTE APPLICATION MUST ACCOMPANY YOUR SCHOLARSHIP APPLICATION

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I learned a lot about myself; much of it I already knew, but never could quite articulate. I now have a framework to interpret my behaviors and how they may impact others.

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