Three Key Questions for 2025 Budgets

By Jim Schiele

As the year draws to a close, many of you are turning your attention to the next fiscal year and the budgeting challenges ahead. While we don’t know what the Texas legislature has in store for school funding, we do know that budgets will be tight for most districts.

Before finalizing your budget for 2025, ask these three key questions to ensure you’re maximizing all sources of revenue and considering places to save.

1. How can you maximize revenue and increase sources of funding?

Look critically at how much revenue you have to work with. Primary revenue streams include state funding and property tax revenue, which can be estimated from last year’s budget.

Consider expanding the federal revenue stream. Are you charging indirect costs to the federal grants awarded to your district? That money can provide a significant stream of income to the general operations.

Investigate interest income. Interest rates are still providing good revenue through interest income, but don’t limit the amount to last year’s budget.  Project amounts based on available cash and anticipated levels of cash. If you used the worksheet from my November column, that’s an excellent place to start estimating interest income.

Don’t overlook SHARS revenue.  Are you comfortable with your current program?  Meet with the company working your numbers and ask for an evaluation of current operations.

2. Are you successfully managing the fund balance for operations?

Managing the fund balance is critical for operations, but you don’t want to carry too little cash or too much. The benchmark fund balance is 90 days of operations with the primary goal to ensure sufficient cash flow through low revenue months in the late summer and fall.

However, there are scenarios where fund balance should exceed 90 days.

Districts that are changing rapidly, either with rapid growth or declining enrollment, will need a greater fund balance than districts whose enrollment is stable. For example, increasing enrollment requires adding teachers, portable classrooms, and support staff, often without immediate revenue increases.

Districts with older buildings may need additional fund balances to offset repair and upgrades. Districts that have expected expenditures such as bus purchases, athletic fields, or HVAC replacements may need to designate a portion of the fund balance to handle these known expenditures.

Once you’ve designated portions of your fund balance to manage unexpected issues with your buildings, known expenditures, and unexpected gains or drops in enrollment, the remainder is the undesignated fund balance. This undesignated fund balance will be used to develop cash flow projections and ensure sufficient funds to meet the district’s obligations. 

Once cash flow obligations are met, any excess funds can be used to balance the budget. I’d recommend allocating those funds to one-time expenses instead of recurring expenditures, as the funds are not likely to be consistent future sources of funding.

3. Have you considered all areas for savings?

While we are not going to discuss the process of budget cuts in depth here, we will look at areas where districts might be able to find savings, even in expenditures that are considered non-negotiable.

Utilities are one area where costs cannot be avoided and the options to reduce spending are limited. Districts can also adjust thermostats levels, restrict appliances, or electric items in offices and classrooms. Contracts can be renegotiated for savings which may involve offsets. In the case of an offset, a district could experience a brownout after overall consumption reaches a certain level. 

Insurance is another non-negotiable expense, but depending on how much risk the district is willing to take, savings can be found. Increasing deductibles, per event or per building, can make a dramatic difference in the premium. Any decrease in premium should include a plan to cover a possible loss.  Before considering changes to the district’s insurance terms, I would suggest having a discussion with the school board.

Staffing comprises 80 to 85 percent of all expenditures in a school district, so it’s a category that will be considered for savings. Any personnel cuts should start as far away from the classroom as possible, minimizing the impact on classroom learning. While there is no magic formula that tell you how many employees are needed in each department or school, look to districts with similar student enrollment as benchmark for staffing expenses. Compare those expenditures to your district’s elementary schools, secondary schools, program offerings, class sizes, and the number of certified teachers. Also consider staffing impacts from departmental initiatives, future department plans, and any plans to add or grow programs. Districts may decide to discontinue programs to reduce staffing expenses.

We’ve only scratched the surface of places districts can look to increase revenue and find budget savings. If you are interested, I have spreadsheets that can assist with personnel evaluation and budget development.  Drop me an email and I’m happy to work through the process with you.

Jim Schiele is Linebarger’s School Financial Consultant. He offers free assistance to Linebarger school district clients as they navigate budgets and meet financial deadlines. He can be reached at [email protected].

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