A School District Financial Condition Assessment System and its Application To Pennsylvania School Districts

The funding of public education in America has been a primary concern for government officials at the federal, state, and local levels for several generations. According to the National Center for Education Statistics, this expenditure accounts for the single largest allocation in most state and local government operating budgets (Stanley and French 2004). The Great Recession and its aftermath, has intensified the need for effective financial management strategies for school districts as the housing market has seen a significant drop in prices resulting in revenue losses in the form of unrealized real estate taxes.

Therefore, the political and economic climate in Pennsylvania demands an easy to use tool to help school administrators and School Board members make effective financial decisions. With limited time and resources, public administrators and elected officials, need a tool that is both comprehensive and easy to use. Ken Brown’s 10 Point Test, first published in 1993, provides an example of such a tool. This tool was developed for local municipalities with populations less than 100,000. Therefore, some modifications were made to the test to apply it to school district finance. The model that we have developed offers only a comparative tool for the assessment of financial condition, but when applied to public school finances for school districts with identical regulatory restrictions (i.e., on a state by state basis) school administrators, and Board members, can use the results along with other criteria, to determine their district’s financial performance.

We adapted Brown’s test to fit the requirements of school districts, and then average each district’s score over five years to provide a longitudinal component not seen in Brown’s methodology. When performed on an annual basis for all districts in a state, a chart of quartile limits can be provided to individual districts every year so that local decision-makers can see the effects of their actions even before they are made.

It is important to note that this test is a measure of financial condition and just one factor of many that should be considered in the determination of financial health. Other factors, such as the presence of and adherence to a long range capital plan, infrastructure condition, presence and status of CBA’s and demographic/economic information all have an impact on overall financial health. The current economic environment, with the reductions in revenue and overall economic uncertainty for school districts, makes a system to determine the financial health of school districts essential for local school district leaders and state policymakers.