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COMPUTERIZED FINANCIAL PLANNING

FOR SCHOOL DISTRICTS IN THE UNITED STATES

A thesis presented in partial fulfi l lment

of the requirements for the degree of

Doctor of Philosophy in Accountancy at

Massey University, New Zealand

By

LOIS MARIE G RAFF, CPA

B. S. (Bus), Miami U niversity, Ohio

M. B . A., Baldwin Wal lace College, Ohio

March 1 989

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© Copyright, Lois Marie Graff, 1 989

Al l Rights Reserved

DECLARATION

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I declare that "Compute rized F inancial Planning for School Districts in the U nited States" is my own work, that the work on which the thesis is based has not been accepted in who le or i n part for any other degree or diploma, and that a l l sources that I have u sed or quoted have been i ndicated and

. acknowledged by means of complete reference.

Sig ned at Massey Un ive rsity , Pa lmerston North , New Zealand on May 1 , 1 989.

Lois Marie Graff

i i

ABSTRACT

T h i s t h e s i s p re s e nt s t h e res u lt s of re s e a rc h to d i scove r if and how computerized financial p lanning is conducted i n Un ited States school districts. The aim of the project was to assist school board members and administrators with f inancial plan n i ng and decisi on maki ng . The methodo logy i nc luded a l i teratu re su rvey of long range bus iness and academic p lan ni ng , fi nancial p lann ing , f inancial models and mode l i ng . It was concluded that long range

. fi nancial plann ing has been successfu l ly implemented in business and tertiary educational institutions and would be effective for school districts.

An i ntegrated academic and financial p lann ing model for school districts was

no rmative ly derived based o n t he l it e ratu re . P ri mary p lan n i ng variables reflecting academic policy decisions were identified, and tentative sub models for enro l l ments , staffi ng , and f inancial p lann i ng were descri bed. E mpirical work was conducted to fi l l "gaps" i n the l i te ratu re and g ather descriptive evidence concerni ng the current state of fi nancial planning and fi nancial model design .

As part of the empirical work, quest ion nai res were sent to a l l school district treasurers (61 6) i n the State of Ohio. More than forty percent (43.3%) replied. It was found that more than half of the respondents (54.5%) have long range financial plans, but few school districts (20.5%) conduct financial p lanning on computers. Of the districts operati ng computerized financial models, 68.5% use micro computers in preference to mai nframes or m i n is . Schoo l district treasurers and superintendents take part i n almost al l f inancial planning and/or budgeting whereas school board members participate only occasionally. Most school districts (96.5%) recognize the need fo r long range fi nancial planning and would consider usi ng computerized fi nancial planning models designed specifically for school districts. The research suggests that important barriers to computerized financial plann ing are lack of money and expertise to design models appropriate for school districts.

i i i

The integrated academic and financial plann ing model was computerized and tested by practitioners i n the U nited States for completeness and usefulness. Changes were made to the model based on empirical work and fie ld testing. The mode l i s i nexpensive , easy to use , and considered to be generic. It should prove helpfu l to school district decision makers .

-, ACKNOWLEDGEMENTS

iv

My deepest thanks go to my supervisor Professor Michae l J . Pratt for providing m e with the opportu n ity to earn a docto rate and fo r e ncouragement and support th roughout the enti re prog ram. Many thanks also to Dr. Rebecca Emery as co-supervisor. Mike and Becky were extremely generous with their ti me . They met regu larly with me to offer i ncis ive comments , constructive advice , and he lpfu l reco mmendat ions. They assisted and e ncou raged me

from the orig inal proposal through cou ntless drafts of the thesis. I was most fortunate to have expert advice from such outstanding people. I would not have e mbarked on th is research without Mike o r completed it without both Mike and Becky.

M y t h a n ks a l s o to m y c o l l e ag u e s a n d f r i e n d s i n t h e D e p a rt m e nt of Accountancy at Massey University. Their responsiveness when I sought their suggest ions as we l l as the i r day to day cooperation and e nthusiasm were i rreplaceable. I wil l never forget them.

The assistance of Craig G i fford and John B randt of Oh io School Boards Associati o n , and Dr. E l i se Jancura , my hono rary ove rseas adv iser from C leve land State Un iversity , was vital duri ng the weeks of research i n Ohio. The cooperation and help of former colleagues who are sti l l actively i nvolved in school district fi nances, especially treasurers who answered the questionnaire, was i nvaluable. Thanks to al l of you.

Lastly, and most importantly, I want to thank Richard , my be loved husband and b e st f ri e n d , who re l i eved m e of a l l respo n s i b i l i t i e s at h o m e so I cou ld concentrate on th is research. Together we have shared an exciting l ife and an extraordinary New Zealand experience.

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PREFACE

Although this thesis was written whi le the author was a visiti ng lecturer at Massey Un iversity i n New Zealand, spe l l i ng herein is American style . The topic dictated the style since the t hesis wi l l most l ike ly be read more often in the United States than e lsewhere .

References are listed at the end o f each chapter. I n addition , a blbliog raphy is i ncluded which l ists additional material which i nfluenced this research but is not referred to in the thesis.

Althoug h the autho r was orig i nal ly d iscou raged by education experts from start i ng a doctoral research p rog ram based on a study of New Zealand schools' fi nancial p lann ing , th is has become a ve ry important issue in New Zealand since August 1 988 with the pub licat ion of Tomorrow's Schools, The

Reform of Education Administration in New Zealand. This document , written by the Rt. Hon. David Lange , Prime Min ister of New Zealand and Minister of Education , recommends chang ing from complete contro l of school financing by the central government to financial decision making as close as possible to the sou rce of implementation - the individual schools. Whi le there are differences between school districts in the United States and schools in New Zealand as to sources of funds and some expenditures, it may be possible to apply some of the conclusions reached i n t h is thesis and , perhaps, the model developed here in to financial plann ing for schools i n New Zealand.

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TABLE OF CONTENTS

PAG E

ACKNOWLEDG EM ENTS iv

PREFACE v

LIST OF FIGURES xii i

CHAPTER 1 INTRODUCTION

1 .0 I ntroduction 1 1 . 1 Background of the Study 1 1 .2 Significant Prior Research and Assumptions 4 1 . 3 Objectives and Hypotheses 7 1 .4 Methodology 8 1 .5 Scope and Limitations of the Research 9 1 .6 Significance and Probable Resu lts 1 0 1 .7 Organization of Chapters 1 1 1 .8 Summary 1 2

CHAPTER 2 ORGANIZATION AND FUN DING OF UNITED STATES

SCHOOL DISTRICTS

2.0 I ntroduction 1 6 2 . 1 Organization of School Districts 1 7 2 .2 Organization of School Boards 1 9 2 .3 Financial Pressures on School Districts 21

2 .4 Fund Accounting 24

2.5 School District Revenues 24 2.5. 1 Local Funds - Property Taxes 25 2.5.2 Local Funds - Other 27 2 .5 .3 State Funds 28 2.5.4 Federal Funds 29

2 .6 General Fund Expenditures 29 2 .7 Special Funds 31 2 .8 Audit ing Requirements 33 2 .9 An Example : Ohio Uniform Account System for School

Districts 33 2 .9 . 1 Function and Object Codes 35

2 . 1 0 School District Accountabi l ity 36 2 . 1 1 School District Plann ing and Financial Plann ing :

Inputs and Outputs 38 2 . 1 1 . 1 Requirements for a Schoo l District Fi nancial P lanning Model 39

2 . 1 2 Summary 40 2. 1 3 Conclusions 41

CHAPTER 3 PLANNING, FINANCIAL PLANNING, AND FINANCIAL

PLANNING MODELS

3.0 3. 1

3 .2

3.3

I ntroduction Planning Defined 3 . 1 . 1 Time Horizons The Planning Process

3 .2. 1 Corporate Plann ing

45 46 47 47

48 3 .2 .2 Educational Planning 49 3.2.3 Plann ing Models in Business and Education 56 3.2.4 Criticisms of Planning 58 Simi larities and Differences 3.3. 1 Business and Educational Institut ions

Compared 3.3.2 Tertiary Education and School Districts

Compared

59

59

63

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3.4 Financial Plann ing Mode ls and Systems 65 3.4. 1 Plann ing , Prog ramming, Budgeti ng

Systems (PPBS) 66 3.4.2 Zero Base Budgeting (ZBB) 69 3.4.3 Management Information

Systems (MIS) 70 3.4.4 Decision Support Systems (DSS) 72 3.4.5 Executive Support Systems (ESS) 74 3.4.6 Other Financial Planning Systems 76

3.5 Financial Model ing 78 3.5. 1 School District Fi nancial Plann ing

Variables 84 3 .6 Summary 86 3.7 Conclusions 87

CHAPTER 4 A LITERATU R E-BASED INTEGRATED FINANCIAL

PLANNING MODEL FOR SCHOOL DISTRICTS

4.0 Introduction 94 4 . 1 Budgeting 96 4.2 Early Plann ing/Forecasting/Budgeting Models 97 4.3 Research Most Re levant to School District Financial

Plann ing Models 98 4.4 An Overview of a Literature-Based I ntegrated

Financial Plann ing Model for School Districts 1 04 4.4. 1 Mission Statement 1 06 4.4.2 Long Term Goals and Objectives 1 06 4.4.3 Exogenous Factors 1 08 4.4.4 SWOT or SWOP Analysis 1 09 4.4.5 GAP Analysis 1 09 4.4.6 Strategies 1 1 1 4.4.7 Academic Plan 1 1 3 4.4.8 Financial Plan 1 1 3

4.5 Input-Output Analysis in Public School Education 1 1 4

4.6 Dynamic Planning 1 1 7

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4.7 Literature Based Primary Planning Variables and Other Variables for an Integrated Financial P lanning Model 4 .7. 1 Methods of Varying PPVs

4.8 U nce rtai nty 4 .9 Optimization 4. 1 0 Forecasting Exogenous Variables

4 . 1 0. 1 Enro l lment Forecasts 4 . 1 0.2 Enro l lment Forecasts and Bui ld ing

Needs 4 . 1 1 Sub Models

4. 1 1 . 1 En rol lment Forecasting Sub Model 4 . 1 1 .2 Staffi ng Sub Model 4 . 1 1 .3 Financial Planning Sub Model

4. 1 2 Summary 4. 1 3 Conclusions

CHAPTER 5 HYPOTH ESES AND ANALYSIS OF RELEVANT

EMPIRICAL RESEARCH

5.0 Introduction 5 . 1 Objectives and Hypotheses 5.2 Structure of Empi rical Research 5.3 I nterviews 5.4 Questionnai re 5.5 Other Empirical Research 5 .6 Analysis of Questionnaire Responses by Hypotheses 5 .7 Analysis of Questionnai re Responses by Objectives 5.8 Summary 5.9 Conclusions

ix

1 1 7 1 29 1 29 1 30 1 30 1 33

1 34 1 35 1 35 1 39 1 43 1 46 1 47

1 54 1 55 1 57 1 58 1 59 1 63 1 65 1 76 1 81 1 81

CHAPTER 6 EMPIRICAL WORK RELATED TO DESIGN OF FINANCIAL

MODELS AN D DETAILED DESCRIPTION OF FINAL

MODEL

6 .0 I ntroduction 1 85

6 . 1 Analysis o f Questionnai re Responses 1 86 6 . 1 . 1 Districts Which Use Computer Models 1 86 6 . 1 .2 Number of Years Districts Have Used Models 1 87

6 . 1 .3 Mode ls Used for Decision Making 1 87

6 . 1 .4 Purposes for Which Computers are Most He lpful 1 92

6 . 1 .5 I nitiators, Operators and Designers of Models 1 94

6 . 1 .6 Administrators' Own Models 1 95 6 . 1 . 7 Statistical Techniques Used i n Forecasting 1 96 6 . 1 .8 Uncertainty 1 97

6 . 1 .9 Computer Prog rams 1 98 6 .2 Enrol lment Forecasti ng Sub Mode l 1 99 6 .3 Staffing Sub Model 203

6 .4 Financial Planning Sub Mode l 205

6 .5 Final Integ rated Academic and Financial P lanning Mode l 209

6 .6 Summary 2 1 0

6 .7 Conclusions 2 1 0

CHAPTER 7 TESTING THE INTEG RATED FINANCIAL PLANNING

MODEL FOR SCHOOL DISTRICTS

7.0 I ntroduction 21 9

7. 1 Methods of Testing the Model 220

7 .2 Computerizi ng the Mode l 222

7 .3 Analysis of Reviews 225 7.4 Refinement of the Model 232

7 .5 Summary 232

7 .6 Conclusions 233

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xi

CHAPTER 8 GUIDELINES FOR IMPLEMENTING THE COM PUTERIZED

FINANCIAL PLANNING MODEL

8.0 Introduction 235 8 . 1 The Planning Schedule 236 8.2 Entering Data into the Mode l 238 8.3 Inputs to the Model 239

8.3. 1 Birth Records and Past Fi rst Grade Enrol lments 240

8.3.2 Survival Ratios 240 8.3.3 Personnel Data and Historical Receipts

and Expenditures 241 8.3.4 Other Exogenous (External) Variables 241 8 .3 .5 Primary Plann ing Variables (PPVs) 243 8.3.6 Summary of Important Outputs 244 8.3.7 Changing Policy Decisions 244

8 .4 Outputs of the Model 245 8 .5 Summary 246 8.6 Conclusions 247

CHAPTER 9 SUMMARY AND IMPLICATIONS OF THE RESEARCH AND

SUGGESTIONS FOR FU RTHE R RESEARCH

9.0 9 . 1 9 .2

9 .3 9 .4

I ntroduction Summary of the Research Implications of the Research 9 .2 . 1 Questions to be Considered Suggestions for Further Research Summary

APPENDICES

A. B. C . D. E.

Cover Letter for Questionnaire Questionnaire Thank You and Reminder for Questionnaire Letter to Associations of School Boards Answers to Questions Related to Hypotheses

248 248 250 250 257 259

261 262 267 268 269

F. G .

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Letters , I nstructions, and Evaluation Form For Testing Pri nt Out of Model's Computer Screens

BIB LIOGRAPHY

270 276

285

xii

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xii i

LIST OF FIGURES

FIG URE NUMBER PAGE

2-1 Typical School District Organization Chart 20

2-2 Property Tax Calcu lation 26

3-1 An I nstructional Program Planning Mode l 55

3-2 A Comprehensive Strategic Plann ing Model 55

4- 1 An I ntegrated Fi nancial Plann ing Model 1 05

4-2 GAP Analysis Model 1 1 0

4-3 Example of Assessed Valuations of an Ohio School District 1 22

4-4 Forecasting Tax Receipts 1 23

4-5 Relationship of Sub Models with I nteg rated Model 1 36

4-6 Output of a Cohort Mode l 1 38

4-7 Staffing Model 1 40

4-8 Tentative Financial P lanning Sub Model Format 1 44

5- 1 Matrix of Hypotheses and Questions to Test Them 1 61

5-2 Responding School Districts by Size 1 64

5-3 School Districts with Fi nancial Plans 1 65

5-4 Comparison of Size of Districts 1 66

5-5 School Districts With Computerized Plans 1 68

5-6 School Districts With Computerized Financial Plans Compared to Non Computerized and All Respondents 1 68

5-7 Size of Districts With Financial Plans 1 69

5-8 Size of Districts Without Financial P lans 1 69

5-9 Reasons for Not Using Computers for Financial P lanning 1 71

5- 1 0 Other Reasons Why Districts Do Not Use Computerized Fi nancial Plans 1 73

5-1 1 School Districts Which Would Consider U si ng Computerized Fi nancial Models 1 75

xiv

5- 1 2 Participants i n Financial Planning/Budgeti ng 1 77

5- 1 3 Levels of Budgeting and Financial Planning 1 79

6- 1 Districts Which Use Computer Models 1 87

6-2 Models Used for Decision Making 1 88

6-3 Purpose of Which Computer Models are Most He lpful 1 92

6-4 Deal ing with Uncertai nty 1 97

6-5 Methods of Forecasti ng Enro l lments 200

6-6 Methods of Forecasti ng Number of Teachers Required 204

6-7 Number of Lines in Financial Plann ing Models 207

6-8 I nteg rated Academic and Financial P lanning Model 21 2