In October 2023 the Wayne Westland Community School District brought forward a routine financial article that was anything but routine.
It was the southeastern Michigan school district's annual financial audit of their 2022-23 school year's finances. In it the Board of Education and the Wayne-Westland community learned that it had unexpectedly spent $17.6 million more than it had taken in as revenue. The majority of the previous year's nearly $27 million in "rainy day savings" (aka General Fund equity) had dropped to $9.3 million.
At Michigan Benchmark, diagnosing and comparing Michigan school district financials with one another is our business. But for us and the shock of this issue and its impact on the good people of the Wayne-Westland community, we are publishing here a 27 page pro bono analysis of WWCSD's financial odyssey.
The research we share here we do so primarily to answer the many questions that we have heard first hand by attending WWCSD Board of Education meetings over the past couple of months. Sitting among the audience last Monday, interested and shocked community members continue to look for answers.
How could this have happened?
What exactly DID happen?
Where did the money go?
What can be done now that the problems have been surfaced?
At Michigan Benchmark we feel the pain and understand the confusion the WWCSD community is experiencing. Please take a look. Watch this space for more updates. Take up the offer to participate in community Q and A sessions.
These are hard but solvable issues. Data analysis can and will help. We hope the WWCSD community benefits by our help and support. We stand ready to do more.
Please take a look at the document linked below for all of the details but here are some summary findings:
A Summary of Original Budget to Audit Observations
The forecast - or projections - of WWCSD’s finances were dangerously inaccurate. The 2022-23 Original Budget expected a $4.4 million surplus that became a $17.6 million loss. The rest of this document offers more detail explaining where, how, and why this happened, but this was / is the fundamental problem. The district’s financial projections were way off.
Revenues were underestimated by $9.9 million from the Original Budget to the Audit but the majority of this ($8.4 million) can be attributed to the MPSERS pass through issue, an explanation of which can be found here. Otherwise the Original Budget underestimated revenue by $1.5 million.
In 2022-23 the WWCSD spent $81 million of its total $152.7 million General Fund budget on Instruction (combined Basic and Added Needs). The Original Budget had estimated a $66 million spend on Instruction. Instruction costs were underestimated by a total of $15.4 million. Of that, $5.3 million can be attributed to the MPSERS pass through issue. This means that accounting for the MPSERS issue that WWCSD underestimated Instructional costs by $10.1 million.
The Final Budget Amendment began to start correcting for this but still underestimated Instruction costs by $4.5 million. This is a particularly important data point for those in the WWCSD community who are skeptical of where the money was spent. This tells us that the largest proportion of the deficit spending was on Instructional spend.
The combination of Pupil Services, School Administration, and Instructional Staff Support were underestimated at the time of Original Budget adoption by $3.3 million once the MPSERS pass through issue is accounted for.
The combination of General Administration, Business Services (Administration), Operations and Maintenance, Transportation, and Other Support Services were underestimated by $4 million after accounting for the MPSERS pass through issue.
The Audit contains a note on page 8 that reads “Transfers out were greater than budgeted due to revenue that was not received by the end of the fiscal year.” This widened the 2022-23 deficit by $4.7 million. The audit report otherwise provides no details.
Red Flag Highlights (in Hindsight)
WWCSD’s forecasts, especially over the last two years, were dangerously inaccurate.
There is far too little detail received by the Board for budget amendments. The Board (and taxpayers) deserves better detail when asked to approve a budget or revisions. Given the results of 2022-23 and the three year run of significant forecast accuracy issues, WWCSD’s Board of Education must be more explicit with the administration regarding the financial detail they are to receive from the administration before being asked to approve any budget (be it revisions to 2023-24 OR new budgets for 2024-25).
The 2024 Original Budget had identical values as the 2023 Final Budget in Local, Interdistrict, Federal, and Other revenue. While this is technically possible, it is highly improbable and is indication that the administration did not execute with sufficient due diligence to create the budget based on new variables in the district, such as enrollment, Foundation Allowance, and other revenue variables. The Board must require that the administration grind through every detail in such matters. The WWCSD must demand transparency from the administration on the budget building assumptions used. There is little evidence this is happening based on this observation.
The 2022 Final Budget Amendment had almost none of the detail that any Board of Education should expect from the administration. The budget proposals and amendments should contain all the granularity that the Board ultimately receives in the Annual Financial Audit.
Transfers were referenced above. Again, perhaps the Board saw additional materials elsewhere, but if not the Board is owed FAR more detail about transfers, why they are happening, and what their implications are. This issue is extremely important, not only for understanding the audit findings but for 2023-24 budget planning.
Recommended Actions
The WWCSD will need to make a host of changes to the budgeting and financial control process. If I were advising the WWCSD Board of Education my recommendations would include the following.
The district finance team and executive leadership MUST Improve budget forecast accuracy by using calculations that all stakeholders are aware of, understand, and approve. Reviewers and approvers of the budget (and revisions) should be able to review the math behind the numbers shared with them to better validate their accuracy. Michigan Benchmark has such calculators and would love to work with WWCSD to operationalize them.
The Board of Education (and the administration) must implement a means of detecting signs of financial trouble. warning The Board and taxpayers deserve the ability to track progress of a budget as it evolves month to month. The Board needs a monthly financial report that contains the year to date revenues and expenditures so that all parties have earlier indication that the budget plan is being adhered to. The level of detail and the frequency of the reports has not been sufficient to enable appropriate oversight by the WWCSD Board and other stakeholders. The Board of Education and taxpayers have demanded improved transparency and improving the quality and usability of the monthly financial reports would be a step in the right direction. Michigan Benchmark can operationalize this as we are doing for other districts and could show you how (at very low cost).
Along the same lines, any budget delivered to the Board of Education should be accompanied by a list of all the assumptions used in any budget construction, Original or Revisions. Many variables need to be considered. Michigan Benchmark provides this service to allow a district to model different budget scenarios based on changes to the many variables that affect budgets. Here are examples of the elements we use to do this:
Enrollment
Foundation Allowance
Staff FTE levels
Assumed increases (or decreases) in Purchased Services or Supplies costs
Assumed Health Benefit cost changes
Blended retirement (MPSERS) rate
Assumed / anticipated change in employee bargaining unit pay scale (e.g. on schedule annual raise percentage, impact of step and lane progressions)
The Board should expect to receive Budget Amendment proposals from the administration at least twice a year. The first amendment should be received in November since the Annual Financial Audit should have been completed in October. The second budget amendment should be received in March or April. This is because the financial operations of the district between October/November and March/April are likely to be significant enough to affect SOME change in the budget. PLUS, this serves as a cornerstone to the budget development process for the ensuing fiscal year.
Budget proposals received by the Board, whether for Original Budget adoption or for Budget Amendments, should be more detailed and should highlight the projected bottom line, which is Total General Fund Revenues minus Total General Fund Expenses. They should also include at least the previous year’s results. By doing so, the Board and taxpayers can get a better sense of the year over year change and assess the likelihood of the budget’s accuracy.
When the Board receives budget proposals, the changes proposed by the administration should contain significant written detail explaining why the changes are being made and their anticipated impact on the district's annual operating results (i.e. Revenues minus Expenses). Board of Education members should have ample opportunity to ask questions about these assumptions to validate that the assumptions are realistic.
The Board should receive budget proposals from the administration that break down the costs by both a Functional view and an Object view. These are school finance technical terms (that can be read about here.). The total of both views are the same, but organizing the data in different ways not only enhances transparency but also helps the Board of Education better assess the reliability of the budget projections. This document references the two formats, but to be clear:
The Function View of school budgets include categories like Instruction, Instructional Support Services, Non-Instructional Support Services, etc.
The Object view breaks down spending across Salaries, Employee Benefits, Supplies, Purchased Services, and Capital expenses.
Human Resources costs are every school district’s largest expense yet most districts, including WWCSD, do not report consistently on staffing levels - usually reported in Full Time Equivalent (FTE) units. The Board should know the exact number of staff FTE that are assumed to be in every budget and iterations thereof. The FTE should be broken down by bargaining units (e.g. teachers, administrators, plant/custodial, teacher assistants, paraprofessionals, clerical, etc.). Recalling how in 2022-23 the WWCSD spent $10 million more on Instruction than it had budgeted, if the Board of Education had been receiving regular reports on teaching staff employee (FTE, or Full Time Equivalent levels) they would have seen substantial increases and would likely have asked questions about the financial viability of those increases.
Furthermore, related to budgeting for staff FTE, the administration should share with the Board detailed records of the distribution of staff FTE by bargaining unit as they are distributed across their respective bargaining unit pay schedule. For example, the table below is WWCSD’s 2024 teacher salary schedule. The Board should have visibility into how the teaching staff aligns to this schedule by seeing FTE levels for each step and lane combination
Policy Recommendations
I will craft some baseline format of the policy recommendations below, but as a summary (and in alignment with the above) here are a few policy recommendations to consider:
Budget Development Process: This policy would specify the process and timeline that the Board of Education establishes for the administration to follow for the development of the ensuing year’s budget. It would specify:
Budget development timeline (when does it start, what will the Board receive and by what date)
Materials content and format. What information and in what format will the Board receive materials from the administration that will help the Board be most prepared for budget approval.
Budget Development Assumptions should either be specified here by the Board or be specified by the administration. (I will share examples to explain better.)
Budget Approval
This would specify the process for how and when the Board of Education will act upon budget proposals received by the Board for both Original Budget approvals and for Budget Amendments
This policy would specify the format and content of what the Board should receive before acting upon budget resolutions presented by the administration
This would specify the circumstances under which the Board would receive recommendations for budget amendments from the administration. As covered above, I would recommend that the Board states its expectation that it would receive budget amendment resolutions at least twice a year. The policy would contain further details.
The materials accompanying the Budget Resolution would contain all of the budget development assumptions, such as Enrollment, Foundation Allowance, costs by Function and Object, and Staff FTE levels by bargaining unit
Monthly Financial Reporting
The Board should establish a policy that specifies the materials it WILL receive from the administration at the Regular Meeting of the Board at least once per month.
The policy should require that the Board formally accepts (i.e. votes on) the Monthly Financial Report
Staff FTE Reporting
This would be coordinated with the other policies referenced here but the Board must establish itself as the exclusive authority for the hiring of district staff.
Every month the Board should receive a Human Resources report that shows staff movements that commonly happen: retirements/resignations, new hires, and terminations
As part of the budget approval process the administration should specify the staff levels (counted in Full Time Equivalent, or FTE format) assumed in the budget. These should be broken down by bargaining unit
When the Board is asked to approve the HR report it should always be able to cross reference the recommended changes (meaning increase or decrease in staff FTE) against the staff FTE counts that were part of the Original Budget Approval. This is a protection against hiring beyond the limits of the budget plan.