Chapter 10




William E. Camp and Nicolas D. Ferguson


The terms school finance and business management are often used synonymously. In actual practice school finance refers toissues concerning school funding and expenditures, while school business management typically refers to management and logistical procedures relating to the business operations of the school district. In reality, many of the topics relating to school finance and business management are overlapping concerns. All have major impact on the operation of the school system.


School operations in the 1990s have entered a new and challenging period. The headlines in recent papers echo the crisis conditions school funding is facing in the nation; emergency declarations that become so commonplace they hardly garner attention. The heading, "School funding: less than needed, more than expected" (EDCAL, 1991, p. 1), stands not as a battle cry for change but as the status quo in state after state. Unfortunately, education is only one of many public services facing crisis at a time when economic conditions force taxpayers to question government levels of expenditures.


School Finance


The issues of school finance present complex and competing demands on scarce resources in our society. Though most individuals agree that education provides a competitive edge in a free market and represents an investment in national economic productivity, there exist many divergent opinions on how resources should be used and which individuals should gain access to the programs provided. As education is expected to do so much more today than in the past, the funding requests increase and place greater demands on changing state resources.  


A tradition of local control formed the basis of school finance decisions for decades as most issues revolved around the local school district. Most monies came from local property taxes with minimum support from the state government. Beginning in the 1960s, the financing of schools truly became a tripartite relationship between federal, state, and local governments. Increasing state expenditures led to greater control by the state legislative and administrative bodies to the extent that local control became more myth than reality. Increasing federal support exerted a much greater influence on issues within schools as categorical funding forced greater educational opportunity for disadvantaged and minority students and students with disabilities. The enormity of the changes in the past three decades greatly influenced how monies flow to school districts and as a result, which programs receive support.


As society has changed, the issues affecting how resources will be distributed between districts and even students has become more complicated. Prior to the 1960s, concepts concerning the funding of schools were much simpler. States were expected to provide support for a minimum education with districts having the option to provide more support with the approval of the local electorate. "Equality of educational opportunity means not an identical education for all children, but the provision by state or local means of at least certain minimum essentials in the provision of schools, their supervision, and their financial support" (Mort & Reusser, 1941, p. 99). This concept of distributing funds through a minimum foundation program meant the state provided more money to property-poor districts than to property-wealthy districts in order to equalize funding, but districts still provided most of the school aid through property taxes. The problem in this method of state support revolved around the fact that it ignored the great differences in property value from one district to another and thus allowed great discrepancies in school funding from one locality to another. Further complicating this difference in revenues was the fact that the minimum foundation program typically did not provide a minimum guarantee of funding to poor districts.


Since education is a state function in all states in the nation and theoretically, all children in a state are equally important and entitled to the same advantages of education; the discrepancies in school programs became glaringly evident. Beginning in the late 1960s, issues regarding school equity provided the basis for challenging the status quo. School finance entered a much more complex and demanding environment with increasingly hostile debates on how much money is needed and how it should be distributed.


Values in School Finance


National goals for promoting equal opportunity to educational programs and development of effective schools for all children formed the framework for the evolving issues in the financing of public schools. The funding of  public education became the center of philosophical struggles arising from political, social, and economic values underlying a changing concept for modern education and the method of financing these changes. During the period from 1960 to 1990 more attention was focused on issues of equality. Access to school programs and facilities became the center of debate in promoting a number of values gaining wide acceptance in American society. The debate began to center around defining equal opportunity and  determining how it should be addressed. Within this argument, five values became the focus of debate. Walker (1988, p. 1) stated that, "The enduring dominant values in school finance policy in the twentieth century are: (1) adequacy, (2) equity, (3) efficiency, (4) legitimacy, and (5) liberty."


The term adequacy refers to the concept that a certain commitment or bargained level of funding is to be provided. This commitment is the basis for the idea that there is a level of funding necessary to provide the state-required minimum program, and the legislature should provide a means for a district to meet this level of funding. The issue of adequacy attempts to define sufficient funding of education based on a statewide basic program cost including measures of availability and condition of instructional courses and materials, necessary facilities and equipment, trained teachers, class size, and school services. This issue is fundamental to the question of school quality since education relies on adequate dollar resources to provide appropriate programs to students. Unfortunately, sufficient resources do not necessarily translate into effective programs. The difficulty of defining an adequate program means providing an educational program suitable to the varying needs of all students.


The concept of equity has taken on the cloak of equal opportunity. In reality it refers to fairness in the treatment of students and taxpayers. In Serrano v. Priest (1971) the standard of equity states simply that school district resources should be based on the wealth of the state and not individual district property wealth. This concept of fiscal neutrality allows the state to rely more on state revenues and distribute money to districts based on varying district and student needs. State funding means that the state should also be able to rely on more progressive taxes to meet these educational needs. This taxation means that the burden of the tax falls on those with the greatest ability to pay, as in an income tax.


The term efficiency refers to better use of existing resources. This use may refer to how the resources are divided among school districts or how the resources are used within the district. Gone are the days when districts can ignore concepts of allocative efficiency by choosing more expensive methods of achieving similar results. Effective classroom management, staff development, risk management, and energy management are a few of the management techniques that relate to efficiency issues.


Legitimacy relates the values of the public to the methods in which the school finance system works. It relates the public's perception of needed changes in school structure to changes actually taking place. As an example, the public must perceive the need for providing teachers with competitive salaries and students with new school facilities in terms of the resulting costs. If the costs are more than the state can pay or the public is willing to pay, then legislators must work for a school funding system that the public can accept.


Liberty has become an increasingly important school finance issue. Liberty has been interpreted in several different arenas as a question of choice. To the local school district, the issue of choice means gaining new autonomy from undue restraints from state and federal governments. Issues of site-based management, discretionary funding, and restructuring of schools place a new emphasis on local control and are becoming the focal point for improving education in California. For parents, the issue of liberty centers on being able to choose schools and educational programs. The issue of greater choice between public and private schools has become the centerpiece of national educational policy and has gained limited political support across the nation while developing concerted opposition from most public school teacher and administration groups. In California, a recent voucher initiative promoting scholarships for choice between public and private schools has become a political issue. The choice initiative will alter the entire nature of schools in the state by shifting valuable funding from public schools to private schools. While a small group of students may actually receive a better education, most students will have little choice in the schools they attend and new inequities will develop in public education.


Unfortunately, most educators and legislators know very little about school finance and the many surrounding issues that drive major changes in the way schools do business. Though superintendents and their executive staffs understand the many issues driving changes in funding and spend considerable time and effort in the political arena working for favorable funding alternatives, most educators ignore these issues and their impact on local education programs.


The California system of public school finance plays an important role in shaping the educational programs in the state. Programs that receive support flourish while those programs that lose funding disappear. Conflicting forces lobbying within the state, as well as national values, greatly influence these decisions. The economic and social changes occurring in recent decades place a great demand on limited resources and threaten the viability of maintaining an effective public school system. Five major influences impacting the current system of school finance in California include historical, political, economical, demographical, and constitutional issues.


Historical Impact on School Finance


The formation of public school finance in California evolved through several stages during the history of the state. Education in California is a constitutional responsibility of the state with the legislature charged in Article IX of the Constitution of 1879 with providing and funding a system of public schools. The chronology of California public school finance illustrates the changing nature of this support with a shift of control from the local district to the state through five stages: (1) the establishment of a state system of education, (2) identification of state and local support for education, (3) emergence of the state foundation program, (4) development of the revenue limit to address questions of equalization, and (5) pressures for restructuring of  education.


Prior to 1849, school funding was primarily left to the parents and citizens of the local communities with education mainly offered through private schools. The Constitution of 1849 established the state and local partnership for financing schools with the authorization of counties and school districts to levy school taxes and the use of state funds from the sale of public lands to fund local schools. Attendance became free to all children in 1870 and elementary districts were allowed to tax at a rate of 30 cents per one hundred dollars of assessed valuation as voted by the electorate of the district. In 1879, a new constitution was developed which became the foundation for current authorization of funding for schools. High school districts were authorized in 1891, and state funds were apportioned on a flat grant basis by attendance without regard to differences in wealth  between the districts.


By 1931 the state established a system of maximum tax rates to control school expenditures and limit increases in local property taxes. "This procedure of establishing maximum tax rates was an attempt to ensure voter approval of any increase in tax rates above a certain limit, while giving local boards the authority to increase tax rates up to this limit" (Meltsner, Kast, Kramer, & Nakamura, 1973, p.16). The state also introduced a system of permissive overrides (e.g., meals for needy pupils and programs for special education) allowing boards to increase the property tax to certain limits without going to the voters. As local support increased, the state's share of educational expenditures decreased. "The state thus ensured that local districts would come to rely increasingly on the property tax" (Meltsner, et al., 1973, p. 16). In response to growing dissatisfaction with high property taxes, the Riley-Stewart Plan was introduced in 1933, doubling state support for public schools. A state sales tax was introduced in 1933 and a state income tax was introduced in 1935 to raise the necessary revenue (Picus, 1991).


Passage of Proposition 9 in 1944 introduced the concept of equalization based on assessed valuation for elementary apportionments. Passage of Proposition 3 in 1946 brought the secondary system of schools under the principle of equalization. Based on concepts developed initially by George Strayer and Robert Haig in New York during the early 1920s, this concept of equalization was called a foundation program and finally became a statutory program in California (1947). In a foundation program the state provides more state funding to districts with low property valuation. This system of funding provided wide differences in support for education since districts with high property values could easily raise more funds from their local tax base than could poor districts even with state equalization aid. By the late 1960s, ". . . in Baldwin Park the assessed valuation per child totaled only $3,706; in Pasadena, assessed valuation was $13,706; while in Beverly Hills, the  corresponding figure was $50,885--a ratio of 1 to 4 to 13" (Serrano v. Priest, 1971). The higher assessed values of local property allowed districts to provide higher school expenditures per student.


Relying on court action in a landmark case for school finance, the property-poor districts won a major victory when the court ruled in Serrano v. Priest (1971) that the current system of financing schools in California was unconstitutional due to the gross funding disparities based on district wealth. The court held that this disparity violated guarantees of equal protection. The state was forced to develop a new system of distributing state aid among the 1,042 school districts. The new funding formula, called a Revenue Limit, was designed to force school revenues to within a difference of $100 per student between districts. Due to inflation, this difference is now interpreted to be $200 per student. The formula forced districts to apply local taxes to the formula before receiving state aid. Initially, this new system was only marginally effective since the state still was not adequately funding the new formula, and large differences in property values still meant that many districts could fund a more expensive program. California legislators introduced a squeeze factor in the formula that with increased state support would eventually equalize funding in school districts. The formula slowed the growth in funding to property-wealthy districts, while increasing the funding to property-poor districts.


Proposition 13 began with California taxpayers' concern over rapidly increasing property values and an

overreliance by government on the property tax. The resulting public initiative radically changed the financing of schools in California. The new proposition was crudely worded and created a tax nightmare for California because it froze valuations at their 1976 levels, except when ownership of property changed. Local tax entities found they could no longer raise revenues to support daily operations. This lack of funding led local  governments to charge user fees for many activities previously supported through local taxes. Even with the change in the fee structure, local governments were facing a crisis. This funding crisis forced the legislature to provide an immediate bail-out using state surplus funds. Since the bail-out was temporary, the legislature worked to shift funding burdens to the state level, especially in regard to schools. This increasing state support of education combined with the use of the Revenue Limit formula shifted primary funding from the local district to the state level. As a result, the actions of California voters had unintentionally changed the basic support of school districts in the state.


The report, A Nation at Risk (1983), led to a national resurrection of interest in education in the 1980s. Funding for education had reached a critical low, and the resulting attention led to a national effort to improve education in the United States. Senate Bill 813, the Hughes/Hart Education Reform Act of 1983, increased state funding in California, introduced a mentor-teacher program, established higher starting salaries for teachers, and introduced reforms in personnel relations and student graduation requirements. The overall impact of the 1980s was to increase funding for education. An additional $10 billion was allocated for elementary and secondary schools in California during this period. Unfortunately, the impact of the money was largely offset by inflation and growth in the student population. In real terms, the increase amounted to only an additional five percent of funds for public schools (Guthrie, Kirst, & Odden, 1990). The actions by the legislature and the California voters set the stage for the current funding of education in the state. Control shifted from the local districts to the state as the state increased its support by billions of dollars. It also shifted the political battles for more educational funding from the local to the state level.


Political Impact on School Finance


Education impacts two very important factors in most communities: people's money and their children. Combine these interests with rapidly rising property values and the resulting property taxes, and conflict over how much is enough became a center of political interest in the state of California. The success of populist  movements such as the ballot initiative for Proposition 13 radically changed funding by constraining both local and state revenues. This constraint on revenues meant a greater competition for limited resources. "Not only would school politics become primarily state politics, now education advocates were pitted against other interests to determine education's share of the budget" (Guthrie, Kirst, & Odden, 1991, p. 5).


Proposition 4 closely followed Proposition 13 and was another constitutional initiative supported by California voters. While Proposition 13 limited local taxes, Proposition 4 limited state appropriations and thus the level of taxes collected by the state government. "The result of this amendment was that government spending became an ever-decreasing percentage of personal income. The Gann limit created a squeeze on resources available to local school districts in addition to that previously generated by Proposition 13" (Schmieder & Townley, 1991, p. 3). This political effort meant that California was the only state in the United States limiting both its local and state governments' ability to raise revenues through property taxes.


A political effort led by the California Teachers' Association in 1989 attempted to eliminate education from

the year-to-year lobbying requirements by seeking additional money to support education and by establishing a guarantee of a percentage of the state budget for elementary and secondary schools. The passage of Proposition 98 was seen as a major victory for public education. This legislation guaranteed that schools would receive at least 40.3 percent of the state budget as well as guaranteed increases for inflation and growth. The resulting backlash from other public agencies forced educators to support a modification to Proposition 98 through Proposition 111 in 1990. This change actually forced education to continue in the political battles to gain financial support. The modification showed that the guarantees were hollow during an economic crisis, and the deterioration of the state economic picture in 1990 resulted in real losses in funding for public schools. The year 1992 found education in competition for funding with welfare projects in the governor's budget proposal. This proposal places education in the forefront of the issue of taking from the very poorest people in the state (many of whom are children) to support education funding. This action places educators in a very unpopular political position, especially if the money is used to raise salaries.


Some legislators already believe that teacher salaries in California, ranking in the top five states in the nation, are currently competitive (Legislative Update, 1991). They resist placing more money into district hands for further increases in salaries. These legislators believe that new monies should be used to improve other areas of public education such as reduction of class size, improvements in technology, and providing new program support to provide effective education.


Economy and Its Impact on Education


California spends $24.9 billion a year to support current operations for elementary and secondary education with the state controlling 85 percent of this support (EdSource, 1990). Costs are growing at the rate of $2 billion each year, which places a burden on taxpayers even in a state as wealthy as California. California's support for education has been declining during the past two decades. In 1971, California rated fifth in the United States in personal income per capita, third in general expenditures per capita, and eighth in expenditures for schools per capita. In 1981, California ranked fifth in the United States in personal income per capita, seventh in general expenditures per capita, but nineteenth in expenditures for schools per capita (Factbook for School Finance Information, 1982). By 1989, California ranked ninth in personal income per capita and twenty-third in educational expenditures per capita (Rankings of the States, 1991).


In the past several decades the state had not experienced more than one year of downturn in the state economy. This yearly growth in the economy allowed the state to maintain a high growth in expenditures. "One out of every eight school dollars raised in the United States was being spent in California, and the state was  not even staying abreast of inflation" (Guthrie, Kirst, & Odden, 1991, p. 3). In 1989, the California economy slowed and this trend was to last for several years. The economic impact means that schools are having to examine every facet of their operation as fewer state funds have a dramatic impact on money available to local districts. Since districts are highly dependent on state funding, administrators at the local level have few options to raise additional funds and are forced to cut school budgets.


Demographic Impact on School Finance


One of the greatest challenges facing California is how to deal with the rapid growth in the state. California is currently the most populous state in the country and is experiencing growth of approximately 500,000 new residents each year. California enrollment in the fall of 1989 was 4,771,978; and was the largest public school enrollment in the country (Education Week, 1990). From 1990 to 1995, California's public school enrollment is expected to grow at approximately 230,000 students per year (California State Department of Education, 1992). At an approximate cost in current operations for 1990-91 of $4,826 per student (Estimate of School Statistics, 1991), the state must increase support at the rate of $1 billion per year just to meet the needs of new students. Also, many of these students have greater educational needs and costs because many of their individual backgrounds include language diversity and poverty.


This growth also places major demands on districts to build new facilities. The estimate for needs of new facilities in the state for the next five years is $12.65 billion, and the need for renovation of current facilities may exceed $4 billion (California State Department of Education, 1992). This amount translates into building 20  new classrooms a day in California for the next five years. The state has been slow to address this need as a decline of students in the early 1970s reminds officials that this trend could rapidly reverse and leave districts with excess facilities. Facing this possibility, the state requires new facilities in a district to consist of at least 30 percent portable buildings and also requires districts to convert to year-round programs to qualify for facility funding. The bureaucracy of the facility approval process has slowed the development of new schools by requiring up to seven years to receive approval for state funding of new facilities.


Constitutional Issues in School Finance


Several constitutional issues are of current focus in the state. The issue that education is a fundamental right in California means that equity will continue to be a primary focus as school administrators attempt to shift  additional funding to their districts. The Capistrano school district is leading a coalition of districts in a new equity challenge in the state courts once again, raising issues begun in Serrano v. Priest (1971). In Capistrano v. Honig the California school finance system is being challenged based on inequalities of expenditures per pupil that result in lesser educational opportunities for students in the lower spending school districts of the state.


Proposition 13 continues to cause controversy as Nordlinger v. Hahn (1991) will be heard by the United States Supreme Court to determine if it violates concepts of equal protection under the law. The case is based on discrepancies in tax levies between two similar homes in Baldwin Park, California. Stephanie Nordlinger pressed the case due to a tax levy of $1,700 on her home, while a neighbor in a similar home, but one purchased years earlier, pays only $350. The United States Supreme Court ruled against a similar taxation system in West Virginia known as the Welcome Stranger tax in Allegheny Pittsburg Coal Company v. County Commissioners of Webster County (1989). If the Court finds the proposition in violation of the law, it will force the legislature to address issues of unequal taxation between properties based on length of ownership. If the case is upheld, the legislature will still have to address the limitations Proposition 13 places on local districts access to local funding of school facilities through bond issues. The current requirement that forces a two-thirds support of a bond issue versus many states' acceptance of a simple majority, has made it very difficult to pass local bond issues in California.


Reform and revitalization of education in California are facing severe constraints entering the 1990s. It will take vision and cooperation at all levels of government and education to continue to improve California schools. At the center of these issues is reform of school finance in California by addressing issues of adequacy, equity, efficiency, legitimacy, and liberty. The effective use of school funds continues as a primary goal of making certain that educational programs receive maximum support.


School Business Management


School business management has become the responsibility of every employee in the school system. There is no way to achieve the efficiency and productivity required in the contemporary school system without the active participation of every individual in the district. This participation requires that each person understand the ramifications of good business management--the idea that schools run as effective business operations.


Schools are one of the largest and most important businesses in most communities. They are typically one of the largest employers in an area and may run the largest food program and transportation system in the community. Schools also serve one of the most important clienteles in any area--the children. To effectively

deliver their product--education--schools must learn to utilize scarce resources efficiently. The assistant superintendent for business is charged with the responsibility of overseeing this dynamic and important area of school administration. "Essentially, everything involving the management of fiscal and logistical services of the district are under the auspices of the assistant superintendent for business" (Wood & Camp, 1990, p. 102).


Assistant Superintendent for Business


At one time, the assistant superintendent for business and the business office staff made decisions regarding the management of these areas of responsibility with little input from faculty or staff. Today with the impact of school reform movements, strategic planning, and site-based management, these activities are of cooperative concern for all employees of the school system. Efficient and effective management control of the resources available to the district enhances the productivity and impact of the school district. The assistant superintendent for business is charged with this management control as an integral member of the administrative team and often is either second or third in the chain of command in the school district. This individual is accountable for the successful use of district resources over the long-term and must make a commitment to maintaining the viable operation of the district with a primary responsibility of meeting the needs of the children, district personnel, and the community which the district serves.


The duties of the contemporary assistant superintendent for business continue to expand dramatically. Economic, political, and legal constraints of today's society continue to alter the role of business management in school districts. Growth in expenditures, student populations, diversity of students attending schools, compliance and regulatory conditions, and demands for equal opportunity have greatly altered the accountability standards required of schools districts. The complexity and detail of reports demanded by local, county, state, and federal governments has increased. Taxpayers have mounted efforts to limit increases in state and local revenues and demanded more efficient use of public monies. Citizens are more willing to sue districts for actual or perceived wrongs as lawyers urge these litigants to go after the deep pockets represented by massive school expenditures and large insurance policies. As the result of these new demands, many areas of responsibility of the business services areas have developed new dimensions. Dependent on the size of the school district, the assistant superintendent for business may actually be involved with each area of business in a small district, or may only oversee general operations with specific hands-on duties in planning and budgeting in large districts.


Role in Business Management


The assistant superintendent for business is directly responsible to the superintendent of schools and the school board. The position requires the individual to have a broad-based knowledge of school district  operations, legal and administrative procedures required by the state, and a business background to  understand and direct the very technical nature of the position. Since decisions regarding the expenditure of funds directly impact the educational program, it is important for this individual to understand the  interrelationship of the education program and fiscal decisions. As a consequence, many boards expect this

individual to have an educational background with line administrative experience such as a school principal. Other boards separate the educational decisions and business operations and hire the person to oversee business operations from a business background. In practice, the best alternative is to select an individual with experience in both education and business.


Despite the philosophy of the board, it is clear that there is a developing shortage of trained business people willing to accept the responsibilities of this demanding position. Line administrators including principals tend to direct their training toward instructional and curriculum decisions and would often have to take a decrease in pay to assume a director's position to gain the necessary background and experience to handle the leadership and administrative requirements for this position. University training programs also ignore the training of people for these positions since most states do not require certification for the assistant superintendent for business. These factors indicate there will be an increasing demand for people trained and willing to accept this challenging job.


The assistant superintendent for business oversees the various departments and areas in the daily operations for the school district and must be reasonably knowledgeable about each area and how all the numerous activities fit within the overall organization. Key responsibilities typically involve leadership and management of the budget, accounting, auditing, financial reporting, risk management, and cash management. Other areas of responsibility often require oversight, though other individuals reporting to the assistant superintendent may carry out daily responsibility for monitoring and controlling these operations. These tasks include purchasing and warehousing, debt service and capital fund management, office management, associated student body activity fund accounting, student attendance accounting, personnel management, maintenance and operations, facilities management, transportation, and food services.


Responsibilities in Business Management


Financial planning, including development of the budget, is one of the most important activities in the school district as it requires translation of the educational program into financial terms. The financial plan actually determines which activities are important to the school district in attempting to meet its educational mission. This plan should identify the mission and objectives of the educational program; the strategies necessary to meet the needs of students, employees, and citizens in the community; methods to assess successful progress in the educational program; and personnel and program costs required to provide a quality program. The budget process should examine alternative methods of addressing these needs due to the costs required to provide the program. This information should be examined in light of limited resources to determine where money can most effectively be used in relation to legal requirements for the district. The typical budget process involves eight steps: (1) developing the educational plan; (2) developing an expenditure analysis; (3) comparing expected expenditures with anticipated revenues; (4) presenting this plan to the public, board, administration, or staff as appropriate for comments and discussion; (5) adoption of a plan by the school board; (6) administration of the plan during the year; (7) making changes through amendment of the budget as the year progresses; and (8) evaluation of how the plan addresses the needs identified as important by the district. Financial planning and budgeting is an on-going process that must meet current operational requirements (typically for a year) while addressing longer range plans for improvement and change.


The State of California requires districts to monitor and report all financial operations according to very specific requirements. County education offices must monitor and work with local districts to make sure that these operations conform to state legal requirements. Recent interest has been focused on the continued, solvent operation of school districts. Steps to monitor and control operations are more stringent as the result of the attention focused recently on the several districts experiencing financial problems. The state is allowed to take control of financial operations where school boards ignore concepts of basic financial management and fail to maintain sufficient reserves to meet their financial obligations.


The state requires several important reports which help district, county, and state officials to monitor financial conditions in the district. Student population reports referred to as Period 1, Period 2, and Annual reports are very important as they form the basis of state support to the district. Other important reports include the 200-Series reports presenting the financial condition of the district and categorical reports for use of state and federal funds. The state is looking at the possibility of going to a system for electronic collection and transfer of this information similar to that used in other states. This technique would allow greater and faster evaluation of information at the county and state levels and earlier identification of districts needing intervention.


The process of managing and investing district funds has gained greater interest in the past two decades.

Many districts rely on county agencies to handle this process. By accumulating funds into a single investment pool, the counties can hire a professional fund manager to negotiate the best investment rates available in an international market. Assistant superintendents must carefully monitor the cash flow within the district and make sure that banks being used by the district safeguard funds, that cash handling techniques meet legal requirements within the schools, and that cash reserves provide adequate funds for current operations.


Payroll management is a complicated procedure which not only requires that employees are paid on time but that proper deductions for taxes, retirement, health, and other benefits are properly withheld and sent to the appropriate agencies. Salary issues are the subject of considerable attention throughout the nation. At issue are questions concerning whether different salary schedules can be used to serve as a method to promote greater productivity in the school work force. Since salaries and benefits account for approximately 80-85 percent of the current operating budget of most school districts, this issue has taken on greater importance in decisions for the restructuring of schools.


Purchasing refers to the process of identifying, ordering, receiving, warehousing, and distributing materials in the district. This process involves the many bidding procedures required by state law to order equipment and materials necessary to offer an appropriate educational program in the district. It may include a wide range of procedures from the building of a new school to ordering supplies necessary to operate the instructional program at the classroom level.


The concept of risk management has changed greatly in the last ten years. Initially it referred to the process

of purchasing insurance. With the tremendous increase in the cost of insurance in the past decade, many

schools have found that they must carefully examine this area. Many new alternatives to the outright purchase of insurance are currently being used including the acceptance of a certain level of loss, to forming cooperatives for self-insuring against losses. Districts are also emphasizing preventive measures to reduce losses. Greater attention is placed on effective loss control management that ensures fewer accidents and identifies and eliminates safety hazards that may increase costs for the future.


The school district acts as an agent in handling student activity funds. The agent status means that students are responsible for the use of these funds. Since students are minors, district management adds great responsibility not only in protection of the money but also in training staff and students in the proper use of the monies. The state restricts students in many activities related to raising and using these funds and requires an annual audit of the funds. Liability issues restrict schools in allowing many fund-raising activities by students. The final result is the district is responsible for the stewardship of these funds and meeting all legal requirements.


The continued maintenance and operations (facility maintenance, custodial operations, and grounds care)

required of preserving school land and facilities is an ongoing operation. Districts have learned that preventive maintenance and good custodial operations pay in the long run. Unfortunately, this area is one of the first reduced during financial crisis. The concept that districts will eliminate instructional programs last is still predominant. In the long run, maintenance and operation reductions will increase the districts' costs for repair bills in the future.


It is extremely important that contract negotiations begin working in a cooperative climate with a win-win approach. Employees need to understand that much of the salary increases achieved in the 1980s were the

result of the educational improvement movement and less the consequence of union actions. District salaries are largely dependent on state support, and administrators can only negotiate what is available. Increasing salaries will depend more on cooperative lobbying at the state level than negotiating at the district level. A common area which surfaces during budget crisis is student transportation. Districts are beginning to look at charging parents to transport students despite disagreement on the legal basis for this fee. This action is gaining support since the state pays approximately 40 percent of the cost for student transportation in most districts which is down from 70 percent ten years ago. This decision should be weighed carefully since a large portion of district revenues are based on student attendance. This decision could ultimately result in lost state support for districts. Districts are utilizing other techniques to save money on transportation funding including contract services, running a more efficient internal transportation department, utilizing more fuel-efficient buses, and extending distances for students eligible to ride buses.


Many students rely on schools for their primary meal for the day. As a result, both the state and federal government provide supplemental funds to help support district breakfast and lunch programs. The process of meeting the many state and federal requirements requires careful management of the food service program. Efficient management of this department has gained new emphasis in a climate of limited budgets. Districts are requiring that food services become self-supporting. Many districts are looking at contracting out the management of this program.  


A greater emphasis is being placed on districts to compete for federal, state, and local grants in order to

provide a broader program and opportunity to students in the district. In the past, private schools often met 40 to 60 percent of their budgets through work with foundations and private support groups. Public schools often ignored many of these private grants, concentrating primarily on federal and state grants. Today, public schools are looking at all grant opportunities as sources of funds for new programs and to meet budget demands. Competition for the grants with the many districts and private groups has become intense. Developing professional applications to compete for government and private grants is providing a new challenge for school districts.


Staff development has been used only sparingly by school districts for decades until recent attention has been focused on this need by reform efforts. Top corporations may spend as much as four percent of their payroll in training, while school districts spend less than one percent (Carnevale, 1989). Since districts are constrained by tenure requirements in replacing many faculty and staff, it becomes more important to achieve improvement through carefully planned training programs. As increased efficiency and effectiveness in public education lies in the enhancement of the teaching skills of teachers and the leadership and administrative skills of administrators, improvement in education requires a positive link to training and staff development. Restructuring and improved productivity are highly dependent on improving employee performance in schools. Districts need to continue to improve staff development programs.




School finance and business management in California have experienced dramatic change during the past

decades as issues impacting funding and management of schools entered a volatile climate on the local, state, and federal levels. At the local level, opposing efforts favoring resistance to taxes on one side, and the demands for more quality educational programs and higher teacher salaries on the other are forcing

districts to the brink of insolvency across the state. At the state level, issues concerning equity, adequacy, and excellence in education collide with huge budget deficits and political resistance to major changes in educational funding. At the federal level, controversy is fueled by pressure for increasing educational

quality with less federal support for education and increasing bureaucratic paperwork. Pressure for educational choice continues to gain momentum at the national level in spite of resistance from many educational lobbies. A final issue is the tremendous rate of growth in many school districts, compounded by the influx of high-need populations and inadequate budgets for school facilities, that place California education at an important crossroad that will determine the future for millions of school-aged children throughout the state.


Discussion Questions


  1. Briefly discuss three voter initiatives that have had an important impact on current funding of schools in California.
  2. List and define three values influencing school finance policy. Give an example of the impact of each of these three values on California school finance.
  3. What is the teacher's role in school business management? Give three examples of the impact a teacher has on these business operations.
  4. List and briefly discuss four responsibilitites of the assistant superintendent in school business management.
  5. School funding has shifted from primarily a local responsibility to a state responsibility. Briefly discuss three events in the past three decades that have led to this shift.


Suggested Projects or Activities


  1. Investigate and make a list of the benefits and problems presented by the use of vouchers and parental choice (include both public and private schools).
  2. What impact has the economy had on the budget in your school district? What has been the impact on district salaries? What has been the impact at your school? Interview the principal at your school and write a brief paper summarizing these impacts.
  3. Find the citation for Serrano v. Priest in this chapter. Using this citation, go to your university library and ask the librarian how you would find this case. Determine the plaintiffs and the defendants in this case.
  4. Determine the three most important issues in school finance at your school site. Interview your school principal and write a brief paragraph about each issue.
  5. Review an audit report for student body funds at your school site. What recommendations does this report suggest to improve accounting of these funds?


Suggested Readings


Burrup, P. E., Brimley, V., & Garfield, R. (1988). Financing education in a climate of change. Boston: Allyn and Bacon.


Castaldi, B. (1987). Educational facilities: Planning, modernization, and management (3rd ed.). Boston: Allyn

and Bacon.


Goldfinger, P. M. (1991). Revenues and limits. Sacramento, CA: School Services of California.


Guthrie, J. W., Kirst, M. W., & Odden, A. R. (1991). Conditions of education in California 1990. Berkeley, CA: Policy Analysis for California Education.


Odden, A., & Picus, L. (1992). School finance: A policy perspective. New York: McGraw-Hill.


Schmieder, J., & Townley, A. (1991). California school finance: An overview. San Bernardino, CA: California State University.


Wood, R. G. (Ed.). (1986). Principle of school business management. Reston, VA: Association of School    Business Officials International.




A Nation at Risk: The Imperative for Educational Reform. (1983, April). Washington. D.C.: The National

Commission on Excellence in Education.


Allegheny Pittsburg Coal Company v. County Commissioners of Webster County, 488 U.S. 336 (1989).


California State Department of Education. (1992). Sacramento, CA: Author.


Capistrano v. Honig, In the Superior Court of the State of California for the County of Orange, Case No. 642959.


Carnevale, A. (1989, February). The Learning Enterprise Training and Development Journal, 43, 26-33.


EDCAL. (1991, July 22). School funding: Less than needed, more than expected, 210(3), 1.


Estimate of School Statistics 1990-91. (1991). West Haven, CT: National Education Association Research.


Factbook for School Finance Information. (1982). (pp. 8-10). Sacramento, CA: California School Boards



Guthrie, J. W., Kirst, M. W., & Odden, A. R. (1990). (p. 103). Conditions of education in California 1989.

Berkeley, CA: Policy Analysis for California Education.


Guthrie, J. W., Kirst, M. W., & Odden, A. R. (1991). Conditions of education in California 1990. Berkeley,

CA: Policy Analysis for California Education.


Legislative Update. (1991, March 19). San Bernardino, CA: San Bernardino County Superintendent of



Meltsner, A., Kast, G., Kramer, J., Nakamyra, R. (1973) Political feasibility of reform in school financing: The

case of California (p. 16). New York: Praeger.


Mort, P. R., & Reusser, W. C. (1941). Public school finance: Its background, structure, and operation (p. 99).

New York: McGraw-Hill.


Nordlinger v. Hahn, 112 S. Ct. 49, cert. granted, (October 7, 1991).


Picus, L. O. (1991). Cadillacs or Chevrolets?: The Effects of state control on school finance in California.

Journal of Education Finance, 17(7).


Rankings of the States. (1991). West Haven, CT: National Education Association Research.


Schmieder, J., & Townley, A. (1991). California school finance: An overview (2nd ed.). San Bernardino,

CA: California State University, San Bernardino.


Serrano v. Priest. 487 P. 2d 1241, 1248 (1971).


State public school enrollments. (1990, October 31). Education Week, p. 3.


Walker, B. D. (1988, February 29). School finance seminar. Dallas: Rauscher Pierce.


Wood, C., & Camp, W. (1990). The effective assistant superintendent for business. In R. W. Hostrop  (Ed.), The effective school administrator (p. 102). Palm Springs, CA: ETC.