ERIC Identifier: ED335206
Publication Date: 1991-08-00
Author: Inman-Freitas, Deborah
Source: ERIC Clearinghouse on Rural Education and Small Schools
Efficient Financial Management in Rural Schools: Common
Problems and Solutions from the Field. ERIC Digest.
Good financial management of rural schools is a complex task, one made
more difficult in recent years by the declining economic fortunes of rural
areas nationwide. This Digest describes the challenge and briefly reports
solutions developed by practitioners in rural schools. It is based on responses
to a recent nationwide survey of rural school administrators conducted
in cooperation with the American Association of School Administrators (AASA).
More detailed information is available in a longer report available from
both ERIC/CRESS and AASA (Inman-Freitas, forthcoming).
THE CONTEMPORARY FINANCIAL PLIGHT OF RURAL SCHOOLS
Fifty-seven percent of the nation's school districts are rural districts.
They enroll about 20 percent of the total student population (Stephens,
1991). Diversity, isolation, small enrollments, and unique cultural legacies
are common characteristics of rural education (Nachtigal 1982; Stephens,
1991; and Theobald, 1989).
Rural schools can contribute significantly to the continued growth and
development of their communities, but providing adequate programs has,
unfortunately, become increasingly difficult in recent decades. Higher
poverty rates in rural areas, combined with lower personal income of rural
residents (Brown & Deavers, 1987), for instance, place additional fiscal
pressures on rural governments. Educational programs in rural schools obviously
suffer as a result. The burden of providing adequate educational programs
is further increased by nonfunded, but mandated, programs to improve education
MAJOR FINANCIAL PROBLEMS ACCORDING TO PRACTITIONERS
Rural practitioners report financial management problems that resemble
the problems faced by all districts. The context in which rural schools
operate, however, affects the development of solutions. A brief description
of the major problems follows.
Revenue. One of the biggest problems is cash flow, and several factors
contribute to the problem. According to rural school administrators, the
two most serious are (1) the receipt of 30 percent of state aid after the
end of the fiscal year and (2) delayed tax receipts. Delayed tax receipts
mean that districts must often borrow money to cover operating funds until
they actually receive the funds due them.
Late approval of the state budget is another problem reported by administrators
in many rural districts. When the state budget is two or three months late,
district officials do not know just what their state revenues will be.
Late adjustments to school budgets are often necessary.
Expenditures. The basic problem in this category is that, for many rural
districts, expenditures are increasing 10 to 12 percent annually while
revenues are increasing only 2 to 4 percent annually.
Budget oversight becomes extremely difficult when several expenditure
categories grow significantly from year to year. For example, rising special
education and health insurance costs are causing great concern among rural
districts. The high cost of special education combined with a decreased
federal commitment to funding (currently at one fifth of the original commitment)
strains rural school budgets. Similarly, health insurance costs rise at
a rate of 15 to 30 percent per year. New expenses (such as, under new laws,
paying for pensions and social security from local funds) unexpectedly
increased expenses in some rural school districts.
Programs. Rural schools are often hard-pressed to provide modern technology
in regular programs for students. Moreover, textbooks and equipment (especially
in vocational programs) are obsolete in many cases, and rural districts
struggle to maintain competitive teacher salaries. In fact, many rural
administrators perceive that funding for rural school districts is inadequate
and inequitable. Lack of revenue, they report, makes it impossible for
many rural districts to provide the sort of educational programs that represent
quality programming as it is now understood.
GENERAL STRATEGIES REPORTED TO IMPROVE FINANCIAL MANAGEMENT
Districts have developed a variety of strategies to counteract some
of the critical problems of fiscal management (Inman-Freitas, 1991). Some
of the most widely used strategies reported by rural practitioners include:
* Seek bids and comparison pricing for all purchases, and pay all bills
promptly if discounts are involved.
* Develop partnerships with local organizations for funding educational
materials (consider establishing an educational foundation to coordinate
* Use local personnel to provide various services (including volunteers
and student employees).
* Cooperate with other school districts to access specialized personnel,
materials, and other resources (for example, to share or exchange custodial
services with other local agencies).
* Use sweep accounts to keep investment income at the highest possible
Other areas where strategies have been developed are adjusting length
of school day and year (for example, reducing a high school schedule from
seven to six periods), eliminating study halls, combining small enrollment
grades, and offering some secondary classes in alternate years. Strategies
concerning staff include working around salary issues; implementing early
retirement options; using time management techniques; involving staff at
all levels in developing the budget and planning facilities; and hiring
very talented people with multiple skills and interests.
Strategies for dealing with equipment and facilities include contracting
specialty and janitorial services, using mobile libraries and portable
classrooms, leasing school buildings, eliminating vandalism, and reducing
fuel consumption. Strategies for generating funds include the use of school
stores, vocational class products, adult evening classes, wise investments,
cooperative buying, cooperative application for federal aid programs, community
support of school projects, and local donations.
Strategies to maximize state aid. Although most rural districts are
not happy with current funding formulas, rural school administrators reported
strategies to make the state school finance formula work more effectively
for their districts. These strategies include:
* Increase average daily attendance (ADA) by providing a full-day kindergarten
(if appropriate and if additional costs do not outweigh added fiscal benefits).
* Increase student attendance rates by development of a perfect attendance
* Budget the general fund legal limit.
* Make certain all eligible families apply for free or reduced lunches.
* Include home schoolers in the head count--simply sponsor and monitor
* Schedule purchases to encourage quick state turnaround in state aid.
* Access as many special programs as possible that provide additional
funding sources outside the regular state aid formula.
* Join with others (e.g., urban and suburban educators) to influence
RURAL-SPECIFIC OPTIONS FOR MORE EFFECTIVE FISCAL MANAGEMENT
One of the key questions faced by rural school districts today is "Do
we consolidate, cooperate, or reduce school days?" Since most rural school
districts are hesitant to consolidate, new and innovative methods of collaboration
are emerging. Rural districts across the country have found the most common
areas of cooperation are special education, vocational education, and purchasing.
Interscholastic athletics, however, are also becoming an increasingly
popular cooperative interest. The Wisconsin Interscholastic Athletic Association
reports 127 cooperative agreements between neighboring districts for 1990-91,
and the state athletic association in Iowa reports 217 shared interscholastic
programs (Holmes, 1990).
Technology is another area that is becoming an increasingly popular
cooperative interest. Telecommunications provides an opportunity to link
educators both within a state and across states. While the high cost of
technology has prevented many rural school districts from implementing
technology programs, the use of cooperatives may be a solution for some.
For example, the Maine Computer Consortium (a group of 115 districts) is
a cooperative that helped school districts get on the technological fast
track (Holmes, 1990). In addition to offering bulk purchasing power, the
consortium has a strong network of computer coordinators who provide training
The four-day school week is another option that offers solutions to
the financial and instructional problems faced by small rural schools.
Many rural school districts have implemented a four-day school week because
of declining enrollments, decreasing state aid, and the rising costs of
operating schools. Districts using the four-day schedule have saved energy
and transportation costs. Transportation costs have been reduced by 10
to 23 percent, and fuel and electricity costs have been reduced 10 to 25
percent. Student achievement test scores have increased and the attendance
of both students and teachers has increased (Blankenship, 1984; Hazard,
Good financial management involves an ongoing quest for solutions to
the balancing act that confronts all organizations: doing efficiently all
that is necessary with limited resources. The rural practitioners whose
solutions are reported here stress several outlooks that help put the balancing
act in perspective.
First, they recommend involving many participants in the process of
constructing the budget, notably including staff, parents, and taxpayers.
Building-level and community-level input is particularly important, they
note, in rural areas, where schools are the center of attention. Second,
and equally important, they recommend that the school district develop
and apply a clear sense of priorities as budgets are planned.
Finally, the issue of forecasting has relevance. One respondent put
it this way: When budgeting, underestimate revenues and overestimate expenditures.
Another advised preparation of three budget scenarios--worst case, best
case, and "best guess" versions.
The process of seeking solutions requires cleverness, consultation,
and communication. Problems come and go, but the dilemma of fitting the
means to the ends of education remains.
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school week because students work harder and face fewer distractions. The
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economic policy agenda for the 1980s. In Rural economic development in
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