Fulton County Schools

INTRODUCTIONThe Fiscal Year (FY) 2014 budget for Fulton County Schools (Atlanta, Ga.) was so well thought out and aligned to strategic plans that it brought smiles all around – to the School Board who saw $17 million in savings, to employees for their new 3% compensation payment, and to taxpayers who saw no millage increase. Fulton is in this enviable spot because of hard decisions made in fiscal years 2010 and 2011. When funding sources, tax digests, and property values were all heading down, Chief Financial Officer Robert Morales and Budget Director Marvin Dereef decided to act then and there rather than wait it out. A reduction in force (RIF), deep budget cuts, and furlough days for everyone, including the superintendent, were put in place before a fiscal crisis could hit the school system. Now, FY 2014 is upon the system, and sustainable pay increases, a comfortable reserve, and an exemplary budget process are making news.

This white paper explores how the 94,000 student Fulton County Schools district was able to give year-end payments and maintain healthy reserves in this trying economy. We will focus on how Fulton launched a modified zero-based budgeting process for FY 2014 aligned to strategic goals while still coming in $17 million under the previous year’s budget – all without making any budget cuts.

Averting a CrisisDuring fiscal year 2010, Morales joined Fulton County Schools as CFO and Dereef began as budget director. Across metro Atlanta, county tax digests had been falling since 2008. The value of residential and commercial property was dropping and was of great concern since 65% of the school system’s revenue is from Fulton County property taxes. State funding also was shrinking to 2005 levels. “Traditionally you believe property values and tax digests are going to tick back up but we were looking at steep declines,” says Dereef.

Fulton made serious and deep adjustments in spending to preserve the health of the school system in what looked like a lengthy downturn. “Eighty-five percent of our costs are personnel,” says Morales. “You can only cut non-personnel so much. With then-Superintendent Cindy Loe, and Chief of Talent Ron Wade, we developed a reduction in force (RIF) policy that took into account evaluations, so performance could be part of the decision. Then we RIFed 1,000 positions (some unfilled), including very unpopular cuts in Fulton’s

Fulton County Schools Averts a Budget Crisis and Embarks on Successful Modified Zero-Based Budgeting Aligned to Strategic Goals

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music program and counseling departments. We also took three days off the instructional calendar, which primarily saved transportation costs. Personnel were now impacted. All divisions got three furlough days, which reduced salary costs and saved $3 million for each day. Payroll was impacted when we increased class size by one, netting $9 million savings for the district.”

This level of cut was an unusual move for any school district, especially for a growing system with a General Fund budget of $800,000 million. “Our School Board was willing to make tough decisions, and ‘not kick the can down the road’, so we went ahead,” says Morales. “Other districts in metro Atlanta didn’t take drastic measures when we did. We think in long-term in Fulton. That has sustained us and positioned us with a solid reserve.”

“We cut fat,” says School Board Member Gail Dean, “We increased class size, cut support services, cut three school days, and had furlough days for employees – six in FY10 and three the next year. We had to scrap methods used before, even though they were award-winning. We made strategic and painful cuts. We saw it coming in and avoided a crisis situation.”

Fulton’s budget team also decided to take a systematic approach to raises and address bonuses year-to-year, but only after they learned of end-of-year revenues from the tax assessor and tax commissioner. In the past two budget years, FY12 and FY13, Fulton was able to make one-time calendar year end payments to employees of $1,000 and $500. This year, Fulton gave a one-time 3% compensation payment. “It’s still a tight budget,” says Dereef. “We learned to listen to stakeholders, the School Board, employees, and taxpayers, and find the best solution while using our best judgment.”

A New Way of BudgetingThe 2012 fiscal budget year was going smoothly, but the School Board told the budget office, ‘We can’t live on our laurels.’ Board member Gail Dean said the next step is to challenge ourselves to do zero-based budgeting,” says Morales. “Zero-based budgeting had been in the news since Governor Nathan Deal proposed it for the State of Georgia. The Board really emphasized this issue, and new Superintendent Robert Avossa made it a priority.”

Fulton County Schools is a planning-driven system with a history of data-driven decision-making, while aligning action with strategic plans. It followed that the budget creation process should match. “We budget by

thinking about long-term goals,” says Morales. Fulton is also in the second year of a five-year charter system implementation. Input from stakeholders during the charter application process

had already helped establish budgeting priorities. “Our strategic plan served as a benchmark, highlighting what our stakeholders are expecting. Every department is guided by our overall goal: that by 2017, Fulton County Schools will have 90% of its students graduate on time, 85% will be college ready, and 100% will be workplace ready.”

No one else was doing any form of zero-based budgeting in other metro Atlanta systems or Georgia systems. Fulton County

Schools’ new budgeting method is modified zero-based (MZBB), accounting for fixed costs such as current staffing and transportation but requiring less documentation than classic zero-based budgeting. Fulton adopted a template used by GFOA (Government Finance Officers Association), with adjustments, called Budgeting for Outcomes. It requires that the budget be developed from the bottom up, starting with a base amount and accounting for priorities based on need.

In previous years Fulton County Schools used incremental budgeting, described as ‘roll over with minor adjustments up or down’. The beginning of previous budget seasons forms and templates had been pre-populated with a target percentage to cut, and with a place to add in a new initiative. “This is the wrong order, first putting money in the budget, and then planning,” says Dereef. “Budget planning should start with goals and objectives first and align with strategic plans, and then we decide what resources we need to apply. With incremental budgeting, people forget why an item was there in in first place, or one-time events get rolled over. We need resources in exactly the right place instead of sitting around unused somewhere.”

Fulton made serious

and deep adjustments

in spending to preserve

the health of the school

system in what looked

like a lengthy downturn.

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Fulton’s talented strategy team and budget services departments redesigned the templates, adding features such as how to identify recurring and one-time expenditures. It is a blank template except for current staffing and fixed costs, such as transportation. “This is de-centralized, bottom up budgeting,” says Dereef. “Our district is unusual in doing that. It is site-based; we expect department heads to develop their own budgets. That is over 100 departmental budgets and 100 school budgets. We track for allocation to strategic initiatives. We need justification of every line item, including equipment or supplies. This budgeting method takes more time because you have to think about each expense. We built it with Microsoft Excel and Word documents, but plan to upgrade to a computer program for next year’s budget process.”

Department Heads and Principals Make Their CasesAfter developing a budget, each department head has to defend it to the Superintendent and Cabinet at budget hearings. They must define the department’s function and contribution, their goals and objectives, and the resources needed. The review team takes a hard look at what the department is trying to do. The budget department prepares a huge binder for each Cabinet member, set up ahead of time to flag for questions for each department, and giving decision-makers tools they need to make informed decisions. Traditionally budget books are done afterward to submit for awards, but Fulton builds the 400-page book throughout the budget process and puts it on the district’s website so stakeholders can review it before the budget is approved.

“Our financial staff and Strategy Chief Ken Zeff had the strategic vision and plan,” says Dereef. “Each department head had to say which part of their budget relates to the

strategic plan. With a request for more funding we want to see ‘why’, and ‘how it supports our strategic initiatives.’ When we consider where to spend additional dollars, we favor adding them to strategic projects, and are now able to track this increased investment over time. The strategy staff designed a formatting template, conducted training, and gave tips on how to prepare the budget presentation. Most people felt uncomfortable having to present; even the

warehouse department had to do it and was not used to it. I think everyone understood they needed to be on board, and trust us. They were positive even though some were uncomfortable at times.”

CFO Morales realized when department heads were presenting that only the departments themselves really know their needs. “We discovered budget areas that needed our attention and even discovered ‘lost’ money, such as double-budgeting for substitutes, or an excessive gasoline budget. We found $17 million this way without cutting the budget. We listened, invited the Fulton tax commissioner and tax assessor to give updates, and looked at recurring

and one-time expenses. Because we pressed the department heads to take a hard look, we had extra dollars in the budget for a one-time 3% compensation payment. In the end, Superintendent Avossa recommends the budget to the School Board; it’s his budget. He wanted a 3% pay increase, and the Board concurred.”

On the school side, the process is different. The Cost Center Review Committee is comprised of teachers, principals, heads of departments of instruction, and area superintendents. “We tell them to think academic need first, then finance,” says Dereef. “We have priorities set in no particular order: 1) regulatory compliance, 2) operational efficiencies, 3) instruction, which weighs heavily, and of course, 4) fiscal responsibility...we must balance all these. Schools are allocated their budget on a Board-determined formula which is the same for all schools, based on enrollment and/or square footage, and with a slightly different formula for elementary, middle or high school.

In December and January, the School Board approves formulas so principals can hire teachers sooner. This process happens every year. What was different this year is that the template required justification. We know more changes are coming with charter flexibility so we didn’t want to bombard schools with all the changes at once. While Fulton already gives great flexibility with site-based budgeting, the Governance Boards

“Because It’s still a tight budget,” says Dereef.

“We learned to listen to stakeholders, the School Board, employees, and taxpayers, and find the

best solution while using our best judgment.”

– Marvin Dereef, budget director

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786 Cleveland Avenue S.W. • Atlanta, Georgia 30315-7229404-768-3600 • www.fultonschools.org

The Fulton County School System has earned a reputation as a premier school system with a focus on student achievement and a commitment to continual improvement. This long history of excellence is evidenced by the many state and national honors bestowed on Fulton’s schools, staff and students. If you would like additional information about FCS, please call communications at 404-768-3600.

of the schools will have even more input in budgeting for each local school as the charter system is implemented.”

A Budget Reset to Match Strategic GoalsDepartments appreciated the chance to ‘reset’ their budgets to align with the district’s strategic plan. “They were able to tell us ‘I need this and that’ for our new goals,” says Dereef. “Employees feel pretty good about it. We tried to minimize the burden for each department, addressing issues as they came up, to make sure we met our timeline. We were surprised people were willing to give up positions instead of hang on to them. In previous years they were afraid to give up positions feeling they would never get them back. This method of budgeting allows people to be truthful about what they really need.”

But there are still constraints with modified zero-based budgeting, still a final budget figure. If the total requested is over the target budget figure, the Superintendent and Cabinet must still make reductions. “Some departments made requests that they did not receive,” says Dereef. “We would say to them, ‘Can’t you think differently about reaching this goal?’ We had to make adjustments to meet the most acute needs. One of the greatest things about zero-based budgeting is that people first have a say in how it’s reduced. We cut $17 million without saying ‘cut your budgets’. Instead we told them, ‘Think strategically and just budget for what you need to meet goals of FY14.”

Other districts, using incremental budgets, are sort of stuck, according to Dereef. “It is much harder to do the deep dive to see what is really needed. Across the board cuts is an easier way to budget, but not something you can sustain and still focus on academic goals. Academics should always be at the forefront. Critical areas still need resources; you don’t want to cripple them. We met with each department and asked, ‘What position is critical for the future?’ For us, it was technology infrastructure; we can’t let it collapse. We must make sure people are in the right place to meet goals.”

The public and the School Board were pleased with the results. “We had two public hearings and only one person showed,” says Morales. “The Board approved the tentative budget, and then ultimately in May, the final budget. This took a lot of

hours from a lot of people. All had to understand our goals and where we were going with this. There were lots of steps and hours in there. We can say, though, the School Board never said ‘go back and change things’. Any changes were minor and could be incorporated into the original budget.

“There is great satisfaction in getting the budget done this way. Our process allowed it to happen. The School Board, having made difficult decisions, did not just sit on its laurels. We put the time into developing a budget that was approved with the Superintendent’s recommendation to the Board. I suspect that the Board wants us to continue with departmental review of each line item. Maybe next year the dive won’t need to be as deep.”

“The School Board sought the cooperation of budget staff,” says Dean. “A big ship is hard to turn. Instituting changes in a large system like ours takes time and energy. The Board had been encouraging zero-based budgeting for years. We needed buy-in from the budget staff, then the Cabinet. What enabled it to happen was Superintendent Avossa’s support of the Board; you must have buy-in from the top. Each department head recognized each other’s real needs. It’s cross functional budgeting versus silo budgeting. It was an education for everyone to see what others’ needs were. The Board is very proud of the budget staff. They had a monumental task, and were able to accomplish it and turn it into something award-winning.”