FILE: DCDA
BUDGET CRISIS PROCEDURES
The DeSoto Parish School Board will always face challenges when it comes to matching planned revenues with actual expenditures. Examples include:
Elastic sources of revenues – such as sales and use taxes – contribute to a volatile revenue structure.
Local events, such as the closure of a major employer, can also negatively affect revenues.
Extreme events (major winter storms, hurricanes, etc.) can increase operating costs or capital costs.
PURPOSE
The budget crisis procedures policy is intended to provide the School Board with options when responding to unexpected fiscal issues that can and do arise. Should budget problems materialize, these procedures will support comprehensive risk analysis and contingency plans. Without such a program, budget problems are unlikely to be recognized until they come to a head, and responses are unlikely to be formulated and approved until cash is literally depleted and a crisis is at hand.
The goal of this policy is to:
First – Establish control of current developments. Above all, don’t take a passive role of the economic situation. Be aggressive in solving the problem.
Second – Expect to encounter problems and try to anticipate where they will occur and how to respond promptly.
Third – Make sure the fix includes rehabilitation so that your budget planning and control mechanisms will be stronger should another set of problems emerge.
DISCLOSURE AND NOTIFICATION MANDATE
For purposes of this policy, a budget or fiscal crisis shall be deemed to exist whenever both of the following conditions exist:
Total budgeted revenues within any fund fall, or are anticipated to fall below, the fund’s yearly revenue projection by an amount of 10% or more, and
Extraordinary reductions of expenditures are needed to achieve the minimum reserve target levels as stated in the School Board’s reserve policies.
Disclosure of an anticipated budget or fiscal crisis shall be made by the Superintendent, in writing, to the School Board through its Executive Committee, which is composed of the School Board President, Vice-President, and Chairman of the Budget/Finance Committee.
This notice shall be given by the Superintendent without delay, but in no event, later than forty-five (45) days after the crisis is believed to exist or after being notified by the Director of Business Services that a crisis is believed to be present. Delays are permitted for law enforcement purposes if a law enforcement official determines that the notice would impede a criminal investigation.
If notification is not provided to the School Board by the Superintendent within forty-five (45) days after the notification to the Superintendent by the Director of Business Services, the Director of Business Services shall give notice, in writing, to the School Board’s Executive Committee, the School Board’s attorney, and its external auditor.
After the disclosure of an anticipated budget or fiscal crisis has been made by the Superintendent and/or the Director of Business and Operations, monthly progress reports shall be presented to the Budget/Finance Committee on what action has been taken to end the crisis. These monthly progress reports shall continue until the anticipated crisis has ended.
STEPS TAKEN TO ADDRESS CRISIS
The Superintendent or his designee shall implement the following six steps should the DeSoto Parish School Board experience a budget crisis. They are as follows:
Step 1 – Suspension of Purchasing and Hiring
In a crisis, the foremost priority must be to stop, or at least slow, the momentum of spending. Even when budget problems are well known, it is common for people to ignore the crisis and to continue hiring and spending. Should a budget or fiscal crisis occur, the Superintendent shall have the authority to put an immediate freeze on hiring and purchases. The purpose of the temporary freeze is to: (1) buy time until an analysis is conducted and a plan of action is complete so that permanent changes can be made, and (2) to prevent the problem from worsening.
Step 2 – Establish and Maintain Close Monitoring of Spending and Revenues.
The budget crisis cannot be contained without knowing if the disruption to spending is succeeding. The Business Office will be responsible for monitoring these reductions and notifying those individuals in charge of various areas of the budget of the reductions. This process can only be successful when administrators know that they are being monitored and held accountable.
Step 3 – Determine whether Stop Gap Financing is Needed until Budget Actions Reach Full Savings Potential
There may be a temporary period where cash shortfalls occur before all actions achieve enough savings to close the budget shortfall. Depending on the severity of the budget crisis, this could range from cash flow assistance within a fiscal year to deficit financing across several fiscal years. The Business Office will notify the Superintendent if a temporary or short term loan should be presented to the School Board for approval.
Step 4 – Utilize the Media to Build Public Awareness of the Crisis
A major tool in building attention to the budget crisis is the media. In particular, the media must be utilized to inform the public that a budget problem exists and will continue to exist. The primary objective is to challenge complacency, routine, and "business as usual" among employees and elected officials. The Superintendent will be responsible for notifying the local media.
Step 5 – Initiate Analysis as to the Cause of the Crisis and How the Crisis could be Avoided in the Future
Once Steps 1 thru 4 have been implemented, the Business Office will prepare an analysis of the causes of the crisis. For example, the Business Office will examine: whether the staff made errors in the budget estimates, whether delays were made in making decisions to correct budget shortfalls, or whether there was a decline in revenues caused by the economy that was not addressed. After the cause of the crisis is determined, new procedures should be developed by the Superintendent to better monitor the financial position of the School Board and to anticipate how to avoid similar crises in the future. Once this analysis is complete, a report shall be presented to the full School Board for information and/or possible action.
Step 6 – Consider Requesting State Oversight or Other Outside Involvement
If anticipating, responding, or resolving a fiscal or budget crisis requires resources beyond that which can be provided by local financial or political entities, the Superintendent, or the School Board, shall seek assistance from the Louisiana Legislative Auditors Office or a private CPA firm.
New policy: March 6, 2014
Ref: Board minutes, 3-6-14
DeSoto Parish School Board