Moray Junior High School

This budget cut is a serious problem for us. I don't know quite how to reduce our costs because there really wasn't much flexibility in the budget to begin with. However, we're all in the same situation; we expect to have only $2.2 million to spend on Moray and we have to find some way to live with that.

Ms. Hilda Cook, Principal of Moray Junior High School, had just returned from the March meeting of the Moray Public School Systems School Committee, where she had agreed to cut her schools budget by almost 12 percent. Although Ms. Cook did not consider her projected costs to be excessive, neither did several of the other principals, who also had agreed to attempt to reduce their budgets.

BACKGROUND

Moray Junior High School was one of three junior high schools in the town of San Pedro, Ari- zona. It was in excellent physical condition, and had an enrollment of approximately 700 students a year. The quality of education was considered extremely high, and a student-teacher ratio of no more than 15:1 had always been maintained. Among the school's special programs were a highly regarded Drug and Alcohol Awareness Program, and an Understanding Handicaps Program, in which trained parents and handicapped speakers provided a course of instruction to both students and teachers to acquaint them with the various handicapping conditions, such as epilepsy, blindness, physical handicaps, retardation, and deafness.

Moray was best known, however, for its Spanish Language Program, which used native speak- of Spanish to teach courses that began in the 7th grade and continued through the 9th grade. A special language laboratory with 30 student stations and three instructor stations was equipped with the latest in audio technology, including an interrupt feature that allowed an instructor to listen in on a student practicing with a cassette tape and intervene electronically, when necessary, to correct the student's pronunciation or grammar. Students successfully completing the Program were considered to be extremely proficient in the Spanish language, and a special field trip to a sister junior high school in Anguila, Mexico was organized each year for the 9th graders. The students lived with local families for an entire week while actively participating in the Anguila school system's activities.

As principal of Moray for over ten years, Ms. Cook had witnessed numerous changes in the school. For over 40 years, Moray had been the only junior high school in San Pedro; however, in the late 1970s, when migration from the northern U.S. had led to a large influx of new residents, additional demands had been placed on the school system. As a result, Moray had been expanded and two new junior high schools had been built.

With such a dramatic increase in services, the School Committee had become increasingly con- cerned with budgeting, cost control, and accountability. Accordingly, in the past few years, Ms. Cook had become more actively involved in the financial management of Moray. Beginning with the current fiscal year, she, along with other principals in the San Pedro system, had assumed re- sponsibility for constructing her school's annual budget. Moray's proposed budget for the upcom- ing fiscal year is contained in Exhibit 1.

Budget Data

San Pedro's budget process began in January. At that time, the Central Office made enrollment projections, and, using these figures, all school principals held conferences with their teachers and program heads to determine their school's requirements for staffing, supplies, and other cost items. For the current fiscal year, all budget needs for Moray were calculated on the basis of a pro- jected enrollment of 690 students, although not all programs served all 690 students. In particular, as Exhibit 1 shows, Regular Instruction was scheduled to serve 615 students, Special Education 75 students, and the Spanish Language Program 180 students. (As Exhibit 1 indicates, some students were enrolled in more than one program.) The student-teacher ratio in Regular Instruction was scheduled to be 15:1, while in the Special Education Program it was only 6:1. Shortly before the budget was completed, Ms. Cook and other principals met with the Director of Finance and Administration to discuss the Central Office costs. These indirect costs were allocated to individual schools based on measures such as salary expenses and student enrollments. The specific allocation bases for the upcoming budget year are shown in Exhibit 2. In reviewing her budget, Ms. Cook realized that the nature of the costs varied. She quickly as- certained that the budget contained no superfluous costs that simply could be cut; indeed, the in- structional and administrative supply costs reflected only higher supply prices, and the teacher and administrative salaries were based on a very small increase in the wage rate. It appeared that if Ms. Cook wanted to reduce the budget, she would have to analyze the behavior of each cost, and adjust those that were flexible. If necessary, she also was prepared to alter Moray's operations to comply with the School Committee's budget ceiling. To prepare a modified budget for the School Committee, Ms. Cook decided to meet with some of Moray's teachers and program heads, who she thought could provide information concerning some of the budgeted expenses. Her first meeting was with Mr. Steven Hartman, the teacher with the greatest seniority in the school, and the designated representative of the teachers' union, to dis- cuss the teachers' salary expense. Ms. Cook hoped to make substantial cuts in the teacher salary expense item by increasing the average class size from 15 to 20 students. Mr. Hartman's response was not particularly encouraging:

We can't possibly cut teachers' salaries in the way you envision because the teachers are already over- worked. We have to cover lunch and recess periods, and most of us substitute regularly during our break periods for teachers who are out sick. So we need a minimum of 1 teacher for every 15 students. Unless we cut down on students, we can't possibly reduce the number of teachers.

Next, Ms. Cook met with Dr. Mariana Olivera, the lead teacher for the Special Education Pro- gram, and Ms. Lillian Higgins, the librarian. Ms. Higgins, the most senior of the two, discussed the use of books and other instructional supplies, and her ideas for reducing costs:

The instructional supplies and library item does appear to be a large amount, but there is really nothing in- cluded in it that's excessive. I think we're already quite frugal in our supply use, and we can't just stop or- dering pencils, paper, books, or anything else we need for instructional purposes.

I do see one problem with the budget, however; we're budgeting for a full 690 students when, in fact, due to absences, we probably have only about 650 students in school at any one time. If we adjust the budget to reflect our actual attendance, we can cut costs by at least 5 percent.

Dr. Olivera also had an idea for cutting costs. She suggested that the school reduce or elimi- the Spanish Language Program, thereby reducing the budget by almost $189,000. In considering Dr. Olivera's suggestion, Ms. Cook called the audio equipment manufacturer to discuss the resale value of some of the school's equipment. The company informed her that machines used for four years or more could not be sold, even for scrap. All of the equipment in Moray's language laboratory has been purchased at least five years ago.

Ms. Cook also reviewed the salaries for the Spanish Language Program and found that $35,000 was for a lead teacher, with the remaining $50,000 designated for two regular teachers, at $25,000 each. No substitutes were budgeted since, in the case of a teacher absence, the aide could cover. She also noted that the program's size was limited by the number of teachers. That is, since a strict 10:1 student-teacher ratio was maintained, and the students attended the lab daily, the maxi- mum number of students the program could accept was 180 (30 per class period with six class pe- riods in a day). This did not mean that the lab equipment was fully utilized, however, since the na- ture of the instructional process was such that some days the students would not use the lab at all.

As she reflected on the nature of the task before her, Ms. Cook realized that she had to consider interactive effects of several factors. First, there was the question of the nature of the direct costs in her budget. Although Mr. Hartman had given her a good indication of how teachers' costs might change with changes in enrollment, the behavior of the other costs was less clear. Administrative salaries and supplies, she reasoned, would remain about the same regardless of the number of stu- dents. This would probably be true for operations and maintenance expenses as well. Instructional supplies and library expenses, on the other hand, would probably change in direct proportion to the number of students.

A second consideration of Ms. Cook's was the level of indirect costs. When she called the Cen- tral Office to learn more about the allocation process, she was told that the distribution of indirect costs among programs within Moray used a different set of allocation bases from those used to al- locate the costs to the school; these are shown in Exhibit 2. She also realized that at least some of the indirect costs allocated to Moray from the Central Office would change as both student enroll- ment and the level of Moray's direct costs changed. Nevertheless, she felt quite certain that the School Committee would hold her responsible for whatever amount was allocated. But then, if she was responsible for these costs, she wondered about the extent to which she could control or reduce them.

Finally, Ms. Cook mused about Dr. Olivera's suggestion. Reducing or eliminating services did not seem appropriate, yet it might be the only way to meet the targeted budget reduction. If she were to cut the Spanish Language Program in half, she thought she might be able to reduce some of the Program's costs, but she was not at all sure. She also noted that, approximately two-thirds of the depreciation in her budget was for language laboratory equipment.

As she began to prepare her budgetary modifications, Ms. Cook realized that Dr. Olivera's sug- gestion posed some very difficult issues. She decided to revise her budget first by making the ap- propriate changes in costs associated with an average attendance of 650 students. Only if this failed to produce the requisite reduction, would she consider cutting back the Spanish Language Program. However, in order to demonstrate to the School Committee the true impact of its request, she also decided to calculate what her average attendance in the Regular Instruction Program would have to be in order to meet the Committee's requested cut without curtailing the Spanish Language Pro- gram. Since several teachers were expected to retire at the end of the current fiscal year, she realized that if attendance levels were cut on a permanent basis, she might be able to get by without hiring replacements.

Since Ms. Cook would soon be required to make employment offers for any new or replace- ment teachers, she realized that preparing revised budgetary projections and gaining School Com- mittee approval for them was of the utmost priority.

A. Copy the table BUT this time zero out the personnel and other variable expenses associated with elimination of the Spanish language program. Note that fixed costs will either remain associated with that program (e.g., depreciation of the Spanish lab equipment) or will be reallocated through the cost allocation formulas to other programs (e.g., some administrative and central office costs).

B. Copy the table BUT reduce the number of teachers assumed to be in the regular instructional program by altering the student-teacher ratio. If constructed correctly, it should recalculate the costs associated with an increase in student/teacher ratios.

C. Conduct a targeted analysis of budget cuts by filling out the model below. Note, this is a truncated model, cells of which should reference the Table

Category	Pct/#	Savings	Comments
Teacher Salary Savings, Total		$-	Add savings from attrition and furloughs
Teacher attrition	3		Conservative estimate (use average salary)
Teacher furloughs	4.1%		Seven day furlough: assume a 7/170 savings
Admin furloughs	4.1%		Seven day furlough: assume a 7/170 savings
Indirect health savings			Direct function of reduced salaries, by formula
Instructional supplies	15.0%		As per memo
Administrative supplies	30.0%		As per memo
Eliminate Spanish Travel	100%		As per memo
Defer maintenance		85,000	As per memo
Indirect O&M savings			0.027 cents per dollar saved
Total Savings			Sum from above elements
Total Cost			Savings minus total cost of status quo
Average Cost Per Student
New Student/Teacher Ratio

D. What is the Instructional Impact of these four options (regular scenario plus three cutback scenarios)?

Other Programs Tota! 450 690 170 117,300 110,497 94,20% $15,000 0 0 3,000 1,100 0 0 $19,100 $1,596,175 49,700 38,900 131,525 3,000 60,300 $1,879,600 $ 1,175 $ 125,001 Regular Special Spanish Instruction Education Language Program Program Program Statistics: Number of registered students .... 615 75 180 Number of days in academic year Number of potential student days Expected number of student days Attendance rate ........... Direct costs-instruction: Regular teacher salaries 1,119,300 $376,875 $ 85,000 Substitute teacher salaries 37,200 12,500 0 Aide salaries .... 20,300 9,100 6,500 Instructional supplies and library 84,870 37,275 8,280 Travel and lodging. 0 0 3,000 Depreciation ...... 12,300 8,000 40,000 Total .... $1,273.970 $443,750 $142,780 Direct costs-administration: Administrative salaries (regular teacher salaries) $ 87,655 $ 29,514 $ 6,657 Administrative supplies (regular teacher salaries) 10,869 3,660 825 Operations and maintenance (square feet)......) 175,500 40,500 27,000 Other (regular teacher salaries) 5,259 1,771 399 Total $ 279,283 $ 75,445 $ 34,881 Total direct costs. $1,553,253 $519,195 $177,661 Indirect costs-allocated from Central Office: School Committee .. $ 2,419 $ 815 $ 184 Administration 30,362 10,223 2,306 Health life insurance 94,514 31,824 7,177 Operations and maintenance 4,739 1,093 729 Rent and depreciation 2,243 518 345 Contract services 1,048 128 307 581 195 44 $ 135,905 $ 44,796 $ 11,092 Total direct and indirect costs ... $1,689,158 $563,991 $188,753 Average cost per registered student ....... * Registered students do not crossfoot, since students are enrolled in more than one program Basis for allocations to programs shown in pareatheses) EXHIBIT 2 Allocation Bases 1996-97 146 15,500 27,000 70 $28,391 $47,491 270,000 7,499 $ 418,000 $2,297,600 $ $ 32 407 1,267 729 345 767 8 $ 3,555 $51,046 $ 3,450 43,298 134,782 7,290 3,450 2,250 828 $ 195,348 $2,492.948 $3,613 Travel ..... Total ... school Travel ... Indirect Cost Basis for Allocation to Moray School committee. $5.00 per registered student Administration .... $62.75 per registered student Health/life insurance $0.08 per teacher salary dollar (regular teachers, substitute teachers, and aides) Operations and maintenance $0.027 per Operations and Maintenance dollar in the Rent and depreciation $5.00 per registered student Contract services $0.018 per administrative salary dollar $1.20 per registered student Indirect Cost Basis for Allocation to Programs within Moray School committee. Proportion of regular teacher salaries Administration .... Proportion of regular teacher salaries Health life insurance Proportion of regular teacher salaries Operations and maintenance Proportion of floor space: 65% to Regular Instruction % 15% to Special Education: 10% to Spanish Lan- guage Program; 10% to Other Programs Reat and depreciation Same as Operations and Maintenance Contract services Proportion of registered students Travel ........ Proportion of regular teacher salaries Examples of Calculations for Allocation to Programs within Moray School committee Regular teacher salaries = $1,119,300, Total salaries = $1,596,175. Proportion = 7012. Therefore Regular Instruction share - 7012 X $3,450 $2,419. Administration Regular Instruction share = .7012 X $43,298 = $30,362 Health/life insurance Regular Instruction shore - 7012 X $134,782 $94,514 Operations and maintenance Regular Instruction share= .65 X $7.290 $4.739 Rent and depreciation Regular Instruction sbare = .65 X $3,450 $2,243 Contract services. Regular Instruction sbarc = 1615/(615 + 75 + 180 + 450)