Sunday, December 03, 2006

Olentangy budgets; at the margin

Marginal analysis is the best way to understand the financial direction an organization is taking. By looking across the organization for changes at the margin as opposed to focusing on changes of averages, policy shifts are easy to note. When the attention is placed on average salaries, staffing ratios, etc., policy shifts can easily get lost in the sea of a big-dollar operating budget. But when the focus is directed at the margin, policy shifts are revealed.

An example: The Olentangy School District has a current operating budget of over $100 million dollars. The budget has been growing, that we all agree upon. The board and administration will claim that additional students and inflation are the main driving forces behind budget increases. Is that true?

Let's look at one item at the margin; the staff to pupil ratio. Looking at staffing practices from fiscal year 2004 to fiscal year 2006 reveals that the district had been hiring one new staff member per additional 10.6 students. Now look at the period covering fiscal year 2007 to fiscal year 2009 (forecasted), the district proposes to hire an additional staff member per additional 7.6 students; an almost 40% increase in this one statistic. Think about it; a 40% increase or an additional $3.5 million per year in expenditures and subsequent tax revenue needs. Incredible!

More incredible is the change in new administrative positions. Instead of the FY04 to FY06 pattern of one new administrator per additional 429 students, the district is projecting one new administrator per additional 159 student from FY07 to FY09; a 260% increase. Incredible ... oh, wait ... I used that already. Scary may be a more apt description.

Looking at changes as a function of the average would also reveal the changing staffing pattern, but the margin reveals what's actually behind that change - it's magnitude, and the effect on the future tax increases.

Keep this in mind as the district talks about budgets and levy millage. See if they address the expenditure train that is about to leave the station, running wild on marginal increases.

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