With a sigh of resignation, many school administrators are looking ahead to a new form of reporting their district’s financial health that most experts say will make more sense to the public.
School finance chiefs applaud many of the changes hammered out by the well-regarded Government Accounting Standards Board, which approved the package last month. But many business officers are worried, too, that aspects of the new system will prove costly to some districts and confuse the public about school system expenses.
As early as 2001, the rules will affect how state and local governments, including school districts, report their handling of money. The changes are intended to move public financial reporting closer to a business model.
On the negative side, however, school leaders have complained about a requirement for reporting the value over time of a district’s equipment, land, and buildings. That could create extra work that many districts aren’t equipped to handle, some administrators say. And, according to the finance chiefs, while the new rules make financial statements more comprehensive, some parts of the business model are a problematic fit for public finances.
“It’s very encouraging to see we finally have a model that is really user-friendly,” said Nicholas C.A. Alioto, the business director for the 11,000-student Eau Claire, Wis., schools. But he added that he isn’t sure the cost of setting up and maintaining the system that tracks the value of property “will have a corresponding benefit.”
Overall, experts agree that the new financial statements will do a better job of showing how the district is faring financially. Such clarity was the goal toward which the GASB, a nonprofit group located in Norwalk, Conn., struggled for more than a decade as it worked on the new rules.
Deadlines for following the changes vary. Larger districts will have until 2001, and smaller districts won’t have to meet the standards for four more years.
The standards board can’t enforce the new regulations directly, but districts that fail to follow them court financial isolation. Auditors and bond underwriters, among others, would likely refuse to deal with them.
Under the new rules, the board wants the expenses and income particular to each program to be spelled out in one comprehensive statement. Now, some income appears only in special funds. And the gasb wants assets and long-term liabilities--including the decreasing value of aging buildings and equipment--to show up alongside cash on hand and disbursements.
It’s that last provision that makes many school finance officers wince.
First, they say, valuing land , buildings and major equipment--a district’s fleet of school buses, for instance--takes resources. Although technically school districts should have been doing that, many have apparently taken shortcuts.
Tracking the depreciation of such assets could also be costly.
William J. Fowler, Jr., a statistician with the U.S. Department of Education’s statistics branch, estimated that about half the nation’s 14,400 districts do their accounting on a cash basis-- meaning their principal accounting and financial reporting ignores assets and liabilities--and they will have the biggest leap to make.
Second, when long-term liabilities are included on a district’s balance sheet, net assets will go down, which will make the cost of education appear to rise.
“It will drive up the cost of operating a school system, drive up the budgets,” predicted Denny Bolton, a past president of the Association of School Business Officials International in Reston, Va., and the finance chief of the 7,000-student Owen J. Roberts district in Valley Forge, Pa.
At first, Mr. Alioto of the Eau Claire district said, that means “there’s going to have to be a lot of explaining, particularly explaining assets.”
But some finance experts say the requirements will help keep officials from suddenly plunging their districts into the red. And it will take out of hiding the long-term cost of construction bonds and highlight the need for maintaining or being ready to replace buildings and equipment.
“It’s going to force school systems to include in their budgets the cost of that depreciation,” Mr. Bolton said.
A version of this article appeared in the July 14, 1999 edition of Education Week as New Accounting Rules Will Change District Balance Sheets