Exercises

A. Budget Talk

Last night you attended a city council meeting at which the city manager, Harold Born, submitted an idea for financing long-range construction that would avoid the issuance of bonds. Born also submitted three sets of tables regarding his proposed budget:

The total budget proposed for next year and the current year's budget (Table A).
A breakdown of the general operating fund, much of which is used for salaries of employees in the city's offices (Table B).
Itemization of the ad valorem tax (property tax) requirements that are included in the proposed budget. The total $821,175, will have to be raised from the tax levied on owners of real estate in Freeport through a mill levy (Table C).

You show the city editor your notes from the portion of the meeting that was concerned with the budget. Here are your notes:

     Council members: Albert Fuentes, Bernard Garner, Fred E. Smith, Martin Davis and Marcia Gold.
     Fuentes: "I think we owe thanks to Harold for the splendid job. I know he's spent considerable time working with department heads over the past few months, adjusting their needs to our realities."
     Garner: "Right. This looks like a hold-tight budget, and I think we all like it. Except for one item, the one that says General Improvement in Lieu of Bonds."
     Born: "Let me explain that. We need to put away money for what I project as a needed expansion of the sewage treatment plant and water lines. Also, we will have to lay out some new roads to the subdivision south sooner or later. I don't see anything immediate but I want to start building up a fund. That way we won't have to borrow and pay interest. Right now interest rates are way up and we are bonded close to our limit. Also, our debt service is high."
     Smith: "But it adds to taxes, doesn't it?"
     Born: "Yes, a few mills."
     Davis: "So the taxpayer has to shoulder the burden."
     Born: "Less, actually, than if you had to sell bonds."

Table A
Current Year Expenditures	Funds	Proposed Expenditures
$576,945.00	General operating fund	$626,715.00
15,000.00	Cemetery	15,000.00
32,000.00	Improvements	24,207.00
500.00	Band	500.00
47,725.00	Library	53,210.00
15,000.00	Hospital	13,500.00
19,500.00	Firefighters' pension	19,500.00
16,500.00	Police officers' pension	16,500.00
2,500.00	Bindweed	2,500.00
20,560.00	Social Security	21,750.00
415,083.00	Debt service	497,648.00
0.00	General improvement (in lieu of bonds)	95,396.00
$1,161,313.00		$1,386,426.00

Current year mill levy: $20,920

Tangible assessed value of real property: $31,798,794. (Assessed valuation is 50% of market value. Average home has market value of $90,000.)

Funds raised from ad valorem taxes are supplemented by fees, licenses, fines, etc., and the total makes up the total expenditure.
Total indebtedness January: $6,611,372.

Current year property tax revenue: $665,200.

Table B
	Current Year	Proposed
City council	$3,815.00	$1,660.00
City manager	10,760.00	11,890.00
Planning and research	7,335.00	15,160.00
City clerk	10,375.00	10,170.00
Elections	10,150.00	2,595.00
City treas.–purch. agent	4,135.00	3,685.00
Building inspector	9,035.00	11,565.00
Buildings and grounds	34,445.00	26,055.00
Legal	7,650.00	8,350.00
Police court	3,675.00	3,875.00
Engineering	37,845.00	45,360.00
General overhead	8,295.00	14,400.00
Police department	122,400.00	125,665.00
Animal control	3,600.00	3,600.00
Parking meter	13,520.00	0.00
Fire department	123,350.00	133,995.00
Street department	107,250.00	103,350.00
Forestry	6,000.00	10,000.00
Street lights	18,200.00	19,480.00
Park department	23,510.00	39,700.00
Airport maintenance	2,100.00	6,160.00
Health department	9,500.00	10,000.00
Contingency appropriation	0.00	20,000.00
	$576,945.00	$626,715.00

Table C
Funds	Ad Valorem Tax Requirements
General operating	$330,275.00
Cemetery	7,545.00
General improvement	24,278.00
Band	448.00
Library	48,499.00
Hospital	11,730.00
Firefighters' pension	6,747.00
Police officers' pension	4,778.00
Bindweed	2,079.00
Social Security	4,288.00
Bond and interest	285,112.00
General improvement (in lieu of bonds)	95,396.00
	$821,175.00

     Gold: "Of course we all want to save money, but isn't there also a principle involved, of making the people who benefit from the services pay for them? I mean, why should present taxpayers pay for future benefits? Bonds are a much fairer way of assessing costs."
     Davis: "I have a feeling that all of us are a bit gun-shy of that item, Harold."
     Smith: "Yes, we can't add to taxes now. The home owner is absolutely strapped, with this and the school tax going up."
Garner: "Suppose we cut it out. How much do we save on the mill levy, Harold?"
     Born: "I can figure that out in a few ..."
     Davis: "Don't bother now. Bring it in in two weeks when I think we're just going to go through the motions of adopting your budget without that item. Agreed?"
     (Various nods and grunts of approval of Davis' statement.)

     After reading these excerpts, the city editor says it seems certain the council will adopt the budget at the next meeting, after striking out the item for General improvement (in lieu of bonds). He says that it appears to him that you can figure out the budget yourself because all the figures are available. You look at him, trying not to appear too perplexed. He senses your trouble and volunteers to take you step-by-step through the figures and to the story, which he says you should then be able to write by yourself.
     First, he says, look at Table A and strike the item General improvement (in lieu of bonds). Then refigure the proposed expenditures. He suggests you do that on your own and return with the total proposed budget for next year.
     You go to your seat and do the figuring. No problem, really:

$1,386,426

–95,396

$1,291,030

As you are about to return to the editor, something strikes you. If you subtracted the same $95,396 figure from the total on Table C you would get the total ad valorem tax requirement. You know that this is the amount of money to be raised from the property tax.
So, on your own, you do that:

$821,175

–95,396

$725,779

     That is a key figure. It is going to be the basis of the mill levy, you know. But you cannot recall how the levy is figured. You ask the city editor to tell you.
     He says that if you multiply the total assessed valuation by the mill levy, you will get the funds raised from the property tax, also known as the mill levy.
     This, you see, makes the following equation:
     Mill levy X assessed valuation = total raised from the property tax
     You pick up the assessed valuation of the city's real estate from Table A and from Table C you take the total taxes needed from the property tax or mill levy:

Mill levy X $31,798,794 = $725,779

Or, to put it in easy form for figuring out:

Mill levy = $725,779 / $31,798,794

Mill levy = $.0228241

     That is 2.282 cents on the dollar, and because your city uses a mill levy on $1,000 assessed valuation, the tax levy on property is $22.82/$1,000 in assessed valuation.
     You show this to your editor and he congratulates you and suggests you check it with the city manager. Born verifies your figures and confirms your feeling that the budget will be adopted at the next meeting without his item, which would have added three mills, or $3/$1,000 in property tax, he tells you.
     Write a story of 500 or more words, quoting from the commission meeting.

B. School Board

The Pennsbury School Board met last night and adopted next year's budget by a vote of 5–1. The board had discussed the budget during the spring. This meeting took 10 minutes. Three board members were absent. You are to write 500 to 750 words from the following information:

     The expenditures will total $21,743,000 as compared with $20,617,000 last year. The new budget will require a property tax of 108.5 mills, compared with 102.5 last year. When the school district first presented the budget to the board last spring, a 13.5 mill increase would have been necessary. Over the past several weeks, the board cut various items from the budget on its own and after public hearings.
     Board member Francis Martin, the lone dissenter, said, "I'd like to save the taxpayer money. I'd like to see the athletic account back to where it was last year. I'd like to see more money taken out of the budget reserve to decrease the millage." He said the savings could be half a mill off the school tax.
     Raymond Wiese, vice president of the board, opposed the suggestion. "I think if we did that we'd be cutting it pretty close. There are a number of factors that may hit us, like a wrong guess on heating and lighting costs. There's the unknown impact of children leaving nonpublic schools and the cost of transportation into New Jersey, especially if some of these schools start holding Saturday sessions."
     Those voting to adopt the budget were Morris Feldman, president of the board; Wiese; William Gummere; George Littleton and Robert McKelvie.

     Presume this is June 27, and next year's budget will take effect in the school year beginning in September. Tables D, E and F and Figures 1 and 2 are sheets from the budget you must consult for background for your story.
     The average home in the Pennsbury School District is assessed at $30,000, but many people live in homes assessed at half that. Use both figures in your estimates of what the home owner will pay.
     Of the total $21,743,000 budget, $15,140,421 will be raised through the property tax.

Table D
Proposed Budget for Next Year
Summary of Receipts
1. Anticipated balance (end of this year)	$540,000.00
2. Current taxes	15,571,421.00
3. Delinquent taxes	125,000.00
4. Other local sources	378,000.00
5. State sources	5,128,579.00
	$21,743,000.00

Table E
Budget Comparisons Pennsbury School District
	Actual Last Year	Actual Current Year	Anticipated Next Year
Classrooms	591	591	591
Schools	18	18	18
Students	13,292	*13,025	12,880
Classroom teachers	673	670	650
Specialists	32	30	30
Administrators	34	36	36
Guidance	28	28	28
Curriculum coordinators	9	10	10
Nurses	20	20	20
Total professional	796	794	774

Secretaries, clerks and supervisors	931/2	891/2	86
Bus drivers and bus maintenance	71	73	72
Custodians, whse., etc.	1441/2	1441/2	142
Cafeteria	141	141	139
Maintenance	28	30	29
Paraprofessionals
Teacher aides	23	37	38
Transportation aides	10	10	9
Management assistants	4	4	4
Total noninstructional	515	529	519

Total employees	1,311	1,323	1,293

Students/classroom teacher	20.0	19.4	19.8
Students/noninstructional employee	26.2	24.6	24.8
Students/professional employee	16.9	16.4	16.7
Students/total employee	10.3	9.8	10.0
*Actual student enrollment as of March 1 this year.

Table F
Budget Comparisons Pennsbury School District
	Budget Current Year	Tentative Budget Next Year
Total budget	$20,617,000.00	$21,743,000.00
Number of students	*13,025	12,880
Decrease in students	†–(2.01)%	–(1.11)%
Increase in budget over last year's budget	9.28%	5.46%
Cost per student	$1,582.88	$1,688.11
Number of employees	1,323	1,293
Decrease or increase in employees	.91%	–(2.27)%
Total salaries	$14,166,733.68	$15,080,849.47
Increase in salaries	8.36%	6.45%
All other expenses	$6,450,266.32	$6,662,150.53
All other increases	14.53%	3.28%
Salaries cost per student	$1,087.66	$1,170.87
All other costs per student	$495.22	$517.24
*Actual student enrollment as of March 1 this year.
†Decrease from June last year average daily membership as of March 1 this year.

New Positions—Next Year
Account Number	Classification	Number
0218	Security Guard	1
0513	Mechanic	1

Figure 1

Figure 2

C. Proposed

     It is now April of the year following the budget adopted in B. School Board. The district superintendent of the Pennsbury School District, Ernest H. Mueller, last night submitted the school budget to the Pennsbury School Board for the coming year.
     The proposed budget totals $24,168,000. A total of $18,413,449 will be raised from the property tax toward the total budget. This will necessitate a property tax of 130 mills, or $130/$1,000 in assessed valuation. You have the current year's budget totals (See Exercise B. School Board) and you can compare the two.
     From these comparisons and the pages taken from the proposed budget (Tables G, H and I and Figures 2, 3a, 3b and 4), write a 400- to 500-word story.

Pennsbury School District
Fallsington, Pennsylvania April 12
Memo
To: Pennsbury School Board
Fr: Ernest H. Mueller, District Superintendent
     I hereby transmit to you the Pennsbury School District's tentative budget proposed for the next school year.
     This document is the result of many hours of deliberation on the part of individual building staffs and central administration. Only through the cooperation and input of everyone concerned with the budget has it been possible to prioritize the district's needs and produce a budget that will provide those basic needs and still not overburden the tax-paying community.
     We are fully aware of what burdens these fiscally difficult times placed upon the taxpayers; yet they, too, must be aware that the same inflationary escalations that affect their family and business budgets also seriously affect a school budget. Holding the total tentative budget increase to only 11.15% has required maximum efforts in all departments to make the necessary revisions and deletions without downgrading the quality of education in Pennsbury.
     Since State Aid provided 23.59% of the revenue for the current budget but will provide only 18.45% for next year's budget, anyone can realize that an 11.15% increase is modest indeed. An uncontrollable fact is that the amount of receipts required from local sources has increased a full 10% in two years.
     This next year 4.8 mills of the 21.5 mills required for the budget increase are a direct result of the decrease in state aid. Of the remaining 16.7 mills, 14.4 mills are required for Debt Service, Fixed Expenses and All Salaries. Only 2.28 mills of the increase go for educational supplies, utilities and custodial and maintenance supplies. This is a surprisingly low increase when one examines the real inflationary costs that affect all consumers today.
     Accompanying this year's budget is the board's adopted Goals and Objectives for next year, including the financial impact that it has on the proposed budget; therefore, it is possible for the board and the community to observe that any increases, no matter how slight, are a direct result of educational commitments on the part of the board, administration, staff and community.
     Since the administration and the staff, through many meetings and deliberations, have been able to effect a $418,638 (almost three full mills) reduction in the budget as it was originally drawn up, there remains little opportunity for further reductions. My staff and I, however, will stand ready to exert maximum effort to comply with the board's wishes. What we ask is that we be permitted to continue offering the kind and quality of education that the Pennsbury community needs and desires.

Table G
Proposed Budget Next Year
Summary of Receipts
1. Anticipated balance July 1	$356,000.00
2. Current taxes	18,785,449.00
3. Delinquent taxes	200,000.00
4. Other local sources	367,000.00
5. State sources	4,459,551.00
	$24,168,000.00

Table H
Budget Comparisons Pennsbury School District
	Actual Last Year	Actual This Year	Tentative Next Year
Classrooms	591	591	591
Schools	18	18	18
Students	13,025	*12,777	12,500
Classroom teachers	670	655	656
Specialists	30	30	31
Administrators	36	36	35
Guidance	28	28	28
Curriculum coordinators	10	10	9
Nurses	20	20	20
Total professional	794	779	779

Secretaries, clerks and supervisors	89½	86	88
Bus drivers and bus maintenance	73	72	72
Custodians, whse., etc.	144½	142	143
Cafeteria	141	140	140
Maintenance	30	29	32
Paraprofessionals
Teacher aides	37	38	39
Transportation aides	10	9	9
Management asst's.	4	4	4
Total noninstructional	529	520	527

Total employees	1,323	1,299	1,306

Students/classroom teacher	19.4	19.5	19.1
Students/noninstructional employee	24.4	24.5	23.7
Students/professional employee	16.4	16.4	16.0
Students/total employee	9.8	9.8	9.6
*Actual student enrollment as of March 1 this year.

Table I
Budget Comparisons Pennsbury School District
	Budget Current Year	Tentative Budget Next Year
Total budget	$21,743,000.00	$24,168,000.00
Number of students	*12,777	12,500
Decrease in students	†–(1.41)%	–(2.17)%
Increase in budget over last year's budget	5.46%	11.15%
Cost per student	$1,701.73	$1,933.44
Number of employees	1,299	1,306
Decrease or increase in employees	–(1.81)%	.54%
Total salaries	$15,080,849.47	$16,053,305.16
Increase in salaries	6.45%	6.45%
All other expenses	$6,662,150.53	$8,114,694.84
All other increases	3.28%	21.80%
Salaries cost per student	$1,180.31	$1,284.26
All other costs per student	$521.42	$649.18
*Actual student enrollment as of March 1 this year.
†Decrease from June last year to March 1 this year.

Figure 3(a)

Figure 3(b)

Figure 4
Overall Increase in Budget $2,425,000.00—11.15%
Current Year		Next Year
$15,080,849.47	Salaries and Wages—All Employees	$16,053,305.16
2,017,374.93	Fixed Charges: i.e., Retirement, Social Security, and Insurance	2,710,233.22
1,951,865.30	Debt Service: i.e., Authority Rentals	2,109,555.96
2,692,910.30	Other: i.e., Educational Supplies, Utilities, Custodial, and Maintenance Supplies	3,294,905.66
$21,743,000.00		$24,168,000.00

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