Financial Analysis There Is Little

Financial Analysis

There is little reason for concern for the financial health of the Bridgeport Board of Education. The agency's budget process involves rendering estimates with regards to each particular program. These estimates are then aggregated into a total request that is then submitted to the school board for approval. The budget then goes through an approval process.

The budget request for 2009-2010 was for $220.029 million, an increase of 1.94% over the previous year. This is the lowest requested increase in several years. For the most part, the Bridgeport Board of Education receives the funding it requests, although the approval process can be protracted. The 2008-2009 budget request was finally approved in October of 2009.

The Bridgeport Board of Education does not product income statements, since it does not engage in income-generating activities. It does not have shareholders. It does not produce a balance sheet, either, at least not for external consumption. The BBoE is not beholden to GAAP or other financial accounting standards, since it is a governmental agency.

The BBoE has a variety of revenues streams on which it relies. The budget shows that 75% of revenues come from state sources, which the remaining 25% comes from city tax dollars. The primary source for revenue is the ECS, which represents $157 million of the $215 budget for 2008-09. A variety of grants make up the remainder of the funding for the BBoE.

Outlays are compiled by programs. The BBoE takes each school and program as a cost center, which allows it to tailor budgets based on estimates of future enrollment. Overall, salaries are the main cost component of the Board of Education, making up 62% of expenditures. Fringe benefits account for another 19% of costs. More minor cost components include transportation, tuition, utilities, maintenance, supplies and textbooks.

The Bridgeport Board of Education is in sound financial health. The agency has little history of problems in receiving funding for its activities. There are no activities that generate revenue, so the Board is entirely dependent on external sources of funding. The only way that the Board can find itself in difficult financial straits is in the event that it fails to contain costs and finds itself spending more than its financial supporters have approved.

One example of potential financial difficulty for the Bridgeport Board of Education is evident in a recent announcement. The Board was informed by the city that it must pay an additional $1.26 million for contributions to health insurance premiums for school employees. The administrator's of the BBoE's budget allotted $34 million to fund health insurance liabilities, whereas the city has determined that the actual amount should be $35.26 million (Lambeck, 2009). The Board of Education must now go back to the school board for this additional financing, or find ways to cut costs elsewhere to obtain this financing, as the BBoE has no other recourse for financing this deficit.

One of the financial strengths of the Bridgeport Board of Education is that it is not responsible for its own financing. The Board obtains its financing from external government agencies. The only thing the BBoE must focus on, therefore, is cost control.

Cost control simplicity represents another financial strength of the BBoE. The agency's main cost drivers are salaries and benefits, which amount to 81% of the budget. This allows the BBoE to attain relative cost certainty for several years at once each time it signs a new deal with the teachers' union.

The lack of responsibility for its own financing is a double-edged sword for the BBoE. The recent case with the health insurance underfunding illustrates the pitfalls of not having revenue control. If the BBoE is for any reason unable to control costs, it may be forced midway through the budget year to make dramatic cost-cutting maneuvers in order to attain its budget targets. Additionally, budget cuts to the agencies and programs that fund the BBoE can impact the agency's ability to deliver workable budgets and achieve it strategic objectives. The BBoE has had difficulty in recent years obtaining the amount of funding it feels it needs, in part due to program cuts such as the state reading grant (Brewer, 2008).

The health insurance case also highlights another financial weakness for the Board -- its expenses are not entirely under its control. The shortfall was identified by the city, with which the Board must negotiate such issues. Thus, the Board ultimately had little control over this particular cost, which is how it is found itself in a difficult financial position this year. The general lack of control over the budget is a definite weakness for the Bridgeport Board of Education.

In lieu of financial statements, there were two main resources available to help assess this organization's health. Its budget book was the primary source, as it detailed the Board's financial situation with respect to its inflows and outflows. News items are also helpful. Since the Board is not a public company, it is not required to disclose items of financial significance, but such items may come to light through the local news media.

The organization's approach to creating shareholder value is to spend its money on the programs that deliver on its strategic objectives. These include graduating students at a college-ready level, reducing the dropout rate to zero, students meeting attendance requirements and students scoring above state requirements on standardized tests (Bridgeport Public Schools Budget Request 2009-2010). The shareholders can be viewed, in light the agency's financing arrangements, to be the taxpayers of Connecticut and of Bridgeport. As such, delivering value means following through on the above mission. This involves careful use of limited resources on programs that have been demonstrated to work. It also involves building an education system strong enough to facilitate the academic objectives and encourage kids to stay in school. It also involves building out school capacity such that class sizes are limited, and utilizing different educational techniques to reach out to different types of students and encourage them to fulfill their obligations in a wide range of academic disciplines (Ibid).

One IT project that can be used to help create value in the organization is to build out a virtual textbook program. E-textbooks are substantially cheaper than their paper counterparts (Rickman et al., 2009). The board currently spends $701,135 on textbooks. Virtual textbooks are available from many publishers, and expanding their use would allow the school board to provide books, and more up-to-date books, to more students for less money.

Implementing such a program would involve signing up for a program with a major publisher or two, building online syllabi, and building out the schools' computer infrastructure further, to ensure that students who need library access to such materials can gain that access.

The costs of such a program could run into $500,000 initially and the benefits would last five years. However, the savings generated would be $350,000 of the $700,000 spend annually on textbooks. The savings over the course of five years would therefore be $1,750,000 on an initial investment of $500,000. This gives the project a return on investment of 70% per year. Therefore, the project is a wise investment.