A primer on contingency budgets

On Board Online • May 23, 2011

By Kimberly A. Fanniff
Associate Counsel 

If the voters have rejected your school board’s proposed budget, your board has the option of preparing and adopting a contingency budget or going to the voters again on June 21 (the statewide uniform budget revote day).

If the voters have twice rejected a board-proposed budget for a given fiscal year – either the same budget or a second version – the law prohibits submitting a budget or other expenditure propositions to the voters a third time. The school board must then adopt a contingency budget for the ensuing fiscal year by July 1. This can be done piecemeal by passing multiple resolutions to approve contingency budget appropriations for specific purposes, as needed, until the board adopts the overall contingency budget. Ultimately, the board must adopt a contingency budget prior to the issuance of the tax levy to ensure the collection of taxes sufficient to fund expenditures during the fiscal year.

A contingency budget funds only teachers’ salaries and those items the board determines to be “ordinary contingent expenses.” Ordinary contingent expenses have been defined under law to include legal obligations; expenditures specifically authorized by statute; and other items necessary to maintain the educational program, preserve property and ensure the health and safety of the students and staff (see sidebar).

Expenditures that do not constitute ordinary contingent expenses include: new equipment, public use of school buildings and grounds, except where there is no cost to the district (i.e., the district charges a fee to cover costs), nonessential maintenance, capital expenditures (except in an emergency) and consultant services to review district operations and make recommendations necessary for the creation of the budget.

A school board’s authorization of spending for ordinary contingent expenses is subject to review by the commissioner of education if challenged. However, the commissioner will not overturn a school board’s contingency budget decisions unless the board’s decision was illegal or arbitrary and unreasonable.

A contingency budget must have the same degree of specificity that is required for budgets that are presented to the voters so that voters may have a full understanding of revenue and expenditures and be able to examine expenses that may be non-contingent, without having to resort to outside materials.

Contingency budget cap

A contingency budget may not result in a percentage increase in total spending over the district’s total spending under the district budget for the prior year that exceeds the lesser of:

  • 120 percent of the Consumer Price Index, or
  • 4 percent over the prior year’s budget.

For the 2011-12 school year the contingency budget cap is 1.92 percent.

What spending counts in this calculation? When calculating total spending under the prior year, the amount of a grant in aid provided in the prior year but eliminated and incorporated into a non-categorical general state aid for the current year may be included in the computation of total spending for the prior year if authorized by the commissioner of education. The commissioner will verify that the grant has been incorporated into such non-categorical general state aid.

Additionally, the following types of expenditures may be excluded in determining total spending:

  • Expenditures resulting from a tax certiorari proceeding.
  • Expenditures resulting from a court order or judgment against the school district.
  • Expenditures for emergency repairs that are certified by the commissioner as necessary as a result of damage to, or destruction of, a school building or school equipment.
  • Capital expenditures, including debt service and leases resulting from projects approved by the voters.
  • Expenditures attributable to projected increases in public school enrollment, including new prekindergarten enrollment.
  • Non-recurring expenditures in the prior year’s budget.
  • Expenditures for payments to charter schools.
  • Expenditures for self-supporting programs (meaning those entirely funded by private funds that cover all the costs of the program).

In addition to the cap on total district spending during a contingency budget, the administrative component of a contingency budget is capped at the lesser of 

  1. the percentage that the administrative component had comprised in the prior year’s budget exclusive of the capital component, or
  2. the percentage that the administrative component had comprised in the last defeated budget, excluding the capital component.

For example, if the program component for the current year’s budget is $10 million and the administrative component is $1.5 million, then the administrative component of a contingency budget for the following year is capped at 13 percent (i.e., 1.5/11.5). If the administrative component of the last proposed defeated budget comprised a smaller percentage, that percentage will be the cap. 

Amending and revising the contingency budget

An incoming board, as newly constituted at the annual organizational meeting, may make adjustments to the contingency budget adopted by the predecessor board, provided that the district continues “to maintain the educational program as required by statute and regulation.” Adjustments to the contingency budget may exceed the cap only when actual enrollment exceeds projections used to calculate the budget or to expend gifts, grants in aid or insurance proceeds. 

Salary increases during a contingency budget

According to the law and decisions of the commissioner of education, teachers, school superintendents, principals, and teaching assistants fall within the class of persons to whom a school board may grant salary increases during a contingency budget.

Increases in salaries for non-instructional employees subject to a collective bargaining agreement are authorized as a contractual obligation of the district. However, non-instructional employees who are not members of a collective bargaining unit and employees designated by the Public Employment Relations Board as management or confidential may not receive a salary increase during a contingency budget “unless it is impossible to assure qualified personnel for the minimum service, in which case these employees may also be paid necessary amounts.” Additional pay to employees not covered by a collective bargaining agreement may be provided if they are assigned new duties.

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