Payment vs. Earned

by Coy Holcombe.  

In the world of school finance, a district is often paid too much money by the state. This is called overpayment. For the 07-08 school year, EISD was overpaid by the state. Why did we get overpaid? Is this a bad thing? What does this mean for our funding this year? These are all good questions and will be the subject of today’s blog. 

First, all districts are paid based on estimates from the state. Sometimes, these estimates are below actual numbers and sometimes these estimates are above the actual numbers. Very seldom, if ever, will these estimates match the actual numbers for a district during the school year. The key is to remember that the amount of payment is secondary to the amount of funding being earned. That is why it is vital that we keep track during the school year of the amount of money we are earning. The quickest way for a district to get into financial trouble is to spend all the money sent to them by the state without taking into consideration the amount of money that they are earning. (A note of clarification: school districts "earn" funding based on their overall ADA, their ADA of special programs, transportation costs, tax effort, etc.)

 In the 07-08 school year EISD was overpaid because the state’s estimate of our ADA did not match the actual ADA of the 07-08 school year. For several years, we had a slow but steady growth in enrollment. In 07-08 this trend reversed itself and we had a decline in enrollment. The state estimated that our enrollment would continue to increase and sent us state funds based on this increase in enrollment. When our enrollment actually decreased, this created an overpayment situation.

As mentioned before, as long as a district is monitoring their finances and making estimates based on the actual data throughout the school year, an overpayment is not necessarily a bad thing. What would be an extremely bad situation would be for a district to blindly spend all the money sent to them by the state without taking into account the actual funding that is being earned. During the 07-08 school year, we knew that we were being overpaid. Each six weeks, we added our actual attendance data for that six weeks to arrive at the best possible estimate for our earned funding. Being overpaid is not necessarily a bad thing as long as the district does not spend the overpayment.

It goes without saying that if the state sends you too much money one year, they are going to want that money back. While EISD will not actually write the state a check for the overpayment from 07-08, it will be deducted from our 08-09 school year funding. Again, and I cannot emphasize this point strongly enough, as long as that money has not been spent, then a district is okay.

What would happen if a district was underpaid? This happens quite often actually. The state could actually owe a school district more money at the end of a school year if they earned more than they were paid. When this happens, the state makes an extra payment to the school district. In fact, we were notified recently that we had actually earned more money in the 06-07 school year than we were paid. Thus, the state recently sent us additional funds for the 06-07 school year.

Estimating the amount of revenue that you are earning is key to financial stability for a school district. At the end of each six weeks, we estimate the amount of state aid earned and compare that with our budget and with the amount of state aid that is sent to us by the state. This allows our board and administrators the opportunity to see how our district is doing financially. If you have any questions regarding overpayments or underpayments, please feel free to contact me at cholcombe@eustaceisd.net.

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