This question will focus on the expense categories used by Michigan public schools. Revenues will be treated in a different post. As members of the Board of Education or as engaged taxpayers, we review reports to understand the financial condition of a district, to assess the factors that influence decisions, and the ensure that taxpayers dollars are being optimized for student benefits and to enhance community trust in both the Board and the district. When trust breaks down, the benefits we all seek from supporting public education is put at risk. Understanding district finances and making the best decisions based on that understanding is fundamental to being an effective member of the Board of Education. Board members approve budgets and subsequent budget revisions. Board members also receive the annual financial audit which offers third party validation of the district's handling of taxpayer dollars. Board members should also be receiving monthly financial reports that keep the Board of Education and the taxpaying public appraised of the district's execution of the budget. As we become more familiar with these reports, we see a recurring structure and the use of budget categories that are consistent from district to district. In fact the State of Michigan mandates much of this structure. To make the best use of these reports, we need to understand the structures used and the terms and definitions within them. The Function View and the Object View of school district expenses are two different ways to look at the same data. The two views complement each other and help the viewer of the reports learn more about where and how the school district is spending taxpayer dollars. Let's start with the Function View since this is the format used most frequently when Boards of Education approve or amend budgets or when they review the annual financial audit. A "Function" is what a thing does or provides. The categories within Function Views offer an indication of the service delivered by the resources that are funded. When readers review the Function View categories, they begin to see the types of services being provided. As we wade in, here is a useful graphic that can guide us. All of these boxes are nested within each other (think "Russian Doll" style.) The two Major Categories are Instruction and Support Services. So it is possible that a district could categorize nearly all of its expenses into once of those two Major Categories. (Exceptions might include financial events like transfers or service areas such as Community Services.) Both of the Function View's two Major Categories have two Minor Categories. The two Minor Categories nested to Instruction are Basic Instruction and Added Needs Instruction. The two Minor Categories nested to Support Services are Instructional Support Services and Non-Instructional Support Services. Beyond that, the Instruction branch ends with the Minor Categories, meaning no other category nests lower than Basic Instruction or Added Needs Instruction. However, in the Support Services branch, the Minor Categories of Instructional Support and Non-Instructional Support have Sub-Minor Categories. When we distinguish the Instructional spend between Basic and Added Needs, we are referring to the costs allocation between students who are receiving General Education instruction (which is the vast majority of students) and those students who have received an Individual Education Plan (an IEP) which qualifies those students for Special Needs Educational services. Why is this distinction made? Well, mainly because the laws and rules governing educational funding and spending make the distinction between Basic and Added Needs Instruction. The distinction is indeed formal and with legal implications. For this reason, the financial reporting is equally distinguished. Within the Instructional Support Branch are four Sub-Minor Categories: Pupil Support Services, Instructional Staff Support Services, School (or Building) Administration, and finally Athletics, which can also contain Co-Curricular costs if a district chooses. As may be inferred from the Sub-Minor Category titles, these Functional areas tend to be just slightly closer to the actual instruction of students. Within the Non-Instructional Support Services Branch there are five Sub-Minor Categories: General Administration, Business Administration, Operations and Maintenance, Transportation, and Other Support Services. (For this last sub-minor category, these are sometimes referred to as Central Support Services.) Instructional Support Services expenses are comprised of Pupil Support Services, Instructional Staff Support Services, School (or Building) Administration., and Athletics. Pupil Support Services supplement the teaching process and include attendance, guidance, health, and social work services. Instructional Staff Support Services covers activities associated with assisting the instructional staff with the content and process of providing learning experiences for pupils. It includes teacher in-service, curriculum development, educational media services, computer labs, educational television, and program directors. School Administration are support resources that are attributed to individual school buildings and would include principles and assistant (or vice) principles. Athletics include the expenses used to fund student participation in school sports activities. Common expenses within this category would be used to pay for equipment and services to support the activity and expenses for coaching, athletic training, and other services related to the operation of the school's athletic participation activities. Non-Instructional Support Services expenses contain of five subcategories: General Administration costs contains the office of the district superintendent and limited numbers of district-wide administration, including Board of Education expenses Business Administration encompasses expenses related to budgeting, accounting, payroll, purchasing, and internal services Operations and Maintenance includes the people and resources who support the physical plants, buildings and grounds of the district operations. Transportation contains costs for inter-district transport - mainly bus services. Other Support Services is sometimes referred to as Central Services and includes all expenses other than those mentioned above which support each of the instructional and supporting service programs. It includes research, personnel, and informational technology / data processing expenses. The Function View of district expenditure data helps us understand where the taxpayer dollars are being spent and to see the distinction between expenses that are related to student instruction as opposed to all of the Functional areas (in Support Services) that support instruction but are not squarely defined as instruction. For those familiar with the services enabled by all of the Minor and Sub-Minor categories we can safely say they are necessary. However, as funds get tighter and difficult decisions are made based on their budget impact, Instruction costs tend to be favored. That is the Functional View summarized. Notice how frequently you may need to refer back to these definitions and distinctions to understand them. For the educational professionals, especially district administration, these categories become intuitive. Board of Education members, and taxpayers as well, may need to spend more time to internalize these categories. But we can also be honest, especially as we are learning the definitions, that even for those with limited financial expertise that we might be able to make better sense of where and how money is being spent if we had a different set of categories than those provided by the Function View. In such a case, the Object View of school district expenses may be preferred. Let's start again with the data model. The Major Categories of the Object View are consistent with the Function View: Instruction and Support Services. But among the Minor Categories we see the inclusion of Salaries and Benefits. These are safely intuitive (at least at a high level), and especially so in the case of Salary expenses. Salary costs are what you likely assume they are. But we must also remember there can be instances when a school district acquires services that are delivered by a human being, but the payment is actually for a service and does not go towards a salary. The best example of how a school district procures a service (delivered by humans) but does not pay a "salary"? Outsourcing. Many districts have done with bus services and/or custodial/building maintenance services and teacher substitute services. In these examples , even though human services are being procured, the cost is not "salary" to the procuring district, but rather "Purchased Services" since (as the name tells us) the district is buying the service from another company who then provides the service. Having touched on Salaries and Purchased Services, let's go back to Benefits. The main reason many school districts would rather procure a Purchased Service instead of paying a Salary is because the district is avoiding significant Benefits costs. How and why? The why is a simple. By procuring workforce capacity through a Purchased Service the district avoids a couple of very large Benefits expenses - namely employee healthcare costs, retirement costs, and FICA/Social Security costs. These are the three largest cost components of the Benefits category. The how? Well, by procuring services via Purchased Services instead of paying salaries, the resources used by the service provider are not on the district's payroll, and legally this allows the district to avoid legally/technically "hiring" people. Now, somewhere else along the line these same resources are receiving health benefits and paying Social Security costs, but often at a lower rate/cost. But the biggest cost school districts avoid by procuring Purchased Services instead of hiring and paying salary is avoiding mandatory school employee retirement costs. Retirement and Healthcare are the two largest Benefits costs. Outsourcing and procuring Purchased Services allows the district to sidestep these costs. Elsewhere we can get into more detail about the financial mechanics and the implications of these dynamics, but as we are now just establishing the Object View Cost Model, let's put a pin in it for now. Having now covered the basics of Salaries, Benefits, and Purchased Services the next largest Major Category of the Object View model is Supplies and Materials. From our own school days we may think of Supplies and Materials in familiar terms - books, paper, pencils and the like. All that remains the case, but the most significant Supplies and Materials costs are Electrical , Natural Gas, Heating and HVAC, lighting, and a host of others related to the physical operations of a school building and related expenses. The Object View Major Categories then rounds out with Capital Outlay. This tends to be a rarely used category since most school districts have turned to voted bonds to make significant capital investments. With that we have covered the basics of the Function View and the Object View of school districts expenditures. When it comes to gaining an understanding of where and how your school district spends taxpayer dollars, using both the Function and Object View is best. Why? The Function View helps stakeholders understand where - Functionally - the district is spending taxpayers resources which, in the Function View, helps us understand how much money is flowing to core Instructional services versus everything else that surrounds instruction. By cross referencing the Object View, stakeholders gain the added dimension of the form the investment is taking and, importantly, how the district distributes its financial resources across the purchase of more people, or more services, or supplies, etc. As unpleasant as the thought is, unfortunately districts do need to engage in cost containment and reduction activity from time to time. The Object View of expenditures helps Boards of Education quantify the distribution of cost across people costs and materials costs - generally with the goal being to contain material costs to maximize the investment into people who interact with the community's children.