December 9, 2021
from Gina Wallraff, Chief Financial and Operations Officer
One Thursday per month you will see a guest Head’s Message from a member of the Institutional Advancement Team. We hope these additional perspectives will help you catch a glimpse inside the innerworkings of your school.
The Board of Trustees for Mounds Park Academy is the governing authority of the school. It has ultimate responsibility for the school’s financial stability and integrity. The board is made up of parents, alumni, parents of alumni, and other professionals. Along with Dr. Bill Hudson, head of school, I have the honor and the privilege of working with this group of dedicated people who are deeply committed to the health and vitality of the school.
Among other roles related to the mission and vision of the school, the Board of Trustees and its subcommittees, like the Finance Committee, has responsibility for the following:
- determination of tuition levels;
- effective financial oversight; and
- realistic budgeting and monitoring of budgets.
This article aims to provide a glimpse into how the board approaches these responsibilities and the annual cycle of budgeting and tuition setting.
The annual budget process for the next academic year begins soon after the current school year starts, 10 months before the start of the next school year. First, an enrollment forecast is created. In this early stage the forecast is an estimate based on historical trends for current students leaving and new students joining. The enrollment forecast is reviewed by the Admissions team and the Head of School to evaluate the reasonableness of the estimated number of new students and projected total enrollment.
Using those projected enrollment numbers, a revenue forecast is created that takes into consideration Indexed Tuition levels for returning families and estimated Indexed Tuition for new families. Tuition revenue is approximately 80-82% of the school’s cash flow each year. The remaining cash flow comes from fundraising activities including the Annual Fund and a draw from the school’s endowment. Endowment funds reflect amounts donated over the school’s history that are part of a permanent fund. Each year, MPA draws a percentage of the endowment value to be used as the donor directed for things such as scholarships and school operations.
Using the projected enrollment, the number of teachers and direct student support personnel are determined. This is a calculation based on the number of students per grade and key components of MPA’s mission: small class sizes and student support services. Faculty and student support salary and benefits are the largest component of budgeted expenses. Compensation and benefits are estimated as well as the costs of health insurance. Health insurance is the largest employee benefit item. Health care costs are estimated at this time because health benefit costs are not finalized until May. Other business expenses such as building maintenance, water, electricity, teaching supplies etc. are estimated based on the projected inflation level.
A calculation of the cash inflows (revenues) versus the outflows (expenses) is completed and scenarios are created based on the difference. At this stage several different tuition increases are evaluated to determine the level needed to fund operations. A key factor in determining the budget are the tuition rates for Lower School, Middle School, and Upper School. The tuition rates are determined by calculating the projected cash value of tuition revenue less the corresponding costs needed to support students. The tuition increase is the level needed to balance the budget. Higher tuition levels provide the opportunity for more class offerings and faculty support and benefits while a lower tuition level may result in the reduction of some class offerings or student resources.. As a nonprofit, MPA works to balance the budget and does not plan to have a large surplus.
After completion of the cash flow estimate, historical tuition rates compared to other Minnesota private schools are reviewed. The ultimate tuition levels are based on how MPA is situated in Minnesota and also on the level of increase needed to support growth in faculty and staff salaries, benefits, and general overhead for the school.
At the January Finance Committee meeting a preliminary budget is presented. The outcome of this meeting is a Finance Committee resolution recommending the budgeted tuition levels by division for the next academic year. At the January Board of Trustees meeting, the proposed tuition levels are presented. There is a robust discussion with the full Board as they consider the data presented. Once final tuition numbers are established, a resolution is proposed and approved by the BOT and the tuition rates are set for the next academic year. New tuition rates are included in MPA communication in early February when the re-enrollment process opens online.
The budget process continues throughout the school year as projections are refined and become realities.The school finalizes the budget on the 10th day of school. MPA is deeply grateful for the thoughtful approach that the Board of Trustees takes to this process and for the expertise they provide the school.