Moray Junior High School This budget cut is a serious problem for us. I don't know quite how to reduce our costs because there really wasn't much flexibility in the budget to begin with. However, we're all in the same situation; we expect to have only $2.2 million to spend on Moray and we have to find some way to live with that. Ms. Hilda Cook, Principal of Moray Junior High School, had just returned from the March meeting of the Moray Public School Systems School Committee, where she had agreed to cut her schools budget by almost 12 percent. Although Ms. Cook did not consider her projected costs to be excessive, neither did several of the other principals, who also had agreed to attempt to reduce their budgets. BACKGROUND Moray Junior High School was one of three junior high schools in the town of San Pedro, Ari- zona. It was in excellent physical condition, and had an enrollment of approximately 700 students a year. The quality of education was considered extremely high, and a student-teacher ratio of no more than 15:1 had always been maintained. Among the school's special programs were a highly regarded Drug and Alcohol Awareness Program, and an Understanding Handicaps Program, in which trained parents and handicapped speakers provided a course of instruction to both students and teachers to acquaint them with the various handicapping conditions, such as epilepsy, blindness, physical handicaps, retardation, and deafness. Moray was best known, however, for its Spanish Language Program, which used native speak- ers of Spanish to teach courses that began in the 7th grade and continued through the 9th grade. A special language laboratory with 30 student stations and three instructor stations was equipped with the latest in audio technology, including an interrupt feature that allowed an instructor to listen in on a student practicing with a cassette tape and intervene electronically, when necessary, to correct the student's pronunciation or grammar. Students successfully completing the Program were considered to be extremely proficient in the Spanish language, and a special field trip to a sister junior high school in Anguila, Mexico was organized each year for the 9th graders. The students lived with local families for an entire week while actively participating in the Anguila school system's activities. As principal of Moray for over ten years, Ms. Cook had witnessed numerous changes in the school. For over 40 years, Moray had been the only junior high school in San Pedro; however, in the late 1970s, when migration from the northern U.S. had led to a large influx of new residents, additional demands had been placed on the school system. As a result, Moray had been expanded and two new junior high schools had been built. With such a dramatic increase in services, the School Committee had become increasingly con- cerned with budgeting, cost control, and accountability. Accordingly, in the past few years, Ms. Cook had become more actively invol.

1. Moray Junior High School
This budget cut is a serious problem for us. I don't know quite how to reduce our costs because
there really wasn't much flexibility in the budget to begin with. However, we're all in the same
situation; we expect to have only $2.2 million to spend on Moray and we have to find some way
to live with that.
Ms. Hilda Cook, Principal of Moray Junior High School, had just returned from the March
meeting of the Moray Public School Systems School Committee, where she had agreed to cut her
schools budget by almost 12 percent. Although Ms. Cook did not consider her projected costs to
be excessive, neither did several of the other principals, who also had agreed to attempt to reduce
their budgets.
BACKGROUND
Moray Junior High School was one of three junior high schools in the town of San Pedro, Ari-
zona. It was in excellent physical condition, and had an enrollment of approximately 700
students a year. The quality of education was considered extremely high, and a student-teacher
ratio of no more than 15:1 had always been maintained. Among the school's special programs
were a highly regarded Drug and Alcohol Awareness Program, and an Understanding Handicaps
Program, in which trained parents and handicapped speakers provided a course of instruction to
both students and teachers to acquaint them with the various handicapping conditions, such as
epilepsy, blindness, physical handicaps, retardation, and deafness.
Moray was best known, however, for its Spanish Language Program, which used native speak-
ers of Spanish to teach courses that began in the 7th grade and continued through the 9th grade.
A special language laboratory with 30 student stations and three instructor stations was equipped
with the latest in audio technology, including an interrupt feature that allowed an instructor to
listen in on a student practicing with a cassette tape and intervene electronically, when necessary,
to correct the student's pronunciation or grammar. Students successfully completing the Program
were considered to be extremely proficient in the Spanish language, and a special field trip to a
sister junior high school in Anguila, Mexico was organized each year for the 9th graders. The
students lived with local families for an entire week while actively participating in the Anguila
school system's activities.
As principal of Moray for over ten years, Ms. Cook had witnessed numerous changes in the
school. For over 40 years, Moray had been the only junior high school in San Pedro; however, in
the late 1970s, when migration from the northern U.S. had led to a large influx of new residents,
additional demands had been placed on the school system. As a result, Moray had been expanded
and two new junior high schools had been built.
With such a dramatic increase in services, the School Committee had become increasingly con-

2. cerned with budgeting, cost control, and accountability. Accordingly, in the past few years, Ms.
Cook had become more actively involved in the financial management of Moray. Beginning with
the current fiscal year, she, along with other principals in the San Pedro system, had assumed re-
sponsibility for constructing her school's annual budget. Moray's proposed budget for the upcom-
ing fiscal year is contained in Exhibit 1.
Budget Data
San Pedro's budget process began in January. At that time, the Central Office made enrollment
projections, and, using these figures, all school principals held conferences with their teachers
and program heads to determine their school's requirements for staffing, supplies, and other cost
items.
For the current fiscal year, all budget needs for Moray were calculated on the basis of a pro-
jected enrollment of 690 students, although not all programs served all 690 students. In
particular, as Exhibit 1 shows, Regular Instruction was scheduled to serve 615 students, Special
Education 75 students, and the Spanish Language Program 180 students. (As Exhibit 1 indicates,
some students were enrolled in more than one program.) The student-teacher ratio in Regular
Instruction was scheduled to be 15:1, while in the Special Education Program it was only 6:1.
Shortly before the budget was completed, Ms. Cook and other principals met with the Director of
Finance and Administration to discuss the Central Office costs. These indirect costs were al-
located to individual schools based on measures such as salary expenses and student enrollments.
The specific allocation bases for the upcoming budget year are shown in Exhibit 2.
In reviewing her budget, Ms. Cook realized that the nature of the costs varied. She quickly as-
certained that the budget contained no superfluous costs that simply could be cut; indeed, the in-
structional and administrative supply costs reflected only higher supply prices, and the teacher
and administrative salaries were based on a very small increase in the wage rate. It appeared that
if Ms. Cook wanted to reduce the budget, she would have to analyze the behavior of each cost,
and adjust those that were flexible. If necessary, she also was prepared to alter Moray's
operations to comply with the School Committee's budget ceiling.
To prepare a modified budget for the School Committee, Ms. Cook decided to meet with some of
Moray's teachers and program heads, who she thought could provide information concerning
some of the budgeted expenses. Her first meeting was with Mr. Steven Hartman, the teacher with
the greatest seniority in the school, and the designated representative of the teachers' union, to
dis- cuss the teachers' salary expense. Ms. Cook hoped to make substantial cuts in the teacher
salary expense item by increasing the average class size from 15 to 20 students. Mr. Hartman's
response was not particularly encouraging:
We can't possibly cut teachers' salaries in the way you envision because the teachers are already
over- worked. We have to cover lunch and recess periods, and most of us substitute regularly

3. during our break periods for teachers who are out sick. So we need a minimum of 1 teacher for
every 15 students. Unless we cut down on students, we can't possibly reduce the number of
teachers.
Next, Ms. Cook met with Dr. Mariana Olivera, the lead teacher for the Special Education Pro-
gram, and Ms. Lillian Higgins, the librarian. Ms. Higgins, the most senior of the two, discussed
the use of books and other instructional supplies, and her ideas for reducing costs:
The instructional supplies and library item does appear to be a large amount, but there is really
nothing in- cluded in it that's excessive. I think we're already quite frugal in our supply use, and
we can't just stop or- dering pencils, paper, books, or anything else we need for instructional
purposes.
I do see one problem with the budget, however; we're budgeting for a full 690 students when, in
fact, due to absences, we probably have only about 650 students in school at any one time. If we
adjust the budget to reflect our actual attendance, we can cut costs by at least 5 percent.
Dr. Olivera also had an idea for cutting costs. She suggested that the school reduce or elimi- nate
the Spanish Language Program, thereby reducing the budget by almost $189,000. In consider-
ing Dr. Olivera's suggestion, Ms. Cook called the audio equipment manufacturer to discuss the
re- sale value of some of the school's equipment. The company informed her that machines used
for four years or more could not be sold, even for scrap. All of the equipment in Moray's
language laboratory had been purchased at least five years ago.
Ms. Cook also reviewed the salaries for the Spanish Language Program and found that $35,000
was for a lead teacher, with the remaining $50,000 designated for two regular teachers, at
$25,000 each. No substitutes were budgeted since, in the case of a teacher absence, the aide
could cover. She also noted that the program's size was limited by the number of teachers. That
is, since a strict 10:1 student-teacher ratio was maintained, and the students attended the lab
daily, the maxi- mum number of students the program could accept was 180 (30 per class period
with six class pe- riods in a day). This did not mean that the lab equipment was fully utilized,
however, since the na- ture of the instructional process was such that some days the students
would not use the lab at all.
As she reflected on the nature of the task before her, Ms. Cook realized that she had to consider
the interactive effects of several factors. First, there was the question of the nature of the direct
costs in her budget. Although Mr. Hartman had given her a good indication of how teachers'
costs might
change with changes in enrollment, the behavior of the other costs was less clear. Administrative
salaries and supplies, she reasoned, would remain about the same regardless of the number of
stu- dents. This would probably be true for operations and maintenance expenses as well.
Instructional supplies and library expenses, on the other hand, would probably change in direct

4. proportion to the number of students.
A second consideration of Ms. Cook's was the level of indirect costs. When she called the Cen-
tral Office to learn more about the allocation process, she was told that the distribution of
indirect costs among programs within Moray used a different set of allocation bases from those
used to al- locate the costs to the school; these are shown in Exhibit 2. She also realized that at
least some of the indirect costs allocated to Moray from the Central Office would change as both
student enroll- ment and the level of Moray's direct costs changed. Nevertheless, she felt quite
certain that the School Committee would hold her responsible for whatever amount was
allocated. But then, if she was responsible for these costs, she wondered about the extent to
which she could control or reduce them.
Finally, Ms. Cook mused about Dr. Olivera's suggestion. Reducing or eliminating services did
not seem appropriate, yet it might be the only way to meet the targeted budget reduction. If she
were to cut the Spanish Language Program in half, she thought she might be able to reduce some
of the Program's costs, but she was not at all sure. She also noted that, approximately two-thirds
of the depreciation in her budget was for language laboratory equipment.
As she began to prepare her budgetary modifications, Ms. Cook realized that Dr. Olivera's sug-
gestion posed some very difficult issues. She decided to revise her budget first by making the ap-
propriate changes in costs associated with an average attendance of 650 students. Only if this
failed to produce the requisite reduction, would she consider cutting back the Spanish Language
Program. However, in order to demonstrate to the School Committee the true impact of its
request, she also decided to calculate what her average attendance in the Regular Instruction
Program would have to be in order to meet the Committee's requested cut without curtailing the
Spanish Language Pro- gram. Since several teachers were expected to retire at the end of the
current fiscal year, she realized that if attendance levels were cut on a permanent basis, she might
be able to get by without hiring replacements.
Since Ms. Cook would soon be required to make employment offers for any new or replace-
ment teachers, she realized that preparing revised budgetary projections and gaining School
Com- mittee approval for them was of the utmost priority.