Abstract

State governments are in the midst of one of the most severe fiscal crises of the last half century. The magnitude of the fiscal challenges facing state and local governments highlights the importance of sound fiscal planning and access to key financial indicators.

The objective of this article is to develop a financial condition indicator system (FCIS) for school districts, using New York as a case study. The framework used for the FCIS includes four components: short-run financial condition, long-run financial condition, economic condition, and student performance.

To design the FCIS we used a state-of-the-art evaluation tool: fuzzy rule-based systems (FRBSs). FRBSs can combine numerous factors measured in different units without losing information and can effectively capture the contextual udgment of experts.

Using data for New York State school districts, we illustrate the types of information that can be obtained from an FCIS. State governments are in midst of one of the most severe fiscal crises of the last half century ( enny, 2003; National Conference of State Legislators, 2003).

Many local governments are experiencing fiscal problems that are equally daunting. Yet without an early warning system that assesses financial condition, a deteriorating financial condition in a specific government unit, particularly a local unit such as a school district, might go undetected until a financial emergency occurs. The objective of this article is to illustrate how a financial condition indicator system (FCIS) can be developed for school districts, using New York as an example. 

The article is divided into four sections. First, we define financial condition for school districts.

Second, we present a conceptual framework for organizing the different dimensions of financial condition and discuss specific measures used in the FCIS for New York school districts.

In the third section, we provide a brief introduction to one method—fuzzy rule-based systems (FRBSs)—for combining the disparate measures in the FCIS into an overall evaluation of financial condition.

The fourth section presents results of the FCIS developed for New York school districts.

Our goal is to illustrate a system that can serve several purposes, can be implemented with readily available data in any state, and can draw on the knowledge of financial experts in the state.