By Marsha Sutton
A new Enterprise Resource Planning software system that the San Diego County Office of Education is proposing to install could cost as much as $63 million, half of which SDCOE is asking school districts to fund.
Although local districts all say the ERP system is long overdue, the steep price tag comes at a difficult time for cash-strapped schools. Even in the best of times, paying the estimated cost of $85 per pupil is a whopper.
SDCOE currently provides various software systems to 56 school districts, community colleges and charter schools in the county. These systems include payroll, personnel, budgeting, financial and business operations, including purchasing and inventory.
But some of these systems are over 30 years old, not integrated, written in old programming languages and costly to maintain, according to school board reports.
Lora Duzyk, assistant superintendent of business services for SDCOE, called the current system “very antiquated” and inefficient.
SDCOE is currently in contract negotiations to provide a new integrated software system to allow for more efficient and effective use of financial and employee data. The new ERP system – PeopleSoft from Oracle – will “transform the way we do business,” Duzyk said.
She would not state specifically how much the new system will cost, saying the county is still in closed negotiations with the provider and the final cost is based upon the number of districts agreeing to participate.
But she did say the county will pay at least 50 percent of the total cost, and the rest will be divided among the participating school districts, based upon enrollment numbers. The more districts, the lower the cost per district.
Duzyk said SDCOE is asking all 42 county school districts, except San Diego Unified School District which has its own internal systems, to make a commitment in the form of a Memorandum of Understanding to agree to participate in the cost of the ERP system.
The deadline to notify SDCOE is Jan. 31, and as of Jan. 28 she said she has MOUs from 20 of the 41 districts (excluding SD Unified).
“We expect them all,” she said in an email. “The rest are in process, going to [the] board, getting signatures or in the mail.”
The amount school districts are being asked to approve is $85 per ADA (Average Daily Attendance), which is a maximum estimate.
“We need to know who’s with us in order to sign the contract,” said Duzyk, who hopes to begin the initial design and configuration Feb. 1.
The county educates about 500,000 K-12 students, and SD Unified has about 130,000 of those. If the 41 school districts in San Diego County that serve the remaining 370,000 students all agree to participate, at $85 per pupil, the total cost for the ERP system for school districts comes to about $31.5 million.
With SDCOE kicking in half, that brings the total estimated price to about $63 million. This would be a maximum cost.
Many school boards this month have included this MOU on their agendas. Local school districts – including San Dieguito, Del Mar, Solana Beach and Rancho Santa Fe – have all reviewed and approved these MOUs.
The estimated cost for procurement, configuration and implementation is about $1.02 million for San Dieguito, $363,000 for Del Mar, $250,000 for Solana Beach and $55,100 for Rancho Santa Fe. Districts will owe 70 percent due July 1, 2014 and 30 percent the following year.
Instead of participating, districts could choose to implement their own systems. Or they could join in the SDCOE system at a later date, but they would pay the full cost of implementation without the county’s 50 percent financial commitment.
Local districts currently contract with SDCOE under the old system for some or all of their financial, payroll and personnel needs. Duzyk said the current system will be retired in 2015 and will no longer be supported.
Besides upfront costs, districts will pay ongoing annual maintenance fees of about $8 per ADA. For Solana Beach, assuming an enrollment of about 3,000 students, annual fees will run about $24,000, up from the current fee of $15,000, said Carlos Estrella, assistant superintendent of business services for the Solana Beach School District.
Del Mar’s annual fee will rise from about $23,200 to about $34,200, said Holly McClurg, superintendent of the Del Mar Union School District, which has about 4,300 students. Rancho Santa Fe School District superintendent Lindy Delaney estimated RSF’s annual fee to be about $5,000 with the new system, but said it “could be less since we are a small school district.”
Eric Dill, San Dieguito Union High School District’s assistant superintendent of business services, said San Dieguito is expecting to pay SDCOE about $95,000 annually for the new system, based on an enrollment of just under 12,000 students. This is an increase from about $80,000 per year, which Dill said currently pays for support from a number of business systems that would all be eliminated when the new SDCOE system is implemented.
“While this is an increased cost, having integrated systems will be more efficient and provide us with better information,” Dill said.
Although not happy about the money, they all said the new, centralized, fully integrated ERP system is necessary and would be worth the expense.
The Rancho Santa Fe school board approved its MOU on the Consent agenda, without discussion, at its Jan. 10 board meeting. “The district does not have many other options,” Delaney said. “It does not seem feasible for the district to go out on its own for new systems.”
At the SBSD board meeting Jan. 17, Estrella said the board “questioned the cost associated with the MOU, as they thought it was high. However, the board felt more comfortable once we detailed the system’s benefits and what would be included in the implementation phase.”
The Solana Beach and San Dieguito school boards approved their respective MOUs at their Jan. 17 board meetings, Del Mar’s at its Jan. 23 meeting.
“We support the new system and are pleased that it will be more efficient,” McClurg said in an email. “The timing is unfortunate, as every district is faced with fiscal challenges, but we understand that the current system needs to be replaced.”
McClurg said it was hard to quantify how much the new system will eventually save the district. “That will relate to efficiency and employee time,” she said.
Calling it a “robust” system, Estrella said the new software will perform payroll, financial, budgeting, human resources, and other integrated accounting functions, with reports and data easily accessible. He said without it Solana Beach would need to hire four people.
“By opting to participate, we can use the resources the county is providing,” Estrella said. “It’s going to make our lives a lot easier.”
“The goal is to replace outdated payroll and financial systems with new systems that will meet the data collection and reporting requirements of the district,” Delaney said.
“The SDCOE systems were designed … before most of our students were even born, and still look and feel like a cranky, old system,” Dill said. “As someone who is frustrated by the systems daily, it’s long past time for them to [be] replaced.”
Dill said San Dieguito has had to purchase other third-party systems for human resources, payroll and budgeting to compensate for the SDCOE system’s lack of functionality. “We would cancel those licenses once the COE system is implemented,” he said.
The new SDCOE system, said Dill, includes two major benefits: internal auditing and payroll administration.
“Payroll management is very complex in public agencies, so we benefit from the economy of scale by having SDCOE provide that expertise and oversight for multiple districts rather than bringing on additional specialized staff,” Dill said.
Not participating in the county-wide system could cost even more in the long run.
“Striking out on our own would cost the district much more in terms of staffing and technology,” Dill said.
Additionally, Dill said the district would be required to hire full-time internal auditors to oversee its financial operations if San Dieguito chose not to participate.
“SDCOE performs that function now, and we feel that is a better check on our internal controls than if that auditing staff reported to the superintendent or me,” Dill said. “SDCOE internal auditors do not have that conflict of interest.”
For districts in a bind to pay the heavy upfront costs, SDCOE is providing financing options, but each district would have to bear its own debt service cost.
The estimated cost under a payment plan to finance a 20-year loan at current interest rates is about $9 per ADA annually. Districts would need to notify SDCOE by Oct. 1, 2013 if financing assistance is needed.
For Solana Beach, said Estrella, “it doesn’t make sense to do it that way.”
But Del Mar is keeping this financing option open, and so is San Dieguito. “We will evaluate our options and determine the best way for us to pay that expense before the time comes,” Dill said.
In 2011, the county began the Modernization, Improvement, and Transformation Initiative, which sought to document the needs of school districts to prepare for a new system.
The Oracle ERP system will have a three-year implementation period and will offer a “21st century, fully integrated” suite of features that will provide “human resources all the way through finance and budget,” Duzyk said.
In addition to complete human resources, financial and accounting operations, Duzyk said the new ERP system will provide business intelligence and offer extensive analysis and reporting capabilities – all integrated and done electronically.
SDCOE’s annual 2012-2013 budget is about $602.6 million.
— Marsha Sutton can be reached at SuttComm@san.rr.com.