A Welcome From our Workshop Sponsors

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1 Budget Development Jason Hoffman, Chief Financial Officer, Jefferson City Public Schools & Kari Monsees, Superintendent, Ray-Pec School District March 6 & 7, 2019 A Welcome From our Workshop Sponsors 1

2 Budget Development Greetings From: Kim Cranston Executive Director Missouri Association of School Business Officials (MOASBO) Roger Dorson Deputy Commissioner Department of Elementary & Secondary Education (DESE) David Tramel Coordinator, Financial & Administrative Services Department of Elementary & Secondary Education (DESE) Key Budget Axioms to Consider 2

3 Budgeting Axiom #1 Effective budgeting evolves & is an ongoing, year-round process. Budgeting Axiom #2 Effective budgeting requires a focused & deliberate effort to always do what is best for kids. 3

4 Budgeting Axiom #3 Budgeting is a lonely & underappreciated job. Budgeting Axiom #4 Perceived wants are always greater than actual needs. 4

5 Budgeting Axiom #5 Be conservative on revenue projections & liberal on expenditure projections (within reason). Budgeting Axiom #6 Keep everyone fully informed & involved in the entire budget development process. 5

6 Budgeting Axiom #7 Individuals are only safe & solvent if the organization is safe & solvent. Budget Development Revenue Projections Jason Hoffman, Chief Financial Officer, Jefferson City Public Schools & Kari Monsees, Superintendent, Ray-Pec School District March 6 & 7,

7 Budgeting Revenues Key Revenues Object Code Local Property Taxes Current Taxes 5111 Delinquent Taxes 5112 School District Trust Fund (Proposition C) 5113 Basic Formula-State Monies 5311 Basic Formula-Classroom Trust Fund 5319 Transportation 5312 Budgeting Revenues Local Property Taxes Assessed Valuation (AV) x Tax Rate x Adjusted Historical Collection Rate =Budgeted Property Taxes 7

8 Local Property Taxes Talk to your county assessor(s) for preliminary 2019 AV information: 1. What is the county s current assessment strategy & plan? 2. Compare this information with AV figures for the current & upcoming years. 3. What is AV for New Construction and Improvements? 4. Keep in mind that 2019 is a reassessment year. Consumer Price Index (CPI) ended Dec 1.9% (Last year 2.1%). Local Property Taxes Reminder: If your district has a voluntary Operating Tax Rate roll-back in effect, and if you want to reduce or eliminate this roll-back, YOU CAN NOT DO SO THIS YEAR. That is because this is a reassessment year. Your next opportunity to reduce or eliminate a voluntary roll-back will be in 2020 (the next nonreassessment year). 8

9 Local Property Taxes A voluntary reduction would be found on Line H. of your State Auditor s Office (SAO) 2018 Tax Rate Summary Page. Tax Levy Calculation Information can be found at: 9

10 Historical Collection Rate 1. Review this year s ( ) property tax collections. 2. Analyze this year s property tax collections through February as compared to February for prior years (for example last year, prior 2 years, prior 3-5 years, etc.). 3. Calculate the percentage collected through February, 2019 to the total collected by the end of year in (and compare relative to prior years as noted in #2). 4. Compare percentage collected through February, 2019 to total budgeted for (again compare relative to prior years). Historical Collection Rate 5. Adjust the historical collection rate accordingly in budgeting property taxes for Repeat this process in March, April, May, etc. 7. Check with the County Clerk and Assessor regarding protested taxes for this year as well. 10

11 Historical Collection Rate Example December 31, 2017 Assessed Valuation $25,000, Total Tax Rate $4.00 per $100 A.V. Current Tax Revenues : $940,000 Delinquent Tax Revenue : $40,000 Theoretical Tax Collection: Tax Rate x Assessed Value $4.00 per $100 A.V. x $25,000,000 = $1,000,000 Percent Collected as Current Taxes: Actual Current Collection / Theoretical x 100 (940,000/1,000,000 x 100 =94%) Percent Collected as Delinquent Taxes: Actual Delinquent Collection / Theoretical x 100 (40,000 / 1,000,000 x 100 =4%) Adjust historical collection rate with tentative data. Historical Collection Rate Example 11

12 Historical Collection Rate Example Budgeting Local Property Taxes One Final Thought If you are unsuccessful in obtaining good information from your assessor, you may need to use your current tax rate for now and your best estimate for assessed value in your preliminary calculations. 12

13 State Budget Overview Net General Revenue Collections Increased x.x% for the year o Individual income tax +x.x% for the year o Sales and use tax collections +x.x% for the year o Corporate income & franchise tax collections +xx% for the year (YTD collections=$x) o Refunds +x.x% for the year UPDATE SLIDE AFTER FEB DATA IS PUBLISHED. Consensus Revenue Estimate (CRE) The CRE for FY 19 was revised in late December to 1.7%. There have not been withholds so far and we will need to watch the coming months very closely The Governor and the General Assembly are working with a 2.0% growth rate as the CRE for FY 20 13

14 FY 20 Governor s Recommendations $61 million increase to Foundation Formula Full Funding $10 million increase for Transportation $40.9 million increase in Proposition C (dedicated tax) 4.5% Increase $3 million increase in Early Childhood Special Education (mandatory) Waiting to See House Budget FY 20 Pending House Budget Committee Recommendations House Bill 2 $98 million increase to Foundation Formula $92 million for Transportation $15.9 million increase in Proposition C (dedicated tax) $8 million increase in Early Childhood Special Education (mandatory) Restored $68 million cut to Higher Education??? We will then wait on the Senate s Budget recommendations. 14

15 Budget Developments NEED TO UPDATE THIS SLIDE There is still uncertainty regarding the impact of the federal tax changes and SB 509 tax cuts Congress funded the CHIP program in last budget deal & this has freed up approximately $81 million in General Revenue (apparently used to restore cuts to Higher Education) The amount of mandatory Medicaid spending has been reduced by $55 million Blind pension will receive approximately $20 million in back payment Cost of Public Placement Last year, the General Assembly reduced funding for reimbursement to districts with facilities within their boundaries from $11 million to $5 million. NEED TO UPDATE THIS SLIDE $3.2 million was restored to that fund by the House Education Appropriations Committee. However, the House Budget Committee tentatively returned it to $5 million. 15

16 Proposition C (Current Year FY 19) Reminder: paid on statewide prior year WADA *Estimated WADA ( ) = 909,193 (as of the February 2019 payment) *Appropriated FY 19 revenue = $917,500,000 *Estimated payment = $1,009/WADA DESE is optimistic the projected amount per WADA will be realized. Supplemental appropriation could increase this amount if revenues exceed current budget amount. Proposition C (Next Year FY 20) Paid on prior year WADA *Estimated WADA ( ) = 925,000 *Appropriated FY 20 revenue = $958,400,000 *Estimated payment = $1,036/WADA. 16

17 Proposition C (Next Year FY 20) Some scenarios for Prop C revenue estimates: No growth: $992 per WADA Median growth (2%): $1,012 per WADA Projected growth: $1,036 per WADA Projected growth is a revenue increase of $40.9 million over FY % Increase x.x% Sales Tax Increase through Feb Proposition C 17

18 Proposition C *Multiply your best Prop C estimate by your estimated weighted average daily attendance (WADA) ADA estimate worksheet online at: school-finance/calculation-tools *Continue to monitor receipts monthly as you finalize your Prop C revenue estimate for Basic Formula (Current Year-FY 19) The SAT used in the Formula for the February transmittal was $6,285. Barring any withholds or shortfalls (which are not expected), the SAT should end the year at $6,308 Consider estimating ADA to fully access formula funds for FY 19 18

19 Basic Formula The SAT has been recalculated for FY 19 & FY : $6,308 (50% of total recalculation) 2020: $6,375 Statewide WADA will be greater in FY 19 due to two primary factors: Pupils eligible for free and reduced lunch that are enrolled in district sponsored Pre-K programs can be included in their ADA for FY 19 Further reduction in thresholds DESE predicting an increase of 13,000 o FY18 912,267 o FY19 925,000 (Estimate) Threshold Changes FY s 17 & 18 FY s 19 & 20 Free & Reduced Lunch 36.12% Free & Reduced Lunch 31.42% Special Education (IEP) 12.16% Special Education (IEP) 12.06% Limited English Proficiency 1.94% Limited English Proficiency 2.50% 19

20 Basic Formula In total, an increase of approximately $61.4 million is necessary to fully fund the formula in school year State Adequacy Target (SAT) Possibilities A. Full Funding ($61.4 M)= $6,375 B. Partial Funding ($31 M)= $6,341 C. No Funding Increase= $6, Probable Formula Factors 2. Weighted Average Daily Attendance (WADA) ADA estimate worksheet online at: school-finance/calculation-tools 20

21 Probable Formula Factors 3. New Dollar Value Modifiers-DVM s as calculated annually: Complete-DVM-List.pdf 4. Local Effort (remains the same unless): 1. Fines in exceeded (two years prior to current fiscal year) 2. Assessed value Dec. 31, 2017 fell below Dec. 31, Municipal court established in county, use fines in Probable Formula Factors 5. FY 06 state funding: Fixed 6. Classroom Trust Fund: Current best estimate at $409 per ADA (NOT WADA). 7. DESE will have further guidance in their monthly Finance Memos each month through June. 21

22 State Formula Reminder Small Schools Grant - DESE will update this spring or summer the estimated amount per ADA ($10 M distributed) and the amount per tax rate weighted ADA ($5 M distributed) in Currently these are $276 and $ schools receive in FY 19; not expected to change much. Transportation (Current Year-FY 19) Originally, $102 million was appropriated for transportation in the FY 19 budget o 13.6% Increase Current year payment on the $102 million results in payment of 33.4% of the 75% Allowable Cost or 20.8% of Total Allowable Cost 22

23 Transportation (Next Year-FY 20) The Governor s budget recommendation contains $112 million for transportation This is a $10 million increase from the core amount this year ($102 million) If this makes it through the budgeting process, this should result in about a 10% increase for FY 20 Following recent trends, the final number included in the budget is the high point in funding and could be subject to withhold once the fiscal year begins Interesting Fact: In 1990, the reimbursement rate was 80%. It was then mandated at 75% as a part of Senate Bill 380 (the Outstanding Schools Act) by Governor Mel Carnahan in Other State Revenues ü Early Childhood (PAT)-$3 million increase from FY 19 funding. ü Early Childhood Special Educationfully funded (as mandated) ü High Need Fund-fully funded 23

24 Other Local & County Revenues Review Historical Data Review the past 3-5 Annual Secretary of the Board Reports (ASBR) for historical information regarding: Intangible Taxes 5114 M & M Surtax 5115 In Lieu of Tax 5116 Investment Income 5141 Fines & Forfeitures 5211 State Assessed Railroad and Utility* 5221 Update monthly as data becomes known *A much greater receipt this year than anticipated may have a negative implication for next year s tax rate that you will establish this August. Federal Revenues DESE will advise this spring on funding levels: ü IDEA ü Title Programs ü Grants 24

25 Other Revenues ü Bond Sales ü Tuition ü Miscellaneous Questions? 25

26 Budget Development Expenditures Jason Hoffman, Chief Financial Officer, Jefferson City Public Schools & Kari Monsees, Superintendent, Ray-Pec School District March 6 & 7, 2019 Lots of Help on How to Spend District Resources 26

27 Popular Belief Budget is like a pie If you spend more $, the pie does not get bigger! Instead, the rest of the pieces of pie just get smaller! 27

28 Budget Planning WHAT ARE YOUR PRIORITIES? Small Class Sizes Competitive Salaries Technology & Instructional Materials Avoiding RIF s Increase/Decrease Fund Balance New Programs First Order of Business Start with Operating Budget (Fund 1 & 2) Amend Current Year's Budget Since most expenses repeat (78.34% salary and benefits-fy2017). 28

29 Examine What Will Change If most of the expenses repeat, you simply need to evaluate what will be different. Start at 10,000 foot level Items to Consider-SALARY Cost to Operate Salary Schedule Service and Education movement Cost to give raises to rest of the staff Factor in increased PSRS/PEERS, Medicare, and OASDI costs with raises. Savings from Retirements Change Sub Rates Change Summer School Pay Change in Stipend Schedule 29

30 Items to Consider-Staffing Changes in FTE Does student enrollment warrant more or fewer classroom teachers Any new or deleted programs Changes to other classes of employee groups Expanded/Reduced Summer School Items to Consider-Health Insurance Health Insurance Rate Changes National Trend-United Healthcare and Anthem 10% Medical 12% Rx Factor in increased PSRS/PEERS costs 30

31 Items to Consider-PSRS/PEERS Changes in PSRS/PEERS Rate Rate stays same for FY20, but not guaranteed to stay the same going forward. 2.6% - Est. FY19 Return Through February Assume 7.5% Rate of Return Don t forget to calculate the increased retirement costs with increases in Salary and Health Insurance. Also increased OASDI/Medicare on increased salary costs. Items to Consider-Utilities Changes in Utility costs Electricity, Natural Gas, Diesel Fuel I almost always budget a 10% increase to my UPDATED current year estimates to account for rate changes. Amend current year down. Have you done anything that would change consumption? Added square footage Added or removed bus routes 31

32 Items to Consider-Other Change in Property/Liability/Work Comp Check with MUSIC or your broker for projections. Was there a change in your emod? Supplies Are you adding or deleting programs? Technology, Technology, Technology Transportation Contract Items to Consider-One Time Costs Architectural Fees Software Implementations Transfers to Fund 3/Fund 4 32

33 Items to Consider-Fund Balance What level of funds do you need to keep in reserve? Need a higher percentage if rely more on local property taxes. Set goal with your Board of Education If too high, develop a long range plan to spend them down Spending reserves (non-reoccurring) on normal operating expenses (reoccurring) can be dangerous if you don t have a plan. Salary Recommendation 33

34 FY 20 Changes in Expenditures FY20 PRELIM BUDGET-Fund Balance Description of Fund Balance Change $ Amount FY2019 Change in Fund Balance $584,762 FY2019 Ending Fund Balance % 22.5% + Change in Revenues FY20 vs. FY19 $1,705,926 - Change in Expenditures FY20 vs. FY19 $1,606,366 - Change In Transfers Out of Operating Fund FY20 vs. FY19 $ 0 TOTAL CHANGE IN FUND BALANCE FY2020 $684,322 FY2020 Ending Fund Balance % 22.8% 34

35 Long Range Projections Since most of your expenses repeat, you are locking in a lot of expenses for more than one year. Make SWAG assumptions on major revenues and expenses to make sure your plan is sustainable 35

36 Revenue Assumptions Current Taxes Reassessment and Non-Reassessment Prop C Student Changes and State s Economy Basic Formula I m assuming flat dollar formula increases in future years Any other known revenue changes Interest Income? Expenditure Assumptions Salaries - % Increase Every Year Health Insurance-% Increase Every Year Other Benefits - % Increase Every Year Utilities - % Increase Every Year Purchase Services Supplies Transfers to Fund 3/Fund 4 36

37 Fund 4-Capital Projects Expenditures Usually not re-occurring. Exception might be lease purchase payments Makes it easier to deficit spend Should have a multi-year capital projects plan!!! 37

38 Fund 3-Debt Service Expenditures Work with your bond advisor to line out these expenses Budget Reduction: The Plan Plan to reduce expenditures o Start communicating now, if you haven t already o Use a model or develop your own o Have staff and community input o Constant, continuing two-way communication is essential Communication is important, timing is critical o Establish clear-cut parameters/goals by the Board of Education Preferred ending fund balances Class sizes Reserve spending plan and plateau Honor staff and students throughout process Helping students achieve at a higher level is the continued mission of the school district 38

39 Budget Reduction: The Plan Prepare a list of potential cuts, complete with financial impact amount o Anything can be on the table at this point o Be specific o Attach a dollar amount to each proposal o No sacred cows at this time o Establish priorities Provide assurances potential cuts don t violate, but: o Meet state legal requirements o Meet Missouri School Improvement Program minimum standards o Meet federal requirements o Meet local Board of Education policies (or suggest changes) o Meet regional accreditation standards Board of Education makes the final decisions Need to do ASAP if not already implementing a plan Budget Reduction: The Process Begin early Establish a target amount Establish a timeline Allow for anonymous communication o account o Improvement/comment cards Communication Board of Education o Work sessions o Open forum/committee meetings o Buy into the plan Staff Explain financial conditions (state and local) Continuous meetings Do not pit people and programs against each other Community and students Web site with detailed information Reason for the necessary budget reductions Plan and process to be used Timeline 39

40 What else can you do? Stop transfers for a couple of years Debt Service Capital Projects Can you redirect separate funds? Food Service Adult Education/ Community Education Student Activities Any other Enterprise Operations within district Review financial impact of summer school Remember Have a plan AND Use good tools! 40

41 Questions and/or Comments? Salary Compliance Fund Placement is the most important factor in maintaining compliance. Statutory Requirements o 75% of Basic Formula (5311) placed in Teachers Fund o 75% of ½ Prop C (5113) placed in Teachers Fund o Out of compliance if you don t comply Make sure you place at least these amounts in Teachers Fund. 41

42 Salary Compliance If you place more than the statutory requirement in Teachers Fund it will give you more cushion to remain in compliance. Place up to 100% of Basic Formula and Prop C in Teachers Fund AS LONG AS IT DOES NOT BUILD A FUND BALANCE IN TEACHERS FUND. Fund Placement Example-Actual Fund 1 Fund 2 Fund 1 Fund 2 Fund 1 Fund Basic Formula $960,925 $0 $266,982 $800,946 $274,991 $824, Prop C $222,190 $0 $135,536 $81,321 $139,602 $83,761 Other Rev No Choice No Choice No Choice Fund 2 Expenses $1,636,131 $1,538,647 $1,418,401 Teacher Fund Xfr. $1,423,196 $502,054 $492,891 $ In Compliance $527,313 $258,778 $257,178 42

43 Fund Placement Example- Minimum Placement Fund 1 Fund 2 Fund 1 Fund 2 Fund 1 Fund Basic Formula $240,231 $720,694 $266,982 $800,946 $274,991 $824, Prop C $138,869 $83,321 $135,536 $81,321 $139,602 $83,761 Other Rev No Choice No Choice No Choice Fund 2 Expenses $1,636,131 $1,538,647 $1,418,401 Teacher Fund Xfr. $619,181 $502,054 $492,891 $ In Compliance $527,313 $338,242 $352,377 Difference From Actual $0 $79,464 $95,199 Fund Placement Example- Maximum Placement Fund 1 Fund 2 Fund 1 Fund 2 Fund 1 Fund Basic Formula $0 $960,925 $0 $1,067,928 $0 $1,099, Prop C $0 $222,190 $0 $216,857 $0 $223,363 Other Rev No Choice No Choice No Choice Fund 2 Expenses $1,636,131 $1,538,647 $1,418,401 Teacher Fund Xfr. $240,081 $99,536 $78,297 $ In Compliance $527,313 $338,242 $432,456 Difference From Actual $0 $79,464 $175,278 43

44 Reminders 1 Incidental/Teacher Fund Provision If ending Fund 1 unrestricted balance is greater than 50 percent of combined Fund 1 and Fund 2 expenditures, the excess balance above 50% threshold must be transferred to Fund 2. Reminders 2. Gifted Penalty RSMo v In the school year and in each subsequent school year, if a district experiences a decrease in its gifted program enrollment of twenty percent or more from the previous school year, an amount equal to the product of the difference between the number of students enrolled in the gifted program in the current school year and the number of students enrolled in the gifted program in the previous school year multiplied by six hundred eighty dollars shall be subtracted from the district's current year payment amount. The provisions of this subdivision shall apply to districts entitled to receive state aid payments under both subsections 1 and 2 of this section but shall not apply to any school district with an average daily attendance of three hundred fifty or less 44

45 Reminders 3. Fund Placement Teachers Fund 75% of Formula Money (Not Including Classroom Trust Fund (Gaming) monies 75% of 1/2 Proposition C monies Incidental Fund 100% of State Transportation monies Local Board Discretion Classroom Trust Fund (Gaming) monies (Additional monies in future years in excess of must be placed in Incidental and/or Teachers Fund) Reminders 4. Fund Transfer Options (Fund 1 to Fund 4) An amount not to exceed the greater of: o $162,326 or o 7% of state adequacy target ($6,308-$6,375) times the district s weighted ADA for ) Satisfy current year Capital Project expenditures unless Board adopts resolution. 45

46 5. Fund Transfer Options Reminders Replacement of Designated Levy If not using the 7% or $162,326 transfer and not making payments on lease purchases (Section ), then may transfer from the Incidental Fund to the Debt Service and/or the Capital Projects fund the greater of: o State aid received in as a result of no more than 18 cents used in the foundation formula and placed in the Capital Projects or Debt Service fund or o 5% of state adequacy target ($6,308-6,375) times the district s weighted ADA for ) Reminders Minimum Salary Requirements SB287 Year Beginning Teacher Masters Degree with 10 years experience $22,000 $30, $23,000 $31, $24,000 $32, $25,000 $33,000 46

47 Additional Topics Budget Cycle: Preliminary Semi-Final Final Final Questions? 47

48 Additional School Finance Assistance Please call MASA Executive Director Doug Hayter for any school finance-related questions or needs. We can help facilitate assistance for you as needed. MASA Office: Cell Number: