Northwest Local School District (Hamilton County) 5-Year Forecast Assumptions May 11, 2015

Transcription

1 Northwest Local School District (Hamilton County) 5-Year Forecast Assumptions May 11, 2015 Disclaimers The 5-year forecast for Northwest Local School District (Hamilton County) is derived from the last three completed fiscal years (FY12 FY14) of historical data, the current fiscal year s (FY15) appropriations, and the next four fiscal years (FY16 FY19) of forecasted data based on current information, logical estimates and rational assumptions. As we review the District s 5-year forecast we all must acknowledge this forecast as a work-in-progress and many of the assumptions used in this forecast are derived from past experiences and spending history. This year s forecast is again being presented in a format developed to assist the Board of Education, the Superintendent, and Administration in the fiscal management of the school district. Financial Strategy The Board, the Superintendent and the administrative team have continued their work in addressing any structural deficit of the district. Beginning in 2005, annual staffing cuts were implemented each year through These reductions involved 273 staff members with a total dollar value of $17,939,334. Dates Cuts Began Dollar Value Number of Jobs Reduced August 1, 2005 $1,547, August 1, 2006 $1,205, August 1, 2007 $1,290, August 1, 2008 $2,882, August 1, 2009 $ 850, August 1, 2010 $1,595, August 1, 2011 $3,246, August 1, 2012 $3,444, August 1, 2013 $1,878,

2 REVENUES Line 1.01 General Property Tax (Real Estate) In calendar years 2002 and 2008 Hamilton County went through real estate property updates and reappraisals in 2005 and The last two triennial occurrences plus new construction caused the valuations for agriculture, residential and commercial/industrial property to rise 16.94%, while the valuations for agriculture, residential and commercial/industrial property rose 1.81% in 2008 respectively. With the decline in real estate new home starts and sales, the slowing of the economy, the valuation update in 2008 yielded a decline in valuation of.64%, and the most current reappraisal in 2011 resulted in a decline in total valuations of 11.8%. Recent sales data resulted an additional decline of 2.4% in values for the 2014 reappraisal. We are projecting slight increases in future years through The passage of an emergency 3-year operating levy for $ 6,478,778 (3.9 mills) on November 6, 2007 generated an additional 3.2 million in local tax collections in FY08 and the full 6.4 million in FY09 through FY10. In FY11 the final 3.3 million was collected in the first half of the fiscal year. This levy was renewed on May 4, 2010 for a period of 5 years at 4.52 mills for FY11 through the first half of FY16. The Board anticipates replacing this levy with a Bond/Operating Levy in The passage of an emergency 5-year operating levy for $ 7,330,000 (4.95 mills, adjusted to 5.15 mills after the levy passed by the County Auditor) on November 6, 2012 generated an additional $3.57 million in local tax collections in FY13 and the full $7.3 million in FY14 through FY17. The Board anticipates renewing this levy in In calendar year 2009 two mills of our 6.33 inside mills were moved to our Permanent Improvement fund. This move created the ability of our District to earmark approximately $2,200,000 for district bussing, technology and the blended learning labs. Line 1.02 Tangible Personal Property Tax The projected decline in revenues received through tangible personal property is a result of a decline in valuation due to depreciation and HB283 (July 1, 2003) and HB66 (July 1, 2005). HB283 reduces the assessed valuation of the inventory component of personal property tax from 25% to 0% by HB95 accelerated the reduction to 2% per year ending in In addition, the projected decline in revenues received through public utility taxes is a result of deregulation of public utilities. In July of 2005, HB66 again accelerates the phase-outs of tangible personal property and public utilities by the calendar year There is a hold harmless piece in this bill for school districts through the forecast period 2010 less the previously approved phase-out in HB95. These phase-outs are estimated to reduce our tangibles from $4,393,382 to $2,285,100 fiscal years 2005 through The reimbursement portions of these House Bills were included in line property tax allocations. Line Unrestricted Grant-in-Aid On March 24, 1997, the Supreme Court rendered a decision declaring certain portions of the Ohio school funding plan unconstitutional. The Court stayed the effect of its ruling for one year allowing the Ohio General Assembly to design a plan to remedy the defects in the system. Declared unconstitutional at that time was the State s School Foundation Program, which provides significant amounts of monetary support to school districts on a form previously called the SF-3 Formula Sheet. In FY 2010 and 2011 districts were funded on the PASS (Pathway to Student Success) or Evidenced Based Model (EBM). HB 30 adopted in March 2011 eliminated the PASS/EBM model and HB 153 implemented yet another new education funding model called the BRIDGE formula which we were funded on for fiscal years 2012 and HB 59, also known as School Finance Payment Report (SFPR) is what we are currently funded on today. This model looks at equalizing districts and providing additional revenue for low wealth, poverty and special needs. HB 64 is currently working its way through the legislative process, and perhaps could lead to another funding method. 2

3 Since the 1997 Supreme Court ruling, numerous pieces of legislation have been passed by the General Assembly in an attempt to address the issues identified by the court. The Court of Common Pleas in Perry County reviewed the new laws and on February 26, 1999 determined they were not sufficiently responsive to the constitutional issues raised under the thorough and efficient clause if the Ohio Constitution. The State then appealed the decision made by the Common Pleas to the Ohio Supreme Court. In May 2000, the Supreme Court ruled that the State of Ohio had not done enough to comply with the original order found in the original case. The court gave the State of Ohio until June 15, 2001 to correct the school funding system. The school funding system was declared unconstitutional again in September 2001, and most recently in December In 2003, the Supreme Court ruled that they would no longer provide oversight of the implementation of their ruling that the State of Ohio provide a thorough and efficient school funding program. While ruled unconstitutional by the Supreme Court, there will be no further oversight to ensure the court ruling is implemented. Following this hands off ruling, the State Legislature adopted HB 95 which cut and eliminated inventory taxes and state reimbursement of the $10,000 Personal Property Tax Exemption and also reduced the per pupil increase in funding that had previously been approved in June 2001 by HB 94. To further compound any shortfall from phantom revenue, the State Legislature in July 2005 passed HB 66, the biennium budget, which eliminated funding for schools through the Cost of Doing Business Factor (CODBF) in the Foundation Basic Aid Formula phasing it out from Fiscal Year 2006 until eliminated beginning Fiscal Year The CODBF increased this District s per pupil revenue 7.5%. In addition to eliminating the CODBF it began the elimination of tangible personal property tax (TPP) and made sweeping changes to taxation in Ohio. This has resulted in lost revenues to schools across the state. The net financial effects of the PASS Program create a funding decline in state aid under its prior form. Under the old foundation formula we were guaranteed approximately $28,400,000 (FY09) annually in unrestricted aid. The amounts we received under the PASS And EBM program are as follows: FY09 $28,433,125 (Actual) *FY10 $26,448,893 (Actual) *FY11 $25,635,991 (Actual) *FY12 $25,779,350 (Actual) FY13 $26,481,490 (Actual) Came off Guarantee in Nov *There was additional pass-through funding from the Federal Stimulus Package that is Restricted Aid and will be identified in the next section. In summary, PASS reduced our revenue annually (including restricted Federal aid in each year through fiscal year Governor Kasich vacated the EBM model and replaced it with a Bridge formula during FY12 and FY13. Starting in FY14 House Bill 59 is being implemented as the newest funding model for education. This model is very complex and is still developing with major changes. We proceed with caution on the amount of revenue the State formula is currently estimating for our District. FY14 $27,287,879 (Actual) FY15 $27,810,907 (Estimated) We have modeled state funding based on the Sub HB 64 for forecast years ; adjusting for enrollment projections and inflation. 3

4 Line Restricted Grant-in-Aid Restricted funds are those in which the State requires specific spending. NWLSD received funds of approximately $7,229 annually for career tech funding. In fiscal years 2010 through 2012 the District also received funding from the Federal Stimulus Package as pass-through funding by the State in the amounts of $1,799,308, $2,185,079 and $1,435,169 respectively. There is no replacement stimulus money projected. With HB 59 the districted started receiving additional restricted funding for Economic Disadvantage Funding that addresses poverty and its effects on educational outcomes. Its calculation is based on a per-pupil amount equalized by the poverty index of the district. We are estimating about $1.5 million this fiscal year in restricted aid for this subsidy. There may also be some monies received in this category from time to time for miscellaneous reimbursements such as special education catastrophic reimbursements. Line Property Tax Allocation Rollback and Homestead Exemption All real property taxpayers receive a 10% credit or rollback on their tax bills that is reimbursed by the State of Ohio to the public entities. Homeowners are eligible for an additional 2.5% homestead exemption if they live in their home and it is on a parcel that is less than 2.5 acres. Additional credits are available to residents based upon income and age. The District estimates all rollback and homestead exemption revenues at approximately 15.84% of the total real property tax generated for a given year. The District is anticipating that rollback and homestead will follow the same amount of change that real property experiences represented as a percentage of the real property taxes through fiscal year We are seeing an increase in our Rollback and Homestead Exemptions in FY13 and FY14 of approximately $800,000 annually because of the 2012 levy passage. It should also be noted that a provision in HB59 is that the state would no longer pay homestead and rollback taxes on new and replacement levies after the August 2013 election. The continuing levies our district has are not affected by this change in law however, our temporary levies may be in jeopardy if we allow these to expire or change the amounts of the levies. Tangible Personal Property Reimbursement - Additionally, reimbursements for the phase-out of tangible personal property (Line 1.020) are to be accounted for in line item Based upon calculations provided by the Ohio Department of Taxation the following amounts were included in the October 2010 forecast: FY09 $2,851,397, FY10 $3,745,169, FY11 $3,808,218, FY12 $3,136,179, FY13 $2,464,067, FY14 $2,016,055, FY15 $1,568,043, FY16 $1,120,030, FY17 $672,018, and in FY18 $224,006 HB153 (2011) once again changing the TPP reimbursement to the following: FY12 $2,259,706 and FY13 $711,194, FY14 $654,022, *the FY14 amount of $654,022 is fixed through FY2019 Total forecasted revenues for line 1.05 are $6,816,232 in FY15 and decreasing to $5,064,749 in FY19 in part because of HB153. The remainder of the decline is due to modeling the 2015 and 2017 renewal levies in line of the forecast which includes tax revenue and homestead and rollback credits. Substitute HB 64 currently has a TPP hold-harmless provision. 4

5 Line All Other Revenue Other Local Revenue Typically other local revenue consists of extra-curricular participation fees, commissions, rental income, payments in lieu of taxes, summer school tuition and miscellaneous. The District also earns interest on accumulated cash reserves. This is projected at $7.5 million throughout the forecast. Line Advances-In and Transfers-In Advances-Returned This line represents the return of temporary monies made to funds experiencing cash flow shortfalls. Advances are not permanent and must always be returned. The District received $348,408 in FY15. Line All Other Financing Sources Refund of Prior Year Expenditures This line represents funds received in refund of services or goods purchased and charged as expenditures in a previous fiscal year. Items refunded within the same year are treated as reductions of the expenditure. It s estimated to have $60,000 annually on this line item. Total Revenue Summary Total revenues from all sources for the general fund account are estimated to be $88,869,041 in FY15 and declining to approximately $79,413,156 not including the renewal of the two emergency levies in FY16 and FY18. Because of the increased reliance on the community for revenue, our local share for funding the school district has grown since Without the renewal of at least one for the two current emergency levies the District would once again find itself in a negative financial forecast outcome. It s crucial that the District maintain some combination of these levies for a positive financial future. Line Personal Services (Salaries) EXPENDITURES Salaries - Staffing is based upon the anticipated programs for the current school year. In December 2013 the board approved 2.5% increases for the NAE union for each of the next three years and 2.5% for all other staff for FY15. Salaries were assumed to increase 2.5% increase through FY17 and 2% in 2018 and For a historical prospective: In FY09 the NEA and transportation negotiated a 1% pay increase and the remaining staff received a 3% pay increase and a change from their PPO insurance to a HDHP/HSA health savings account plan. An increase of 2% for all staff was implemented for FY10 with the NAE and transportation staff also moving to the HDHP. Step freezes and base salaries were frozen for fiscal years 2012 through By the end of the school year our staff received a cost-of living increase just three out of the last ten years and no step increases for the last three years. 5

6 Line Employees Retirement/Insurance Benefits Benefits - The District is required by law to pay 14% of employees salary into the State Teachers Retirement System and the School Employees Retirement System. SERS also charges a surplus cost for employees who earn less than $35,800 annually. This surcharge has an effect of the District paying approximately 15.5% into their retirement system. It s also required of the District to pay 1.45% of salaries to Medicare and we currently pay approximately.05% to the District s Workers Compensation Self-Insurance Program. With the cost of the District s share of retirement, Medicare and Workers Compensation Insurance, we contribute 16.36% of salaries. During 2009 we received an increase of about $221,000 in Workers Compensation premiums and in 2010 we received an additional premium increase of $100,000. The chart below gives the historical data of our Workers Compensation premiums and claims since We officially are self-funded for workers compensation as of July 1, The District is realizing an annualized average saving of over $210,000 since moving to a Self-insured Workers Compensation program. Annual Year Premium/Costs Average 2000 $ 402, $ 256, $ 343, $ 320, $ 272, $ 371, $ 336, $ 342, $ 348, $ 570, State-Insured 2010 $ 670, Average 2011 $ 494, $ 394, $ 152, Self-Insured 2013 $ 209, Average 2014 $ 216, $ 201, *2015 $ 230, *Estimated In FY10 we had a 31% increase in health care costs for our HDHP plan but realized just a 5.24% increase with the teachers union agreeing to the HDHP/HSA plan beginning in FY10. In FY10 the District predicted annual increases of 15% for healthcare but due to some catastrophic claims the District realized a 36% increase September 1, This unexpected increase cost the District $1,570,232 more than the prior year in premiums. 6

7 The NAE and OAPSE employees came off a holiday premium in fiscal year 2010 and began paying 15% of their Health care costs thus netting the District a 19.90% increase for that current year. In 2010 total benefits were 33.45% of our salaries. The health insurance is now capped at 10% increases with the employees paying 100% of everything above an annual increase of 10% starting in 2012 through All unions and parties agreed to the changes and new rate increase. These decrements and agreements save the District $518,000 during the 2014 plan year. A 2.3% increase is forecasted for FY15 and 5% increases are forecasted throughout the remainder of the forecast. The District recently started a new insurance consortium with six other districts. This consortium officially began January 1, The consortium went self-funded on 1/1/15 to help control the escalating costs contained in the Affordable Care Act. It was necessary for the district to build an insurance reserve during 2014 to ease the full reserve cost required during We have set aside $115,000 for the calendar year 2014 which will reserve 5% of the required 20% needed. The premiums paid during calendar year 2015 will fund the remaining 15%. Health Insurance costs have been controlled the last few years and we anticipate the same for the forecast period. The trend for the insurance industry is coming down; however, remains at 8-10%. A catastrophic rate increase is not in the forecast. If medical cost inflation causes a catastrophic rate increase in health benefits costs, it would have a materially adverse financial effect on the School District. A reduction in employment from current staffing levels or the negotiation of a health benefits package with reduced benefits may be the end result. In summary, benefits contribute to 22% of the districts expenses throughout the forecast period. Line Purchased Services (Contracts) Increases in purchased services can be a result of increased utility costs, increases and additional specialized services for special needs students, state mandated scholarships and students enrolling in charter schools and other districts through open enrollments. 2.00% has been factored in as an estimated increase in purchased services annually. Utilities for FY14 through FY18 are estimated to decrease with the HB264 Energy Conservation measures that were implemented throughout the district during the school year however, PUCO has agreed to utility rate increases that will affect school districts. There is an annual anticipated savings of $400,000 beginning in FY14 for the HB264 energy savings that is off-set by future utility rate increases. Costs for the expanded state voucher program implemented in House Bill 153 are estimated to cost this District $1,714,255 this year, an increase of about $450,000 over We spent $12,959,254 in fiscal year 2014 and $15,851,902 in fiscal year The main driver of this increase in cost is students choosing to go to other schools and special needs services. We anticipate that annual purchased services will cost $17,158,609 by 2019, roughly a 2% annual increase over the forecast term. We will continue to monitor contracts and look for ways to reduce these purchased services expenditures. Line Supplies and Materials Supplies and materials are estimated to increase at a 2% rate annually in the forecast 2015 through

8 Line Capital Outlay (Equipment) Capital outlay and equipment are estimated to increase $100,000 for maintenance currently paid out of the Permanent Improvement Fund. This is estimated to remain stable throughout the forecast. The district expenses capital purchases out of its Permanent Improvement Fund for such items as the Bus and Technology Replacement Schedules. Currently, the summer permanent improvement projects have come from the Permanent Improvement Fund. If the district were to not pass a bond levy, the required $37 million capital improvements identified in the Master Facilities Plan to keep our buildings warm, safe and dry will need to be paid out of the General Fund over the next five years. Lines to Debt Debt The District currently pays outstanding debt through its Permanent Improvement and Bond Retirement Funds. Line Other Objects Any other costs not previously listed are allocated here. One of the largest items is the payment to the county for collecting and processing tax payments. These costs are projected at $971,939 in fiscal year 2015 and increasing 2% annually to $1,052,058 in fiscal year Lines and Operating Transfers-Out and Advances-Out Transfers and Advances Transfer are monies approved by the BOE to give to another fund to maintain a legal balance. Advances are monies loaned to other funds with the approval of the BOE to keep those funds legal. Advances will be repaid to the general fund. Currently, we do not anticipate the need for advances. Transfers in the amount of $60,000 annually are authorized for the Athletic Department to cover the cost of athletic transportation. Additionally, the General Fund will have to transfer funds to cover the cost of fees for waivered students. Advances and Transfers may change annually depending on need and Board authorization. Line All Other Financing Uses Refund of Prior Year Receipts We don t anticipate any refunds of prior year receipts of large significance in this forecast. Total Expenditure Summary Expenditures are anticipated to be $80,712,883 in FY15 growing to $93,237,920 in FY19. Primarily the increases are due to anticipated salary and benefit increases over the term of the forecast as well as increases in Purchased Services due to increased cost of voucher programs and special education needs. The District needs to continue to monitor costs and find additional efficient ways to manage them. Without proper financial management the District may be faced with declining balances and more tough decisions. Line Estimated Encumbrances Outstanding Encumbrances - Encumbrances are legal financial obligations of the District that have not been expended at fiscal year-end. We have anticipated the same amount each fiscal year of $750,000. In the event actual encumbrances are higher than anticipated on June 30, the expenditures in the aforementioned line items may be lower. 8

9 Line Unreserved Fund Balance June 30 th The District unreserved balance is the cash balance less outstanding encumbrances. A Structural Operating Deficit exists in fiscal 2017 without proper financial management and the renewal of the current Emergency Levies. EXECUTIVE SUMMARY The five-year forecast is a compilation of data based on funding formulas, as they currently exist in State law. The five-year forecast is due to the State of Ohio every October 31 st and May 31 st and can be revised and updated anytime between. Assumptions are based on historical trends and analysis and it is important to monitor forecast activity on a monthly basis in an effort to ensure the budget stays on forecast. Utilization of the monthly Five-Year Forecast Analysis Report will allow management to monitor all major revenues and expenditures against the five-year forecast. It is important to modify the forecast as management learns of changes in laws or events that would cause a material change in forecasted numbers. Ohio law requires the District to operate within a balanced budget. In the event that significant events should alter the projections in the five-year forecast, management will assess the situation and make recommended changes to the forecast and budget in order to maintain a balanced budget. CONCLUDING COMMENTS, DISCLAIMERS AND NOTIFICATIONS Professional Diligence Notice and Disclaimer: Reasonable professional diligence and care is exercised in the preparation of this forecast document. It is a public record pursuant to the Ohio law. Public dissemination is required by State law and enabled by Resolution of the Northwest Local School District Board of Education. Multiple and varied sources and methods are used to develop the forecast data. Various assumptions and other extrapolations are employed in developing the data that may or may not be timely, accurate, complete or correctly interpreted. All forecast data is subject to change or correction at any time without notice. If any notice is subsequently provided, such notice may be limited to the filing of a revised forecast within the parameters of the statutory filing schedule. The forecast document is designed solely to provide a general indication of the probable future financial position of the School District. The legitimacy or accuracy of any specific assumption, number or the forecast in total while deemed reliable cannot be guaranteed. In many cases, a relatively small change in one forecast number will have the effect of materially changing forecast data and trends, positive or negative. Therefore, professional discretion, diligence, caution and care is required when using and interpreting forecast information. Current fiscal year data does not necessarily reflect current School District appropriations, budgets, certifications or other data maintained in the files of the School District, including by the Office of the Treasurer of the Board of Education. Future forecast fiscal year data is compiled from public sources to the extent possible and reasonable; however, some information may be based on proprietary and or non-public data originating with private third parties. Such third party data may in reality be promotional puffery or advocacy propaganda, despite contrary assurances, and the purpose of the third party providing the data may or may not be aligned with the financial best interest of the School District. Historical data is based on fiscal year end data filed by the Treasurer of the Board of Education with the Ohio Department of Education. Questions from the community and other users of this data are encouraged. The contact person is Amy M. Wells, CFO/Treasurer, Board of Education. Electronic Transmission Disclaimer: Any user of this forecast is cautioned that this document is transmitted electronically to the Ohio Department of Education via the Southwest Ohio Computer Consortium (SWOCA), an affiliate of the Ohio Educational Computer Network (OECN). The School District, SWOCA and OECN have data integrity, validation and verification procedures in place to enable the transmission of this forecast without electronic interference or other anomaly that would result in transmission error. These procedures are deemed reliable and prudent; however, it cannot be guaranteed by the School District that a forecast obtained from the Ohio Department of Education or viewed from the Internet site maintained by the Department is absolutely free from such errors. 9