Summary We hope for the best and plan for the worst

Transcription

1 To: Board of Education & Finance Committee From: Erik Bush, Business Manager Dianne Fazio, Budget Analyst CC: Dr. Gary Niehaus, Superintendent Administrative Team Faculty and Staff Date: 11/9/2012 Re: First Quarter Budget Review Summary We hope for the best and plan for the worst An important part of delivering a balanced budget is careful and consistent monitoring. This report serves to bring the Unit 5 community information regarding our progress toward that goal based on the current environment and in relation to history. At this early point in the year, and based on a comparative year-over-year analysis, Unit 5 s budget is behaving as expected. Discussion Unit 5 s operational funds are the Education, Operations & Maintenance, and Transportation funds. Given the highly critical and strategic nature of their spending, most of the discussion will be focused here. A first quarter review can be difficult due to both the brevity of information to analyze and the timing of the majority of financial activity. While the fiscal year began in July, it was not until mid-august that costs, with the opening of school, actually begin to have considerable activity. This is why the year-over-year comparison is important. While the problem of late State payments continues to be a cash flow issue, this year presents improvement. During the course of the last three fiscal years, the amount due from the State grew to be roughly $6 million split approximately 60-40% between the Education and Transportation Funds, respectively. This money is critical for programs Unit 5 is primarily mandated by legislation to provide Education Fund Early Childhood $220,000 Orphanage Tuition $43,998 Special Ed Personnel $622,017 Special Ed Orphanage $65,413 Special Ed - Private Tuition $286,749 State Free Lunch & Breakfast $3,286 National School Lunch Program $152,167 $0 Funding for Children Requiring Special Services $448,230 Sub-Total $152,167 $1,689,692 Transportation Fund Regular & Vocational $567,895 Special Education $500,592 As promised by the Comptroller s Sub-Total $0 $1,068,488 office this year, and shown in Total $152,167 $2,758,180 Table 1, most prior year money Table 1 owed has been disbursed by the State. The $152,167 shown is prior year money outstanding in the current fiscal year, a fraction of the $2.8 million due at the same point last year. However, the total for the current fiscal year ( , shown in Table 2) could very well grow throughout the rest of the fiscal year. At this point, a total of $3.02 million has been vouchered yet Page

2 remains to be released, with most payments roughly two months behind The difficulty of this in balancing a budget is if the total grows more than anticipated, particularly late in the year, our ability to balance expenses to revenue is severely hampered. Given the Education Fund expense base is 85% personnel, the longer the uncertainty pervades, the less time Unit 5 has to react and balance. In other words, total spending could be in line with levels authorized by the Board of Education, but due to timing of income due from the state, the budget would be overspent. The business office has taken steps to address that this year by converting our focus of accounting from what is known as cash basis to modified accrual basis. In a nutshell, cash basis accounting means you only book what has happened up until the moment you close the books. Modified accrual accounting allows you to present money or assets to be paid (receivables), as well as money owed (accrued expenses, payables) within a defined period. In the end, the books are still closed, but with accrual accounting financial statement users are provided a more complete picture of the actual financial state of the entity under review. Accruals at this point are detailed in Table 2. As a reminder, the move from cash basis to an accrual basis occurs this year, which allows for revenue recognition. If the state were to magically make all payments on time for the remainder of this fiscal year, but not pay down any of the balances shown to the right, then Unit 5 would have the ability to book an accrual of $3.02 million. Program Name Special Ed - Private Facility Tuition , Funding for Children Requiring Sp Ed Svcs , Special Ed - Personnel , Special Ed - Orphanage - Individual , Early Childhood Grant , Orphanage Tuition , Child & Adult Care Food Program If at that time (June 30) revenues and expenditures equaled each other, then the resulting accrual adjustment would show (on the face of the financial statements) an addition to fund balance reserves of $3.02 million. However, accrual does not only work on the revenue side. Sub-Total 1,531, Transportation - Regular & Vocational , Transportation - Special Education , Sub-Total 1,487, TABLE 2 Total 3,019, Year-end expense management has historically used Purchase Order Cut-Off dates to insure all fiscal year spending could be booked by the end of the fiscal year. These cut off dates can be very disruptive to both the building and district administration. With accrual, no cut-off is necessary because a process won t be trying to cram all expenses inside a date on a calendar, but instead booked within the context of a spending plan. So, back to the $3.02 million. In the initial look, income and expenses for the year matched and the $3.02 million was still outstanding from the state. In this scenario, Unit 5 would book a receivable of $3.02 million, all of which would flow directly to fund reserves. However (to the more complete picture) an example of an accrued expense would be wages earned. Unit 5 will likely have a very large accrued liability (multiple millions) for services provided, but not yet paid. This is because as of June 30, most certified staff s services have been provided (the teaching year is over) but the balance of their contracts (historically paid through the end of August) would be owed. At this time, analysis to determine if the sum of receivables will be equal to, less than, or more than accrued liabilities as of June 30 is not complete. Staff will advise as soon as those accruals are scripted. Page

3 A dollar comparison of current and prior year income and expenses is presented below in Figure 1. Items of Note (Revenues) In the Education Fund, the reduction of $1.3 million in state revenue sources reflects higher later state categorical payments, the reduction of General State Aid through pro-ration, and no driver s education money to date. The $$ change of a negative $254,934 in Operations & Maintenance is due to a requested extension of E-Rate reimbursement claims. The transition in the Director of Technology s office has led to a slight delay in completing E-Rate applications. Education O&M Transportation $$ Change $$ Change $$ Change Local Sources 28,634,159 28,033, ,766 5,162,338 5,417,272 (254,934) 1,914,407 1,863,001 51,406 State Sources 4,815,267 6,082,625 (1,267,358) 275, ,000 2,393,673 2,141, ,856 Federal Sources 857, , , ,307,067 34,371,190 (64,123) 5,437,338 5,417,272 20,066 4,308,080 4,004, ,262 Education O&M Transportation $$ Change $$ Change $$ Change Salaries/Benefits 18,782,618 18,208, ,010 1,511,860 1,335, , , ,920 (400,696) Purchased Services 565, ,442 66, , ,782 74, , ,732 (20,835) Supplies/Materials 1,821,811 1,371, , , ,861 (104,664) 123, ,637 (109,865) Capital Expenditures 0 56,000 (56,000) 157,359 66,011 91, Other 1,083,112 1,167,194 (84,082) 0 9,652 (9,652) 188 2,111 (1,923) Equipment Noncapital 33,630 35,149 (1,519) 17,893 2,591 15, ,856 (4,856) Portables ,500 (83,500) ,286,371 21,337, ,180 2,864,028 2,703, ,627 1,404,081 1,942,256 (538,175) Items of Note (Expenses) Unit 5 has a total of 28 more certified staff this year in addition to 14 more paraprofessionals compared to the end of the last fiscal year (39 TA s more since beginning of last school year). The former associated with growing enrollment of 361 students this year compared to last, the latter driven by special needs IEP requirements. Together, the additions add roughly $1.9 million to the current Ed Fund expense base. As well, technology demands demanded the addition of two technicians, and one custodian added in O&M. These are all additions to the expense base, and do not include analysis of expense growth due to negotiated salary increases or the increase in the health insurance pool. The specific year over year impacts include salaries/benefits for Ed Fund increasing due to Special Education teachers increasing $185,876 compared to last year, IDEA grant expenses added $222,841 to the fund compared to zero for last year, Professional Development Stipends are up $74,087 compared to last year and Food Service insurance is up $43,241 compared to last year. Supplies increased greatly due to ARRA Title I funds. Many changes are related to Mackinaw absorption. All other expenses are generally timing-related and are within anticipated change. Again, the bridge between balanced and unbalanced in both the Education Fund and the Transportation Fund is very narrow and highly dependent on the State fully meeting its responsibility. Page

4 What does the future hold? As mentioned earlier, determining the future end state of our current budget is difficult at this point because of the limited amount of information with which to work and the nebulous and multiple threats outstanding. As a reminder (and as a repeat of the prior year discussion), several major issues currently sit on the District's short and long-term horizons that note consideration. Technology stewardship is gaining greater traction of demand. The introduction of 1:1 has led to obvious man-hour demands, but the aging of our existing infrastructure also needs managed. Smartboard issues are creeping up the frequency scale, and staff technology needs (refresh, document management, etc.) all need attention. District policy requires a five-year financial plan be developed. The annual Financial Projections & Planning with PMA modeling will be performed this month, with results reported to the finance committee and the full board at its meeting. We will again invite UFEA and others to participate in the modeling process. Literacy needs continue to be met with available resources. Keeping this goal in front of our strategic spending remains a priority. For the current year building supply budgets were equalized on a per-certified funding formula. This means the spending level for supplies and materials was equalized at the elementary, junior and senior high levels. While the supply budgets at many schools were increased so equalization could be attained, some buildings actually had spending frozen to prior year levels. Staffing and program reviews continue. It is likely the District will have a sour revenue picture in 10 months; plans to address increased growth with decreased revenues must be considered before calendar year-end. Directors are currently developing staffing and scheduling plans for the school year. Property values will decline. This will in turn lead to a reduction in revenue. Given Unit 5 is dependent upon property taxes (as much as 98% in the Operations & Maintenance Fund) any deterioration in this revenue base must have corresponding expense responses. A $1 million loss in the Education Fund looms. Escalating fuel and commodity pricing. The District has done a remarkable job in containing energy costs. This continues to demand attention, as a great deal of energy price uncertainty exists in the market today. The contract with the District s teachers has been negotiated and salary increases are programmed for These will need to be managed in light of decreasing revenues. Contract negotiations with the District s Education Support staff, Teaching Assistants, and Custodial and Maintenance groups will begin in The self-insured health insurance fund balance continues to grow. Reserves are excellent. The Fiscal Cliff and Pension Reform are clear and present dangers to Unit 5. At this time, the scope and scale of impact is indeterminate. As always, the District will continue to research ways to enhance education, execute Unit 5 s strategic action agenda, and work with the community and parent groups during the upcoming year. As noted, we are anticipating at least a $2 million shortfall in This is due to the combination of decreasing property values and increase personnel expenses. As noted, a presentation by PMA Page

5 Financial will be forthcoming and provide more expansive analysis. These considerations will receive full attention as the budget management and development calendar plays out over the next six to eight months. While it is premature to speculate where education funding will ultimately settle out as those in Springfield wrestle with a multi-billion dollar deficit, Unit 5 planners will make every effort to keep the Board of Education, administrators, and workforce involved and informed Page