Five Year Forecast Report to the Community. Orange City School District Cuyahoga County

Transcription

1 Five Year Forecast Report to the Community Orange City School District Cuyahoga County October 2018

2 Contents Executive Summary... 2 Economic Environment... 5 Forecast Risks & Uncertainty... 8 Revenue Forecast Line 1.010: Real Estate Taxes Line 1.020: Tangible Public Utility Taxes Line 1.030: School District Income Tax Line 1.035: Unrestricted State Grants in Aid Line 1.040: Restricted State Grants in Aid Line 1.045: Federal Funding for Day-to-Day Operations Line 1.050: Property Tax Exemption Reimbursements Line 1.060: All Other Revenue for Day-to-Day School Operations Line 2.070: Other Financing Sources Expenditure Forecast Line 3.010: Employee Salaries & Wages Line 3.020: Employee Fringe Benefits Line 3.030: Purchased Services & Utilities Line 3.040: Instructional Supplies, Materials & Fuel Line 3.050: Capital Outlay Line 3.060: Intergovernmental Expenditures Line 4.300: Property Tax Collection Fees & Other Expenditures Line 5.040: Advances, Transfers & Other Financing Uses Orange City School District Five Year Forecast Appendix A: Pinecrest Development Tax Increment Financing Appendix B: Tax Levies and Rates October 2018 Page 1

3 Executive Summary No school district is an island unto itself. Public schools, in fact, are an integral part of the community. Since the 19 th Century, education has been considered a vital governmental function. While teaching pedagogies change over time, the responsibility for serving pupils endures. The table below provides an abridged presentation of the financial forecast for the five years beginning this school year. Orange City School District County Cuyahoga County Abridged Schedule of Revenues, Expenditures and Changes in Fund Balances Forecasted Fiscal Years Ending June 30, 2019 Through 2023 Forecasted Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Total Revenues $50,038,114 $50,791,925 $51,451,478 $52,010,767 $52,373, Total Expenditures $53,240,582 $53,938,716 $53,911,543 $55,365,430 $56,907, Excess of Revenues and Other Financing Sources over (under) Expenditures and Other Financing Uses ($3,202,468) ($3,146,792) ($2,460,065) ($3,354,664) ($4,533,328) 7.01 Cash Balance July 1 - Excluding Proposed Renewal/Replacement and New Levies $29,210,509 $26,008,041 $22,861,249 $20,401,185 $17,046, Cash Balance June 30 $26,008,041 $22,861,249 $20,401,185 $17,046,521 $12,513, Encumbrances $500,000 $500,000 $500,000 $500,000 $500,000 Cumulative Balance of Replacement/Renewal Levies $0 $0 $0 $0 $ Cumulative Balance of New Levies $0 $0 $0 $3,181,107 $8,964, Unreserved Fund Balance June 30 $25,508,041 $22,361,249 $19,901,185 $19,727,628 $20,978,130 The forecast financial position of the Orange City School District remains relatively close to the forecast presented to the community in May An unusual fluctuation in the timing of calendar year 2018 property tax receipts reported in the May 2018 forecast related to changes enacted in federal tax law in December 2017 regarding the deductibility of paid local property taxes from federal income taxes, progressed as forecast. During Fiscal Year 2018, revenues and expenditures were approximately equal. For the current fiscal year and future fiscal years during the forecast time horizon, expenditures are forecast to exceed revenues. As a result, the School District will enter into a period in which its financial position deteriorates. Unless revenues are increased or expenditures reduced within this time frame, the forecast indicates that reserves will erode to a point by Fiscal Year 2023 where the District will have fewer than 90 days of cash reserves on hand. This contravenes Board of Education Resolution R When the Orange City School District refinanced its entire outstanding voted debt in spring 2017, it upheld its standing as the only Ohio school district to have top credit ratings both from Moody s Investors Service [Aaa] and Standard & Poor s [AAA]. Conservative fiscal practices, strong reserves and community support are among the reasons cited by both agencies for affirming their highest ratings. In its March 2017, discussion about the rationale for conferring an Aaa rating, Moody s Investors Service said, Given strong local support for revenue and the district s very healthy financial position, we expect future financial challenges to be minimal and that the district could absorb moderate growth in costs should they arise. Standard & Poor s found it especially noteworthy that the Orange City School District can maintain better credit characteristics than the U.S. [federal government] in a stress scenario. October 2018 Page 2

4 Indeed, the Orange City School District is fiscally strong today. Yet, through the course of the current five-year forecast time frame, an erosion of that fiscal strength is anticipated. Costs are expected to rise faster than revenues, a common predicament for Ohio school districts that is rooted deeply in school funding laws. A moderate level of new construction, redevelopment, and renovation of residential and commercial property is occurring in the community. All of this has a modest positive fiscal impact. Construction of the Pinecrest development along Interstate 271 at the western edge of the School District will have a more significant impact. These improvements have the net effect of alleviating, but not eliminating, forecast deficits in the coming year. Further information about the Pinecrest development is contained in Exhibit A of this document. The trajectory of the fiscal path for the District is not materially changed from the May 2018 forecast submission. Final June 30, 2018, ending cash balances were slightly greater than forecast, but not in a statistically significant way. This forecast includes the probable cost of a three-year collective bargaining recently negotiated with District teachers. While bargaining is continuing with other employee associations, the anticipated result of bargaining with these associations is also included in forecast assumptions. With respect to revenues, local property taxes remain by far the largest source of School District revenue. A transfer-in recorded in Fiscal Year 2019 reflects the transfer of the terminal balance of a rotary fund established to track the financial transactions of the former Gund School, which closed in June This is a one-time event that reduced the anticipated deficit for the current fiscal year. Yet, for the entire forecast period, expenditures are forecast to exceed revenues. As a result, the Board of Education is facing the fiscal challenges associated with this imbalance. As expenditures remain forecast to exceed revenues beginning this forecast year, a 5-mill current expense levy to be placed before voters in 2021, with tax collection starting in calendar year 2022, is modeled for forecasting purposes. The District is forecast to have sufficient reserves to maintain a minimum cash reserve of 25% through Fiscal Year 2022, but that reserve benchmark is expected to be breached in Fiscal Year The District is expected to remain highly dependent on local property taxpayers for funding day-to-day operations for the five- October 2018 Page 3

5 year period and beyond. Indeed, the local taxpayer burden for funding day-to-day operations is forecast to increase. Two other trends also will be significant for the foreseeable future. The first trend is declining enrollment. District enrollment for funding purposes has declined by about 8%, or about 200 students, during the past five years. While enrollment appears to be stabilizing, currently there is limited evidence to support a reversal of this trend. The second trend is that staffing levels will remain fairly constant, though modest reduction in employment may occur due to attrition. Absent events that disrupt these trends, costs per pupil will remain among the highest of Ohio's school districts. As is evident by the District affirming the highest ratings from major credit rating agencies in March 2017, the Orange City School District is in strong financial condition. Contingent on local voter support for additional taxation, it is forecast to remain so for the foreseeable future. This forecast is filed with the Ohio Department of Education in accordance with Section of the Ohio Revised Code. Consistent with its statutory obligations, the Orange Board of Education adopted this forecast document on October 22, The projections contained herein are based on information known to the District as of October 2018 and are subject to revision as facts and circumstances warrant. October 2018 Page 4

6 Economic Environment The economic environment of the school community influences the resources available to the School District. Since the mid-1980s, resident incomes as determined by the metric of federal adjusted gross income (AGI) ranked no lower than third highest among Ohio s more than 600 school communities. Providing resources for public education is primarily a function of government at the local and state levels throughout the United States of America. It is prudent in long range forecasting to consider the economic climate in which projections of revenues are made. Statewide economic data suggests that the economy for the forecast period is growing moderately. In its September 12, 2018, Beige Book report, the Federal Reserve Bank of Cleveland noted, Firms increased wages, bonuses, and incentives to reduce worker turnover, although the increases were in line with recent trends. Upward pressure on input costs was strong, notably for metals, construction materials, and transportation services. Final selling prices increased as manufacturers, builders, and transportation firms raised their prices to cover their increased input costs. It is important for the School District to consider regional economic data for two reasons: First, State funding is directly affected by State revenue collections and the health of the State budget. The effects of the 2008 recession required the State of Ohio to make nearly $8 billion in reductions in the State biennial budget for fiscal years 2012 and 2013, which translated into flat funding and/or funding reductions for nearly every school district in Ohio. Second, the same economic forces driving State tax revenues are also generally affecting the underlying economics of most communities across Ohio, which impacts the ability to collect local tax revenue. Indeed, it has taken most of the past 10 years for property values in most of Ohio to recover from declines incurred during the Great Recession. As a rule, local school district economic viability is tied to the same fundamental economics that drive the State s economic viability. Since 2010, the labor market has been in recovery mode from the Great Recession. For the month of September 2018, the Ohio Office of Budget and Management reported that State revenue was $114 million (4.6%) greater than for the same period a year earlier. Meanwhile, for the first time in three years, an additional $657 million was deposited into the State rainy day reserve in July This first deposit in three years increased the reserve to almost $2.7 billion. This cushion should continue to help ensure that funding for schools approved in State biennial budget will be met even if a brief slow down in the economy occurs. October 2018 Page 5

7 During the 12 months ended in June 2018, Ohio s unemployment rate decreased by 0.5 percentage points from 5.0% to 4.5%, which is 0.5 percentage points above the national rate of 4.0%. Meanwhile, the unemployment rate for Cuyahoga County was significantly above the State and national rates as a 6.4% rate was reported for June Over the past five years, the unemployment rate for Cuyahoga County has consistently trended above national and State levels. Although unemployment rate data is not calculated for the District or its constituent communities, demographic factors such as education and income levels would suggest lesser unemployment than the county and state metrics indicate. Monitoring unemployment rates is important because it is one measure to determine whether conditions exist for continued economic growth and viability. Revenue from personal income taxes and sales taxes also is highly correlated to employment. While not moving perfectly in tandem, unemployment rates for Ohio and the nation have dropped by more than half in the past eight years. Recent Unemployment Rate Trends 7.0% 6.5% 6.0% 6.7% 6.3% 6.0% 5.8% 6.4% 5.5% 5.0% 4.5% 4.0% 5.5% 5.0% 4.9% 5.2% 4.5% 3.5% 3.0% State of Ohio Cuyahoga County Unemployment rate as of June 30. Source: Bureau of Labor Statistics. For school districts, real property values are another important piece of economic data. In the 2017 Tax Year, 41 of Ohio s 88 counties experienced a reappraisal or update for Class 1 (Residential and Agricultural Property) and Class 2 (Commercial, Industrial and Mineral Property). From Tax Year 2007 to 2012, Class 1 and 2 property values declined by $10.8 billion, a reduction of 4.6%. In 2017, Class 1 values rose by $7.3 billion or 3.9% October 2018 Page 6

8 statewide, while Class 2 property increased $1.7 billion or 3.2% statewide. Property values in Tax Year 2017 now exceed pre-recession levels for all classes of property. Indeed, the 2017 reappraisal reflects a sharp increase in property values statewide. Preliminary data for the 2018 reappraisal for Cuyahoga County shows an average 6.0% increase in values for the District and some double-digit values elsewhere in the County. Staff members in the Cuyahoga County fiscal office have told the District that property values did not fall as steeply during the Great Recession for five constituent communities of the School District. Therefore, the rebound in values was not as great for local real properties as it was elsewhere in the County. Preliminary reappraisal figures indicate that the taxable value of property in the District, which is set at 35% of market value by statute, will be approximately $1.13 billion compared with a tax year 2017 (2018 collection) value of $1,069,422,510. Meanwhile, Public Utility Personal Property values have continued to grow in the School District and throughout the State in recent year. This reflects investment to rehabilitate or to replace aging infrastructure as well as the development of new natural gas and petroleum transmission lines across the State. These values grew $717.1 million (4.6%) statewide. Overall, the economy of the State appears stable and should continue to grow during the current forecast period. This should provide a stable basis from which to make revenue projections. The improved labor market is also providing for steady property tax collections in this forecast by: 1) increasing and stabilizing property values; 2) increasing current property tax collections; and, 3) liquidating prior delinquent tax collections. The School District experienced all three conditions during calendar year October 2018 Page 7

9 Forecast Risks & Uncertainty No financial forecast is an absolute prediction of the future. Indeed, the word forecast suggests that a forecast provides guidance to a probable future outcome. A financial forecast, in fact, is similar to a weather forecast in that it is intended to provide insight into a probable future financial conditions. The purpose of this forecast is to guide the decisions of educational leaders and policy makers. A five-year financial forecast has inherent risks and ambiguity. This results not only from economic uncertainties but also due to State legislative actions that will occur during the springs of 2019 and 2021 related to the deliberation of the next two State biennial budgets, both of which are unknown at this time but play an important role in this forecast. Revenues and expenses are estimated based on the best data available at the time of this forecast. The items below give a short description of the current issues and how they may affect our forecast long term: I. Orange City Schools receives 83% of its operating revenue from local property taxpayers. When reimbursements for various State local property tax subsidies are factored, that proportion rises to more than 90%. Valuation growth is a key factor for increased revenue year over year. In calendar year 2017, the District experienced an aggregate increase in assessed property values of $4,189,760 (0.4%). The largest increase was in commercial values, which increased by $2,599,960 (1.7%); residential values increased by $722,980 (0.1%); and, public utility values increased by $866,820 (7.4%). In Calendar year 2018, Cuyahoga County is engaged in its statutory sexennial real property reappraisal. Information from the County Fiscal Officer indicates property values are anticipated to increase by approximately $60,000,000 (5.3%). The largest increase is expected in residential real estate with commercial real estate values expected to increase more modestly. Public utility values are also estimated to increase. Inflationary increases in taxes revenues are limited due to State law, so growth only occurs on 5.2 inside mills allocated to the School District. October 2018 Page 8

10 II. III. IV. The State Budget represents 15% of district revenues; about two-thirds of State revenue flows to the District in the form of property tax subsidies. This means it is an important revenue source and a moderate area of risk to revenue. The primary risk comes in Fiscal Year 2020 and beyond if the State economy worsens or if the funding formula in a future State budget reduces funding. There are two future State biennial budgets covering the forecast time frame. Future uncertainty in both the State foundation funding formula and the State s economy makes this area a moderate risk to district long-range funding. There are many provisions in the current State budget bill that will draw funds from the district through a variety of school choice programs and initiatives such as College Credit Plus. The General Assembly also permits parents to place children in non-district educational facilities that serve students with autism or other special needs. The cost of these placements has increased sharply in recent year. College Credit Plus costs are expected to increase as this program becomes more understood and used. Expansion or creation of programs such as these exposes the district to new expenditures that are not currently in the forecast. The district is monitoring any new threats to State aid and related increased costs closely. Labor relations in the district have been amicable with all parties working for the best interest of students and realizing the resource challenges that exist. In May 2018, the Board of Education ratified a three-year collective bargaining agreement with its teachers. Negotiations on successor labor agreements are currently in progress with three associations representing non-teaching personnel. The major categories of revenue and expenditures on the forecast are noted in the headings to make it easier to reference the assumptions made for the forecast item. It should be of assistance to the reader to review the assumptions noted below in understanding the overall financial forecast for the District. October 2018 Page 9

11 Revenue Forecast Introduction Ohio school districts have two primary revenue sources: local taxpayers and the State government. Each school district has a unique proportionate share of State versus local revenue based on a metric of wealth per pupil. While a cumbrous array of factors is involved in these proportionate calculations, the driving factor is assessed property valuation per pupil. The revenue discussion reviews the sources of funds for daily school operations. By far, the largest source of revenue for the Orange City School District is real property taxes. In fact, the proportion of school revenue derived from local property taxes is forecast to increase during the next five years. An important factor driving this trend is the elimination, at the end of Fiscal Year 2017, of a State subsidy that reimbursed the School District for revenue once received from the tangible personal property tax. This source of taxation for schools and other local government entities was repealed by the Ohio General Assembly in The tangible property tax reimbursement accounted for approximately 35 percent of unrestricted State funding for the school year, according to Ohio Department of Education data. Indeed, Orange was, in percentage terms, among the top 10 school districts statewide in terms of the loss of State unrestricted funds for the biennial budget period beginning July 1, The District had anticipated this outcome for several years. When the replacement of what otherwise would be locally generated property tax revenues [property tax allocation] is factored into the property tax numbers, the local tax base provides about 90% of the total operating budget of the Orange City Schools. Total revenue is forecast to decrease this fiscal year due to an anomaly in the receipt of first half calendar year 2018 property tax revenues. Projected tax-related revenue is based on all current tax levies remaining in effect. In addition, the Board of Education is considering placing a 5-mill current expense tax levy on the ballot in calendar year This is further discussed in Appendix B. The State Foundation subsidy for schools provides about 4% of the District's operating budget this year. It is forecast to decrease to about 3% during the forecast period. This forecast does not assume additional changes in State education funding laws that would materially change the amount of money received from the State of Ohio for day-to-day operating costs. During the first half of calendar year 2018, real property tax receipts totaled approximately $2.8 million more than original estimates at this point in the year. This happened primarily due to the changes in federal tax statutes signed into law on December 22, 2017, that caused some taxpayers to pay their entire 2018 property tax bill during the last week of The Tax Cut and Jobs Act of 2017 [Public Law ] included provisions limiting the deductibility of state and local taxes effective for calendar year The tax code, which became effective January 1, 2018, now limits deduction of state and local taxes to $10,000 annually. Under prior federal tax law, the deduction for these taxes was not capped. Note, this was not a revenue windfall. Rather, these advanced payments for 2018 reduced revenue from the second half settlement during the summer of In essence, shrewd tax planning in anticipation of the diminished deductibility of state and local taxes caused this shift in the timing of when 2018 taxes are paid compared with historical norms. This effect on the Five Year Forecast is that Fiscal Year 2018 real estate tax receipts were more than previously forecast and Fiscal Year 2019 are less than previously forecast. The net effect for the two-fiscal- October 2018 Page 10

12 year period is neutral. In Fiscal Year 2020, tax collections are forecast to return to historical collection norms for the first and second half settlements. Other revenues are forecast to increase largely due to projected income from a Tax Increment Financing incentive package granted by Orange Village to encourage development of the Pinecrest property near the Harvard Avenue interchange to Interstate 271. Further information about the financial impact of this development can be found in Appendix A. A second factor propelling the forecast increase in other revenues is projected additional investment income. October 2018 Page 11

13 Line 1.010: Real Estate Taxes Line is used to account for revenues received from taxes levied on real property in the school district. In Ohio, real property is subdivided into two broad classes for taxation purposes in accordance with the Ohio Constitution and State law. Residential and agricultural property is taxed at one rate, usually lower, while commercial and industrial property is taxed at a second rate, usually higher. Key Source Of Funds Local Property Taxpayers Revenue Impact Rank 1 Direct real estate tax revenues account for approximately $40 million a year in revenue, or more than four of every five dollars received by the Orange City School District. The importance of real estate taxes to the District is expected to increase modestly over time. Indeed, to the extent that total District revenue is forecast to increase, it is primarily due to additional real estate tax receipts or revenue in lieu of taxes from the Pinecrest development. Real property is reappraised every six years in Ohio with values updated for inflation during the third year of the six-year cycle. The District experienced mixed results in the 2015 triennial update of property values. The full property reappraisal scheduled for 2018 in Cuyahoga County is nearing completion. Field appraisal work is done. Preliminary valuations have been shared with school districts and other local government entities. Final approval from the State of Ohio is pending. Improving market conditions for residential and commercial real estate in eastern Cuyahoga County and the Cleveland metropolitan area have been borne out in data submitted to the State. Preliminary figures show property values rising by $59,773,338 (5.3%). Most of the increase is in residential values, which preliminarily rose by $58,269,768 while commercial values preliminarily rose by $1,253,570. In calendar year 2017, due to new construction and related improvements, the District experienced an aggregate increase in assessed property values of $4,189,760 (0.4%). The largest increase then was in commercial values, which increased by $2,599,960 (1.7%); residential values increased by $722,980 (0.1%); and, public utility values increased by $866,820 (7.4%). The most recently published Standard & Poor s Case Schiller Cleveland Home Price Index shows annual growth in housing prices of 5.7%, slightly lower than the median composite growth rate of 5.9% for the 20-city index. During the past 10 years, Index data show less volatility in housing prices in the Cleveland market (positive and negative) than the nation as a whole. The communities within the School District have seen a modest amount of new home construction. Further, communities in the western part of the School District have experienced commercial construction and redevelopment. The largest new commercial construction project in the District, the Pinecrest development, is the subject of a tax increment financing (TIF) incentive package. Also noteworthy is that significant acreage within the District's 25 square miles is controlled by public entities, private institutions and various non-profit organizations. This is considered to act as a constraint on potential future development. Possible future tax levy requests are not factored into the figures reported here. October 2018 Page 12

14 Line 1.020: Tangible Public Utility Taxes Line is used to account for revenues received from taxes levied on tangible public utility personal property in the school district. The tax base includes designated property owned by utilities, pipeline companies and commercial ferry boat operators. In Ohio, public utility personal property is taxed at the maximum rate permitted to be levied. Key Source Of Funds Public Utility Companies Revenue Impact Rank 6 Public Utility Personal Property tax revenue is forecast to be approximately $1 million a year, increasing modestly for the next five years to nearly $1.2 million. It comprises about 2% of estimated General Fund revenue. The tax base for the tangible public utility personal property tax includes electric companies; natural gas companies; heating, pipeline and water works companies; and, water transportation companies, according to the Ohio Department of Taxation. While historical data suggests some volatility, the recent trend has been for revenues to increase as a general rule. Modest increases are forecast for the foreseeable future. Driving these increases since the Great Recession has been reinvestment in aging infrastructure due to historically low interest rates and development of natural gas and petroleum transmission lines across the State and in the District. The location of the District, adjacent to major transportation arteries in the Cleveland metropolitan area, places it at critical junctions within the region s utility infrastructure. Public Utility Personal Property values are of higher revenue worth to a taxing jurisdiction in Ohio as this is the only property taxed at the full gross tax rate. October 2018 Page 13

15 Line 1.030: School District Income Tax Line is used to account for revenues received from a voted income tax levied on the income of school district residents. The Orange City School District has never levied this tax and does not anticipate requesting voters approve such a levy in the foreseeable future. Key Source Of Funds Tax Not In Effect In Orange Revenue Impact Rank - No revenue is forecast because the Orange City Schools does not levy an Ohio School District Income Tax. Further, the Board of Education has no plans to consider this as a revenue option in the foreseeable future. For the past 30 years, the federal adjusted gross income (AGI) of district residents has ranked first, second, or third highest among more than 600 school districts in Ohio. October 2018 Page 14

16 Line 1.035: Unrestricted State Grants in Aid Line is used to account for revenues received from the State of Ohio that have no restriction on how the funds are used. The State Foundation program and casino gambling taxes are primary sources of unrestricted revenue for school districts. Key Source Of Funds Ohio General Assembly Revenue Impact Rank 4 Funds designated as Unrestricted State Grants-in-Aid primarily include two distinct revenue streams: the State Foundation program and the casino tax. The State Foundation program distributes funds to Ohio school districts based on a detailed formula factoring enrollment, property wealthy and other metrics to distribute funds among districts. The casino tax, approved by Ohio voters in 2009, biannually allocates dollars to districts based on a per pupil amount. This fiscal year, that amount is anticipated to be approximately $52 per pupil. Forecast gambling proceeds total about $100,000 per year. A third revenue stream, funds appropriated by State legislators to reimburse the District for the loss of tangible personal property tax receipts, was stricken from appropriations designated for Orange City Schools effective with Fiscal Year The resulting funding decrease is in excess of $850,000 annually. The Orange City Schools receives just 5% of potential foundation formula funding because of its high per-pupil tax base compared with all of Ohio's more than 600 school districts. Current budget law essentially flat lines Foundation funding for the District for the next two years, according to fiscal simulations prepared by the Ohio Legislative Budget Office. The District has no reason to expect this will change materially in future State budget cycles. Projected annual State Foundation subsidy revenue, including transportation supplements and bonuses associated with academic performance and high graduation rates, is approximately $1.9 million per year. October 2018 Page 15

17 Line 1.040: Restricted State Grants in Aid Line is used to account for revenues received from the State of Ohio that are restricted for use to fund specific instructional services or programs. Currently, such funds are used to defray certain costs associated with special education and vocational education. Key Source Of Funds Ohio General Assembly Revenue Impact Rank 7 Restricted State Grants-in-Aid include funds received for specialized programs within the schools. The largest source of restricted State funds is reimbursement for catastrophic special education costs. This accounts for more than 95 percent of restricted funds the School District receives. This reimbursement is available when the cost of educating a pupil is greater than $27,375 or $32,850, according to Ohio Department of Education data. (The cost difference is related to the special program in which the pupil is enrolled.) A number of students are served through programs that cost in excess of $60,000 per pupil per year. Other restricted foundation grant-in-aid program line items account for the balance of these funds. These include aid for vocational education and aid targeted to serve economically disadvantaged pupils. October 2018 Page 16

18 Line 1.045: Federal Funding for Day-to-Day Operations Line is used to account for revenues received from the federal government for day-to-day operating expenditures. Currently, the school district receives no federal funding for day-to-day operating purposes. Fund accounting rules require separate accounting for federal grant funds targeted for specific programs. Key Source Of Funds United States Congress Revenue Impact Rank - Like almost all Ohio school districts, the last time Orange City Schools received federal funding for operations was during the Great Recession through the American Recovery and Reinvestment Act of For the most part, these funds acted to blunt the negative effects of state budget cuts necessitated by reduced tax receipts. The largest program that applied to school districts was one that stabilized funding for day-to-day school operating budgets. Today, most federal funding for school districts comes in the form of grants targeted for specific projects or purposes. October 2018 Page 17

19 Line 1.050: Property Tax Exemption Reimbursements Line is used to account for revenues received from the State of Ohio in lieu of local taxpayers. The state currently offers two main property tax exemptions: a rollback exemption for owner-occupied housing and a homestead exemption for eligible elderly and disabled home owners. Without these programs, local taxpayers would pay the entire tax levy. Key Source Of Funds Ohio General Assembly Revenue Impact Rank 2 The property tax allocation line item includes money the State government provides school districts as reimbursement for tax breaks given to local property taxpayers. Tax levies to which this reimbursement applies must have been in effect prior to September With an annual value of approximately $4.8 million, this actually is the largest source of State funding for the Orange City School District. If these tax breaks did not exist, these dollars would be fully paid and collected locally. Funding for property tax allocations currently is based on the rollback tax credit given to residential property owners who live in their homes and the homestead tax credit given to the qualified elderly and disabled home owners. Rollback funds are reimbursements paid from the State treasury to the School District for tax credits given to home owners that equal 12.5% of the gross property taxes charged on tax levies approved prior to September The homestead exemption program allows qualifying residents to shield some of the market value of their home from taxation. The exemption, which is a credit on property tax bills, exempts the first $25,000 of the market value of a home from all local property taxes. The value of the credit, according to the Ohio Association of Realtors, typically is $300 to $400 per year. As of tax year 2014, eligibility for the exemption is now means tested for newly qualifying home owners. Previously eligible homeowners were given grandfathered eligibility status, which is portable to any Ohio residence. These reimbursements from the State are more than double the amount of money received through the State Foundation program and is, by far, the largest source of State financial support for day-to-day school operations. October 2018 Page 18

20 Line 1.060: All Other Revenue for Day-to-Day School Operations Line is used to account for all other revenue for day-to-day school operations. These revenue streams include investment earnings, tuition fees, and payments in lieu of taxes. Key Source Of Funds Various Local Sources Revenue Impact Rank 5 For the Orange City Schools, investment earnings and tuition receipts are the primary other sources of revenue. Investment earnings in recent years have been modest, but have increased in the past year as the U.S. Federal Reserve Bank Board of Governors has taken actions recently to increase interest rates. Forecast interest rates are anticipated to increase moderately during the next few years. Another important source of revenue is tuition or excess cost payments from other districts. Even though the District does not accept parent-paid tuition or open enrolled students, the District does educate students placed by judicial order or as otherwise required by law. The District also receives tuition income when its students enroll in vocational programs operated by the District that are part of the Excel TECC regional consortium. Another factor propelling increases in forecast revenue in this line item is projected payments in lieu of taxes (PILOTs) and income tax sharing associated with the Pinecrest development. This revenue is forecast to increase in later forecast years, which coincides with the completion of project construction. Additional information about these forecast revenues is discussed in Appendix A. Total other revenue is forecast to be about 2% of total revenues. October 2018 Page 19

21 Line 2.070: Other Financing Sources Line is used to account for funds from other financial sources. These funding sources include the refund of prior year expenditures, compensation for the sale or loss of assets, and the return of money advanced to other funds.. Key Source Of Funds Other Financing Sources Revenue Impact Rank 3 The primary source of revenue from other financing sources is a modest amount of money from compensation for the sale or loss of assets, refunds of prior-year expenditures and similar accounting adjustments. The large amounts shown in some prior years are for the return of monies advanced from the General Fund to cover deficits in other funds. A one-time transfer-in from an internal service fund associated with the former Gund School, which closed in June 2016, is included in Fiscal Year 2019 forecast receipts. October 2018 Page 20

22 Expenditure Forecast Introduction Ohio school districts budget approximately four of every five dollars for employee compensation salaries and benefits which is common throughout the United States. From a business perspective, the purpose of a school is to have a trained person deliver an educational program to students. In support of that mission, schools maintain large physical plants, operate bus fleets and provide an array of support services. The expenditure discussion reviews the sources of funds for daily school operations. As revenue constraints are deeply rooted in Ohio taxation and school funding laws, so are expenditure requirements that mandate a plethora of local school expenditures. These deeply rooted requirements have grown in recent years and factor into a common trend for Ohio school districts for expenditures to rise faster than revenues. Indeed, there is no direct correlation between inflation and most school revenue streams; it is tenuous at best. However, there is direct correlation between inflation and many school expenditures. Although price inflation has been modest in recent years, the Orange City School District is crossing the common Ohio school fiscal point threshold at which expenditures are forecast to start exceeding revenues. The District today has strong reserves, which will cushion that impact. Various other factors are constraining the drawdown of reserves. However, inevitable growth in expenditures that simply maintains existing program- and service-delivery levels will reduce reserves over time. Schools inherently are a people business. Schools operate based on this service delivery model: Highly educated and trained personnel provide direct instructional and related services to students, usually in a classroom setting. Those teachers are supported by a wide array of personnel, including administrators, paraprofessionals and custodians. Others involved in the pupil support continuum include secretaries, bus drivers and technology support workers. More than 80% of day-to-day school operating costs are associated with compensating personnel. This includes salaries and fringe benefits. Schools also incur an array of costs in support of that mission. These costs include utilities, supplies, textbooks, bus fuel and computer equipment. During the course of the past fiscal year, expenditures for the educational program tracked close to prior forecast estimates. However, over time, the District has seen increases in various expenditure patterns. Other expenditures have increased as a direct result additional tax collection fees charged due to an increase in property tax collections. Primarily the result of additional costs associated with school choice options such as College Credit Plus, the State autism scholarship program, and the State special education scholarship program the district budgeted spending more for purchased services. Constraining that increase is an energy conservation capital improvements program that was completed in the fall of Other forecast expenditure increases are roughly in line with anticipated inflation levels. The Board of Education voted on September 26, 2016, to embark on a major capital improvements initiative for renovating Brady Middle School. Over a three-year period, the forecast includes transferring a total of $5.9 million from the General Fund into a permanent improvement fund established specifically for this purpose; $2.5 million was transferred in the prior fiscal year while an additional $2 million is forecast this fiscal year and $1.4 million next fiscal year. Two of four proposed phases for the project were completed as of the beginning of the October 2018 Page 21

23 current school year. Scopes of work for the final two project phases are currently under consideration by the Board of Education. October 2018 Page 22

24 Line 3.010: Employee Salaries & Wages Line is used to account for expenditures associated with paying employees. This includes employees paid on an annual salary or at an hourly rate. Overtime, supplemental duties and coaching payments are among school district employee payments. Key Uses Of Funds Orange Employee Payroll Expenditure Impact Rank 1 Expenditures for personnel services include costs associated with salary and wage payments to all employees. This includes regular salaries, supplemental compensation and overtime payments. Included in the expenditure forecast are negotiated base salary schedule wage increases of 2.0% for the current and next two fiscal years. This is within the range of comparable school districts that have bargained contracts in the past year. Negotiations concluded for a three-year collective bargaining agreement with District teachers in the spring of Successor collective bargaining agreements are currently being negotiated with other employee bargaining units. Due to employee retirements in recent years, the District has filled many open teaching and other staff positions with less experienced individuals. The positive financial impact of hiring many of those new employees at lower salaries will diminish over time. This is important as the District has bargained one of the most attractive teacher salary schedules in the State of Ohio. A teacher with a bachelor's degree and no experience, who is at the lowest point on the salary schedule, earns $46,209 per year this school year. Meanwhile, the highest teacher salary schedule pay of $110,496 can be earned by any teacher who has at least 30 years of experience and a doctorate degree. This forecast assumes that current teacher salary schedule factors will remain in place for years where a collective bargaining agreement is not in place. The compensation of most other non-administrative employees are governed by collective bargaining agreements. Further, as the district is located in the eastern Cuyahoga County employment market, competition for high-performing personnel is keenly competitive. Employee compensation standards reflect the desire of the Board of Education to remain an attractive workplace for the best employees. October 2018 Page 23

25 Line 3.020: Employee Fringe Benefits Line is used to account for expenditures associated with employee fringe benefits. Many fringe benefits including pension, workers compensation and Medicare tax payments are a mathematical function of salary or wage payments. Other fringe benefits, such as health insurance, are based on premiums charged and not tied directly to employee salaries or wages. Key Uses Of Funds Orange Employee Payroll Expenditure Impact Rank 2 Employee fringe benefits, led by health insurance program costs, is the fastest rising area of school expenditures. The cost of retirement benefits is a percentage of salary as are allowances for workers compensation and Medicare tax. (Public employees in Ohio are required to participate in one of the five State retirement systems in lieu of participating in Social Security.) However, unlike other fringe benefits, health insurance expenditures are not a mathematical function of salaries and wages. Indeed, health insurance costs have increased much faster than salaries or general inflation in recent years and such cost increases are an ongoing concern. The district attempts to contain those costs through its participation in the Suburban Health Consortium, which administers health benefits for the District and 18 other school districts in the Cleveland metropolitan area. (The District currently serves as fiscal agent for the Consortium.) The Consortium has taken several steps to moderate inflationary increases in health benefits costs. For example, the District has begun to offer a Wellness Plan designed to offer employees lower monthly premiums. Among the results of recent collective bargaining are plan design changes that reduced a nearly 9% increase in health insurance premiums to less than 2%. (Employees currently pay 15% of the premium cost.) The District anticipates in the years ahead that managing plan design will be critical to containing health insurance program costs. As a conservative budgeting practice, the School District is anticipating aggregate annual future increases to be 10%. This expectation includes probable additional costs brought to bear on the health insurance program by the Affordable Care Act. Other benefits costs, including retirement, Workers' Compensation and employer Medicare Tax payments total approximately 16.5% of personnel services expenditures and are calculated based on the employee's salary. October 2018 Page 24

26 Line 3.030: Purchased Services & Utilities Line is used to account for expenditures associated with payments for professional services, maintenance services, postage and utilities. Also paid here are costs assessed against the school district for various state school choice programs, college credit plus, special needs scholarships and autism scholarships. Key Uses Of Funds Professional Services & Utilities Expenditure Impact Rank 3 Expenditures for purchased services, as a proportion of the budget, are projected to be relatively stable, in the range of 12% of expenditures for the forecast period. There is relative forecast stability for this year and next, primarily as a result of utility savings anticipated due to the installation of energy conservation improvements. However, the District has experienced significant increases in costs related to State-mandated educational option programs recently, which enable students to enroll in courses for college credit, autism and special needs. As these are costs the District administration does not control directly, it is difficult to predict probable future costs. Contracts for educational services with the Educational Service Center of Northeastern Ohio, and other thirdparty education support services providers, are a major component of these costs. Another major element of purchased services costs is District utilities--electricity, natural gas, and water. The District participates in consortium purchasing for its utilities when available in order to minimize these costs. October 2018 Page 25

27 Line 3.040: Instructional Supplies, Materials & Fuel Line is used to account for expenditures associated with instructional supplies, materials, periodicals, textbooks, and computer software and applications. This broad category includes repair parts, buildings and grounds maintenance supplies and fuel for buses and vehicles. Key Uses Of Funds Classroom Supplies & Textbooks Expenditure Impact Rank 6 Expenditures for supplies and materials represent approximately 2% of District spending. Budgets for supplies and materials have been restrained in recent years, but are forecast to increase by 2% per year. This spending includes items ranging from classroom supplies to maintenance repair parts. A volatile cost in this category is bus fuel; another is salt for ice melting. While fuel and salt prices are below levels experienced earlier this decade, sufficient funds must be available to purchase these items at whatever the best available market price is at the time a buying decision needs to be made. October 2018 Page 26

28 Line 3.050: Capital Outlay Line is used to account for expenditures associated with significant building upgrades, site improvements as well as the purchase of equipment, maintenance vehicles and school buses when paid by the General Fund. This line item is also used for furniture and equipment when the unit cost exceeds $500 and has a useful life of five years or more. Key Uses Of Funds Major Equipment & Furniture Expenditure Impact Rank 7 Capital outlay expenditures from the General Fund represent about 1% of total District spending. These are expenditures for school buses, maintenance vehicles and substantial building maintenance. Forecast spending is expected to increase at an inflationary rate of 2% per year. It is noteworthy that the District has permanent improvement funds that are not part of the operating budget for major permanent improvement and building maintenance programs. This reduces the capital expenditure burden on the General Fund. October 2018 Page 27

29 Line 3.060: Intergovernmental Expenditures Line is used to account for expenditures associated with grants from another governmental entity, but only when other accounting restrictions did not apply in accordance with law. This category, which is rarely used, typically applies to cooperative programs. Key Uses Of Funds Other Government Units Expenditure Impact Rank - The District has not had any intergovernmental expenditures for the past five years and does not forecast any in the foreseeable future. October 2018 Page 28

30 Line 4.300: Property Tax Collection Fees & Other Expenditures Line is used to account for expenditures associated with the collection of property taxes, audit fees, Educational Service Center fees, and liability insurance. Key Uses Of Funds Tax Fees & Liability Insurance Expenditure Impact Rank 5 The largest expenditures in this category are for tax collection fees imposed by Cuyahoga County in accordance with a statutory formula. The strengthening of local property tax collections during the fiscal year has resulted in the imposition of additional tax collection fees, resulting in an increase in forecast expenditures. This has been carried through subsequent forecast years. Liability insurance, professional dues and audit costs are among the other costs recorded within this line item. These expenditures are forecast to increase by 2% a year. Although many of these costs are mandated by law, discretionary expenditures are actively managed. For example, liability insurance is bid by an independent insurance broker annually. October 2018 Page 29

31 Line 5.040: Advances, Transfers & Other Financing Uses Line is used to account for expenditures associated with advances and transfers to other funds. This includes transfers for capital improvement purposes. Key Uses Of Funds Brady Improvement Program Expenditure Impact Rank 4 This line item primarily accounts for funds advanced or transferred from the General Fund for specified purposes approved by the Board of Education. For three fiscal years ending in Fiscal Year 2015, the Board transferred more than $10 million to the Educational Improvement Fund for the purpose of making major capital improvements in the District. These improvements included an all-weather athletic surface at the stadium; major renovations to the Orange High School gymnasium, natatorium, and auditorium; improvements to the transportation center; substantial investments in the technology infrastructure; and roof rehabilitation. Looking forward to the next five years, the District is planning a major renovation of Brady Middle School. To pay for the renovations, the District anticipates transferring $5.9 million from the General Fund to a specific permanent improvement fund for this purpose. The forecast cash flow is to transfer $2.5 million in Fiscal Year 2018, $2.0 million in Fiscal Year 2019, and $1.4 million in Fiscal Year Meanwhile, anticipated annual transfers and other uses of funds are forecast to total $600,000, and include $400,000 to the termination benefits fund, $175,000 to the athletics program, and $25,000 for other needs. October 2018 Page 30

32 Orange City School District Five Year Forecast This includes the Schedule of Revenues, Expenditures and Changes in Fund Balances, including possible future tax levies, for the School District. Actual Forecasted Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Revenues General Property Tax (Real Estate) $43,279,779 $37,689,031 $40,695,189 $40,904,574 $41,196,920 $41,466, Tangible Personal Property $1,054,090 $1,055,674 $1,121,964 $1,143,639 $1,165,314 $1,186, Income Tax $0 $0 $0 $0 $0 $ Unrestricted State Grants-in-Aid $2,072,223 $1,919,463 $1,883,319 $1,918,319 $1,923,362 $1,928, Restricted State Grants-in-Aid $261,087 $328,246 $328,290 $328,335 $328,380 $328, Federal Day-to-Day Operating Aid $0 $0 $0 $0 $0 $ Property Tax Allocation $4,752,267 $4,762,544 $4,796,512 $4,819,981 $4,853,755 $4,887, All Other Revenues $978,131 $1,331,772 $1,851,651 $2,221,630 $2,428,036 $2,461, Total Revenues $52,397,577 $47,086,730 $50,676,925 $51,336,478 $51,895,767 $52,258,802 Other Financing Sources Proceeds from Sale of Notes $0 $0 $0 $0 $0 $ State Emergency Loans and Advancements (Approved) $0 $0 $0 $0 $0 $ Operating Transfers-In $0 $2,836,384 $0 $0 $0 $ Advances-In $0 $15,000 $15,000 $15,000 $15,000 $15, All Other Financing Sources $229,413 $100,000 $100,000 $100,000 $100,000 $100, Total Other Financing Sources $229,413 $2,951,384 $115,000 $115,000 $115,000 $115, Total Revenues and Other Financing Sources $52,626,990 $50,038,114 $50,791,925 $51,451,478 $52,010,767 $52,373,802 Expenditures Personal Services $29,476,731 $29,886,803 $30,304,941 $30,731,305 $31,166,059 $31,609, Employees' Retirement/Insurance Benefits $11,246,560 $11,903,571 $12,584,204 $13,326,454 $14,136,400 $15,020, Purchased Services $5,767,821 $5,783,229 $5,907,192 $6,034,076 $6,163,953 $6,296, Supplies and Materials $885,472 $1,133,000 $1,166,990 $1,202,000 $1,238,060 $1,275, Capital Outlay $870,462 $778,000 $796,290 $815,028 $834,225 $853, Intergovernmental $0 $0 $0 $0 $0 $0 Debt Service: Principal-All (Historical Only) $0 $0 $0 $0 $0 $ Principal-Notes $0 $0 $0 $0 $0 $ Principal-State Loans $0 $0 $0 $0 $0 $ Principal-State Advancements $0 $0 $0 $0 $0 $ Principal-HB 264 Loans $0 $0 $0 $0 $0 $ Principal-Other $0 $0 $0 $0 $0 $ Interest and Fiscal Charges $0 $0 $0 $0 $0 $ Other Objects $1,122,309 $1,155,978 $1,179,098 $1,202,680 $1,226,734 $1,251, Total Expenditures $49,369,355 $50,640,582 $51,938,716 $53,311,543 $54,765,430 $56,307,130 Other Financing Uses Operating Transfers-Out $3,040,000 $2,575,000 $1,975,000 $575,000 $575,000 $575, Advances-Out $0 $25,000 $25,000 $25,000 $25,000 $25, All Other Financing Uses $0 $0 $0 $0 $0 $ Total Other Financing Uses $3,040,000 $2,600,000 $2,000,000 $600,000 $600,000 $600, Total Expenditures and Other Financing Uses $52,409,355 $53,240,582 $53,938,716 $53,911,543 $55,365,430 $56,907, Excess of Revenues and Other Financing Sources over (under) Expenditures and Other Financing Uses $217,635 ($3,202,468) ($3,146,792) ($2,460,065) ($3,354,664) ($4,533,328) Cash Balance July 1 - Excluding Proposed Renewal/Replacement and New Levies $28,992,874 $29,210,509 $26,008,041 $22,861,249 $20,401,185 $17,046, Cash Balance June 30 $29,210,509 $26,008,041 $22,861,249 $20,401,185 $17,046,521 $12,513, Estimated Encumbrances June 30 $511,411 $500,000 $500,000 $500,000 $500,000 $500, Fund Balance June 30 for Certification of Appropriations $28,699,098 $25,508,041 $22,361,249 $19,901,185 $16,546,521 $12,013,193 Revenue from Replacement/Renewal Levies Income Tax - Renewal $0 $0 $0 $0 $ Property Tax - Renewal or Replacement $0 $0 $0 $0 $ Cumulative Balance of Replacement/Renewal Levies $0 $0 $0 $0 $ Fund Balance June 30 for Certification of Contracts, Salary Schedules and Other Obligations $28,699,098 $25,508,041 $22,361,249 $19,901,185 $16,546,521 $12,013,193 Revenue from New Levies Income Tax - New $0 $0 $0 $0 $ Property Tax - New $0 $0 $0 $3,181,107 $5,783, Cumulative Balance of New Levies $0 $0 $0 $0 $3,181,107 $8,964, Revenue from Future State Advancements $0 $0 $0 $0 $ Unreserved Fund Balance June 30 $28,699,098 $25,508,041 $22,361,249 $19,901,185 $19,727,628 $20,978,130 October 2018 Page 31

33 Appendix A: Pinecrest Development Tax Increment Financing Appendix A provides additional information about the probable impact of the Pinecrest development in Orange Village. Pinecrest is the subject of a tax abatement known as Tax Increment Financing whereby increased real property taxes from site improvements go toward financing infrastructure improvements. The Board of Education in 2015 entered into a 30-year compensation agreement intended to compensate the School District for its inability to collect future tax revenue on various commercial improvements. A second, solely residential, phase of the development is not subject to tax abatement. Fiscal Year 2022 is the anticipated build out year. Pinecrest Tax Increment Financing Agreement Probable Cash Flow Funding Stream Fiscal Year 2019 Fiscal Year 2020 Fiscal Year 2021 Fiscal Year 2022 Payment in Lieu of Taxes $221,932 $608,832 $884,502 $915,203 Income Tax Sharing (Orange Vlg.) $103,750 $207,500 $311,250 $415,000 Subtotal: Commercial Property $325,682 $816,332 $1,195,752 $1,330,203 Residential Taxes (original $294,045 $588,090 $882,135 $1,176,180 proposal) Totals $619,727 $1,404,422 $2,077,887 $2,506,383 Development of the Pinecrest complex is forecast to have a significant effect on the financial position of the School District. Construction of the commercial portion is now anticipated to be completed along the developer s publicly announced timeline. Most retail stores with signed leases in the complex have opened as have some offices and a hotel. However, Fairmount Properties of Cleveland, the developer, has communicated to Orange Village its intent to submit substantially revised plans for a second residential phase of the development. As a result, municipal officials have advised the School District to exercise caution about forecasting the amount and timing of potential future tax receipts from the second phase of the development. Therefore, probable residential tax proceeds are not included in the forecast document at this time. For disclosure purposes only, probable financial impact information from the initial submission of the residential (second phase) is included and shaded above in red hues. Probable financial impact projections for the first (primarily commercial) phase of the development are included in the forecast and shaded above in orange hues. Those numbers (shaded in orange hues) are incorporated into the forecast. October 2018 Page 32

34 These financial impact figures for the School District used in this forecast document originate with the developer. Neither the district nor an independent third party has validated this data. However, an economic development consultant retained by Orange Village met with the superintendent and treasurer in April 2018 and advised that the commercial financial impact figures appear to be accurate based on what has been developed to date. While believed reliable, the School District cannot attest to the accuracy of this data and is relying on the best efforts of the developer in providing information that is as accurate as possible. The first phase of the Pinecrest development is marketed as a "total value lifestyle shopping center" that has 87 apartments, a 145-room hotel, 400,000 square feet of retail space, 150,000 square feet of office space and a 1-acre programmable town center. In October 2018, the developers web site, had the following marketing message: Introducing Cleveland s newest mixed-use district, located right off the Harvard Road exit of I-271 in Orange Village, Ohio, Pinecrest blends the best national and emerging brands to bring sought after apparel, home and specialty stores, chef-driven restaurants and incredible entertainment venues many of which are first to the market. In addition, Pinecrest is home to a boutique hotel, contemporary apartments and next-generation Class A office space. This Appendix, provided for disclosure purposes, shows how pre-construction estimates of anticipated revenues would flow through future forecast financial statements. Figures provided to the District showed the mixed-use complex would have an annual financial benefit of approximately $3 million when completed, assuming voter approval of future tax levies. A formal groundbreaking occurred on October 13, The developer, in coordination with the Appraisal Division of the Cuyahoga County Fiscal Office, at that time updated probable projections of payments in lieu of taxes to the District, which initially were provided in March In the fall of 2017, Orange Village increased the initial estimated annual compensation payment at build out from $828,343 to $915,203. October 2018 Page 33

35 Appendix B: Tax Levies and Rates Appendix B provides additional information about the property tax structure of the School District, including voted and effective tax rates for current expenses (operating purposes). [Not considered here are bond retirement, permanent improvement and recreation levies.] Also reviewed is a possible tax levy to go before voters in calendar year 2021, which would be collected starting in Note that in the first fiscal year of collection, only the estimated winter collection of taxes is recorded. The table below shows tax rates for all voted levies as well as taxes levied within parameters set forth by the Ohio Constitution, commonly known as inside millage. Orange City School District Tax Rates for Collected in Calendar Year 2018 Election Date Full Rate Class 1 Rate Class 2 Rate Inside Mills (constitutional) Before June 7, May 5, May 8, May 2, November 7, November 2, November 8, Total The Orange City School District is fortunate to have maintained community support for tax levies over time. In fact, no tax issue for day-to-day operating expenses has been voted against by the electorate in more than 40 years. (A bond issue for capital improvements was defeated in 1992.) In accordance with the Ohio Constitution and State law, three tax rates are in effect: The full tax rate is levied on public utility tangible property. An inflationadjusted tax rate, designed to blunt property price inflation, is levied on residential and agricultural properties, so-called Class 1 property. A separate inflation-adjusted tax rate, also designed to blunt property price inflation, is levied on commercial and industrial properties, so-called Class 2 property. Currently, the forecast includes a possible 5-mill property tax levy to be submitted to the electors in 2021 and to go into effect in While modeled for forecasting purposes, the Board of Education has taken no action to place any tax issue before voters at that time or any other. October 2018 Page 34

36 As part of the analysis for determining the sustainability of the possible 5-mill tax levy, a pro-forma of School District revenues and expenditures has been compiled through Fiscal Year This pro-forma analysis suggests that, based on current revenue and expenditure patterns that the District likely will have sufficient funds to sustain programs and operations at current levels. It is important to note that the 5-year statutory period for forecasting revenues and expenditures is fraught with uncertainty and doubt for many reasons discussed earlier in this document. However dubious, this sustainability exercise is done to encourage prudent fiscal planning. October 2018 Page 35