Annual Financial Statements June 30, Draft Financial Statements-Final

Transcription

1 Annual Financial Statements June 30, 2016

2 Blissfield, Michigan FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT Year Ended June 30, 2016 TABLE OF CONTENTS Page Independent Auditors' Report 1-2 Management Discussion and Analysis 3-19 Basic Financial Statements: Government-Wide Statement of Net Position 20 Government-Wide Statement of Activities 21 Balance Sheet Governmental Funds 22 Reconciliation of Fund Balances on the Balance Sheet for Governmental Funds to Net Position of Governmental Activities on the Statement of Net Position 23 Governmental Fund Statements of Revenues, Expenditures and Changes in Fund Balance 24 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 25 Statement of Net Position - Fiduciary Funds 26 Notes to the Financial Statements Required Supplementary Information: Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual General Fund 43 Schedule of Contributions MPSERS 44 Schedule of the Proportionate Share of the Net Pension Liability MPSERS 45 Additional Supplementary Information: Nonmajor governmental fund types Combining Balance Sheet 46 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 47 Other Required Supplementary Information Bonded Debt 48

3 MANAGEMENT DISCUSSION AND ANALYSIS

4 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 Blissfield Community Schools is a K-12 school district located in Lenawee County, Michigan. The Management s Discussion and Analysis, a requirement of the Governmental Accounting Standards Board Statement 34 (GASB 34), is intended to be an overview of the financial activities for the fiscal year ended June 30, This reporting model provides detailed explanation of specific items included in the financial statements. A comparative analysis of fiscal year ended June 30, 2016 to the prior year has been included in this discussion. Generally Accepted Accounting Principles (GAAP) according to GASB 34 requires the reporting of two types of financial statements: Government Wide Financial Statements and Fund Financial Statements. The presentation of these Financial Statements now reflect the direction of GASB 34 which requires that fund balances be defined in one of five separate categories (Nonspendable, Restricted, Committed, Assigned and Unassigned) so that any constraints placed on a government s fund balances are more transparent and better understood by the reader. Reporting the District as a Whole The Statement of Net Assets and Statement of Activities One of the most important questions asked about the District s finances is, Is the District better off or worse off as a result of the year s activities? The Government-Wide Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities in a manner that helps to answer this question. These statements include all assets and liabilities of the District using the accrual basis of accounting similar to the accounting used by private sector corporations. All of the current year s revenues and expenses are taken into consideration regardless of when cash is received or paid. These statements reflect an aggregate view of the District s finances for the fiscal year. These statements report the District s net assets, which is the difference between assets and liabilities, and changes in them. The change in net assets (or its net position) provides the reader a tool to assist in determining the District s financial health. Over time, increases or decreases in the School District s net position as reported in the Statement of Activities are one indicator of whether its financial health is improving or deteriorating. The relationship between revenues and expenses is the District s operating results. However, the District s goal is to provide services to our students, not to general profits as commercial entities do. One must consider many other non-financial factors, such as the quality of the education provided, the safety of the schools, student enrollment, and facility conditions to assess the overall health of the District. The statement of net position and statement of activities report the government-wide activities for the District (or the district as a whole), which encompass all of the District s services, including instruction, supporting services, community services, athletics, and food services. Property taxes, unrestricted State Aid (foundation allowance revenue), and State and Federal grants finance most of these activities. 3

5 Fund Financial Statements MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 The School District s fund financial statements (governmental funds) provide detailed information about the most significant funds not the School District as a whole. In the State of Michigan, the District s major instructional and instructional support activities are reported in the General Fund. Additional activities are reported in their relevant funds including: Debt Service Funds, Capital Project Funds, and Special Revenue Funds. The fund financial statements are reported on a modified accrual basis, as opposed to the full accrual basis of the Statement of Net Position and Statement of Activities, and are formatted to comply with the legal requirements of the Michigan Department of Education s Accounting Manual. Only those revenues that are measurable and currently available are reported when using the modified accrual basis. Currently available is considered to be collected within 60 days of the end of the current fiscal period. Liabilities are recognized to the extent that they are normally expected to be paid with current financial resources. The fund financial statement provides a detailed shortterm view of the District s general operations and the basic services it provides. These fund statements help you determine whether there are more or less financial resources available to spend in the near future to finance the District s programs. The relationship (or differences) between government-wide activities (reported in the statement of net position and the statement of activities) and governmental funds is reconciled in the basic financial statements. For the period ending June 30, 2016, the District utilized the General Fund and the Capital Project Fund for reporting operational and capital improvements. The other major fund the District reports on is their Qualified School Construction Bond Fund (QSCB), a fund that resulted from the purchase of bonds under the American Recovery and Reinvestment Act (ARRA) of The ARRA QSCB program was designed to provide for entities that purchase the bonds to receive federal income tax credits in lieu of interest payments on the bonds, ideally making them interest free loans for the schools or school districts that issue the bonds. The bond issuers (the District) must repay the principal of the bond. The interest payments were intended to be made by the federal government in the form of tax credits to the bond holder. However, the federal government began a sequestration of a portion of the federal interest subsidy (approximately 8.7%) in As a result, beginning in the fiscal year, the District s General Fund became liable for the interest cost remaining after the now smaller portion of Federal interest subsidy was received. The District was required to pay an additional $25, in in interest cost due to the sequestration. If the sequester continues, a similar interest cost will be paid each year out of the District s general fund for the balance of the repayment period ending June 30, QSCB Bond principal payments are made into a restricted account, technically owned by the issuing school district, and accumulated through the repayment period with the actual principal payment made to the bond holder at the expiration of the bond investment period (10 years generally for the ARRA QSCB program) in one lump sum. The issuing district may also earn interest on the restricted principal repayment account throughout the 10 year accumulation period, resulting in even greater likelihood that the interest cost to the issuing district could be near 0%. However, as mentioned earlier, the Federal Sequestration has reduced interest subsidies resulting in additional interest cost for the District. The District sold ARRA QSCB bonds totaling $5,000,000 in

6 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 One Special Revenue Fund (non-major fund) the District is reporting is the School Lunch Fund which reports the food service activities. Combining totals of all of these funds, with the exception of the fiduciary fund (Student Loan Fund and student activities accounts) are included in the Government Wide Statement of Net Position and Government Wide Statement of Activities. The District is the trustee, or fiduciary, for its student activity funds. All of the School District s fiduciary activities are reported in separate Statements of Net Position. We exclude these activities from the District s other financial statements because the School District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in the funds are used for their intended purposes. The District as a Whole As discussed above, the statement of net position provides the perspective of the District as a Whole. Table 1 provides a summary of the District s Net Position as of June 30, The School District s net position was $10,960,053 at June 30, 2016, excluding the GASB 68 net pension liability effect. Capital assets, net of related debt totaling $6,645,173 compares the original cost, less depreciation of the District s capital assets to long-term debt used to finance the acquisition of those assets. Most of the debt will be repaid with the voter-approved sinking fund tax revenue through the Qualified School Construction Bond program explained in more detail above. This debt will be paid off in May The District had an unrestricted fund balance of $815,738 (excluding GASB 68), which represents the accumulated results of all past year s operations. Restricted funds are reported separately because the School District is limited in their ability to use these funds for day-to-day operations. The operating results of the General Fund will have a significant impact on the change in unrestricted net position from year to year. GASB 68 Net Pension Liability GASB Statement No. 68 requiring all Michigan school districts to record their proportionate share of the state s net pension liability, on their government-wide statements. The details of the GASB 68 requirement and how this figure was calculated is covered in more detail in the footnotes of this audit report. However, the net pension liability that must be recorded the government-wide statements for Blissfield Community Schools is $13,151,761. This figure drastically changed the statements for the District putting them into a negative net positon of ($1,733,388). This is an estimated liability figure as it is calculated in part based on annual investment earnings. Dependent on market activity, this figure could increase or decrease every year. The GASB 68 effect with the net pension liability figure is included in the statements below. 5

7 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 TABLE 1 June 30, 2016 June 30, 2015 Assets Current Assets $ 8,659,525 $7,791,244 Noncurrent Assets 8,871,622 9,565,447 Total Assets $17,531,147 $17,356,691 Deferred Outflows of Resources Contributions to pension plan 1,191,721 1,131,513 Liabilities Current Liabilities $ 1,281,481 $1,225,311 Noncurrent Liabilities 18,224,331* 17,744,751 Total Liabilities $ 19,505,812 18,970,062 Deferred Inflows of Resources Deferred revenue 217,043 Pension Deferrals 733,401 1,401,451 Total Deferred Inflows of Resources $ 950,444 $1,401,451 Net Position Invested in capital assets, net of related debt 6,645,173 6,847,371 Restricted for special revenue (food service) 62,845 82,297 Restricted for capital projects 590, ,714 Restricted for debt service 2,846,121 2,351,121 Unrestricted (11,877,703) (11,727,812) Total Net Position ($ 1,733,388) ($ 1,883,309) *Noncurrent Liability balance reflects $13,151,761 and $12,675,554 in recorded net pension liability for 2016 and 2015, respectively. This is required by GASB 68. 6

8 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 TABLE 2 For the fiscal year ended June 30, 2016, the District wide results of operations as compared to June 30, 2015, were: Revenues: June 30, 2016 June 30, 2015 General Revenues: Local sources $ 2,020,276 $ 1,873,575 Investment earnings 9,278 3,912 Insurance dividend 20,506 15,491 State of Michigan unrestricted foundation aid 8,322,473 8,490,624 Total General Revenues 10,372,533 10,383,602 Program Revenues: Operating Grants: Federal 552, ,416 State of Michigan 640, ,649 Other operating grants 16,642 5,000 Total Operating Grants 1,209, ,669 Charges for Services: Food service 198, ,784 Athletics 94,781 91,059 Instruction 900 1,189 Other 3,090 4,024 Total Charges for Services 297, ,056 Total Revenues 11,879,455 11,616,919 7

9 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 Statement of Activities (continued): Expenses: June 30, 2016 June 30, 2015 Instruction 6,907,214 7,280,915 Support services 3,855,675 3,758,360 Capital Outlay 123,052 21,318 Community Service 7,517 7,289 Depreciation 807, ,017 Other 28,834 2,715 Total Expenses 11,729,533 11,663,614 Change in Net Position 149,922 (46,695) Beginning Net Position ($1,883,309) 10,838,939 Restatement (GASB 68) (12,675,554) Ending Net Position ($ 1,733,388) ($ 1,883,309) As shown in Table 2 above, the cost of all of the District activities as a whole this year was $11,729,533. The change in net positon for the year was a positive $149,922. Certain activities during the year received partial funding from those who benefited from the programs, or by other grants or categorical. The remaining costs were paid by a combination of the $1,449,894 in levied property taxes and $8,322,473 in unrestricted state aid, along with other additional revenue such as interest and miscellaneous contributions. The net position in the chart above shows the financial burden that is placed on the state aid and the District s taxpayers by each of these functions. The majority of the district s revenue comes from property taxes and the unrestricted State aid, based on student enrollment. The Board of Education and Administration of the District must constantly evaluate the needs of the district to provide a high quality educational program in a highly competitive school of choice market, with the State-prescribed revenue available to the district. 8

10 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 Analysis of Financial Position During the fiscal year ended June 30, 2016 the District s total governmental activities had a combined fund balance of $7,161,522, an increase of $592,534 from last year s combined fund balance. This combined fund balance consists of the District s major funds: General Fund, Capital Project Sinking Fund, and the Debt Service Fund; and the District s one Non-Major Fund - the Food Service Fund. In the General Fund, which is the District s principal operating fund, the fund balance increased by $91,806 and had an ending fund balance of $3,655,961, or 33.86% of expenditures. Of this balance, $1,049,477 were board committed funds ($1,000,000 for capital expenditures and $49,477 for athletic expenditures) and are therefore not available for general education operations. If you exclude these committed funds, the district s unassigned fund balance is $2,606,484 or 24.14%. The Debt Service Fund increased by $495,000, showing an ending fund balance at 6/30/2016 of $2,846,121. This fund balance is being set aside in a restricted account for the payment of the $5,000,000 School Qualified Construction Bond, due in May 2020 at the end of the bond investment period. The funds being set aside for the bond payment comes from the District s Capital Project Sinking Fund millage of 1.75 mills. This sinking fund levy has been approved by voters through June The Districts Food Service Fund had a decrease of $20,733 for the year. This decrease resulted from both the continuing increase in food costs and the decline in enrollment resulting in lower food sales. The ending fund balance for the year is $69,264. District management believes the fund balance should be protected at approximately 25% of total expenditures in order to ensure effective ongoing educational operations. During the last few years, the combination of decreasing revenue and increasing costs have brought the unassigned fund balance percent to just under 25% as of June of A major contributor to this fund balance reduction has been the continuing declining enrollment at Blissfield Community School District, which is representative of the state-wide decline in enrollment. In the last 15 years, the District enrollment has declined by close to 170 students is expected to be down another 25 for the coming 2015/2016 year. Despite the overall decline in enrollment over the last few years, the district did manage to end the year in the black, adding $91,806 to its fund balance. Conservative spending and some retirements helped with this achievement. The district s unassigned fund balance at 6/30/16 climbed to 24.14%, a very positive change for the district. Enrollment for the coming fiscal year is continuing to look strong, another encouraging factor for the district financially. With revenue so closely tied to the number of students, our enrollment will continue to be a significant factor affecting the District s fund balance. 9

11 Revenues MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 As illustrated in the following graph, The State of Michigan is the primary source of funds for the District. The State provides districts with a per pupil foundation grant, which is used for the overall operation of the district. During the fiscal year, the District received $7,391 per pupil. In addition to this per pupil funding, the State also provides other grants and categorical grants that are restricted to specific purposes. Property taxes collected on nonresidential homes are received by the District and are included in Local Sources. Federal funds are restricted for specific purposes. Intermediate funds are primarily received from the Intermediate School District. General Fund Revenue by Source 3% 5% Foundation Allowance (State Aid) 10% 82% Local State Federal Intermediate The per pupil foundation allowance received is based on student enrollment. Enrollment is measured on two count days; the first Wednesday in October and the second Wednesday in February. The October count is weighted at 90% and the February count is weighted at 10%. In addition, FTE is allocated to students that transfer from one district to another between count days under Sec. 25e of the State School Aid Act. This increases the difficulty of budgeting as the final pupil count cannot be determined until this movement has been accounted for and certified. As stated earlier, Blissfield Community Schools has been experiencing an enrollment decline over the last 15 years. The enrollment for this past fiscal year was 1,185, a decrease of 26 students and another $192,000 in lost revenue. The overall reduction in student count and the 10

12 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 state funding that goes with it continues to put a financial strain on the district budget. As you can see in the chart above, 82% of the districts revenue comes from the state, with much of that in the form of per-pupil funding. Therefore, the past enrollment decline has been a huge concern for the district board and management. The district has been extremely careful and cautious with budget planning, spending and negotiations and this diligence to our spending/budget resulted in a gain of $91,806 to the fund balance in 2015/2016 fiscal year, even with the trending enrollment decline. Preliminary enrollment numbers for the coming 2016/2017 school year look strong, with a possible increase of 20 students. If these numbers hold, the district will have nearly gained back in enrollment what was lost this past year. Expenses As illustrated in the graph below, a majority of the district s expenditures is in instructional services and the second highest area in the various functions that support the instructional staff. Within these functions, most of the expenditures are incurred for employee compensation and benefits. General Fund Expenditures by Function 29% 3% 2% 66% Instructional Supporting Services Athletics Capital outlay The District successfully negotiated a new two-year agreement with the Blissfield Education Association (teachers union), which begins July 1, This new agreement maintains much of financial language already in place, including its performance based pay system. Blissfield Schools has been a leader in the state in its elimination of the old step salary system - replacing 11

13 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 it with a new, leading edge performance based compensation system. This system is based on a combination of compensation caps (based on degree earned) and annual performance-based compensation units based on annual individual evaluations. All staff members are able to strive to personally receive above and beyond compensation for exceptional performance in various identified areas. This new system has been in place since 2013 and continues to work very well for the district. We are very excited and proud of this ground-breaking agreement that was a result of both administration and union collaboration. Health insurance costs continue to rise. The District is a member of the Lenawee County Health Consortium which has helped to contain these cost increases. The District cost of medical coverage is controlled by a hard cap amount set by the State of Michigan. During the 15/16 fiscal year, almost 100% of the medical premiums were covered by the district as the health consortium rates for most of the offered plans remained under or close to cap. Looking forward to 16/17, this changes drastically with a rate hike from the current carrier (MESSA) of almost 18% (including taxes and fees). Because of the hard cap, this large increase will be born almost solely by the employee with the district seeing little effect to the budget from this large increase in premiums. The district union membership did vote to move to another health insurance carrier, BCBS (non MESSA) effective July 1, 2016, a move that saves each employee dollars. Contributions to the Michigan Public School Employee Retirement System (MPSERS) for fiscal year 2016 was calculated at 25.78%. The state legislature has taken action to reduce the cost effect of increasing rates by using state funds to stabilize these rates. While this controls our retirement costs, it also uses state funds that could have otherwise been used for revenue increases. Even with these efforts, the fact remains that for each payroll dollar paid, an additional 25 cents is paid to the retirement system. The district had significant repair costs during the 2015/2016 school year, including sealcoating of the district s driveways and parking lots, asbestos removal, concrete work and electrical upgrades. The district did not purchase any new buses this past fiscal year. However, some major bus repairs (including engine work) was required amounting to a little more than $20,000. The District owns its own bus fleet, so it is imperative that the fleet is maintained and kept in good repair. Fuel costs were down considerably, by close to $20,000 from the prior 2014/2015 school year. Energy costs also decreased this past year by around $20,000. These reductions in costs played an important role in the district being able to stay in the black despite decreasing enrollment. The Food Service fund lost money again this past year, with expenditures exceeding revenue by $20,733. No major expenditures were made from this fund this past year. District administration will be watching this fund closely and looking for ways to cut costs and/or increase revenues. The positive preliminary enrollment for the coming 2016/2017 school year should help with meal sales. The district continues to look for ways to save money and put more of its limited available funds into the classroom. These cost saving measures include cooperative service agreements sharing of the transportation/maintenance supervisor with other area schools and contracting with the district s Intermediate School District for its business office and finance oversight. The District also employs many of its support staff employees through 3 rd party contractors, saving 12

14 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 the district in benefit costs. The overall net results of the 2015/2016 school year (compared to the prior year) was an increase in revenue of $262,536 along with an increase in costs of $65,919. Excluding the effect of GASB 68 on its statements, the School District had a government-wide net position increase of $121,114. The assets of the School District exceeded its liabilities at the close of the fiscal year by $10,960,053 (net position), excluding the effect of GASB 68. General Fund and Special Revenue Fund Operations The district s revenues from General Fund operations exceeded expenses by $91,806 for the fiscal year ended June 30, The district management was very pleased to end the year with this increase, considering the fact that the enrollment for the district was down by 20, or close to $150,000 in revenue from the year before. At the end of the fiscal year, the fund balance for the School District s General Fund was $3,655,961, or 33.87%. Of this fund balance, $1,049,477 has been committed by the board of education, leaving an unassigned fund balance of $2,606,484 or 24.14%. Revenues and expenses for the district s athletic program are combined with the General Fund at the end of the fiscal year. The School District s General Fund supports the athletic program every year. In 2015/2016, the general fund contributed funds of $242,308 towards coaching salaries, benefits and other athletic costs. The District charges a participation fee for athletic students to help offset the cost to the district. Despite another decrease in its fund balance this past year, the Lunch Fund (Food Service program) still maintains a healthy fund balance - $69,264 at 6/30/2016. For 2015/2016, the Lunch Fund operating expenses did exceed revenue by $20,733. Our food service manager works hard to use government commodities to provide nutritional and appetizing meals for our students and staff while keeping costs down and abiding by new federal regulations that limits choices and challenges staff to create menu choices that appeal to students. Healthy food is more expensive (as the saying goes) and more labor intensive to prepare and this has proven true for our food service staff. In addition, as district enrollment has decreased so has the student sales dollars and government lunch reimbursements which are based on these sales numbers. The district s food and milk sales to students and adults amounted to $196,248 for the fiscal year, down from last year by $6,600. This decrease, coupled with the decrease from the year before of $31,000 in this area, has had a significant effect on the food service fund balance. This revenue drop can be at least partially contributed to the corresponding enrollment decrease in the district. However, state and federal funding was also down slightly by $6,600. Long-Term Bonded Debt The District has a Capital Project Sinking Fund levy of 1.75 mills which brings in approximately $526,000 annually. This fund is restricted to capital improvement activity only and cannot be used toward the general operations of the District. At the current time, the Capital Project Fund has been designated by the Board of Education to provide principal repayment of the current long term debt of $5,000,000, a Qualified School Construction Bond that was purchased under the 2010 QSCB Bond program. Decreasing property values and rising commercial and industrial personal property tax exemptions have had an effect on the original levy projections from this Bond. If the Capital Project Sinking Fund should fall short of providing adequate cash 13

15 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 to make annual principal and interest payments, the General Fund will be required to fund the remainder of the payment. The Board of Education has acted to commit $1,000,000 of the General Fund fund balance for the purpose of capital improvements. It is possible that Blissfield Community School District will need to spend a good portion of the $1,000,000 Committed Fund Balance in the General Fund to repay the QSCB Bond and for other necessary capital improvements over the next five years. For the 2015/16 fiscal year, $495,000 was transferred into the Debt Service Fund from the sinking fund revenues, out of a total annual levy revenue of $526,000. This levy was approved by district voters through June At that point, the bond will be paid off and the District s board of education must decide whether to ask the community for a renewal of the sinking fund levy. At the end of this year, the District had a total long-term debt from the 2010 QSCB Bond for $5,000,000. This was a 10 year bond due in May Of this total principal balance, the outstanding balance at 6/30/2016 was $2,160,000. Other obligations include employeecompensated absences and retirement incentives. We present more detailed information about our long-term liabilities in the notes to the financial statements. Net Investment in Capital Assets At the end of fiscal year 2016, the School District had $20,547,726 invested in land and buildings, furniture and equipment, and vehicles and buses. Of this amount, $11,676,104 in depreciation and amortization have been taken over the years. Our capital assets currently have a net book value of $8,871,622. Balance Balance June 30, 2015 Additions Deletions June 30, 2016 Capital assets $20,530,745 $124,293 ($107,312) $20,547,726 Less: Accumulated depreciation (10,965,297) (807,241) 96,434 (11,676,104) and amortization Net investment capital outlay $ 9,565,448 ($682,948) ($10,878) $8,871,622 Economic Factors, Enrollment and Budget Comparisons The two main factors affecting the School District s revenue picture during the fiscal year, and any fiscal year, were the State Foundation Allowance and Student Enrollment. Another important revenue factor is the Property Tax levied for General Operations on the District s non-homestead property value. These three revenue areas, and the effect they had on the District s fiscal year ended 2016, are explained in more detail below. 14

16 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 State of Michigan Unrestricted Aid (Net State Foundation Grant) The State of Michigan aid, unrestricted, is determined with the following variables: a. State of Michigan State Aid Act per student foundation allowance b. Student Enrollment Blended at 90 percent of current year s fall count and 10 percent of prior year s winter count c. The District s non-homestead levy Per Student, Foundation Allowance: Annually, the State of Michigan establishes the per student foundation allowance. For the fiscal year, the Blissfield Community School s foundation allowance was $7,391, an increase of $265 per student from the prior year. This increase was the result of a minimum foundation increase approved as part of the 2015/16 School Aid Package as well as reallocation of categorical revenue funds into the foundation allowance. Therefore, of this $265 increase only $140 is a real increase of the district s foundation allowance. Another offset to this foundation increase was the elimination of the Best Practice categorical revenue which reduced the district s income by $62,000. Blissfield Schools is at the minimum funding level. The state legislature also funds the MPSERs Cost Offset in which state funds are allocated towards the rising retirement costs. An additional $80,546 was gained from this funding source. In addition, the District receives additional state aid money of $223,551 to help offset the Renaissance Zone tax break in Blissfield. Student Enrollment: The District s student enrollment for the fall count of was 1,189 students. As discussed previously, the school district is experiencing a decline in enrollment. In September 2001 the enrollment was close to 1,400, which shows an overall decrease of over 200 students. The following summarizes fall student enrollments in the past fourteen years: 15

17 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 A preliminary enrollment figure of 1,204 for the school year shows a positive increase of almost 15 students. The district schools of choice enrollment continues to grow, as can be seen in the chart below, showing that the district continues to be a sought after school system. In the school year, 153 students from other county school districts were enrolled at Blissfield Schools. This amounts to 12.9% of the district s total enrollment in

18 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 Property Taxes levied for General Operations (General Fund Non-Homestead Taxes) The District levies 18 mills of property taxes for operations (General Fund) on non-homestead properties. Under Michigan law, the taxable levy is based on the taxable valuation of properties. Annually, the taxable increase in property value is capped at the rate of the prior year s CPI increase or 5 percent, whichever is less. This District s voter approved millage expires in June Because the state has regulated that school elections be in November of the even years, the board will need to approve asking voters for a renewal of this levy in November of 2018 (prior to the millage expiring) in order to not miss a year of this non-homestead revenue. The District s non-homestead property revenue for the fiscal year was $896,000. General Fund Budgetary Highlights Over the course of the year, the school district revises its budget as it attempts to deal with changes in revenues and expenditures. State law requires that the budget be amended to ensure that expenditures do not exceed appropriations. The general fund budget was amended during the year as financial information regarding state and federal funding became known. A schedule showing the School District s original and final budget amounts compared with amounts actually paid and received is provided in a budgetary statement included with the basic financial statements. Changes to the General Fund s budget were as follows: The final amended revenue budget was larger than originally budgeted by $656,864. Most of this increase was in the area of state revenue projections. The district s final state revenue budget was $606,189 higher than the initial estimate. This is primarily the result of the UAAL Rate Stabilization line item on the state aid report. This revenue source was not budgeted initially as this state aid allocation is both received as state aid (credited as revenue on our books) and then expensed on the books the same period as it is paid back to ORS. The district handles this in and out of state funds by including this amount as both revenue and expense budget adjustments in the final amendment of the year. State and federal grant dollars were also increased following the original budget approval, by $92,096. This increase was the result of great final grant allocations received than originally had been forecasted. The final expenditure budget was higher than the initial expense budget by $332,602. As was the case in the budgeted revenue change, UAAL expenditures accounted for an additional $515,082 in expenses not originally budgeted (offset by the same amount in UAAL revenue described above). Offsetting this increase was an overall decrease in general fund expenditures achieved from savings from mid-year retirees and reallocating of grant expenditures. The District was overall under budget in general fund expenditures by $20,281, showing that the district did a good job of controlling costs. 17

19 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 Management follows a budgetary practice of conservative revenue estimating in order to guide decisions that will control expenditures related to expected revenues. Unexpected expenditures can occur at any time. With Capital improvement funding from the Capital Project Sinking Fund committed for the next five years, the management believes that financial reserves are important to maintain at current levels if possible to guard against any sudden and significant expenditure having a negative impact on education programs. Since budget amounts must be prepared and approved by the board prior to June 30 th to comply with legal budget guidelines, a conservative approach is used because of unknown expenditures and revenues at the time the budget is prepared. In fact, the major contributors to 82% of the district s revenue source, enrollment and per pupil funding, is not known at the time the budget must be prepared, submitted and approved by the board. These estimates sometimes seem like a shot in the dark to school districts. Therefore, as a matter of practice, Blissfield Community Schools amends its budget periodically during the school year to adjust for these unknowns at the time the budget is submitted. The June 13, 2016 budget amendment was the final budget for the fiscal year. ECONOMIC FACTORS AND NEXT YEAR S BUDGETS For the 2015/2016 school year the non-homestead millage remained at mills. Levying the full amount on these properties is crucial in order for the district to receive the full Foundation Allowance per pupil. The non-homestead millage was renewed by the District s voters in August 2012 for seven years and a Headlee rollback is not expected in the current economic climate. Two of the most important factors impacting the budget are the student count and the uncertainty in the state school aid foundation allowance, Unfortunately, it is difficult for School District s to know exactly how many students will attend and be counted on those two critical pupil count days (October and February) of each school year. In addition, Sec 25 is now in effect, which allows the foundation allowance to follow the movement of the student from district to district between the two annual count dates. Under state law, the District cannot assess additional property tax revenue for general operations. As a results, District funding is heavily dependent on the State s ability to fund local school operations and on its total student enrollment. Since over 80% of the total General Fund revenues are from the foundation allowance, school districts are in a position to compete for its share of a dwindling enrollment base. Since Blissfield Community Schools has an enrollment that has been declining, it is a matter of concern for the District. In summary, the overall financial strength of the District did improve during the 2015/2016 school year, with an increase to the general fund balance of $91,806. However, decreasing enrollment and the unpredictability of state funding are concerns for the district. Management will continue to exercise caution with all decisions having an impact on the financial position of the District. Management will focus their attention on maintaining and improving the quality of the educational programs and atmosphere of the district to retrain and attract families and students to the district. At the same time, careful evaluation of all expenditures over the next year will be a priority by management while seeking to reduce expenditures where possible. 18

20 MANAGEMENT S DISCUSSION AND ANALYSIS For Fiscal Year Ended June 30, 2016 The district s newly approved strategic plan calls for a 3-year balanced budget for Blissfield Community Schools. In order to achieve this, the district will concentrate on promotion of its school district as well as educating its stakeholders in school budgeting and financing. New revenues from local sources such as the formation of endowments, grants and other sources ill continue to be a goal of management also. In spite of these challenging obstacles, Management remains committed to excellence in serving our students and community. Contacting the District s Financial Management This financial report is designed to provide our citizens and taxpayers with a general overview of the District s finances. If you have questions about this report or need additional information, contact the Superintendent s Office at Blissfield Community Schools: Ms. Sharon Smith Chief Financial Officer Blissfield Community Schools 630 South Lane Street Blissfield, MI Phone (517) , Fax (517)

21 BASIC FINANCIAL STATEMENTS

22 GOVERNMENT-WIDE STATEMENT OF NET POSITION June 30, 2016 Governmental Activities ASSETS CURRENT ASSETS: Cash and deposits $ 2,294,252 Investments 1,630,656 Accounts receivable 277,859 Due from other governmental units 1,604,218 Restricted investments - capital projects 2,846,121 Inventory 6,419 TOTAL CURRENT ASSETS 8,659,525 NONCURRENT ASSETS: Fixed assets 20,547,726 Less: accumulated depreciation (11,676,104) TOTAL NONCURRENT ASSETS 8,871,622 TOTAL ASSETS $ 17,531,147 DEFERRED OUTFLOWS OF RESOURCES Contributions to pension plan $ 1,191,721 LIABILITIES AND NET POSITION CURRENT LIABILITIES: Accounts payable $ 65,756 Salaries and related payroll payables 1,200,405 Prepaid lunch sales 6,177 Due to other governmental units 8,622 Current long-term obligations 520 TOTAL CURRENT LIABILITIES 1,281,480 NONCURRENT LIABILITIES: Net pension liability 13,151,761 Noncurrent long-term obligations 5,072,571 TOTAL NONCURRENT LIABILITIES 18,224,332 TOTAL LIABILITIES $ 19,505,812 DEFERRED INFLOWS OF RESOURCES Deferred revenue 217,043 Pension deferrals 733,401 TOTAL DEFERRED INFLOWS OF RESOURCES $ 950,444 NET POSITION: Invested in capital assets, net of related debt 6,645,172 Restricted for special revenue (food service) 62,845 Restricted for capital projects 590,176 Restricted for debt service 2,846,121 Unrestricted (11,877,702) TOTAL NET POSITION $ (1,733,388) The accompanying notes are an integral part of these financial statements

23 GOVERNMENT-WIDE STATEMENT OF ACTIVITIES Year Ended June 30, 2016 Governmental Program Revenues Activities Net (Expense) Operating Revenue and Charges for Grants and Changes in Net Expenses Services Contributions Position Governmental activities: Instruction $ 6,907,214 $ 900 $ 469,730 $ (6,436,584) Supporting services 3,855, , ,843 (3,195,311) Capital outlay 123, (123,052) Community services 7, (7,517) Other expense 28,834-16,642 (12,192) Depreciation (unallocated) 807, (807,241) Total governmental activities $ 11,729,533 $ 297,421 $ 850,215 (10,581,897) General Revenues: Local sources 1,421,994 State sources 9,280,040 Investment earnings 9,278 Insurance dividend 20,506 Total general revenues and transfers 10,731,818 CHANGE IN NET POSITION 149,921 NET POSITION, beginning of year (1,883,309) NET POSITION, end of year $ (1,733,388) The accompanying notes are an integral part of these financial statements

24 BALANCE SHEET GOVERNMENTAL FUNDS June 30, 2016 ASSETS Capital Total Project Debt Service Non-Major Governmental General Sinking Fund Fund Funds Funds ASSETS: Cash and deposits $ 1,638,219 $ 590,176 $ 65,857 $ 2,294,252 Investments 1,630, ,630,656 Accounts receivable 277, ,859 Due from other governmental units 1,600, ,864 1,604,218 Restricted investments - debt service - - 2,846,121-2,846,121 Inventory ,419 6,419 TOTAL ASSETS $ 5,147,088 $ 590,176 $ 2,846,121 $ 76,140 $ 8,659,525 LIABILITIES AND FUND BALANCE LIABILITIES: Accounts payable $ 65,608 $ - $ - $ 148 $ 65,756 Due to other governmental units 8, ,622 Salaries and related payroll payables 1,199, ,200,405 Prepaid lunch sales ,177 6,177 TOTAL LIABILITIES 1,274, ,876 1,280,960 DEFERRED INFLOWS OF RESOURCES Deferred revenue 217, ,043 FUND BALANCES: Nonspendable: Inventories ,419 6,419 Restricted for: Food service ,845 62,845 Capital projects - 590, ,176 Debt service - - 2,846,121-2,846,121 Committed for: Capital projects 1,000, ,000,000 Subsequent year expenditures 49, ,477 Assigned Unassigned 2,606, ,606,484 TOTAL FUND BALANCES 3,655, ,176 2,846,121 69,264 7,161,522 TOTAL LIABILITIES AND FUND BALANCES $ 5,147,088 $ 590,176 $ 2,846,121 $ 76,140 $ 8,659,525 The accompanying notes are an integral part of these financial statements

25 RECONCILIATION OF FUND BALANCES ON THE BALANCE SHEET FOR GOVERNMENTAL FUNDS TO NET POSITION OF GOVERNMENTAL ACTIVITIES ON THE STATEMENT OF NET POSITION Year Ended June 30, 2016 Total governmental fund balances $ 7,161,522 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and are not reported in the funds: The cost of capital assets is 20,547,726 Accumulated depreciation is (11,676,104) Long-term liabilities are not due and payable in the current period and are not reported in the funds: Long-term debt obligations (4,989,140) Compensated absences (83,951) 8,871,622 (5,073,091) Net pension liability (13,151,761) Deferred outflow of resources 1,191,721 Deferred inflows of resources (733,401) Ending net position-governmental activities $ (1,733,388) The accompanying notes are an integral part of these financial statements

26 GOVERNMENTAL FUND STATEMENTS OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Year Ended June 30, 2016 Capital Total Project Debt Service Non-Major Governmental General Sinking Fund Fund Funds Funds REVENUES: Local sources Property taxes $ 896,242 $ 525,752 $ - $ - $ 1,421,994 Food service sales , ,650 Interest 8, ,061 Athletic Admissions 94, ,781 Other 626,365 1, ,582 Total local sources 1,625, , ,650 2,351,068 State sources 8,798, ,973 8,821,497 Federal sources 450, , ,834 Total revenues 10,874, , ,381 11,866,399 EXPENDITURES: Instructional 7,088, ,088,046 Supporting services 3,112, ,014 3,591,681 Athletics 337, ,089 Capital outlay 226,153 5,507-7, ,760 Interest 23, ,826 Community services 7, ,517 Total expenditures 10,795,298 5, ,114 11,286,919 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 78, ,462 - (20,733) 579,480 OTHER FINANCING SOURCES (USES): Incoming transfers 4, , ,091 Outgoing transfers (11,542) (495,000) - - (506,542) Insurance dividends 20, ,506 Total other financing sources 13,055 (495,000) 495,000-13,055 NET CHANGE IN FUND BALANCES 91,806 26, ,000 (20,733) 592,535 FUND BALANCES: Beginning of year 3,564, ,714 2,351,121 89,997 6,568,987 End of year $ 3,655,961 $ 590,176 $ 2,846,121 $ 69,264 $ 7,161,522 The accompanying notes are an integral part of these financial statements

27 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES Year Ended June 30, 2016 Net change in fund balances total governmental funds $ 592,535 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. In the statement of activities these costs are allocated over their estimated useful lives as depreciation. Depreciation expense (807,241) Capital outlay 115,708 Loss on disposal of assets (2,293) Governmental funds report disctrict pension contributions as expenditures. However, in the Statement of Activities, the cost of pension benefits earned net of employee contributions is reported as pension expense. District Pension Contributions 776,836 Change in pension expense related to deferred items (524,783) Amortization of bond discount (2,715) Compensated absences are reported on the accrual method in the statement of activities, and recorded as an expenditure when financial resources are used in the governmental funds: Accrued compensated absences, beginning of the year 85,825 Accrued compensated absences and termination benefits, end of the year (83,951) Change in net position of governmental activities $ 149,921 The accompanying notes are an integral part of these financial statements

28 STATEMENT OF NET POSITION - FIDUCIARY FUNDS June 30, 2016 ASSETS Trust and Agency Cash and deposits $ 386,820 Student loan receivables 916,909 Investments 718,772 Total assets $ 2,022,501 LIABILITIES Due to student groups $ 357,386 Due to student loan accounts 1,665,115 Total liabilities $ 2,022,501 The accompanying notes are an integral part of these financial statements

29 NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 I: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The basic financial statements of the Blissfield Community Schools have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the District's accounting policies are described below. A. Reporting entity The Blissfield Community Schools (the "District") is governed by the Blissfield Community Schools Board of Education (the "Board"), which has responsibility and control over all activities related to public school education within the District. The District receives funding from local, state, and federal government sources and must comply with all of the requirements of these funding source entities. However, the District is not included in any other governmental reporting entity as defined by the accounting principles generally accepted in the United States of America. Board members are elected by the public and have decision-making authority, the power to designate management, the ability to significantly influence operations, and the primary accountability for fiscal matters. In addition, the District's reporting entity does not contain any component units as defined in Governmental Accounting Standards Board Statements No. 14 and 39. B. Government-wide and fund financial statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the District. For the most part, the effect of interfund activity has been removed from these statements. The government wide financial statements categorize primary activities as either governmental or business type. All of the District's activities are classified as governmental activities. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. In the government-wide statement of net position, the governmental activities column (a) is presented on a consolidated basis, (b) and is reported on a full accrual, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. The District's net position is reported in three parts - invested in capital assets, net of related debt; restricted; and unrestricted. The District first utilizes restricted resources to finance qualifying activities. The government-wide statement of activities reports both the gross and net cost of each of the District's functions. The functions are also supported by general government revenues (property taxes, certain intergovernmental revenues and other revenue.) The statement of activities reduces gross expenses by related program revenues and operating grants. Program revenues must be directly associated with the function. Operating grants include operating-specific and discretionary (either operating or capital) grants. The net costs (by function) are normally covered by general revenue (property taxes, state sources, intermediate district sources, interest income and other revenues)