ANNUAL FINANCIAL REPORT HUNTLEY COMMUNITY SCHOOL DISTRICT 158 ALGONQUIN, IL JUNE 30, 2017

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1 ANNUAL FINANCIAL REPORT HUNTLEY COMMUNITY SCHOOL DISTRICT 158 ALGONQUIN, IL JUNE 30, 2017

2 TABLE OF CONTENTS JUNE 30, 2017 Exhibit Page Independent Auditor s Report 1 Required Supplementary Information: Management s Discussion and Analysis 4 Basic Financial Statements: Government-wide Financial Statements Statement of Net Position A 22 Statement of Activities B 23 Fund Financial Statements Balance Sheet Governmental Funds C 25 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds D 28 Statement of Fiduciary Assets and Liabilities Agency Funds E 33 Notes to the Basic Financial Statements 34 Required Supplementary Information: Schedule of the Employer s Proportionate Share of the Net Pension Liability TRS 61 Schedule of Employer Contributions TRS 62 Schedule of Changes in Net Pension Liability and Related Ratios IMRF 63 Schedule of Employer Contributions IMRF 64 General and Major Special Revenue Funds Schedule of Revenues, Expenditures and Changes in Fund Balance Budget to Actual Schedule General Fund Combining Balance Sheet 1 65 Combining Schedule of Revenues, Expenditures and Changes in Fund Balance with Summarized Comparative Actual Totals General Fund 2 66 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget to Actual With Comparative Actual Amounts Operations and Maintenance Fund 3 67 Transportation Fund 4 69 Municipal Retirement/Social Security Fund 5 71 Notes to Required Supplementary Information 73

3 Supplementary Information: TABLE OF CONTENTS JUNE 30, 2017 General Fund Accounts Schedule of Revenues, Expenditures and Changes in Fund Balances Budget to Actual With Comparative Actual Amounts Schedule Page Educational Account 6 74 Working Cash Account 7 84 Major Debt Service and Major Capital Projects Funds Schedule of Revenues, Expenditures and Changes in Fund Balances Budget to Actual With Comparative Actual Amounts Debt Service Fund 8 85 Capital Projects Fund 9 86 Fire Prevention and Safety Fund Schedule of Changes in Assets and Liabilities Agency Fund Debt Service Schedule 2000 Capital Appreciation School Building Bonds Debt Service Schedule 2003 Capital Appreciation School Building Bonds Debt Service Schedule 2003A Capital Appreciation School Building Bonds Debt Service Schedule 2004 Capital Appreciation School Building Bonds Debt Service Schedule 2010 General Obligation Refunding Bonds Debt Service Schedule 2011A Qualified Energy Conservation Debt Certificates Debt Service Schedule 2011B Refunding Debt Certificates Debt Service Schedule 2013 General Obligation Refunding Bonds Debt Service Schedule 2014 General Obligation Refunding Bonds Debt Service Schedule 2016 General Obligation Refunding Bonds Statement of Revenues, Expenditures, and Changes in Fund Balances Operating and Non-Operating Governmental Funds

4 Independent Auditor s Report Board of Education Huntley Community School District 158 Algonquin, Illinois We have audited the accompanying financial statements of the governmental activities, and each major fund of Huntley Community School District 158, Algonquin, Illinois (the District ) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Basis for Qualified Opinion The District has elected to omit the disclosures required by Governmental Accounting Standards Board Statement 45 Accounting and Financial Reporting for Post-Employment Benefits Other Than Pensions. The amount by which this disclosure would affect the financial statements is not reasonably determinable. Qualified Opinion In our opinion, except for the effect of the omission discussed in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the District as of June 30, 2017, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. 1

5 Change in Accounting Principle As discussed in Note 13 to the financial statements, in 2017 the District adopted new accounting guidance, GASB Statement No. 72, Fair Value Measurement and Application. Our opinion is not modified with respect to this matter. Other Matters Prior-Year Comparative Information We have previously audited the District s 2016 financial statements, and we expressed qualified audit opinions on the respective financial statements of the governmental activities, each major fund, and the aggregate remaining fund information in our report dated October 5, In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2016, is consistent, in all material respects, with the audited financial statements from which it has been derived. Required Supplementary Information Accounting principles generally accepted in the United States of America require that required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the basic financial statements of the District as of and for the year ended June 30, 2016 (not presented herein), and have issued our report October 5, 2016, which contained qualified opinions on the respective financial statements of the governmental activities, each major fund, and the aggregate remaining fund information. The supplementary information, as listed in the table of contents, for the year ended June 30, 2016 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the 2016 financial statements. The information has been subjected to the auditing procedures applied in the audit of the 2016 basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare those financial statements or to those financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information as listed in the table of contents is fairly stated in all material respects in relation to the basic financial statements as a whole for the year ended June 30,

6 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 25, 2017, on our consideration of the District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District s internal control over financial reporting and compliance. Evans, Marshall & Pease, P.C. Evans, Marshall & Pease, P.C. Certified Public Accountants September 25, 2017 Rolling Meadows, IL (20) 3

7 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Overview of the Financial Statements The Annual Financial Report consists of four major parts: Management s Discussion and Analysis (MD&A) which is intended to serve as an introduction to the remaining three parts of the report. Basic Financial Statements which include statements that present different financial perspectives of the District: o o o The first two statements are government-wide financial statements, which include the Statement of Net Position and the Statement of Activities. These statements provide both short-term and long-term information about the District s overall financial status. The next several statements are fund financial statements that focus on individual parts of the District, reporting the District s balance sheet position and operations in more detail than the government-wide statements. The final statement is a fiduciary funds statement that provides information about financial relationships in which the District acts solely as a trustee or agent for the benefit of others. Notes to the Basic Financial Statements Required Supplementary Information Supplementary Information Management s Discussion and Analysis The Management Discussion and Analysis, a requirement of GASB 34, is the Huntley Community School District 158 administration s discussion and analysis of the financial results as well as an overall review of the District s financial activities for the fiscal year ended June 30, The management of the District encourages readers to consider the information presented herein in conjunction with the District s financial statements, which immediately follow this section. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the District. The enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the various funds of the District. All disclosures necessary to enable the reader to gain an understanding of the District s financial activities have been included. Generally accepted accounting principles (GAAP) according to GASB 34 require the reporting of two types of financial statements: Government Wide Financial Statements and Fund Financial Statements. Government-wide Financial Statements The government-wide financial statements are full accrual basis statements. They report all of the District s assets and liabilities, both short and long term, regardless if they are currently available or not. Capital assets and obligations of the District are reported in the Statement of Net Position of the government-wide financial statements. One of the most important questions asked about the District is, As a whole, what is the School District s financial condition as a result of the year s activities? The Statement of Net Position and the Statement of Activities, which appear first in the District s financial statements, report information on 4

8 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 the District as a whole and its activities in a way that helps you answer this question. We prepare these statements to include all assets and liabilities, using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. The Statement of Net Position and the Statement of Activities report the Huntley Community School District 158 s net assets the difference between assets and liabilities, as reported in the Statement of Net Position is one way to measure the District s financial health or financial position. Over time, increases or decreases in the District s net position as reported in the Statement of Activities are indicators of whether its financial health is improving or deteriorating. The relationship between revenues and expenses is the District s operating results. However, the School District s goal is to provide services to our students, not to generate profits as commercial entities do. One must consider many other nonfinancial factors, such as the quality of the education provided and the safety of the schools, to assess the overall health of the District. These two statements report the governmental activities for the District, which encompasses all of the District s services, including instruction and support services. Property taxes, unrestricted state aid, and state and federal grants finance most of these activities. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the District can be divided into two categories: governmental funds and fiduciary funds. Governmental funds All of the School District s services are reported in governmental funds. Governmental fund reporting focuses on showing how money flows into and out of funds and the balances left at year end are available for spending. They are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the operations of the School District and the services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the District s programs. The District maintains individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures and changes in fund balances for the General (Educational and Working Cash), Operations and Maintenance, Transportation, Municipal Retirement/Social Security, Debt Service, Capital Projects and Fire Prevention & Life Safety Funds, all of which the District considers to be major funds. Each fund can be placed into one of four major categories: General, Special Revenue, Capital Projects and Debt Service. 5

9 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 The following figure lists the individual governmental funds by major category: Educational Fund General Fund Working Cash Fund Operations and Maintenance Fund Transportation Fund Special Revenue Funds Municipal Retirement/Social Security Fund Fire Prevention & Life Safety Fund Capital Projects Funds Capital Projects Fund Debt Service Fund Debt Service Fund The District adopts an annual budget for each of the funds listed above. A budgetary comparison statement has been provided for each fund to demonstrate compliance with this budget. In the fund financial statements, purchased capital assets are reported as expenditures in the year of acquisition. No asset is reported. The issuance of debt is recorded as an Other Financing Source, whereas the current year s payments of principal and interest on long term obligations are recorded as expenditures. Future year s debt obligations are not recorded. Agency/Fiduciary funds The District is the trustee, or fiduciary, for assets that belong to others, such as the student activities funds. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and for those to whom the assets belong. The District excludes these activities from the government-wide financial statements because it cannot use these assets to finance its operation. Fiscal Year 2017 District Highlights School year was another year of great accomplishment for Huntley Community School District 158, driving the strategic direction of the District forward, implementing new innovative programs and remaining under budget. 6

10 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Strategic Initiatives In the winter of , the District called on more than 50 volunteers drawn from all areas of our community teachers, students, staff, parents, residents, business and civic leaders, and Board of Education members to create a new plan and vision to carry us through The District s fiscal year 2017 mission statement is, We will Inspire, Challenge, and Empower everyone every day. In fiscal year 2017, aligned with the District s strategic plan goals, the District met 90% of the District s strategic plan measures. The fiscal year 2017 five strategic goals are as follows: Goal One: Continuously improve student growth and achievement. Goal Two: Provide safe, healthy and nurturing environments conducive to learning and wellness. Goal Three: Attract, support, develop and retain the best and brightest staff. Goal Four: Foster ownership through trusting and engaged partnerships with families and the community. Goal Five: Prioritize and allocate resources effectively and equitably while operating with increased efficiency. In fiscal year 2016, under the District s Always Initiative, the District continued its focus on placing technology in the hands of the students and providing 21st century learning tools. The District purchased and deployed 5,000 Chromebook devices to all Kindergarten through 6th grade students as well as all 9th grade students. Thus, at the end of fiscal year 2016, every Kindergarten through 9th grade student had a Chromebook. At the end of fiscal year 2016, approximately 7,400 students had a one-to-one device in hand. In fiscal year 2017, the rollout was completed when Huntley High School juniors and seniors received Chromebooks at the start of the school year, cementing the District s status as the largest school district in Illinois to fully implement 1:1 learning in grades K-12. Curriculum Huntley Community School District 158 continues to expand the horizons of education in important and innovative ways. The District has embraced the concept of 21st century learning to prepare students for success in a rapidly changing economic and social world. The District has implemented innovative tools that are quickly evolving and that change the way teachers teach and the way that students learn. Digital transformation began in fiscal year 2013 when the District implemented its 1:1 initiative at Martin Elementary School with 1,200 students receiving a tablet device. Since that time, with the complete expansion of the program to the high school in fiscal year 2017, all students in all grades now have a Chromebook. These learning devices enable students to connect with each other and with their teachers to enhance instruction in ways that are creative and authentic, with increased collaboration and engagement. The skills that students hone through using new technology will serve them well as they progress through District 158 and on to college and careers. Fiscal year 2018 will be the first year of a 5-year focus on personalized learning and the use of technical resources to further create a personalized environment for the students. Huntley High School is on the forefront within the State of Illinois in offering rigorous coursework in engineering and bio-medical sciences through Project Lead the Way. These programs offer students unique opportunities to gain specialized skills in relevant subjects in innovative ways. In the fall of 2016, students in the Huntley High School Medical Academy had a first-of-its-kind opportunity to serve a residency in Centegra Health System facilities. The residency program offered up to 30 students the chance to receive intensive job shadowing and mentorship with health care professionals at the new Centegra Hospital-Huntley and other clinical locations. The District launched its Blended Learning Program at Huntley High School in This program allows students to enroll in classes that meet 7

11 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 both in-person and in an online environment. The Blended Learning Program has fostered increased student engagement, independence and decision-making regarding their learning experience, significantly impacting their college readiness. As a result, academic achievement continues to increase, as evidenced by steadily increasing student achievement. The focus for teaching and learning in the District has been on innovative programming to prepare students for future success. The programming related to student technology, engineering, biomedical sciences, and blended learning distinguishes District 158 from its peers and creates a foundation for student growth and opportunity. Finances Within the fast moving and ever evolving educational arena, the District is recognized as a model in shifting to 21 st century learning while maintaining the highest degree of fiscal responsibility. Advancing our student resources and opportunities, maintaining the health and strength of our staff, buildings and other assets while keeping a pulse on the needs of our community is not an easy task in this era of state funding unknowns. Over the last six years, the District increased its operating fund balance from $24.3 million in fiscal year 2011 to $36.7 million at the end of fiscal year 2017 resulting in significantly improved cash flow. Prior to levy year 2013, the improved financial position enabled the District to keep property taxes, before new construction, the same for three years. During the last four fiscal years, in an effort to reduce the impact to the community, the District abated $400,000 of debt annually, reducing the overall property taxes levied to the community. Please see Property Tax Levy Abatements below. The District is committed to providing the best value to the community while continuing to maintain a low operating cost per pupil. Currently, the District s operating cost per pupil for fiscal year 2017 approximated $9,832, approximately 24% below the fiscal year 2016 State average of $12,973. Please see Financial Highlights below. Operations & Maintenance One of the District s missions with Operations & Maintenance is to provide quality service in an efficient and professional manner to ensure building safety and comfort. The fiscal year 2017 O&M Department Annual Report demonstrates the ability of the department to maintain a flat operating expense per unit cost as the District facilities matured from new, warrantied infrastructure, to facilities which are between 10 and 21 years of age while preserving the physical plant. During the year, the District had the funding to complete the following major projects: Replacement of 237,000 sq. ft. of the asphalt pavement system on the Square Barn Rd. Campus Replacement of the roof system at Leggee Elementary School Replacement of the roof system at Martin Elementary School Replacement of a total of 50,000 square feet of carpet floor coverings in three elementary schools (Conley, Chesak and Leggee) Masonry wall restoration at Mackeben, Heinemann, Marlowe, Martin, Chesak, and Leggee Schools Replacement of the chiller and two roof-top HVAC units at Conley Elementary School Sand and refinish gymnasium floors at Marlowe and Heinemann Middle Schools Various smaller scale added value and maintenance projects throughout the School District As our buildings age, we will be continuing to monitor and replace physical plant infrastructure as appropriate. 8

12 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 In the recent years since the District s Administration and Transportation Building earned the U.S. Environmental Protection Agency s (EPA s) Energy Star certification (which signifies that the building performs in the top 25 percent of similar facilities nationwide for energy efficiency and meets strict energy efficiency performance levels set by the EPA), the District is tracking favorable for designation of the same rating in six of its eight school buildings. These six facilities have a 24 month track record well above the minimum requirement for Energy Star designation and applications are being processed for submission to the US EPA Energy Star program right now. The Operations and Maintenance Department has lead the District through gaining over $277 thousand in incentive funding from the Illinois Energy Now program to assist with funding its ongoing energy conservation efforts as a part of the more than $1.5 million in incentive funding captured over the last ten years. Technology The mission and vision of the District's Technology Department is to utilize state-of-the-art technology to personalize the education experience of our students while developing critical thinking and problem solving skills by integrating technology as a learning and information sharing tool. During the year, the District had the funding to complete the following major projects: The District completed the rollout of the 1:1 program by distributing Chromebooks to 11 th and 12 th grade students, becoming the largest district-wide, K-12 rollout of devices in the State of Illinois. During the school year, the District purchased a total of 6,200 Chromebooks to complete the 1:1 rollout noted above and begin the replacement cycle of devices. Refreshed a portion of the WIFI network to ensure continued support for the 1:1 devices. Expansion of infrastructure capacities in areas such as Internet and security Replacement of aging hardware including projectors, phones and copiers Going forward the District will begin replacing student and teacher devices on a similar cycle to ensure that our technology remains current and able to meet our ever-growing expectations. Financial Highlights Operating Results Over this past year, the State of Illinois has continued to be in a downward spiral financial crisis, impacting the amount of funding towards K-12 education, thus challenging the District financially. Over this period of time, the District has met that challenge head on, maintaining quality of education with minimum impact to the classroom. Moreover, the District has budgeted conservatively, and in doing so has improved its financial position. As a result, the District s operating cost per pupil continues to be well below the State average. The District s operating cost per pupil, approximating $9,832 per student in fiscal year 2017, continues to be the one of the lowest in McHenry County for all K-12 districts and significantly below the State s 2016 average operating cost per pupil of $12,973 per student. See chart below. 9

13 MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 For the fiscal year ended June 30, 2017, the District finished the year with an operating surplus of approximately $1.11 million. The fiscal year 2017 surplus was primarily driven by favorability in salaries and benefits. The District's operating funds, which include the Educational Account, Operations and Maintenance Fund, Transportation Fund, Municipal Retirement/Social Security Fund, and Working Cash Account, increased fund balance by $1.11 million, resulting in an ending operating fund balance of $36.71 million. Thus, despite the District s low revenue per student and the State s current economic climate, our District continues to deliver relevant and dynamic educational experiences for all of our students while continuing to operate efficiently and to meet the operating needs of the District. Planning for the Future In fiscal year 2014, the District began the process of setting aside funds for future capital projects. Over the past several years the Board of Education has approved a resolution restricting dollars for reserve for replacement. The resolution states that the sum of dollars currently on deposit within the Educational Account, and not designated or committed for any other purpose(s), is hereby designated and committed for future capital improvements of the District. Since fiscal year 2014, the District budgeted for the Reserve for Replacement so that these dollars can be set aside and designated for the same purpose. In fiscal year 2016, the District approved a resolution restricting $2.6 million. Thus, at the end of fiscal year 2017, the total Reserve for Replacement totaled $5.4 million. As part of the fiscal year 2017 budget, $1.1 million was budgeted for the reserve. It is anticipated that these dollars will be restricted via a Board of Education resolution in fiscal year In prior year, the District continued to restructure its debt and issued $5.22 million in General Obligation Refunding School Bonds with an interest rate 1.63%. The proceeds were used to advance refund $5.12 million of outstanding Series 2008 and 2009 General Obligation Refunding Bonds. See Long-Term Debt below. 10

14 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Property Tax Levy Abatements During fiscal year 2017, the 2016 levy reflected a Consumer Price Index increase of.7% in accordance with the Property Tax Limitation Law. Over the last several fiscal years, in an effort to reduce the financial impact to the community, the District has annually abated $400,000 of debt, reducing the overall property taxes levied to the community. Using proceeds from the Capital Development Grant, the District has abated $1.6 million over the past four fiscal years. In addition, in fiscal year 2016, the District approved a partial abatement of real estate taxes for Hiwin Corporation, a manufacturer of high tech supplies for a variety of industries, which moved its manufacturing and regional headquarters to Huntley from Elgin in March The agreement, which was developed in conjunction with the Village of Huntley in an effort to increase the commercial business base of the Village, will provide a 50% abatement of real estate taxes for three years, beginning with levy year 2017 (given construction is complete). Once the property is fully assessed, which is not anticipated until levy year 2017, the anticipated property tax revenue that would be directed to the District approximates $243k. Long-Term Debt In fiscal year 2017, excluding capital leases and unamortized premiums/discounts, the District retired and/or defeased $6.91 million of debt. (See Note 6 in the Notes to Financial Statements.) In fiscal year 2016, in an effort to manage our increasing debt, the District continued to restructure its debt and issued $5.22 million in General Obligation Refunding School Bonds with an interest rate 1.63%. The proceeds were used to advance refund $5.12 million of outstanding Series 2008 and 2009 General Obligation Refunding Bonds. As part of the Series 2014 Bond refunding, the District went through a Standard & Poor s (S&P) rating whereby the District received a strong rating of AA. The S&P AA rating reflects that an organization demonstrates high standards of quality based on its investment process and management's consistency of performance as compared to organizations with similar objectives. The AA rating reduced interest rates and increased savings to the District in interest expense and bond insurance fees. (See Note 6 in the Notes to Financial Statements.) In fiscal year 2016, as part of the advance refunding, a rating review was not done; however, based upon the District s improved financial performance over the past few years, the strong rating of AA carried forward as evidenced by the low interest rate received for the sale of the Series 2016 bonds. The District s legal debt margin, which is the capacity to borrow additional funds, is $84.91 million, up from prior years $66.27 million. The increase is primarily due to the decrease in applicable debt and an increase in equalized assessed value as part of the legal debt margin formula. Applicable debt decreased $2.99 million while the District s Equalized Assessed Valuation increased $ million, increasing the statutory debt limit by approximately $18.64 million dollars. (See Note 6 in the Notes to Financial Statements.) Financial Rating A district's Financial Profile, as measured by the Illinois State Board of Education, is based upon a weighted combination of five ratios: o o o o o Fund Balance to Revenue Ratio Expenditure to Revenue Ratio Days Cash on Hand Percent of Short-Term Borrowing Maximum Remaining Percent of Long-Term Debt Margin Remaining 11

15 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 While an estimated profile is identified here, it is an estimation and may change, as the final profile score will be calculated by ISBE. Total profile scores are identified as follows: Score Rating Description Financial Recognition The highest category of financial strength Financial Review The next highest financial health category Financial Early Warning ISBE will be monitoring these districts closely and offering proactive technical assistance Financial Watch ISBE will be monitoring these districts very closely and offering them technical assistance including, but not limited to, financial projections, cash flow analysis, budgeting, personnel inventories, and enrollment projections. In fiscal year 2017, the District s Financial Profile Rating is that of Recognition at 3.80 for the second straight year. The District s rating has steadily improved over the last five fiscal years. Recognition is the highest rating of financial strength. Below is a Profile Score History outlining the positive trend the District has made over the past several years. Other Financial Highlights After several years of a declining housing market, new construction within the District s boundaries has been on the rise. In fiscal year 2017 new construction increased 142% over fiscal year 2016 as a result of the recovered TIF of $24.35 million. Excluding the TIF recovery, new construction increased 13.1% to $21.30 million. In fiscal year 2016, new construction increased 8.7% over fiscal year New construction by levy year follows: 12

16 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 In fiscal year 2008, the District began to directly pay for its employee health care benefits under a selfinsurance health plan. To minimize year-to-year fluctuations and resulting financial risks, the District's self-funded health plan is managed by a third party administrator and contains a stop-loss policy. In fiscal year 2017, the stop-loss policy covered catastrophic health care costs above $165 thousand per insured individual. In fiscal year 2017, the District s healthcare costs of $6.8 million decreased slightly from prior year s $7.1 million. The Illinois State Board of Education (ISBE) acknowledged an obligation to fund an additional $1.29 million from the fiscal year 2005 General State Aid claim. This was recorded as a receivable in both financial statement presentations; however, an offsetting liability (deferred revenue) has also been recorded in the fund financial statements due to the timing of the receipt of payment. To date, the District has received $1.02 million. During fiscal year 2017, the District received $21.5 thousand. The remaining receivable and deferred revenue balance approximate $262 thousand. 13

17 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Fiscal Year 2017 Government-Wide Financial Analysis Figure A-1 Summary Statement of Net Position June 30 Governmental Activities 2017 Governmental Activities 2016 Increase (Decrease) % Change Current assets $ 97,680,113 $ 94,609,827 $ 3,070, % Capital assets, net of depreciation Total assets 197,498, ,178, ,625, ,235,422 3,872,636 6,942, % 2.4% Deferred charge on refunding 8,490,744 9,050,567 (559,823) -6.2% Pensions 3,616,388 3,370, , % Total deferred outflows on resources 12,107,132 12,421,180 (314,048) -2.5% Long-term liabilities 148,771, ,070,949 (1,299,617) -0.9% Other liabilities Total liabilities 18,622, ,393,963 16,618, ,689,654 2,003, , % 0.4% Unavailable rev-property taxes 34,275,485 33,121,417 1,154, % Pensions 587, ,634 (76,531) 100.0% Total deferred inflows or resources 34,862,588 33,785,051 1,077, % Net position: Net investment in capital assets 83,635,077 75,667,381 7,967, % Restricted 21,796,366 22,509,339 (712,973) -3.2% Unrestricted (402,518) 2,005,177 (2,407,695) % Total Net Position $ 105,028,925 $ 100,181,897 $ 4,847, % Analysis of the fiscal year 2017 Statement of Net Position Overall, the District's total Net Position at June 30, 2017 increased to $105.0 million from $100.2 million in fiscal year 2016, an increase of 4.8% or approximately $4.8 million. In fiscal year 2017, the District's total assets increased $6.9 million due to two roof replacements, a new chiller, and major asphalt improvements while the District's current assets increased $3.1 million, primarily the result of increased receivables for property taxes and state funding as well as an increase in the cash and investment balance. The District's total liabilities increased by $.7 million in fiscal year 2017 primarily due to an increase in other liabilities of $2.0 million. The increase in other liabilities was due accounts payables for large capital projects such as the Leggee and Martin roof replacements, a new chiller at Conley, and the Admin Center asphalt improvements (Figure A-1). The Restricted portion of Net Position consists of the Operations and Maintenance Fund, Transportation Fund, Municipal Retirement/Social Security, Debt Service Fund, Capital Projects Fund, and the Fire Prevention and Life Safety Fund. 14

18 MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Fiscal Year 2017 Statement of Activities Figure A-2 Summary Statement of Activities June 30 Governmental Governmental Activities Activities Increase (Decrease) % Change Revenues Program revenues Charges for services $ 6,018,656 $ 6,874,695 $ (856,039) -12.5% Grants & contributions 44,972,721 33,275,637 11,697, % Total program revenues 50,991,377 40,150,332 10,841, % General revenues Property taxes/cpprt 69,556,868 66,339,959 3,216, % State formula aid & formula grants 21,853,750 20,262,590 1,591, % Other Total general revenues Total revenues 274,325 91,684, ,676, ,016 86,727, ,877, ,309 4,957,378 15,798, % 5.7% 12.5% Expenses Instruction 86,983,244 73,142,433 13,840, % Support Services 38,269,698 38,606,608 (336,910) -0.9% Community Services 12,936 1,184 11, % Payments to Other Dists./Govts. 2,160,301 2,230,203 (69,902) -3.1% Interest and fees 8,151,514 8,307,086 (155,572) -1.9% Other Total expenses 2,251, ,829,292 2,018, ,305, ,311 13,523, % 10.9% Increase(Decrease) in Net Position $ 4,847,028 $ 2,572,095 Beginning Balance Prior Year Adjustment $ 100,181,897 $ 97,609,802 Ending Balance $ 105,028,925 $ 100,181,897 $ $ 2,274,933 4,847, % 4.8% Analysis of the fiscal year 2017 Statement of Activities Total revenues increased by $15.8 million. Grants and Contributions consisting of state and federal revenues (except General State Aid) increased by $11.7 million primarily for state on-behalf revenue which increased $12.3 million, mostly due to increased pension revenue related to GASB 68 (see Note 10 in the Notes to Financial Statements). General revenues increased $4.9 million due to an increase of $1.6 million in General State Aid and $3.2 million of property taxes. Total expenditures increased by $13.5 million primarily driven by increased instructional costs for salaries and benefits as well as the $12.3 million for state on-behalf expenditures related to the increase in pension expense. (Figure A-2). 15

19 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 The following is a graphic illustration of the percent of revenue by source: 16

20 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 The following is a graphic illustration of the percent of expense by source: Financial Analysis of the District's Governmental Funds Huntley Community School District 158 uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. 17

21 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 The District's operating funds, which are comprised of the Educational Account, Operations and Maintenance Fund, Transportation Fund, Municipal Retirement/Social Security Fund, and Working Cash Account had an increase in fund balance during fiscal year 2017 of $1.1 million, resulting in an ending operating fund balance of $36.7 million. The increase in fund balance is primarily driven by favorability in salaries and benefits in fiscal year 2017 as well as revenue favorability within several line items. A Financial Analysis of District Funds is located in Figure A-3. The District's non-operating or capital funds are comprised of the Debt Service, Capital Projects, and Fire Prevention and Life Safety Funds which had a decrease in fund balance during fiscal year 2017 of ($1.2) million related to the construction projects at Huntley High School and debt service payments. The Capital Projects Fund is used for construction projects and some related debt services, and the Debt Service Fund is designated specifically for debt service. The District's total fund balance, for all funds, in fiscal year 2017 is $47.3 million, a decrease of ($61) thousand from fiscal year Figure A-3 Fund Educational O & M Transportation IMRF/Social Security Working Cash Debt Service Capital Projects Fire Prevention & Safety Net by Fund $ $ Financial Analysis of District Funds June 30, 2017 Revenues Expenditures Other Financing 110,514,400 $ 110,394,390 $ 173,641 13,752,830 12,461,714 (155,413) 5,339,119 6,704, ,075 2,775,769 2,724, , ,159,642 10,213, , ,895 1,144,674 (238,075) ,715,758 $ 143,644,232 $ 867,299 $ $ Net Change 293,651 1,135,703 (734,586) 50, ,052 (598,098) (579,854) 51 (61,175) Total Operating Funds Total Capital Funds $ $ 132,753,170 9,962,588 $ $ 132,285,747 11,358,485 $ $ 649, ,996 $ $ 1,116,726 (1,177,901) Figure A-4 Object Salaries Employee benefits Purchased services Supplies and materials Capital outlay Other Expenditures by Object Analysis of District Expenses by Object June 30, 2017 Operating Capital Funds Funds $ 58,043,342 $ - $ 47,132,571-8,250, ,217,592-7,819,177 1,144,066 2,822,962 10,213,811 $ 132,285,747 $ 11,358,485 $ Total % Funds of Total 58,043, % 47,132, % 8,250, % 8,217, % 8,963, % 13,036, % 143,644, % General Fund Budgetary Highlights The General Fund includes the Educational and Working Cash Accounts. The District s original and final budget for the General Fund anticipated that expenditures would exceed revenues by $331,410. The year ended with an increase of $491,

22 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Capital Asset and Debt Administration Analysis of the fiscal year 2017 Capital Assets By the end of fiscal year 2017, the District had compiled a broad range of capital assets including land, buildings, computers, furniture, and other equipment. The District recorded $259.8 million in gross assets and $62.3 million in accumulated depreciation, resulting in $197.5 million in net capital assets. During fiscal year 2017, the District placed in service $3.9 million in capital additions, primarily the result of the new roofs at Leggee and Martin, chiller replacement at Conley, and major asphalt improvements at the Administration Center. Fiscal year depreciation expense ended the year at $5.1 million. See Capital Assets (Note 4) in the Notes to Financial Statements. Figure A-5 Net Capital Assets June 30 Governmental Governmental Activities 2017 Activities 2016 Increase (Decrease) % Change Land $ 10,899,723 $ 10,899,723 $ - 0.0% Construction in Progress - 10,016,325 (10,016,325) % Land improvements, net 17,728,674 16,712,901 1,015, % Buildings & Equipment, net 166,705, ,286,826 11,419, % Vehicles, net 2,163, ,820 1,454, % Capital assets, net $ 197,498,231 $ 193,625,595 $ 3,872, % Depreciation expense-fiscal year $ 5,090,607 $ 4,494,960 $ 595, % Accumulated Depreciation 62,325,600 57,707,022 4,618, % Capital assets $ 259,823,831 $ 251,332,617 $ 8,491, % Analysis of the fiscal year 2017 Long-Term Liabilities As of June 30, 2017, the District has long-term debt in the amount of $150.4 million. The increase in current maturities of long-term debt from June 30, 2016 to June 30, 2017 is due to the District s increasing debt aligned with its restructuring plan combined with an increase in current debt associated with capital leases for buses and copiers. Total long-term liabilities have decreased from prior year as a result of paying down our debt obligations. See Debt Service Requirements (Note 6) in the Notes to Financial Statements. Figure A-6 Outstanding Long-Term Liabilities June 30 Governmental Governmental Activities 2017 Activities 2016 Increase (Decrease) % Change Interest Payable $ 1,651,577 $ 1,664,482 $ (12,905) -0.8% Long-term liabilities (due within 1 year) 8,941,443 8,484, , % Long-term liabilities (due after 1 year) 139,829, ,586,533 (1,756,644) -1.2% Total $ 150,422,909 $ 151,735,431 $ (1,312,522) -0.9% See Capital Assets (Note 4) and Long-Term Liabilities (Note 6) in the Notes to Financial Statements for further information. 19

23 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Factors Bearing on the District's Future At the end of fiscal year 2017, after two plus years without a State Budget, Illinois legislators voted to override the governor s veto on the budget and the budget implementation bills. The Fiscal Year 2018 budget bill (SB 6) included $350 million in additional education funding for the evidence-based school funding model as well as an increase of $65 million for regular and vocational transportation. In addition, the budget included enough funds so that the other mandated categorical grant line items would be funded at least at fiscal year 2017 level and tied all school funding to the evidence-based model as presented in the original SB1. On Tuesday, August 29th, a bipartisan majority in the General Assembly passed a landmark education bill, the evidence-based funding bill SB The passing of the evidence based-funding approach is a victory to Illinois education and ensures every district in the state will be receiving funding that is closer to adequacy, and provide many downstate schools the support it has needed over the last several years. Huntley 158 is no exception. Under the original SB1 Evidence-Based Funding Model, the District was at approximately 65% of Adequacy, and considered a Tier II district in terms of eligibility for additional funding. As a result, the District is expected to receive additional State funding in the coming years. The persistent weakness of the State s economy continues to be a growing concern. Although the State passed a budget and increased the State s income tax rate, the State s ability to properly fund education remains a concern. Cost increases exceeding the general rate of inflation continue to be expected for the District relative to healthcare obligations for fiscal year 2018 and beyond. These costs represent a significant portion of the District s budget and their rate of increase is a concern to Administration and the Board of Education. Other statistical information related to the District s EAV and property tax rate history is detailed below in Figure A-7: Figure A-7 Assessed Valuation & Tax Rate History Equalized Total Levy Assessed Percent Tax Year Valuation Increase Rate ,245,355, % ,132,045, % ,075,625, % ,076,860, % ,135,474, % ,263,876, % ,263,367, % ,434,694, % ,406,256, % ,323,395, % ,191,031, % ,026,815, % ,058, % The District's employment groups are under contract as follows: o Teaching staff (Huntley Education Association) through fiscal year o Educational support staff (Huntley Education Support Personnel Association) through fiscal year