Piqua City School District 719 East Ash Street Piqua, Ohio ASSUMPTIONS TO THE FIVE-YEAR FORECAST May 2018

Transcription

1 Piqua City School District 719 East Ash Street Piqua, Ohio ASSUMPTIONS TO THE FIVE-YEAR FORECAST May 2018 INTRODUCTION TO FIVE YEAR FORECAST All school districts in Ohio are required to file a five (5) year financial forecast by October 31, and May 31, in each fiscal year (FY). The five-year forecast includes three years of actual and five years of projected general fund revenues and expenditures. Fiscal year 2018 (July 1, 2017-June 30, 2018) is the first year of the five year forecast and is considered the baseline year. Our forecast is being updated to reflect the most current economic data for the May 2018 filing. ECONOMIC ENVIRONMENT AFFECTING FORECAST VARIABLES STATE ECONOMY It is important in long range forecasting to consider the economic framework in which projections of revenues are made. We will offer a sampling of statewide economic data that suggests that the economy for the FY18-22 period is growing moderately and is recovering from the recession. It is important to consider the statewide economic data for two important reasons. One, our state funding is directly affected by state revenue collections. The effects of the recession on the economy at the state level created a budget deficit which required the State of Ohio to make nearly $8 Billion in reductions in the FY12-FY13 state biennium budget which translated into flat funding and/or funding reductions for nearly every school district in Ohio. The second reason is that the same economic forces which are driving the recovery of state tax revenues are also likely affecting the underlying economics of most communities in Ohio affecting the ability to collect local tax revenue. Generally speaking local school district economic viability is tied to the same fundamental economics that drive the state. As noted in the graph below State of Ohio GDP has recovered and exceeded FY08 levels. GDP growth in Ohio has been steadily increasing through the economic recovery as shown in the graph. Another sign of improvement is the increase in the Ohio House Price index, it has been moderately increasing in

2 The Ohio economy has recovered from pre-recession lows. The recession depleted the RDF in FY09. FY11 began the recovery of the economy and enabled the state to contribute excess revenues to the RDF. As noted the RDF balance in FY15 has reached an all-time record high deposit of $2.034 Billion. However, this cushion will not be touched under the governor s new budget proposal. We still at this time do not know what the budget will hold for K-12 education, but it doesn t look like much improvement. The State of Ohio is looking at revenues $400 million under estimates and the house has currently addressed about 65% of that budget gap and has left approximately $140 million to the Senate to cut. Only time will tell if K-12 education is impacted from this anticipated revenue loss, but again the rainy day fund is off limits according to the governor. Ohio s overall economy is stable and is in the top 10 states in gross state product with steady growth. Our debt is low and our expenses are in line with economies of similar size. 2

3 A final note on the overall state economy is the unemployment rate. This is a significant measure to monitor for continued economic viability of the recovery. As of April 2018 the unemployment rate in Ohio stood at 4%. The 4.0% rate is.3% higher than the 3.7% rate nationally and is the same gap since August

4 Overall, we believe the economic recovery is stable and the economy slowly improving. The State has completed the biannual budget and the projections are based off of the revenues projected to the district based off of projections provided by the State of Ohio. The higher than average unemployment figures provide for some concern for a sustained recovery in property and income tax. Collections assumptions in this forecast: 1) stabilizing declining property values; 2) increasing current property tax collections; and, 3) increasing prior delinquent tax collections. Income Tax revenues should increase slowly or remain flat with the growth of jobs. Forecast Risks and Uncertainty: Our financial forecast is laden with risks and uncertainty due to the economic climate and volatility of the legislative changes that are happening very fast and with little time to plan. The items below give a short description of the current issues and how they may affect our forecast long term: Piqua City School District went through a complete appraisal update in calendar year 2016 to collect in calendar year Real estate remained flat after extreme losses in the 2013 reappraisal. The stagnation of property values appears to be lessening. Home sales are swift and the prices are increasing at a rapid rate, so there is potential to see some improvement in the next reappraisal. The state budget represents 58% of district revenues in FY18. It is clearly an area of on-going risk to the current level of revenue. The risk comes in FY18 and beyond if the state economy worsens or if future state budgets radically reduce funding to our district. Future uncertainty in both the state foundation funding formula and the state s economy makes this area an elevated risk to district funding long term. Patient Protection and Affordable Care Act (PPACA) This program was approved March 23, 2010 along with the Health Care and Education Reconciliation Act. Many of the provisions of this federal statute were supposed to be implemented January 1, 2014 but were delayed. We incurred additional taxes that were imposed to the district as of January 1, 2015 increasing costs 2% alone. There is the additional risk that costs will go up as uncertainty continues with health insurance. Additionally, rules for the PPACA are in flux at this time and we are tracking them closely to determine how they will impact the district. Future uncertainty over rules and implementation of PPACA is an elevated risk to district costs. We continue to monitor the rules and implementation as this significant change to health care evolves. President Trump has signed an executive order that causes more uncertainty with the future of health insurance along with changes from the tax bill. The Cadillac Tax is still looming in the long term picture. Labor relations in the district have been very amicable with all parties working for the best interest of students. We believe as the district moves forward a strong working relationship will continue. The current agreement will expire July 31, The major lines of reference for the forecast are noted below in the headings to make it easier to relate the assumptions made for the forecast item and refer back to the forecast. It should be of assistance to the reader to review the assumptions noted below in understanding the overall financial forecast for our district. If you would like further information please feel free to contact Jeremie Hittle, Treasurer/CFO of Piqua City School District at

5 $1,459, $536, $1,531, $139, $9,938, Revenue $17,786, $6,525, General Property Tax (Real Estate) Unrestricted State Grants-in-Aid Property Tax Allocation All Other Financing Sources Income Tax Restricted State Grants-in-Aid All Other Revenues REVENUE ASSUMPTIONS: Real Estate Value Assumptions Line # Property Values are established each year by the County Auditor based on new construction, demolitions, Board of Revision (BOR)/Board of Tax Appeals (BTA) activity and complete reappraisal or updated values. Assessed values are established by the County Auditor at thirty-five percent (35%) of the appraised market value. All property is required to be reappraised every six years and equalization adjustments made the third year following reappraisal. Due to HB920 provisions, tax rates will adjust up so losses would be limited. The district s property values were updated in The next reappraisal will be completed in Real estate values are predicted to remain stable to slightly increasing for this forecast period. Home sales are swift and the prices are increasing at a rapid rate, so there is potential to see some improvement in the next reappraisal. Real estate values make up 26.4% of the district s General Fund revenue. The operating levies for the district total voted mills. All of the levies are voted for permanent or continuous collection except one. That one levy is a five-year emergency levy that passed in May of 2003, renewed in November 2008, and renewed in May 2013, and November This levy generates $2 million per year at an average millage rate of 5.16 mills. Tangible Personal Property Tax Assumptions Line # In 2011 Tangible Personal Property (TPP) values were reduced to $-0- as a result of HB 66 that took effect July 1, This began a systematic phase-out of this tax base statewide to be replaced by a Commercial Activities Tax (CAT) which revenue was to fully reimburse school districts for TPP losses through FY18 based on 2004 property values. HB153 effective July 1, 2011 eliminated the TPP reimbursement for Piqua City School District in FY12. These reimbursements were to fully compensate the district for the TPP taxes that were based on calendar year 2004 property values, through This phase out process of tangible personal property taxes has caused a significant shift of the tax burden to real property owners. New levies will have a smaller tax base with this phase out of tangible personal property tax. As a result of all of this action, we will no longer be receiving any revenue in this category and the Five Year Forecast illustrates this with no dollars being received within this line. 5

6 Income Tax Assumptions Line # Estimates for income tax revenue are based on historical data and on information provided by the Ohio Department of Taxation. Historically we have seen a 2% increase in collections per year and the district saw a 5% increase in FY17. The projections assume a 2.5% increase in future years and will be adjusted if revenues continue to increase going into the next fiscal year. However, any drastic employment changes (layoffs, plant closures, or new business) will impact this amount. The current income tax of one and one-quarter percent (1.25%) was approved in 1990 (1/2%) for continuous or permanent collection and in May of 2008 (3/4%) for a continuous or permanent collection. Collections on the newly approved continuous or permanent collection of the three quarters percent (3/4%) income tax began on January 1, The phase in of the additional 3/4% portion of the income tax was completed in July State Foundation Revenue Estimates The State funding for schools is based on several factors all of which are subject to deliberations and approval of the Ohio General Assembly. Currently, school funding is set as part of the State s biennial budget HB49 for FY18 and FY19. Calculations in this forecast have been provided by estimates given to the district by the State of Ohio for FY 18 and FY19 using data from HB49. The district s average daily membership (ADM), used to calculate state funding, is expected to continue to remain stable. The district will be on the formula starting in FY20. The district expects no additional revenue from the State beyond FY20 and could find ourselves coming off the cap and going to the guarantee if our enrollment numbers decline for any reason. Unrestricted State Foundation & Casino Line #1.035 The amount estimated for FY18 for state funding is based on funding component computations from the most recent simulations of HB49 from the Legislative Service Commission (LSC). The current FY18-19 state budget HB49 includes an increase in funding for our district. The district will be on the formula starting in FY20. The district expects no additional revenue from the State beyond FY20 and could find ourselves coming off the cap and going to the guarantee if our enrollment numbers decline for any reason. We believe that these simulations are the most authoritative source of information available at this time and we feel it is reasonable to assume flat funding of state aid for FY On November 3, 2009 Ohio voters passed the Ohio casino ballot issue. This issue allowed for the opening of four (4) casinos one each in Cleveland, Toledo, Columbus and Cincinnati, as well as several racinos. As of March 4, 2013 all four (4) casinos are open for business and generating Gross Casino Tax Revenues (GCR). Thirty-three percent (33%) of the gross casino revenue will be collected as a tax. School districts will receive 34% of the total tax that will be paid into a student fund at the state level. These funds will be distributed to school districts on the 31st of January and August each year beginning January Casino revenues have remained fair stable. FY 16 resulted in 1,788,269 students at $ For FY18 GCR increasing to $99 million or $55.92 per pupil. We will increase estimates for out years if actual casino revenues increase. Restricted State Revenues Line # One item that is currently in restricted aid is Career Technical. Career Tech funding is going to be continued in HB49. The second item in restricted aid is Economic Disadvantaged funding. The district has a plan to use these funds in accordance with guidelines provided from OASBO and OSBA. We anticipate there may be other state 6

7 component funds that are restricted but until further guidance is given we have included all other funds in the State Basic Aid line above. Restricted Federal Grants in Aid line #1.045 The district does not expect to receive any federal unrestricted funds in the general fund FY State Taxes Reimbursement/Property Tax Allocation Line Rollback funds are reimbursements paid to the district from Ohio for tax credits given owner occupied residences equaling 12.5% of the gross property taxes charged residential taxpayers on tax levies passed prior to September 29, HB59 eliminated the 10% and 2.5% rollback on new levies approved after September 29, 2013 which is the effective date of HB59. HB66 the FY06-07 budget bill previously eliminated 10% rollback on Class II (commercial and industrial) property. We have not asked voters for any new money, so this hasn t had an impact on our tax base at this time. Homestead Exemptions are also credits paid to the district from the state of Ohio for qualified elderly and disabled. In 2007 HB119 expanded the Homestead Exemption for all seniors over age 65 years of age or older or who are disabled regardless of income. Effective September 29, 2013 HB59 changes the requirement for Homestead Exemptions. Individual taxpayers who do not currently have their Homestead Exemption approved or those who do not get a new application approved for tax year 2013, and who become eligible thereafter will only receive a Homestead Exemption if they meet the income qualifications. Taxpayers who currently have their Homestead Exemption as of September 29, 2013 will not lose it going forward and will not have to meet the new income qualification. This will slow the growth of homestead reimbursements to the district, and as with the rollback reimbursements above, increase the taxes collected locally on taxpayers. All Other Revenue line #1.060 Revenues from all other sources are based on historical patterns and other information available. Federal revenues generated through filing of CAFS reports. This line item also serves as a miscellaneous revenue category for various sources not included above such as investment income, payments in lieu of taxes for compensation agreements, facility rentals, fees, tuition, donations and other miscellaneous revenue sources. All Other Financial Sources Line #2.060 & Line # Refunds from prior years are projected to be stable in FY18 through FY22. New Tax Levies Line # No new levies are modeled in this forecast. 7

8 $481, $788, $278, $7,340, Expenses $17,987, $7,773, Personal Services Employees' Retirement/Insurance Benefits Purchased Services Supplies and Materials Capital Outlay EXPENDITURE ASSUMPTIONS Personal Services Expense line #3.010 The amounts for salaries and fringe benefits are based on existing negotiated agreements and Board approved salary schedules. A two percent (2%) increase in FY There will be a catch-up of one step per year for FY18 and FY19 for those teachers impacted. For periods beyond the current agreements, a two percent (2.0%) was used for salary increases outside of the current term of the PEA contract. A 4% overall increase in FY20-22 was arrived at by taking into account the young age of the staff with a lack of potential staff retirements, staff replacements, and the large likelihood of many step increases and column adjustments in future years. The historical data and reasonable percentage increases were used to project salaries and benefits for substitute employees, supplemental contracts and other temporary-type salaries. In FY18 there is a shift in purchased services from the Miami County ESC to Piqua City School s payroll for special education staff. Employee Retirement/Insurance Expense line #3.020 We continue to look for ways to save in the areas of Personal Services and Fringe Benefits. These savings are coming about through natural attrition. We also are aware that we need to continue to look for ways to enhance our educational programming to stay competitive and to continue to improve our overall District Rating for 2018 and beyond. For Fiscal Years an estimate of a 5% increase has been used for insurance benefits. Due to contractual changes with the association, the board share of any increase in health insurance is limited to 5% per year. FY has 8.0% increases on vision, dental, and life based on historical averages and feedback from our agent. The board share of retirement will also continue to grow with the contracted salary increases. It is uncertain to what extent the continuation of PPACA will cost our district. There are numerous new additional regulations that potentially will require added staff time, at least initially due to increased demands, and it is likely that additional employees will be added to coverage that do not have coverage now. We are not certain what these added costs maybe but there are taxes mandated by the act which we are aware of. The Transition Reinsurance fee due January 15, 2015, is a fee due the IRS for $5.25 per covered member per month for the prior year (2014).This will be $63 for each employee who had a full year of coverage in the prior year. This tax equated to roughly a 2% annual increase in FY15. This cost has been passed along in our fully insured plan. Longer-term a significant concern is the 40% Cadillac Tax that will be imposed in 2020 for plans whose value of benefits exceed and estimated $10,200 for individual plans and $27,500 for family plans. 8

9 The rules and implementation of the PPACA is an ongoing issue we are watching closely to evaluate the effect on our district. Through cooperation with our staff we have been able to offer four health insurance plans instead of just one plan for all our staff members. We are keeping our traditional plan at a higher cost, but also have included three new plans that should be PPACA compliant and will not have a Cadillac Tax in We have added additional staff throughout the forecasted years in order to meet the additional requirements of CORE Standards and 3 rd Grade Reading Guarantee. This forecast includes an increase in 10 instructional aides at the cost of $350,000 per year for each year of the forecast. All prior personnel cost savings have been continued and our supply spending is on classroom focused patterns. We continue to review and bid out any contracted service type of contracts on an ongoing basis. Some of those that have been reviewed are banking services, copier services, audit services and HVAC maintenance to name a few. Through Fiscal Year 2018 and beyond, the administration and Board will continue to implement cost saving measures to prolong the stability of the budget, as well as, enhance its educational programming at the same time. Purchased Services Expense line #3.030 This category includes payments for contracted services, utilities, gas, electric, property insurance and transportation. Significant payments are made to Community Schools, Open Enrollment and the Educational Choice Voucher program. Anticipated expenditures in these areas are based on historical patterns. The percentage increase used was five percent (5.0%). We have also taken into account the recent increases that have been experienced with the cost of utilities. This category also consists of the County ESC deductions for specialized services provided to the District. Supplies and Material Expense line #3.040 Social Studies was updated in Fiscal Year Math has been updated as of Fiscal Year Art, Music and World Languages, and Science are due up in Fiscal Year The district is looking at utilizing electronic textbooks at the high school level, which will reduce textbook expense, but increase capital outlay expense. Capital Outlay Expense line #3.050 Capital outlay expenditures are based on historical patterns. Most capital outlay expenditures are made through the Permanent Improvement Fund. The district has transferred one mill of the General Fund inside millage to the Permanent Improvement Fund. The revenue generated from this collection of one mill is designated by the Board to be used for technology hardware, installation and major software purchases. Chromebooks for high school courses using electronic text have been included in the forecast. The district is currently collecting a 1.8 mill levy for Permanent Improvements. The voters renewed this levy on May 6, Some of these expenditures would contain a debt service requirement to pay for the recently completed update to the HVAC System and Controls at the high school, Brick Tuck Pointing at any of our buildings, any boiler replacements at any of our buildings, new bus purchases, and any roof repairs at any of our buildings, etc. These dollars are very important to the financial stability of the District now and heading into the future. $302,982 of these funds on an annual basis have been targeted for the Piqua High School HVAC debt service requirement through Fiscal Year The total commitment for the HVAC project totals $4,518, Other Objects Expense line #4.300 Auditor and Treasurer Fees will fluctuate with real estate revenue collections. Anticipated expenditures in these areas are based on historical patterns and other specific information available. 9

10 Debt Service and Transfers Out Line# All debt service requirements will be paid timely. The district currently has no debt requirements on the General Fund. One exception to this is the Piqua High School Heating, Ventilation and Air Conditioning replacement project that began in June of We are participating in a Federal program called Qualified School Construction Bonds. This project is being financed by bonds that were sold by the District. It is anticipated that the Permanent Improvement Fund will be paying the debt service requirements on an annual basis, but in case the Permanent Improvement Fund is not renewed, this debt service requirement would fall upon the General Fund, but this payment is not currently reflected in this Five Year Forecast due to the passage of the PI levy. Encumbrances Line#8.010 These are outstanding purchase orders that have not been approved for payment as the goods were not received in the fiscal year in which they were ordered. Estimates are based on historic trends. Ending Unencumbered Cash Balance The Bottom-line Line# This amount must not go below $-0- or the district General Fund will violate all Ohio Budgetary Laws. Any multi-year contract which is knowingly signed which results in a negative unencumbered cash balance is a violation of , ORC punishable by personal liability of $10,000, unless an alternative 412 certificate can be issued pursuant to HB153 effective September 30, Final Comment We will continue to monitor the district s finances as more information becomes available. We will also adjust our projections accordingly as there will be future developments that will impact the finances of Piqua City Schools. We have finished our 10 th year in the black and we are pleased that we have lived within our budget and plan to do so in the future. Our annual carryover goal is to be within the days of operations. This amount of carryover provides a District of our size financial stability to adjust to any unforeseen declining economic conditions. We have completed our $55 million dollar construction project in FY17. The generosity of our community has provide students of our district with 3 new state of the art elementary buildings. We have seen no additional costs to operate these buildings over what the district was paying prior to construction, even with the added air conditioning at our new buildings. These buildings are quality designed buildings and highly efficient in utility consumption. The students, staff and Board are thankful to have this gift from our community. This will afford our District to educate our students in a 21 st Century atmosphere. We are proud that we are able to provide a district with sound finances while providing an exceptional educational experience for our students. 10