Piqua City School District 719 East Ash Street Piqua, Ohio ASSUMPTIONS TO THE FIVE-YEAR FORECAST October 2013

Transcription

1 Piqua City School District 719 East Ash Street Piqua, Ohio ASSUMPTIONS TO THE FIVE-YEAR FORECAST October 2013 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 2014 (July 1, 2013-June 30, 2014) 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 October 2013 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 FY14-18 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 graphs below State of Ohio Revenues through FY13 have recovered and exceeded FY08 total tax revenue levels. The two significant contributors to the economic recovery as noted in the graph on the right are personal income taxes and sales and use taxes. The recovery of the labor market will continue to be a significant factor to watch in determining if the recovery of the last two fiscal years will continue. Source: Ohio Legislative Budget Office Source: Ohio Legislative Budget Office The above State revenue is a clear indication that the economy has recovered and that there is economic growth in the state. Another indication that the State of Ohio has achieved solid footing economically is the accumulation of reserves in the State Rainy Day Fund (RDF). 1

2 The graph below shows the ten year history of the Rainy Day Fund balance. 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 FY13 has reached an all time record high deposit of $1.478Billion. This cushion should help ensure that funding for schools approved in the recent state biennium budget HB59 will be met through FY15 and could be continued into the future if a brief pull back in the economy occurs over the next few years. 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 noted above personal income taxes and sales tax are highly correlated and have been two major drivers of the recent recovery. As of July 2013 the unemployment rate in Ohio stood at 7.2%, which is unchanged from July The 7.2% rate is much lower than the 10.5% rate in 2009 but it has a long way to go to reach the 5.5% rate of Source: Ohio Legislative Budget Office Source: Bureau of Labor Market Information Overall, we believe the economic recovery is stable and the economy improving. This should provide a stable basis for which to make projections of State revenues to the district as noted in HB59 through FY15 and continuing through FY18. The improving labor market should also provide a basis for a recovery in property tax collections in this forecast by: 1) stabilizing declining property values; 2) increasing current property tax collections; and, 3) increasing prior delinquent tax collections. 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 reappraisal update in calendar year 2013 to collect in calendar year Real estate values are predicted to decrease 9.8% for residential, 6% for commercial and 9% for industrial property for the reappraisal in Agricultural values in the district are predicted to increase as much as 34%, which will help offset the decrease in values of other property. We do not feel the district is at a high risk for sharp declines in projected revenue at this time, but should remain stagnant for at least the next three years. The state budget represents 49% of district revenues in FY14. It is clearly an area of on-going risk to the current level of revenue. The risk comes in FY16 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. 2

3 There are many provisions in the current state budget bill HB59 that will increase the district expenditures in the form of expanded EdChoice Scholarships in the school years and the new Income Base-Based Voucher Program in FY14. These are examples of new choice program in the prior state budget that cost the district money and these new voucher programs could increase costs as well. Expansion of programs such as these could expose the district to new expenditures that are not currently in the forecast. We are monitoring any new threats to our state aid and increased costs very closely. 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 provision of this federal statute were supposed to be implemented January 1, 2014 but were delayed by the IRS on July 2, 2013 until January 1, We are aware of additional taxes that will assessed on the district January 1, 2015 which could increase costs by as much as 2%. We have also been notified of a potential increase in premiums by 40% due to the design of our plan with the new PPACA rules. There is the additional risk that costs will go up as additional employees are added to our health care rolls. Rules for the PPACA are in flux at this time and we are tracking them closely. 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. 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, 2014 and we will begin the negotiation process in early 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 REVENUE State Other Revenue 4% Other Local Revenue 3% State Revenue 45% Property Tax 31% Income Tax 17% Property Tax $ 9,333, Income Tax $ 5,194, State Revenue $13,676, State Other Revenue $1,179, Other Local Revenue $ 733,

4 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 2013 Real estate values are predicted to decrease 9.8% for residential, 6% for commercial and 9% for industrial property for the reappraisal in Agricultural values in the district are predicted to increase as much as 34%, which will help offset the decrease in values of other property. We do not feel the district is at a high risk for sharp declines in projected revenue at this time, but revenue should remain stagnant for at least the next three years. Real estate values make up 31% of the district s General Fund revenue. We will update values as more information is available. 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 This levy generates $2,100,000 per year at an average millage rate of 4.88 mills. The district s assessed millage is at the 20-mill minimum floor as applied to both real property classifications. 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. 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 1% increase in collections per year and we project this to continue the next five years. 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

5 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. School funding is set as part of the State s biennial budget HB59 for FY The district s average daily membership (ADM), used to calculate state funding, is expected to remain stable. Unrestricted State Foundation & Casino Line #1.035 The amounts estimated for FY14 and FY15 for state funding is based on funding component computations from the most recent simulations of HB59 from the Legislative Service Commission (LSC) dated June 25, The current FY14-15 state budget HB59 includes an (increase, flat) funding for our district. We are using the LSC simulations we have been given by the state to project our state revenues until an actual modeling tool is officially released by the ODE. When an authoritative simulation tool is available we will revise our projections if a material difference is noted. In FY14-15 HB59 is using the fourth (4th) new funding formula for public education since The new funding formula is very complex and as noted above there is still no authoritative simulation tool released at this time. The new funding formula has a new method to measure a district s wealth and capacity to raise local revenue. The new wealth measure is called the State Share Index (SSI). There are three (3) components of the SSI: 1) Valuation Index that measures the district s average property value per pupil for tax year 2010, 2011 and 2012 compared to the statewide average valuation per pupil; 2) Median Income Index that uses tax year 2011 median income compared to statewide median income that is used to measure the ability of a district s residents to pay property taxes; 3) Wealth Index which uses two thirds (2/3) of the Valuation Index and one third (1/3) of the Median Income Index to compute the overall district Wealth Index. The three components taken together form the one (1) overarching State Share Index (SSI) which equalizes state funding based on wealth. In prior funding formulas the main tool to equalize wealth was a millage chargeoff of 23 mills of adjusted valuation per pupil. If the SSI were reduced to a charge-off as in past formulas there would not be a uniform charge-off, rather a range of charge-off rates from 11.3 mills to 22.9 mills. The SSI, or one or more of the other three (3) indexes, are applied in determining need on the nine separate components that constitute state aid in FY14 and FY15. The nine (9) components of the new funding model are: 1) Opportunity Grant Per pupil amount of $5,745 in FY14 and $5,800 in FY15 2) Targeted Assistance Tier I based on wealth and Tier II based on percentage of district agricultural assessed value 3) Special Education Additional Aid Based on six (6) categories of disability 4) Limited English Proficiency Based on three (3) categories based on time student enrolled in schools 5) Economically Disadvantaged Aid- Based on number and concentration of economically disadvantaged students 6) K-3 Literacy Funds- Based on districts K-3 average daily membership and two Tiers 7) Gifted Funds Based on average daily membership at $5.00 in FY14 and $5.05 in FY15 8) Career-Technical Education Funds Based on career technical average daily membership and five (5) categories students enrolled in 9) Transportation Aid Funding based only on greater of per rider or per mile costs for each district. A supplemental payment for districts that have a SSI of.5 or greater and pupil density at or below the state median 5

6 The current LSC simulations are using FY13 ADM and hold those numbers steady through FY15. 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 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 The initial student payment to school in January 2013 was $21.00 per pupil based on 1,816,000 pupils in Ohio. As more actual taxes are collected the state has indicated that the original 2009 estimates of $1.9 Billion of GCR may be closer to $900 million to $1.1 billion, as revenues from casinos are falling off. We are estimating statewide student enrollment to decline by ½ of 1% from the FY13 total to 1,808,000 students and school districts share of GCR to be $85 million resulting in FY14payments being $47 per pupil. For FY15-18 we estimated another ½ of 1% decline in pupils to 1,797,885 and GCR increasing to $90 million or $50 per pupil. We will increase estimates for out years when actual casino revenues increase. No official Ohio Department of Taxation projections have been updated for actual data and no further guidance has been given as to the exact amount of these payments. Our assumptions are based on revenue reports produced monthly by the Ohio Casino Control Commission that the assumptions we have made are reasonable. Restricted State Revenues Line # The only item currently in restricted aid is Career Technical. Career funding is going to be continued in HB59. We have incorporated this amount into the restricted aid amount in Line # 1.04 for FY14-18, where the state has required it to be accounted in the past. We anticipate there may be other state 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. 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. 6

7 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 $90,000 in FY14 and remain stable at $90,000 in FY15 through FY18. New Tax Levies Line # No new levies are modeled in this forecast. EXPENSES Supplies and Materials 3% Capital Outlay.1% Other Objects 1% Purchased Services 22% Employee Benefits 22% Personal Services 52% EXPENDITURE ASSUMPTIONS: Personal Services $5,406, Employee Benefits $6,581, Purchased Services $6,526, Supplies and Materials $ 807, Capital Outlay $ 50, Other Objects $ 202, Personal Services Expense line #3.010 The amounts for salaries and fringe benefits are based on existing negotiated agreements and Board approved salary schedules. This amounts to a zero percent (0%) increase in salaries for all employees for Fiscal Year There will be no catch-up of steps when a step is added for Fiscal Year For periods beyond the current agreements, a two point three percent (2.3%) was used for salary increases outside of the current term of the PEA contract. This percentage was arrived at by taking into account potential staff retirements, staff replacements, and those that qualify for a step increase. The historical data and reasonable percentage increases were used to project salaries and benefits for substitute employees, supplemental contracts and other temporarytype salaries. 7

8 Employee Retirement/Insurance Expense line #3.020 As we enter Fiscal Year 2014, 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 2013 and beyond. For the upcoming Fiscal Years an estimate of ten percent (40%) increase has been used for insurance benefits for FY15. If no changes are made to our current health insurance plan we have been told to expect this increase. FY 15 has 8.2% increases on vision, dental, and life. FY16-18 is a 15% increase in premiums each year for health insurance and 8.2% increases on vision, dental, and life based on historical averages and feedback from our agent. Patient Protection and Affordable Care Act (PPACA) Costs- the Patient Protection and Affordable Care Act (PPACA) commonly called Obamacare or the Affordable Care Act (ACA), is a United States federal statute signed into law by President Barack Obama on March 23, Together with the Health Care and Education Reconciliation Act, it represents the most significant regulatory overhaul of the country's healthcare system since the passage of Medicare and Medicaid in Many of the significant provisions of the PPACA that were scheduled to be implemented by employers on January 1, 2014 were delayed until January 1, 2015 by a July 2, 2013 ruling from the IRS. It is uncertain to what extent the implementation of PPACA will cost our district additional funds. There are numerous new 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 could equate to roughly a 2% annual increase in FY15. For fully insured plans an Insurer Fee of 2.46% of premium is due by the insurer January 1, This cost will be passed along in fully insured plans. Longer-term a significant concern is the 40% Cadillac Tax that will be imposed in 2018 for plans whose value of benefits exceed $10,200 for individual plans and $27,500 for family plans. The rules and implementation of the PPACA is an ongoing issue we are watching closely to evaluate the effect on our district We are also anticipating the need of adding additional staff throughout the forecasted years in order to meet the additional requirements of CORE Standards and 3 rd Grade Reading Guarantee. 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. As we move through Fiscal Year 2014 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 four percent (4.0%). 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. 8

9 Supplies and Material Expense line #3.040 We have updated Science in Fiscal Year Language Arts was updated in Fiscal Year Health and Social Studies were due to be updated in Fiscal Year 2013, but have been put on hold due to the textbook companies not conforming to the Common Core that is now in place. Math, Art, Music and World Languages are due again in Fiscal Year These updates are pending the allowance by the budget. The scheduled curriculum updates for Fiscal Year 2013 will be put on hold for a year, therefore pushing the entire schedule back a year going forward. We have also instituted a basic needs expenditure program beginning on October 4, 2013 through the remainder of the 2014 Fiscal Year. This strategy will continue to be employed as needed to keep our budget in the black. 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. The district is currently collecting a 1.8 mill levy for Permanent Improvements. The voters renewed this levy on November 3, 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 replacements at any of our buildings, etc. We anticipate renewing this levy sometime during Calendar Year 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 has been targeted for the Piqua High School HVAC debt service requirement through Fiscal Year The total commitment for this 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. 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 in 2014, this debt service requirement would fall upon the General Fund and is reflected in this Five Year Forecast. 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,

10 Final Comment Even though we were hopeful that there would be a positive change in the method used to provide state funding to public schools when the Ohio Supreme Court ruled on four different occasions that the current method of funding was unconstitutional, the legislative response to the high court s ruling has had the exact opposite effect. Many schools are seeing an even larger dependency on its local property tax owners. The local property owners are not only seeing a shift from state to local, but a shift from business and industry to residential property owner. 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. Over the past five years we are pleased that we can state 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 recently broke ground on 3 new elementary buildings. We anticipate a little bit of savings from personnel as these buildings come online. This will be accomplished by eliminating the current eight buildings and moving the students into these three new buildings. We are currently projecting no additional costs to operate these buildings over what we are currently paying, even though we will be adding air conditioning. These buildings are quality designed buildings and highly efficient in utility consumption. The community, students, staff and Board are eager to see this process take place. This will afford our District to educate our students in a 21 st Century atmosphere. We are proud that we are able to provide Good Schools at a Good Value! 10