Budget Academy Highlights. Region One Finance Advisory Council February 23, 2018

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1 Budget Academy Highlights Region One Finance Advisory Council February 23, 2018

2 What is a budget? A financial projection at a point in time with a lot of assumptions and variables, none of which will come true. Randy Staats

3 Demographic Projections Student Enrollment Projections Increase: additional staffing, follow staffing guidelines Decrease: evaluate future trends, adjust staffing, avoid getting upside down Continuous monitoring of changes in enrollment Internal transfer process Changes in programs Staffing changes

4 Budgetary & HR Internal Controls Staffing Guidelines Documented Staffing Formulas Consistency and reliability Position Control Track and manage positions to control cost Separation of duties new positions must be approved through Budget first before added by HR

5 Budget Forecast Monthly Benchmark Financials Compare % this year to same time last year Exceptions Delay in revenue from state? One time expenditures? Does it make sense? Property Value Increase/Decrease What s happening around you? Building growth? Residential/Commercial? Bond capacity for now and future

6 Replacement Schedules for major expenditures HVAC, Roofing, etc. Buses Standard years of service Easier to communicate and plan May not reflect needs Individual bus evaluation (age, mileage, reliability, etc.) Accurate Estimates may change Legal requirements, i.e., seat belts Technology

7 SB 622 Itemization of Certain Public Notice Expenditures Bill amends Local Government Code, Chapter 140 by adding Proposed budgets after January 1, 2018 The proposed budget must include a line item for notices required by law to be published in a newspaper Comparison between those expenditures in the proposed budget and actual expenditures for the same purpose from the preceding FY

8 Highlights District would publish in newspaper delinquent taxpayers. This strategy improved their collections Consider 15 year bond vs. 30 year bond Interest savings Helped a district to get voter approval Pflugerville ISD has FC 52 in CNP for lunch duty The time to be frugal is when there is surplus

9 Economic Forecast by Texas Comptroller of Public Accounts As per Glenn Hegar Texas was the 12 th largest economy in the world, now the 10 th largest Harvey Hurricane significant values taken off tax roll ½ million vehicles damaged, thus, vehicle taxes increased Stimulus and boost Texas: 2/3 is taxes, 1/3 federal December 2017 had a 12.3% increase in sales tax compared to last year

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12 What is School FIRST? School FIRST is a financial accountability rating system that holds school districts accountable for the quality of their financial management practices.

13 What s the purpose of School First? School FIRST is designed to encourage Texas public schools to manage their financial resources better in order to provide the maximum allocation possible for direct instructional purposes. School FIRST is a tool that creates transparency and discloses the quality of local management and decision-making processes that the school district uses concerning the financial resources the school district receives.

14 The Texas Education Code (TEC), Section (d) states, the commissioner shall evaluate indicators adopted under Subsection (b) at least once every three years. Previous amendment and adoption of FIRST indicators began in 2015, and was effective August 6, Input/feedback from stakeholders is highly encouraged. The Timeline for Amending and Adopting new Indicators for FIRST

15 FINANCIAL ACCOUNTABILITY - FINANCIAL INTEGRITY RATING SYSTEM OF TEXAS (FIRST) TIMELINE ESTIMATED START DATE Data Year Rating Year TASK STATUS *January 2017 FY Evaluate the current FIRST indicators to determine if they still meet the objectives outline in TEC *February 2017 FY Start the development of the new FIRST indicators in the fiscal year to propose for implementation in the rating year - the development of the indicators may flow into the first quarter of 2018 fiscal year. *Start March 2017 FY During the evaluation of FIRST consideration will be given to critical indicators #1 and #2 and the rules for Financial Accountability Ratings FY Indicator #1 currently has two parts that will be separated into an individual indicator for each part FY Indicator #2 currently has two parts that will be separated into an individual indicator for each part FY Other items for consideration: (1) student counts vs. actuals, (2) appropriate planning for property value fluctuations, (3) allow for more differentiation between district grades, and (4) other items to improve school districts effectiveness and efficiency Completed Completed Completed Completed Completed Completed FY Review the rules in 19 TAC (l) that are related to the appeal process for FIRST to determine if an amendment to the current appeal process needs to be proposed. Completed *May 2017 FY Solicit feedback from districts, charters, ESCs, and other stakeholder on the proposed indicators. Completed *June 2017 FY Update proposed indicators based on feedback from districts, charters, ESCs, and other stakeholders Completed *July 2017 through August 2020 N/A Provide training via face-to-face and webinar presentations on the new FIRST indicators to districts, charters, ESCs, and other stakeholders. In -process December 2017 FY Prepare the adoption packet for the proposed amendment to FIRST. In -process January 22, 2018 FY Submit adoption packet to Register for public comment. April 2018 FY Provide responses to public comment. May 2018 FY Final adoption of new FIRST rules and indicators. *June 2018 through June 2019 FY The transition period for districts and charters to adjust to the new indicators and rules for FIRST The transition year will begin with the rating year. *August 2019 FY Release ratings based on current FIRST indicators (transition year for districts and charters). All amended and newly adopted indicators and amended TAC rules will be fully implemented. *August 2019 through August 2020 N/A *August 2021 FY Release ratings based on new FIRST indicators (full release of all indicators and scores).

16 Overall FIRST Statistics School Districts 2016 Final 2017 Final Ratings Ratings Charter Schools 2016 Final 2017 Final Ratings Ratings Indicator Scored < 6 points Scored < 6 points 6 Days Cash 77 8% 68 7% 34 20% 51 29% Current Assets/Current 7 Liabilities 41 4% 46 4% 17 10% 27 16% 8 Long-term Debt/Total Assets 20 2% 46 4% 1 1% 2 1% 9 Revenues/Expenditures 34 4% 27 3% 7 4% Debt Service Coverage Ratio % % 12 7% 14 8% 11 Administrative Cost Ratio 33 3% 28 3% 28 17% 36 21% 12 Student to Staff Ratio 25 2% 22 2% 12 7% 7 4% 13 PEIMS vs Actuals 5 0% 12 1% 11 7% Material Noncompliance 35 3% 38 4% 2 1% 4 2% 15 Financial Hardship 0 0% 0 0% 0 0% 0 0

17 Failure to meet the requirements of any critical indicator would cause a failure of FIRST

18 Review of FIRST Indicator Number 1 Indicator 1: Was the LEA s complete annual financial report (AFR) and data submitted to TEA within 30 days of the November 27 or January 28 deadline depending on the school district s fiscal year end date of June 30 or August 31, respectively? Important Note: Failure to meet the requirements of any critical indicator would cause a failure of FIRST

19 Review of FIRST Indicator Number 2 Indicator 2: 2a.Was there an unmodified opinion in the AFR on the financial statements as a whole? (The American Institute of Certified Public Accountants (AICPA) defines unmodified opinion. The external independent auditor determines if there was an unmodified opinion) 2b. Did the external independent auditor report that the AFR was free of any instance(s) of material weaknesses in internal controls over financial reporting and compliance for local, state, or federal funds? (The AICPA defines material weakness.)

20 Review of FIRST Indicator Number 3 Indicator 3: Was the school district in compliance with the payment terms of all debt agreements at fiscal year end? Important Note: Failure to meet the requirements of any critical indicator would cause a failure of FIRST

21 Review of FIRST Indicator Number 4 Indicator 4: Did the school district make timely payments to the Teachers Retirement System (TRS), Texas Workforce Commission (TWC), Internal Revenue Service (IRS), and other government agencies? Important Note: Failure to meet the requirements of any critical indicator would cause a failure of FIRST

22 Review of FIRST Indicator Number 5 Indicator 5: Was the total unrestricted net asset position (meaning the net of accretion of interest for capital appreciation bonds) in the governmental activities column in the Statement of Net Assets greater than zero? (If the school district s change of students in membership over 5 years was 10 percent or more, then the school district passes this indicator.)

23 FIRST Each indicator from number six through 12 focuses on the risk of solvency of the LEA.

24 Review of FIRST Indicator Number 6 Indicator number 6: Number of Days Cash on Hand

25 Review of FIRST Indicator Number 6 Was the number of days of cash on hand and current investments in the general fund for the LEA sufficient to cover operating expenses (excluding facilities acquisition and construction)? Graded on a Range of 0 to 10 points on a sliding scale Points Days 90 <90 75 <75 60 <60 45 <45 30 <30

26 Review of FIRST Indicator Number 7 Indicator number 7: Current Assets to Current Liabilities Ratio

27 Review of FIRST Indicator Number 7 Was the measure of current assets to current liabilities ratio for the LEA sufficient to cover short-term debt? Graded on a range of 0 to 10 points on a sliding scale. Points Ratio 3.00 < < < < <1.00

28 Review of FIRST Indicator Number 8 Indicator number 8: Long-Term Liability to Total Asset Ratio

29 Review of FIRST Indicator Number 8 Was the ratio of long-term liabilities to total assets for the LEA sufficient to support long-term solvency? If the LEA change of students in membership over 5 years was 10 percent or more, then the school district passes this indicator. Points Ratio 0.60 > > > > >1.00 This indicator measures long-term solvency and leverage. It measures only the long-term portion of the LEAs liabilities (bonds and loans) and the total assets of the LEA (school property, buildings, equipment, etc.).

30 Review of FIRST Indicator Number 9 Indicator number 9: General Fund Revenues Equal or Exceed Expenditures

31 Review of FIRST Indicator Number 9 Did the LEA general fund revenues equal or exceed expenditures (excluding facilities acquisition and construction)? If not, was the LEA number of days of cash on hand greater than or equal to 60 days? The calculation will use total revenues in the general fund, less facilities acquisition and construction and pension expense will be excluded Worth 0 or 10 points 10 points if revenues expenditures (excluding facilities acquisition and construction) or 60 days of cash on hand

32 Review of FIRST Indicator Number 10 Indicator number 10: Debt Service Coverage Ratio

33 Review of FIRST Indicator Number 10 Review of FIRST Indicator Number 10 Was the debt service coverage ratio sufficient to meet the LEA required debt service? Graded on a Range of 0 to 10 points on a sliding scale Point s Ratio 1.20 < Formula: < < < <1.00 Total Revenue Total Expenditures + Debt Service + Fund Code 599+ Function Code 81 Debt Service (function codes 71, 72, and 73)

34 Review of FIRST Indicator Number 11 Administrative Cost Ratio

35 Review of FIRST Indicator Number 11 Was the LEA administrative cost ratio equal to or less than the threshold ratio? If the LEA administrative cost ratio is high that may reflect: o Financial inefficiency o Top-heavy organization Graded using a range of 0 to 10 points on a sliding scale. Formula: Sum of amounts for function codes 21 and 41 Sum of amounts for function codes 11, 12, 13, and 31

36 Review of FIRST Indicator Number 12 Student to Staff Ratio Over a 3 Year Period

37 Review of FIRST Indicator Number 12 Worth 0 or 10 points Did the LEA not have a 15 percent decline in the students to staff ratio over 3 years (total enrollment to total staff)? If student enrollment did not decrease, the LEA will automatically pass this indicator.

38 FIRST indicators number 13 through 15 indicate serious deficiencies in financial management FIRST Financial Competence

39 Review of FIRST Indicator Number 13 Indicator number 13: Did the comparison of Public Education Information Management System (PEIMS) data to like information in the AFR result in a total variance of less than 3 percent of all expenditures by function?

40 Review of FIRST Indicator Number 14 Indicator number 14: Did the external independent auditor indicate the AFR was free of any instance(s) of material noncompliance for grants, contracts, and laws related to local, state, or federal funds?

41 Review of FIRST Indicator Number 15 Indicator number 15: Did the school district not receive an adjusted repayment schedule for more than one fiscal year for an overallocation of Foundation School Program (FSP) funds as a result of a financial hardship?

42 Proposed NEW FIRST Indicators

43 Proposed NEW FIRST Indicators Proposed change to FIRST Indicator number 2: Moved indicator 2.b. (second part of question 2) from a critical indicator to a point driven indicator. Therefore if a material weakness is reported in the AFR then a district or charter would lose points. 2a. Will continue to be a critical indicator and measure whether or not a district or charter receives an unmodified opinion. Additionally districts and charters continue to be measured on reporting of instances of material noncompliance as well (current indicator #14).

44 Proposed NEW FIRST Indicators Was the average change in (assigned and unassigned) fund balance over 3 years less than a 25% decrease or did the current year (assigned and unassigned) fund balance exceed 75 days of operational expenditures [(total expenditures less function 8x) /365]*75 days?

45 Proposed NEW FIRST Indicators Proposed change to FIRST Indicator number 10: Indicator 10 Was the debt service coverage ratio sufficient to meet the required debt service? The proposed change: indicator 10 will be removed. Proposed replacement indicator: o Was the debt per $100 of assessed property value ratio sufficient to support future debt repayments? TEA will use benchmarks similar to bond rating companies.

46 Proposed NEW FIRST Indicators Was the school district's actual ADA within the allotted range (based on district's size) of the district's biennial pupil projection submitted to TEA? AND/OR If the district did not submit a projection to TEA, did it certify TEA's projections?

47 Proposed NEW FIRST Indicators Did the LEA average less than a 10% variance (90%-110%) when comparing budgeted revenues to actual revenues for the last three fiscal years?

48 Proposed NEW FIRST Indicators Was the school district issued a warrant hold in connection with an untimely payment to TWC, TRS, IRS, and other government agencies?

49 FIRST Schedules What is the FIRST Schedule L-1? The schedule L-1 is submitted along with the AFR and Data Feed by all districts to provide additional information for the determination of FIRST ratings.

50 Proposed NEW FIRST Indicators - L-1 Questions Did the district publish the required financial information on its website (such as adopted budget, budget for two prior years, the superintendent's contract, check registers, and AFRs)? Did the school board members discuss the district's property values and the funding lag at a board meeting within 120 days before the district adopts its budget? Has the total amount of Capital Appreciation Bonds (CABS) issued since exceeded 25 percent of the district s outstanding bonded indebtedness issued since including the amount of principal and interest to be paid on the outstanding bonds until maturity except for CABS that have been refunded?

51 Other Proposed NEW FIRST Indicator Changes The TEA is proposing to lower the alternative calculation for enrollment increase for indicator #5 (Measurement of Unrestricted Net Position) and indicator #8 (Total Assets compared to long-term debt) from 10% to 7%. The methodology behind the change was the average enrollment increase for bond issuers for years was 3.6% according to the Municipal Advisory Council of Texas; therefore TEA doubled the rate to determine that 7% was a fair measure for enrollment growth over five years. Removing Indicator #15 application of financial hardship

52 FIRST Scoring FIRST has three types of values assigned to the first indicators: a) Critical pass or fail on FIRST b) Ceiling if fail certain indicators or if the alternative calculation is used on certain indicators then the maximum rating will be the lesser of: the total points assigned by the ceiling indicator, or the total points resulting from the total points accumulated a) Point indicator is calculated based on a point value The scoring minimum to pass is increasing to 70 and above to get a C. Currently the minimum passing score is a 60 and above to get a C.

53 Proposed FIRST Ratings Scoring Matrix Rating year, 2020 Data Ind. # Indicator Short Description Type Maximum Points 1 Audit Submission Critical Pass/Fail 2 Auditor's Opinion Critical Pass/Fail 3 Debt payments timely Critical Pass/Fail 4 IRS/TRS payments timely Warrant hold issued Critical or lose 5 points for warrant hold Pass/Fail 5 Positive net assets Critical or Ceiling Indicator "C" for using alternative growth calculation 6 3 year change fund balance Ceiling Indicator "B" 7 Cash on hand Points 10 8 Current Assets to Current Liabilities Points 10 9 Revenue Exceeds Expenses Points 5 10 Total Assets to Long-term Liabilities Points Liabilities to Assessed Value Points Administrative Cost Ratio Points Student to Staff Ratio Points Pupil Projections Points 5 15 PEIMS vs AFR Ceiling Indicator "B" 16 Material Weakness Ceiling Indicator "C" 17 Material Noncompliance Points Transparency Points 5 19 Property Lag Ceiling Indicator "B" 20 Budgeted revenues Points CABS Points 5 100

54 Proposed NEW scoring range A grade of a C = Acceptable is changing from a minimum of 60 to a minimum of 70

55 Recent Legislative Updates

56 Senate Bill 622 Itemizing Certain Public Notice Expenditures

57 Itemizing Certain Public Notice Expenditures SB 622 Updates: bill amends Local Government Code, Chapter 140, by adding Section LEA expenditures that are statutorily required to be published in a newspaper must be a line item in the proposed budget. a comparison of those expenditures to actual expenditures for the same purpose from the preceding fiscal year must be completed. Proposed budgets after January 1, 2018.

58 QUESTIONS? Contact info Mr. David Marx O: THANK YOU!

59 Immediate SAMP Updates Local Education Agency (LEA) employees may use documentation such as: class schedules, job descriptions, and lesson plans to support allowable payroll charges coded to the supplemental State Compensatory Education (SCE) program on Title I, Part A schoolwide campuses or other campuses. The Special Allotment Monitoring Program (SAMP) will not require time sheets for Time & Effort validation for instructional FTEs Texas Association of School Business Officials. All rights reserved. 1/16/ Do not duplicate or distribute without express permission.

60 SAMP Compliance Updates Flexibility in Bilingual Education (BE) and English as a Second Language Education (ESL) Program Intent Code 25 The TEA Division of Policy and Curriculum BE/ESL Program has interpreted the language in the law, Texas Education Code (TEC), (c), supplemental salary expenses as allowable salary expenses for supplemental staff such as: Teacher Aides and/or Paraprofessionals that serve inside the classroom to increase quality instruction and reduce class size. 1/16/ Texas Association of School Business Officials. All rights reserved. Do not duplicate or distribute without express permission. 185

61 Annual Direct Cost Utilization Compliance Is Mandated By Law Please Remember: The three year rolling average calculation is used by TEA auditors during the SAMP risk assessment process to determine LEA potential fiscal non-compliance risk. State Law mandates compliance with direct cost utilization rates for supplemental state allotment funds must be achieved by LEAs on an annual basis to maintain state fiscal compliance. 1/16/ Texas Association of School Business Officials. All rights reserved. Do not duplicate or distribute without express permission. 186

62 SAMP HOT SPOTS! Career and Technical Education (CTE) Only students with disabilities may be served in grades 7 and 8 utilizing supplemental state allotment CTE program funds under TEC Students served must be enrolled in a CTE for Disabled (CTED) course in grades 7 and 8. If students do not qualify for CTED courses in grades 7 and 8, then allowable direct costs for CTE services and programs must be coded to Program Intent Code (PIC) 11 Regular Basic Education Allotment Texas Association of School Business Officials. All rights reserved. 1/16/ Do not duplicate or distribute without express permission.

63 SAMP HOT SPOTS! Career and Technical Education (CTE) Continued CTE courses must have an appropriately certified CTE teacher as the teacher of record for all CTE courses designated in TSDS PEIMS Code Table C022. A special education teacher may be a co-teacher for a CTE course, but may not be the teacher of record for a CTE course unless s/he has the appropriate CTE teaching certification. For students eligible for special education in grades 7-12 who are enrolled in a CTE course, CTE funding may not be and should not be turned off if a CTE TSDS PEIMS course code is used for the course. This is because all CTE courses must be taught by a CTE certified instructor. 1/16/ Texas Association of School Business Officials. All rights reserved. Do not duplicate or distribute without express permission. 188

64 SAMP HOT SPOTS! High School Allotment Please remember, it s a 100% direct cost utilization rate that must be met annually to maintain state compliance. Ensure underachieving students are targeted! Ensure students from grades 6 12 have updated graduation plans Texas Association of School Business Officials. All rights reserved. Do not duplicate or distribute without express permission. 1/16/2018

65 Calculate Your Own Direct Cost Utilization Rate Now 1/16/ Texas Association of School Business Officials. All rights reserved. Do not duplicate or distribute without express permission. 190

66 Budgeting, Planning and Decision Making Campus and District Improvement Plans and Charter Instructional Plans must assess the academic achievement for each student in the school using the achievement indicator system described in the TEC, Campus and District Improvement Plans or Charter Instructional Plans must be developed, reviewed, and revised annually for the purpose of improving student performance for each state supplemental special allotment program. 1/16/ Texas Association of School Business Officials. All rights reserved. Do not duplicate or distribute without express permission. 196

67 Budgeting, Planning and Decision Making Campus and District Improvement Plans and Charter Instructional Plans must establish campus performance objectives based on the achievement indicator system, including objectives for special needs populations that include students in special education programs under TEC Chapter 29, Subchapter A. The Campus and District Improvement Plans or Charter Instructional Plans must describe LEA performance objectives and have set timelines and goals that are measurable to assess student performance and academic improvement. 1/16/ Texas Association of School Business Officials. All rights reserved. Do not duplicate or distribute without express permission. 197

68 SAMP Budgeting Best Practice Take- Away Budget Over to Ensure You Meet your mandated Direct Cost Utilization Rates! 1. Special Education = 52% (PIC 23 and 33) 2. State Compensatory Education = 52% (PIC 24, 26, 28, 29, 30, and 34) 3. Bilingual Education and English as a Second Language Education = 52% (PIC 25 and 35) 4. Career and Technology Education= 58% (PIC 22) 5. Gifted and Talented Education = 55% (PIC 21) 6. High School Education = 100% (PIC 31) Summary of Finance Report Ex: Campus Alpha Budget 1/16/ Texas Association of School Business Officials. All rights reserved. Do not duplicate or distribute without express permission. 198

69 SAMP Budgeting Compliance Ensure the budget reflects allocated amounts for each state supplemental special allotment program by: campuses; and district level Ensure the budget ties to two critical SAMP program deliverables: Comprehensive Needs Assessment; and Campus and District Improvement Plans or Charter Instructional Plan 2017 Texas Association of School Business Officials. All rights reserved. 1/16/ Do not duplicate or distribute without express permission.

70 SAMP Budgeting Compliance The budget detail must: Identify costs of meeting program performance goals for each of the state supplemental special allotment program areas Identify allowable program costs for resources purchased to address eligible student population needs identified within the LEA Comprehensive Needs Assessment. Identify cost associated with implementing program strategies and allowable program activities described within the CIP/DIP or Charter Instructional Plan. Identify the total number of FTEs and payroll cost allocated to each state supplemental special allotment program area to implement the CIP/DIP or Charter Instructional Plan. 1/16/ Texas Association of School Business Officials. All rights reserved. Do not duplicate or distribute without express permission. 200

71 Contact info QUESTIONS? Mr. David Marx O: Ms. Sunny Sadler O: THANK YOU! 1/16/ Texas Association of School Business Officials. All rights reserved. Do not duplicate or distribute without express permission. 201