Operating Budget Update: Context and Budget Landscape. Board of Education February 28, 2017

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1 Operating Budget Update: Context and Budget Landscape Board of Education February 28, 2017

2 Trends and Context 2

3 Where Does Our Funding Come From? Adopted Budget * Sources 30.01%, $413.5M 1.46%, $20.1M State Federal and Other Grants County 10.00%, $137.8M 58.53%, $806.5M Other and Special Revenue *Operating Budget only does not include Capital or Enterprise Funds 3

4 How Are Those Funds Used? Adopted Budget* Uses 5.33%,$73.5M 0.03%, $.4M 3.11%, $42.9M 10.15%, $139.8M 59.91%, $825.5M Salaries Benefits Purchased Services 21.47%, $295.8M Supplies and Materials Furniture and Equipment Other *Operating Budget only does not include Capital or Enterprise Funds 4

5 Total CMS Operating Budget Has Increased By 15.3% Since 2009 Adopted Budget $1,400,000,000 $1,377,873,795 $1,350,000,000 $1,346,730,237 $1,300,000,000 $1,289,277,561 $1,250,000,000 $1,242,707,869 $1,200,000,000 $1,150,000,000 $1,194,709,778 $1,140,509,220 $1,150,186,045 $1,169,398,626 $1,202,538,670 $1,100,000,000 FY FY FY FY FY FY FY FY FY

6 Uses of Total Operating Budget Increase Since FY09: A Different Perspective Total Increase $183.2 million since FY09 Total Total Increase since FY09 $183.2 Remaining Charter School Pass-through -$29.9M $153.3M $ Not retained for CMS students Mandated salary & benefit increases -$234.5M -$81.2M Sustaining, Growth and New Space -$125.5M -$206.7M Day-to-day operating expenses Reductions and Redirections +$250.1M $43.4M Realignment of existing resources What s Left New initiatives to support -$43.4M $0 Strategic Plan

7 # of CMS Students CMS Continues Positive Enrollment Growth Trend 20 th day enrollment this year was 147,157 students - up 1,017 students or.7% over last year - up 13,097 students or + 9.7% since 2009 Student Enrollment Growth (20th day) 150, , , , , , , , , , , , , , , , , , , ,

8 $6,000 $5,360 Budgeted Per Pupil By Funding Source Overall per pupil increase of 2.9% increase since 2009 Adopted Budget $5,480 $ change per pupil since $120 $5,000 $4,756 $4,680 $4,799 $4,936 $5,018 $5,155 $5,330 $4,000 $3,000 $2,000 $2,621 $2,524 $2,374 $2,228 $2,379 $2,390 $2,500 $2,277 $2,119 $2,256 $2,247 $2,339 $2,671 $2,766 $2,810 $2,467 $2,508 $2,518 +$189 -$6 $1,000 $758 $1,241 $1,370 $1,163 $1,022 $1,063 $1,057 $979 $936 +$178 $- $173 $162 $202 $132 $170 $133 $142 $140 $137 FY FY FY FY FY FY FY FY FY County w/o charter County State Federal Other -$36 Fiscal Year Budgeted Per Pupil $ 8,815 $ 8,436 $ 8,371 $ 8,350 $ 8,375 $ 8,553 $ 8,821 $ 8,957 $ 9,071 +$256 overall (without charter $$) 8

9 Per Pupil Expenditure Ranking In 2016 North Carolina ranked 44 th - up from 46 th in 2015 State Rank Per Pupil State Rank Per Pupil Vermont 1 $25,286 South Dakota 42 $8,977 New York 2 $22,333 Texas 43 $8,935 New Jersey 3 $21,741 North Carolina 44 $8,898 Alaska 4 $20,843 Mississippi 45 $8,842 Rhode Island 5 $20,547 Maine 46 $8,825 Connecticut 6 $18,496 North Dakota 47 $8,337 New Hampshire 7 $17,994 Oklahoma 48 $8,085 Massachusetts 8 $17,471 Utah 49 $7,905 Wyoming 9 $16,511 Arizona 50 $7,753 Pennsylvania 10 $16,316 Indiana 51 $7,538 National Average = $11,943 Source: National Education Association Research, Estimated Expenditures for Public Schools

10 State Biennium Revenue and Economic Outlook 10

11 State Revenue and Economic Outlook The Fiscal Research Division recently issued the General Fund Revenue Consensus Forecast. On the next several slides are key excerpts from the memo: Fiscal Research and the Office of State Budget and Management have reached a consensus on the revenue forecast for the biennium. Forecast Summary The forecast expects FY collections to be above the budgeted amount by $552.5 million (up 2.5% - average forecast error ± 2.5%) and that stable, modest growth will occur during the next biennium. The anticipated revenue surplus is predominately the result of stronger-than-expected wage growth increasing both Personal Income tax and Sales tax collections. Given the significant changes to the State s tax code over the past several years, the biennium forecast will continue the cautious approach used in the previous biennium. Nonetheless, the forecast projects that total baseline revenues will grow at a pace near the long-term average growth rate of 4.5 %. Source: General Fund Revenue Consensus Forecast memo dated February 9, 2017, Fiscal Research Division 11

12 State Revenue Outlook Current Fiscal Year Revenue Despite the guarded approach taken in developing the current fiscal year s forecast and the current target surplus, risks persist with respect to the current year s revenue outlook. April always has the potential to be a volatile collection month where sources of income from dividends, capital gains, and business income can result in sizable swings in income tax collections. Added volatility from State tax code changes Potential tax changes at the federal level could impact the timing of gains and losses taken by taxpayers General Fund revenues are forecast to increase by 2.3 % over the amount collected in FY The result is an estimated revenue surplus of $552.5 million above the $22.1 billion budgeted amount for the current fiscal year (2.5% above forecast). Personal Income tax collections are estimated to be above the forecast by 3.9 % this year. Sales tax growth has improved and revenues are now estimated to be slightly ahead of the budgeted forecast by 1.3 %. Source: General Fund Revenue Consensus Forecast memo dated February 9, 2017, Fiscal Research Division 12

13 Outlook for the Biennium State Economic Outlook The forecast assumes steady, near-average growth throughout the upcoming biennium. The employment outlook for the State has stabilized over the last year, and continued improvement is anticipated. Employment is expected to experience steady gains of 1.8 % each year of the biennium. The consensus forecast envisions 2.0 % and 4.7 % growth in personal income collections for the respective fiscal years. Wage and salary growth has been well below expectations, not keeping pace with the improving overall economy. Recent data on wages suggest that trend is beginning to change. Sales tax collections are forecast to increase by 4.7 % and 4.6 %, respectively this biennium, which is slightly above average. Household balance sheets continue to improve Consumers more confident about spending decisions Lower energy prices free up income for other purchases Corporate Income tax collections will fall 10.5 % in the upcoming fiscal year and grow by 3.6 % in the following year. Corporate Income tax collections are always volatile with yearly swings by as much as 30 to 35 %. The 5.7 % growth expected over the biennium will be offset by recently-enacted Corporate Income tax rate reductions. Source: General Fund Revenue Consensus Forecast memo dated February 9, 2017, Fiscal Research Division 13

14 Early Budget Assumptions and Challenges 14

15 Early Budget Assumptions First year of the state s biennial budget Assume the state will fund growth for teacher positions so hiring can begin in the spring funding in other categories will have to be evaluated later in the process depending on signals from legislature. Preliminary enrollment projection for CMS growth is more than 750 students. Charter school enrollment is likely to increase with growth in existing charters as well as the addition of four new charters next year in Mecklenburg county. Charter and virtual school enrollment/funding process needs to be further examined as they present more significant impacts with growing numbers. No salary increase has been defined but there is keen interest in teacher and principal/assistant principal increases. There will be health and retirement rate increases but no solid indication of amounts yet. 15

16 Early Budget Assumptions Funding for new school options, as approved in November for 2016, must be identified. Federal entitlement grant allotments for CMS are not typically available until late spring. Our primary ability to raise revenue is via competitive grants which we continue to aggressively seek somewhat limited and almost always linked to a specific strategy, population, etc. Too early to predict county funding level, but anticipate CMS will rank among the county s top priorities for funding consistent with prior years. 16

17 Challenge: Potential Changes to Class Size Requirements House Bill 13 - Maximum Class Size for Kindergarten Through Third Grade passed the House unanimously; awaiting Senate action The average class size for kindergarten through third grade in a local school administrative unit shall at no time exceed the funded allotment ratio of teachers to students in kindergarten through third grade (by more than three students). At the end of the second school month and for the remainder of the school year, the size of an individual class in kindergarten through third grade shall not exceed the allotment ratio by more than three (six) students. The funded class size allotment ratio for kindergarten through third grade shall be as follows: (1) Kindergarten - 1:18 students (2) 1 st Grade - 1:16 students (3) 2 nd Grade - 1:17 students (4) 3 rd Grade - 1:17 students In grades four through 12, local school administrative units shall have the maximum flexibility to use allotted teacher positions to maximize student achievement. 17

18 Challenge: Potential Changes to Class-Size Requirements Challenges for districts if HB 13 is not approved: Loss of staffing flexibility in schools Potential impact to Art, Music and Physical Education programs Potential impact to literacy support No space for additional classrooms Potential of dual teachers in a classroom Potential of combination classes 18

19 Challenge: CMS Per-Pupil County Funding is $6 Lower Now Than in FY09 Excluding Charter Pass-Through $$ $43 million goes to charter schools in FY17 reducing the funding to support CMS students $2,900 $2,850 $2,800 $2,750 $2,700 $2,650 $2,600 $2,550 $2,500 $2,450 $2,400 $2,350 $2,300 $2,250 $2,200 $2,150 $2,100 $2,050 $2,000 $2,810 $2,766 $2,621 $2,671 $2,500 $2,518 $2,524 $2,379 $2,390 $2,508 $2,374 $2,467 $2,228 $2,339 $2,277 $2,256 $2,247 $2,119 FY FY FY FY FY FY FY FY FY "Computed" County Per Pupil Funding (including pass-through funding) "Effective" County Per Pupil Funding for CMS Students (without pass-through funding) 19

20 The CMS Operating Budget Landscape: Budget Drivers and Estimated Increases $.5-1 million Growth $1-2 million Sustaining $6-8 million Benefit Rate Increases Charter Pass-through ~2,700 students $1-2 million $1.5-2 million Salary Inc. Avg. 6% Principal/ Assistant Principal $4-5 million Salary Inc. Avg. 3% Certified $2-2.5 million Salary Inc. Avg. 3% Non- Certified Market Inc. $2-6 million Priorities & New Investments 20

21 BOE Requested Increases vs. BOCC Allocation Increases $50,000,000 $50.0 M $46.2 M $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 $31.9 M $30.4 M $28.4 M $24.8 M $25.2 M $10.0 M 0 $15.5 M $27.5 M $28.5 M $26.1 M $19.1 M $9.1 M $39.9 M $31.7 M $22.9 M $16.0 M $11.3 M -$10,000,000 -$20,000,000 ($15.1 M) -$30,000,000 -$40,000,000 ($34.0 M) County Funding Requested County Funding Received BOE = Board of Education BOCC = Board of County Commissioners 21

22 Stakeholder Budget Input 22

23 Engaging Our Stakeholders in the Budget Development Conversation Professional Organizations Superintendent s Teacher Advisory Council Leadership Team Community Superintendent presents Budget Recommendation April 6, 2017 Student Leaders 23

24 Common Themes Beginning to Emerge Maintain funding for teacher assistants Provide funding for updated textbooks Increase funding for certified staff local supplement* Increase funding for student support services* *Board feedback? 24

25 Key Dates 25

26 Feb 28 6:00 p.m. March 6-30 various times Key Dates Board of Education budget work session Superintendent Coffees include budget engagement/district update and Q&A BOE Meeting CMGC Meeting Chamber Various school locations available on website March 28 Board of Education budget work session BOE Meeting CMGC Meeting Chamber April 6 April 17 April 18 April 19 7:00-8:00 p.m. April 25 6:00 p.m. Date Activity Location Superintendent presents Budget Recommendation BOE Meeting Myers Park HS Community meetings on Superintendent s Budget Recommendation Public hearing on Superintendent s Budget Recommendation Bradley MS Eastway MS Jay M. Robinson MS BOE Meeting CMGC Meeting Chamber 26

27 Key Dates Date Activity Location May 9 6:00 p.m. May 15 May 23 3:00 p.m. May 30 11:00 a.m. Board of Education approval of Budget Request Board of Education s Budget Request submitted to the county Board of Education/Board of County Commissioners workshop on budget County Manager s Recommended Operating and Capital Budgets presented to BOCC BOE meeting CMGC Meeting Chamber CMGC, Room 267 CMGC Meeting Chamber June 7 Public hearing on county s budget CMGC Meeting Chamber June 20 County adopts Operating Budget CMGC Meeting Chamber July-Sept Operating Budget finalized and approved by BOE BOE meeting CMGC Meeting Chamber 27

28 Superintendent Remarks and Board Comments 28