STATE OF NEW MEXICO CENTRAL CONSOLIDATED SCHOOL DISTRICT NO. 22 FINANCIAL STATEMENTS

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1 FINANCIAL STATEMENTS June 30, 2004 With Independent Auditors Report Thereon

2 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2004 TABLE OF CONTENTS Page # INTRODUCTION SECTION Official Roster... 1 FINANCIAL SECTION Independent Auditors Report... 2 Management s Discussion and Analysis (MD&A) (Required Supplementary Information)... 4 Basic Financial Statements Government-Wide Financial Statements Statement of Net Assets Statement of Activities Fund Financial Statements Balance Sheet - Governmental Funds Reconciliation of the Governmental Funds Balance Sheet with the Statement of Net Assets Statement of Revenues, Expenditures, and Changes in Fund Balances Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances with the Statement of Activities Statements of Revenues and Expenditures - Budget and Actual (Non-GAAP Basis) Operational ESEA Title I IDEA-B Entitlement PL Impact Aid Statement of Fiduciary Net Assets Agency Funds Notes to Financial Statements SUPPLEMENTARY INFORMATION Major Capital Projects Funds Statements of Revenues and Expenditures - Budget and Actual (Non-GAAP Basis) Bond Building Debt Service Non-Major Funds Non-Major Special Revenue Funds Descriptions Non-Major Special Revenue Funds - Combining Balance Sheet i

3 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2004 TABLE OF CONTENTS Page # Non-Major Special Revenue Funds - Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non-Major Special Revenue Funds - Statements of Revenues and Expenditures Budget and Actual (Non-GAAP Basis) Teacherage Transportation Instructional Materials Food Services Athletics Non-Instructional Support ESEA Title I Program Improvement...91 IDEA-B Discretionary Competitive IDEA-B Preschool Evenstart Learn and Serve Technology Literacy Challenge Comprehensive School Reform Demonstration Preschool Environments Vocational Education Reading Excellence Title V Innovation Strategies English Language Acquisition Title II-A Title IV Rural/Low Income Title I Program Improvement IDEA and Technology Title VII Indian Education IHS/Northern Navajo Medical Center Johnson O Malley Advanced Placement Incentives Star Schools PL Impact Aid Special Education NM Grads Medical Assistance Payments (Medicaid) Navajo Nation Grants ETIP Project Smaller Learning Communities Projects with Industry Literacy through Libraries Jordan Fundamentals Grant PNM Foundation, Inc Toyota Time Grant Burlington Grant ii

4 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2004 TABLE OF CONTENTS Page # CYFD Preschool TANIF After School Child Care Technology for Education Computerized Learning Systems Incentives for School Improvements Bridging of the Arts Gear Up Teacher Mentoring Private Direct Grants Non-Major Capital Projects Funds Descriptions Non-Major Capital Projects Funds - Combining Balance Sheet Non-Major Capital Projects Funds - Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non-Major Capital Projects Funds - Statements of Revenues and Expenditures Budget and Actual (Non-GAAP Basis) Public School Capital Outlay Special Capital Outlay State Special Capital Outlay Federal Capital Improvements SB Energy Efficiency Act Public School Capital Outlay 20% Fiduciary Funds Description Statement of Changes in Assets and Liabilities All Agency Funds Schedule of Changes in Deposits Held for Others All Agency Funds Schedule of Expenditures of Federal Awards Schedules: Pledged Collateral Cash Reconciliation Joint Powers Agreements Bank Depositories Independent Auditors Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards iii

5 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2004 TABLE OF CONTENTS Page # Independent Auditors Report on Compliance with Requirements Applicable to Each Major Program and Internal Control over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs Findings and Questioned Costs Exit Conference iv

6 INTRODUCTION SECTION

7 OFFICIAL ROSTER June 30, 2004 BOARD OF EDUCATION Randy J. Manning Bernadette A. Todacheene Stanley R. King Glenn L. Duncan Gary D. Ray President Vice-President Secretary Member Member SCHOOL OFFICIALS Dr. Linda Besett Dennis Nicholson Jay Mortensen Byron Manning Marlene Frazier Sheri Price Angela Haney Jeff Hunt Karen Rodberg Herbert Frazier Patricia Emrick Superintendent Assistant Superintendent of Secondary Education Assistant Superintendent of Elementary Education Executive Director of Finance and Business Operations Executive Director of Curriculum and Instruction Director of Human Resources Director of Student Nutrition Director of Transportation Director of School Improvement Director of Bilingual Education Director of Exceptional Programs 1

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10 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) FOR THE FISCAL YEAR ENDED JUNE 30, 2004 The Management s Discussion and Analysis (MD&A) of the fiscal performance of Central Consolidated School District No. 22 (District) for the fiscal year ended June 30, 2004 represents the District s second year implementation of the Governmental Accounting Standards Board Statement No. 34 (GASB 34). This written analysis is now a required part of the District s financial reporting and is intended to give the reader an easy-to-understand overview of the District s financial position and the results of its operations for the year. Please read it in conjunction with the District s financial statements, which immediately follow this section. FINANCIAL HIGHLIGHTS The District s total net assets of governmental activities increased by $10.1 million. This represents an 8.4% increase from fiscal year 2003, resulting from the use of current year funding for capital additions and previously unidentified capital assets. General revenues accounted for $62.5 million, or 72.3% of all 2004 fiscal year revenues. Program specific revenues in the form of charges for services and grants and contributions accounted for $23.9 million, or 27.7% of total fiscal year 2004 revenues. The District had approximately $76.4 million in expenses related to governmental activities of which $23.9 million of these expenses were offset by program specific charges for services or grants and contributions. General revenues of $62.5 million were adequate to provide for the remaining costs of these programs. Capital outlay expenditures decreased by $1.0 million from last fiscal year, 2003, to the current fiscal year. However, the District is still involved in major renovation and addition projects going on at three elementary schools in the Shiprock area and construction on two performing arts centers in Kirtland and Shiprock during the current year. The overall Fund Balance increased by $1.1 million in the current fiscal year. The sale of general obligation bonds resulted in $3.8 million to be available for the construction of two new performing arts centers in the Kirtland and Shiprock communities. Total revenues, exclusive of revenues from general obligation bond proceeds, increased by $2.7 million when compared to the previous fiscal year. This represents a 3.5% increase in revenue growth for the year. The increase in revenue can be attributed to an increase in special revenue and capital projects sources. 4

11 Total expenditures, including capital expenditures and debt service, increased $5.0 million in the current fiscal year when compared to the previous fiscal year. The increase in capital expenditures accounts for this increase. The District s total long-term debt has increased $0.61 million in the current fiscal year. This was due to the sale of $3.8 million in general obligation bonds and the retirement of $2.875 million in bonds $0.315 in capital leases. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of three parts: management s discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements district-wide and fund that present different views of the District: The first two statements are district-wide financial statements that provide both short-term and long-term information about the District s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the District, reporting on the District s operation in more detail than the district-wide statements. The governmental funds statements report on how basic services such as regular and special education were financed in the short term as well as what remains for future spending. Fiduciary funds statements provide information about the financial relationships in which the district acts solely as a trustee or agent for the benefit of others. In addition to the new reporting requirements, this annual report consists of a series of detailed, audited financial statements, and the notes to those statements. The annual report also includes the Independent Auditor s Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards, the Independent Auditor s Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133, and the Schedule of Findings and Questioned Costs. These statements were included in past reporting by the District. District-Wide Financial Statements This being the second year of implementation of GASB 34 for the District, two years of data will be provided current year data will be compared with prior-year data. The reader will see two new statements with the implementation of GASB 34 Statement of Net Assets and Statement of Activities. These two new statements are presented on a district-wide basis and encompass all assets and liabilities of the District. This section will look at the financial performance of the District as a whole rather than looking at individual components or areas of the District. 5

12 Fund Financial Statements The District uses fund accounting to ensure and demonstrate compliance with financial and legal requirements. Fund financial statements are based on a modified accrual basis of accounting. The Balance Sheet and the Statement of Revenues, Expenditures, and Changes in Fund Balances are not new to the District s annual financial reports, though the presentation has changed somewhat. The reports guide the reader to a meaningful overall view for the District s assets, liabilities, revenues, expenditures, fund balances, and changes to those fund balances. FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Statement of Net Assets Due to GASB 34 requirements, the Statement of Net Assets is new to the financial statements of the District and is prepared using the accrual method of accounting. The District s financial position is the product of several financial transactions, including the net results of activities, the acquisition and payment of debt, the acquisition and disposal of capital assets, and the depreciation of capital assets. The following table presents a summary of the District s net assets for the fiscal years ended June 30, 2003 and June 30, June 30, 2003 June 30, 2004 Assets Cash and Investments $ 26,458,250 $ 29,483,693 Other Current Assets 3,164,308 1,865,884 Capital Assets, Net 130,359, ,894,137 Total Assets 159,982, ,243,714 Liabilities Accounts Payable 1,278,061 1,127,015 Other Current Liabilities 5,254,349 5,970,465 Long-Term Liabilities 32,968,153 33,594,813 Total Liabilities 39,500,563 40,692,293 Net Assets Investment in Capital Assets, Net 100,023, ,074,271 Restricted 16,644,900 9,658,361 Unrestricted 3,812,806 9,818,789 Total Net Assets $ 120,481,461 $ 130,551,421 6

13 The following are significant current year transactions that have had an impact on the Statement of Net Assets: The addition of $9.9 million in capital assets through additions, remodeling, and equipment purchases and $6.7 million in previously unidentified assets. The retirement of $3.2 million in long-term debt. The addition of $3.8 million in long-term debt. The District has total net assets of $130,551,421 as of June 30, 2004 as compared to $120,481,461 as of June 30, Changes in Net Assets The District s total revenues for the fiscal year ended June 30, 2004 were $86.4 million and total revenues for the fiscal year ended June 30, 2003 were $77.6 million. The total costs of all programs and services were $76.4 million in 2004 and $70.7 million in The following table presents a summary of the changes in net assets for the fiscal year ended June 30, June 30, 2003 June 30, 2004 Revenues: Program Revenues: Charges for Services $ 949,752 $ 957,452 Operating Grants and Contributions 6,683,988 18,275,457 Capital Grants and Contributions 6,275,073 4,694,440 General Revenues: Property Taxes 6,333,676 7,324,467 Federal and State Aid 56,006,196 54,634,788 Investment Income 618, ,975 Miscellaneous 700,861 - Total Revenues 77,567,703 86,437,579 Expenses: Direct Instruction 37,954,477 41,641,911 Instructional Support 11,501,067 12,314,620 Administration 1,772,190 2,068,119 Business and Support Services 1,519,519 1,213,857 Operation and Maintenance of Plant 7,266,990 8,302,508 Food Services 2,550,562 2,727,632 Athletics 1,100,954 1,126,386 Non-Instructional Support 266, ,911 Community Services 1,375,917 1,845,504 Student Transportation 3,002,532 2,749,366 Interest on Long-Term Obligations 2,410,903 1,721,805 Total Expenses 70,721,851 76,367,619 Increase in Net Assets $ 6,845,852 $ 10,069,960 7

14 Statement of Activities The Statement Activities is also a new statement required by GASB 34 and is prepared using the accrual method of accounting. This report compliments the Statement of Net Assets by showing the overall change in the District s net assets for the fiscal years ended June 30, 2004 and June 30, The following table shows the cost of the 11 major District functional activities: direct instruction, instructional support, administration, business and support services, operation and maintenance of plant, food services, athletics, non-instructional support, community services, student transportation, and interest on long-term obligations. This table also shows each function s net cost (the total cost less charges for the services generated by the activities and intergovernmental aid provided for the specific programs). The net cost shows the financial burden that was placed on Federal, State, and District taxpayers by each of these functions. June 30, 2003 June 30, 2004 Total Net (Expense) Total Net (Expense) Expenses Revenue Expenses Revenue Direct Instruction $ 37,954,477 $ (30,950,712) $ 41,641,911 $ (26,059,444) Instructional Support 11,501,067 (11,501,067) 12,314,620 (10,996,426) Administration 1,772,190 (1,406,415) 2,068,119 (1,552,558) Business and Support Services 1,519,519 (1,519,519) 1,213,857 (1,213,857) Operation and Maintenance of Plant 7,266,990 (6,748,459) 8,302,508 (7,902,643) Food Services 2,550, ,064 2,727, ,025 Athletics 1,100,954 (917,654) 1,126,386 (974,539) Non-Instructional Support 266,740 (117,081) 655,911 (493,779) Community Services 1,375,917 (1,375,917) 1,845,504 (1,621,134) Student Transportation 3,002,532 (111,375) 2,749,366 (81,110) Interest on Long-Term Obligations 2,410,903 (2,410,903) 1,721,805 (1,721,805) Total Expenses $ 70,721,851 $ (56,813,038) $ 76,367,619 $ (52,440,270) The cost of all governmental activities this year was $76.4 million and $70.7 million last year. The Federal and State governments, along with charging for services, subsidized certain specific programs with grants and contributions in the amount of $23.9 million in 2004 and $13.9 million in The net cost of governmental activities ($52.4 million in 2004 and$56.8 million in 2003) was financed by general revenues, which were primarily funded with Federal and State aid ($54.6 million this year and $56.0 million last year). 8

15 Balance Sheet FINANCIAL ANALYSIS OF THE DISTRICT S FUNDS The focus of the District s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the District s financing requirements. In particular, unreserved fund balance may serve as a useful measure of the District s net resources available for spending at the end of the fiscal year. The financial performance of the District as a whole is reflected in the Balance Sheet as of June 30, As the District completed the year, it reported a combined fund balance of $27.8 million, an increase of $1.1 million. This increase was primarily due to the sale of general obligation bonds in the amount of $3.8 million. Approximately $5.2 million, or 18.6% of the fund balance constitutes unreserved fund balance. The remaining fund balance of $22.6 million, or 81.4%, is reserved for inventory, debt service, or subsequent year s expenditures. Statement of Revenues, Expenditures, and Changes in Fund Balances Total revenues from State, local, and Federal sources were $80.1 million, an increase of $2.7 million from the prior year. Including all other financing sources and uses, which include $3.8 million in general obligation bond proceeds (Other Financing Sources), total revenues increased to $83.9 million. The total expenditures for the District were $82.8 million, including lease purchase payments, an increase of $5.0 million from the prior year. The General Fund is the principal operating fund of the District. The decrease in fund balance of $1,371,245 in the General Fund for the fiscal year was a result of the District beginning to spend down its cash balance. The State has passed legislation establishing limits on allowable cash balances in the General Fund. As a result of this, the District is required to spend its cash balance down to the established guidelines or risk losing the money back to the State. Multi-Year Comparison of District Revenues and Expenditures A view of the District s revenues and expenditures over the past eight years indicates that, while attendance figures are declining, total revenues, excluding bond revenues, are increasing annually. This is related to the increase in the dollar value of student unit allocations by the State for the State Equalization Guarantee, an increase in capital projects revenues, and an increase in the dollar value of Federal and State grants received by the District. 9

16 Year Total Revenues* % Change % Change w/o Bond Revenues Total Expenditures* % Change Bond Revenues $ 68,050,818 $ 50,804,257 $ 21,000, ,609, % 1.2% 67,666, % 10,000, ,520, % 9.9% 60,357, % 6,200, ,907, % 6.9% 58,442, % ,679, % 10.3% 63,798, % ,979, % 10.2% 73,595, % 4,000, ,797, % 7.1% 73,819, % ,110, % 6.3% 77,887, % 5,700, ,943, % 3.5% 82,849, % 3,800,000 * Note: Revenues include proceeds from General Obligation Bonds and exclude cash carryovers. Expenditures include capital outlays. Equity transfers are included in both revenues and expenditures. Budgetary Highlights The District has experienced the same growth in its budget as it has in its revenues and expenditures. The budgeting process for the State of New Mexico is defined under New Mexico State Statues (Section 22) and the New Mexico Administrative Code (Section 6). Additionally, the District develops its budget through input at site budget meetings from parents and staff members at each of its three main attendance areas Kirtland, Newcomb/Naschitti, and Shiprock; the District Budget Committee, made up of community members, certified and non-certified staff, administrators, and finance department personnel; and input from the local School Board and Superintendent. The District also has a facilities master plan for major construction and renovation that is constantly updated for major capital expenditures. GASB 34 does not require a statement presenting the overall result of the budget for each year; however, all major budgetary funds are required to be reported as a separate statement. Major budgetary funds in these reports are the General Operational Fund (Operational), ESEA Title I, IDEA-B Entitlement, PL Impact Aid, Bond Building, and Debt Service. In addition, fifty-five (55) non-major Special Revenue Funds and six (6) nonmajor Capital Projects funds are also reported for their budgetary performance. Examples of non-major Special Revenue funds are Transportation, Food Services, Title VII, and Impact Aid-Special Education. Examples of non-major Capital Project funds include SB-9 Capital Improvements (Two Mill Levy) and Public School Capital Outlay- 20%. The following shows the fiscal relationship of the major funds and the combined nonmajor funds. 10

17 DISTRICT BUDGET DISTRIBUTION 6.7% 9.1% 4.5% Operational 1.8% ESEA Title I 4.1% 17.8% IDEA-B Entitlement PL Impact Aid Bond Building Debt Service Special Revenue 43.0% 13.1% Capital Projects The Operational Fund accounts for 43.0% of the total District budget. This fund provides the salary and benefits for the significant majority of the instructional, instructional support, school support, maintenance, custodial, administrative, and business staffs as well as classroom materials, special education ancillary staff, insurance, and utility costs. Revenue from this fund is substantially derived from the State Equalization Guarantee (61.4%) and PL-874 Federal Funds (Impact Aid) (34.4%). The State Equalization Guarantee is based upon a funding formula developed by the State. This formula includes taking a credit for the PL-874 funds received by the District. The net effect on the District s Operational Fund is retaining 5% of the total Impact Aid dollars in the fund for operational expenditures. The Operational Fund will be discussed in further detail later in the Management Discussion and Analysis. The following table examines the summary budget performance of the major and combined non-major funds for the fiscal year ended June 30, Detail budget performance is examined through the Statements of Revenues and Expenditures Budget and Actual. 11

18 MAJOR FUNDS EXPENDITURE TO BUDGET PERFORMANCE FUND FINAL BUDGET ACTUAL EXPENDITURES VARIANCE Operational $ 45,121,000 $ 42,729,261 $ 2,391,739 ESEA Title I 4,275,172 3,377, ,941 IDEA-B Entitlement 1,933,311 1,584, ,281 PL Impact Aid 7,000,000 5,130,198 1,869,802 Bond Building 9,551,725 1,183,429 8,368,296 Debt Service 4,676,400 4,588,295 88,105 COMBINED MINOR FUNDS EXPENDITURE TO BUDGET PERFORMANCE FUND FINAL COMBINED ACTUAL VARIANCE Special Revenue $ 18,684,188 $ 14,882,391 $ 3,801,797 Capital Projects 13,737,637 7,686,950 6,050,687 All expenditures within the major and non-major funds fell within the approved budget limits. No budgets had expenditures in excess of budget authority. Operational Fund The Operational Fund is the primary fund for the District. Operational revenues totaled $41,418,618, which represents 49.3% of total District revenues of $83,937,516 (inclusive of bond proceeds and operating transfers in). The Operational Fund had an initial approved budget of $44,725,479 and a final budget of $45,121,000. The increased budget of $395,521, a.09% increase, was due to the budgeting of additional cash carryover from the previous year s budget. While the District has seen a decline in student enrollment over the past five years, the operational fund has, on whole, experienced an increase in total revenues over that same period of time due to higher unit value allocations from the State, as can be seen from the following table. 12

19 Operational Fund Revenues Year Revenues Increase $ 30,541, ,379, % ,652, % ,796, % ,746, % ,620, % ,980, % ,279, % ,418, % The Operational Fund represents the major expenditures for the education of the students within the District. During the year ended June 30, 2004, the Operational Fund expended $42,783,471 of which $24,429,285 was expended on Direct Instruction. This represents 57.10% of all Operational Fund expenditures. Direct Instruction expenditures include salaries for regular, bilingual, and special education teachers and educational assistants, payroll taxes, benefit costs, classroom supplies and equipment, training, student and teacher travel, and instructional related contract services. Employee salaries, payroll taxes, and benefit costs account for 83.7% of all Operational Fund expenditures. OPERATIONAL EXPENDITURES BY FUNCTION Direct Instruction Instructional Support Administration Business and Support Services 57.10% 19.12% 2.58% Operation and Maintenance of Plant Athletics 0.51% 0.07% 2.03% 15.50% 1.91% Non-Instructional Support Community Services Non-Operating 0.73% 0.46% Capital Outlay Instructional Support expenditures include salaries, payroll taxes, and benefits for principals, counselors, nurses, librarians, program coordinators, school secretaries and receptionists, special education ancillary staff, and contracted ancillary support personnel for special education. Ancillary personnel provide specialized services for special education students and include speech or occupational therapists, psychologists, diagnosticians, etc. It also includes the necessary supplies, equipment, training, and travel for these individuals. Instructional Support expenditures totaled $8,178,705, or 19.12% of Operational expenditures. 13

20 The next largest area of expenditures for the District is for Operation and Maintenance of Plant. These expenditures totaled $6,630,335, 15.50% of the Operational expenditures. This includes salaries, payroll taxes, and benefits for maintenance staff and supervisors, school custodians, and maintenance and custodial clerical staff. It also includes costs for maintenance and custodial supplies and equipment, maintenance and repairs of buildings, grounds, and equipment, utilities, internet access, travel and training for maintenance and custodial personnel, outside contract services, and property and liability insurance. The District also receives funding for maintenance costs from the voter approved Two Mill Levy Fund (Fund 31700). Administration expenditures totaled $1,105,483, or 2.58% of Operational Fund expenditures. Included in this area are salaries, payroll taxes, and benefits for the superintendent, assistant superintendents, administrative secretaries and receptionist, and human resource personnel. Additionally, supplies, equipment, travel, training, and outside contract services for the above individuals and the School Board are included in this function. Administrative costs like legal and auditing fees and costs related to board and bond elections are also included here. Expenditures for Athletics totaled $868,441, 2.03% of Operational expenditures, and include salaries and payroll taxes for coaches and athletic directors, as well as expenditures for travel, supplies, and equipment. Athletics is also funded from the Athletic Fund (Fund 22000). This fund is where gate receipts are maintained and spent. Total expenditures from the Athletic Fund were $113,855. The District expended 1.91%, $815,263, of the Operational Fund for Business and Support Services. This includes salaries, payroll taxes, and benefits for employees of the business office, warehouse and delivery, computer technicians and programmers, and statistical and student count departments. It also includes supplies, equipment, outside contract services, training, and travel for the above individuals, and postage and shipping for the District. Community Services, which include day-care services at Career Prep High School and Newcomb High School and the Parents as Teachers Program (PAT) in the Kirtland/Ojo and Shiprock areas, accounted for $314,198, 0.73% of Operational expenditures. This includes salaries, payroll taxes, and benefits for day-care providers and PAT personnel as well as supplies, equipment, travel, and training for these individuals. The District spent $216,831, 0.51%, was spent from Capital Outlay for the purchase of two activity buses and a car. The District spent $194,842, 0.46% of Operational expenditures, for Non-Instructional Support. This includes salaries and payroll taxes for activity directors and club sponsors and supplies and travel costs for the student organizations. Finally, $30,088 was spent on litigation fees in fiscal year , less than 0.07% of Operational Expenditures. 14

21 CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets As of June 30, 2004, the district had invested $187.9 million in capital assets, including land, school buildings, athletic facilities, administrative offices, buses and other vehicles, computer and audio-visual equipment, and other equipment. This amount represents a net increase of $16.6 million from last year. Because of GASB 34 requirements, the District added $19.9 million of assets to the books in fiscal year that had not been previously capitalized. The District also identified an additional $8.9 million of assets in the current year that had not yet been capitalized. This is for capital expenditures on parking lots, fences, sewer systems, and other items of infrastructure. The District also had $7.7 million in new additions in the current fiscal year. For financial reporting purposes, the District will only capitalize and depreciate equipment with a value of $5,000 or more. The District will continue to inventory and track all equipment additions in excess of $1,000, however, in accordance with State law. GASB 34 rules now require public entities to depreciate capital assets as private-sector companies do. The accumulated depreciation for the District s capital assets amounts to $48.0 million. Total depreciation expense for the year was $4.3 million with an adjustment of an additional $2.8 million for the newly identified assets that had not been booked in the previous year. The District utilizes a straight line depreciation method in all cases and has established standardized lifetime tables in calculating depreciation.. The following schedule presents capital asset balances, net of depreciation, for the fiscal year ended June 30, Amount Land $ 1,698,547 Land Improvements 5,562,050 Buildings and Improvements 118,290,813 Equipment and Vehicles 3,554,214 Construction in Progress 10,788,513 Total $ 139,894,137 Major additions to capital assets this year, additions in excess of $100,000, included additional construction and remodeling at Eva B. Stokely Elementary, Nataani Nez Elementary, Nizhoni Elementary, and Mesa Elementary. The State funded the addition of two new kindergarten classrooms at Newcomb Elementary and one kindergarten classroom at Naschitti Elementary. The State also funded new roofs for Newcomb Elementary School and Career Prep High School. The District also began construction on the two new performing arts centers in Kirtland and Shiprock. Two new portables were purchased to add science labs to Shiprock High School. 15

22 The District has also completed exterior painting projects at Kirtland Middle School and Nataani Nez Elementary School. Additionally, the District has been painting hallways and replacing carpet and floor tile throughout the District. In the District s fiscal year 2005 budget, final payments will be made on the Eva B. Stokely Elementary, Nizhoni Elementary, and Mesa Elementary projects as well as the two performing arts centers. The State is funding the addition of one new kindergarten classroom at Nizhoni Elementary, a major remodel of the kitchen and mechanical and electrical systems at Tse Bit Ai Middle School, and a new roof for Kirtland Middle School. The state is also funding intercom and fire alarm upgrades as well as mechanical and electrical upgrades at various schools. The District is remodeling the kindergarten area at Ruth N. Bond in order to add two new classrooms and it will be re-roofing the Kirtland natatorium. In addition, the Shiprock administrative offices, Career Prep High School, and Newcomb Elementary School are scheduled for complete exterior paint jobs. The District will continue painting interiors and installing new carpeting and tile at many schools in the District. The painting and carpeting projects are expected to take several years to complete. Finally, the District received a construction award from the State for the construction of a new Career Prep High School. The District will receive $2.94 million dollars towards the construction of the new school. The District will be responsible for funding the remaining cost of the project, estimated at $2.26 million. The District is considering issuing additional bonds to fund this project. Additional information on the District s capital assets can be found in Note 4 on page 46 of this report. Long-Term Debt At year-end, the District has $36,150,000 in general obligation bonds and $339,113 in other long-term debt outstanding, $3,189,113 due within one year. State statutes currently limit the amount of general obligation debt a district may issue to 6.0% of its total assessed valuation. At June 30, 2004, the District s general obligation debt limit was $37,695,048. At year-end, the District was bonded to 95.9% of the legal limit. The District issued $3.8 million in new bonds during the fiscal year ended June 30, The District has never defaulted on any of its debt or other obligations. Listed below is the District s total general obligation debt and yearly payment schedule as of June 30,

23 YEAR ENDED JUNE 30 PRINCIPAL INTEREST TOTAL ,850,000 1,674,419 4,524, ,875,000 1,517,491 4,392, ,900,000 1,378,440 4,278, ,925,000 1,237,535 4,162, ,850,000 1,094,193 3,944, ,825, ,883 3,776, ,900, ,203 3,708, ,925, ,838 3,584, ,900, ,536 3,410, ,600, ,821 2,973, ,600, ,796 2,856, ,000, ,774 2,160, ,000,000 81,431 2,081, ,000,000 21,750 1,021,750 Total $36,150,000 $10,727,110 $46,877,110 Additional information on the District s long-term debt can be found in Note 5 on page 47 of this report. FACTORS BEARING ON THE DISTRICT S FUTURE At the time these financial statements were prepared and audited, the district was aware of the following circumstances that could significantly affect its financial health in the future. The District is experiencing a decline in student enrollment. Over the previous five year period, the District s average enrollment, as measured by the 40 th, 80 th, and 120 th day counts, has decreased by 473 students with a decline in membership occurring in each of those five years. The 40 th day count for fiscal year 2005, however, reverses that trend with an increase of an additional 52 students over the 40 th day count from fiscal year The overall decline in enrollment is principally attributable to the elementary age groups as the secondary schools have seen a decline of only 53 students during that five year period while the elementary schools have seen a decline of 420 students. This would indicate that smaller family sizes and/or fewer families with school age children are residing within the District. The surrounding school districts in the area are also experiencing declining enrollments. The following charts detail the change in enrollment for elementary and secondary schools and enrollment by major attendance areas. 17

24 FIVE YEAR ENROLLMENT HISTORY STUDENT COUNT 3,800 3,700 3,600 3,500 3,400 3,300 3,200 3, FISCAL YEAR ELEMENTARY SECONDARY ENROLLMENT BY ATTENDANCE AREAS 8,000 7,000 6,000 1,163 1,177 1,192 1,110 1,063 STUDENT COUNT 5,000 4,000 3,000 3,106 3,058 2,954 2,893 2,778 2,000 1,000 3,128 3,047 3,082 3,049 3, FISCAL YEAR KIRTLAND AREA SHIPROCK AREA NEWCOMB AREA 18

25 These trends indicate that the District would experience lower funding levels in the coming fiscal years if State unit value amounts remained the same. The District will need to continue monitoring teacher/student ratios with these trends in mind. On September 23, 2003, the voters of New Mexico passed a new constitutional amendment that increases the amount of funding to be provided to educational institutions in the State of New Mexico from the Permanent Fund. Additional funding has been promised to school districts from this funding source, which may help to offset the reduction in funding from declining enrollments in the District. However, at this time, the District does not know how much, if any, additional funding it will receive because of this constitutional amendment. The next session of the legislature will deal with these issues. The changes will affect the fiscal year budget. During the 2003 legislative session, the legislature passed House Bill 212 that included various measures that will affect public schools in the State of New Mexico. Cash carryover amounts from the Operational Funds will be limited at the end of fiscal year Cash balances cannot exceed a predetermined rate of program cost (4.5% for the District $1.85 million for fiscal year ), or the State will take back the excess carryover funds. Districts with Impact Aid funds, like Central Consolidated, will be given an additional allowance for carryover, approximately $400,000 - $600,000 for the District. The District will be below the allowable amount and will therefore not lose additional cash balances to the State. The State is initiating a three-tiered licensing structure for certified personnel with minimum salary requirements. All teachers hired after the first day of the school year must be established as Highly Qualified if they are teaching in the core academic area. By June 30, 2006, all teachers hired before the first day of the school year must be Highly Qualified if they are teaching in the core academic area. Level I Provisional Teacher is to make a minimum of $30,000 in the School year. Before advancing to Level II, the following must be completed: Three years at Level I Mentoring Program Professional Development Dossier Dossier should include successful annual evaluations and demonstration/evidence of meeting 19

26 the nine teaching competencies. The nine competencies are divided into five strands Level II Professional Teacher is to make a minimum of $40,000, phased in by the school year. The Level II license is renewable every nine years. Before advancing to Level III, the following must be completed: Minimum of three years at Level II Masters degree or National Board Certification Professional Development Dossier Dossier should include successful annual evaluations and demonstration/evidence of meeting the nine teaching competencies. The nine competencies are divided into five strands Level III-A Professional Teacher is to make a minimum of $50,000, phased in by the school year. The level III-A license is renewable every nine years with the following criteria: Verify leadership role The Federal No Child Left Behind Act (NCLB) is changing the way schools are rated within New Mexico. The changes in the rating system are expected to cause additional schools within the State to be rated as probationary or to be put in corrective action status. The major highlights for NCLB are as follow. All students are to be proficient by Accordingly, the State s adequate yearly progress (AYP) measure will not only look at all public school students but will also evaluate the performance of four categories of students: Economically disadvantaged students Students from major racial and ethnic groups Students with disabilities Students with limited English proficiency If any of these groups do not make AYP, that school will be rated probationary. Schools that are identified for improvement or corrective action must offer all students the choice option to transfer to another public school within the District that has not been identified for improvement at the expense of the Title I program. If a school fails to make AYP by the end of the first full school year after being identified for school improvement, then the District must arrange for supplemental educational services for eligible students who attend that school. These services can include tutoring and other supplemental 20

27 academic enrichment services, recognized by the State, that are in addition to the instruction provided during the school day. All core subject teachers must become Highly Qualified by the end of All paraprofessionals (aides) in Title I schools (all District schools are Title I schools) must have a high school diploma and have two years of college or an associate s degree, or meet a rigorous standard of quality and demonstrate skill on a State or local test. Five percent of the Title I budget must be used to ensure that all teachers and paraprofessionals meet these high quality standards. These changes will govern set-aside dollars before allocating funds to individual schools. District Operational and Title I budgets may be affected in the future by these changes as additional dollars are moved into supplemental services or to salaries as increased requirements are put on teachers and paraprofessionals. CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide the District s citizens, taxpayers, customers, investors, and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Executive Director of Finance, Central Consolidated School District, 583 CR 6100, Kirtland, NM

28 STATEMENT OF NET ASSETS As of June 30, 2004 Governmental Activities ASSETS Current Assets: Cash and Investments $ 29,483,693 Taxes Receivable (Net) 317,362 Due from Other Governmental Units 1,395,249 Inventory 153,273 Total Current Assets 31,349,577 Noncurrent Assets: Land 1,698,547 Construction in Progress 10,788,513 Depreciable Noncurrent Assets: Buildings, Equipment, and Improvements 175,380,600 Less: Accumulated Depreciation (47,973,523) Total Noncurrent Assets 139,894,137 Total Assets 171,243,714 LIABILITIES Current Liabilities: Accounts Payable and Other Current Liabilities 1,425,683 Accrued Interest 663,974 Deferred Revenue 1,818,710 Current Portion of Long-Term Obligations 3,189,113 Total Current Liabilities 7,097,480 Long-Term Liabilities: Compensated Absences Payable 294,813 Noncurrent Portion of Long-Term Obligations 33,300,000 Total Long-Term Liabilities 33,594,813 Total Liabilities 40,692,293 NET ASSETS Investment in Capital Assets, Net of Related Debt 111,074,271 Restricted For : Debt Service 3,731,507 Capital Projects 4,183,146 Other Restrictions 1,743,708 Unrestricted 9,818,789 Total Net Assets $ 130,551,421 The accompanying notes are an integral part of these financial statements 22

29 STATEMENT OF ACTIVITIES For the Year Ended June 30, 2004 Program Revenues Net (Expenses) Operating Capital Revenue and Charges for Grants and Grants and Changes in Functions/Programs Expenses Services Contributions Contributions Net Assets Governmental Activities: Direct Instruction $ 41,641,911 10,888,027 4,694,440 $ (26,059,444) Instructional Support 12,314,620 1,318,194 (10,996,426) Administration 2,068, ,561 (1,552,558) Business and Support Services 1,213,857 (1,213,857) Operation and Maintenance of Plant 8,302, ,865 (7,902,643) Food Services 2,727, ,608 2,661, ,025 Athletics 1,126, ,847 (974,539) Non-Instructional Support 655, ,132 (493,779) Community Services 1,845, ,370 (1,621,134) Student Transportation 2,749,366 2,668,256 (81,110) Interest on Long-Term Obligations 1,721,805 (1,721,805) Total Governmental Activities $ 76,367, ,452 18,275,457 4,694,440 (52,440,270) General Revenues: Taxes Property Taxes, Levied for General Purposes 1,013,407 Property Taxes, Levied for Debt Service 4,852,494 Property Taxes, Levied for Capital Projects 1,458,566 Federal and State Aid Not Restricted to Specific Purpose General 50,105,168 Capital 4,529,620 Interest and Investment Earnings 550,975 Subtotal, General Revenues 62,510,230 Change in Net Assets 10,069,960 Net Asets - Beginning 120,481,461 Net Assets - Ending $ 130,551,421 The accompanying notes are an integral part of these financial statements 23

30 BALANCE SHEET - GOVERNMENTAL FUNDS As of June 30, 2004 ASSETS Fund Fund Fund Fund Fund Fund GENERAL Other OPERATIONAL ESEA IDEA-B PL BOND DEBT Governmental FUND TITLE I ENTITLEMENT IMPACT AID BUILDING SERVICE Funds TOTALS Assets: Cash and Investments $ 2,492, , ,089 6,412,010 8,415,773 4,154,208 8,248,878 30,980,526 Taxes Receivable 12, ,273 63, ,362 Due from Grantor 1,395,249 1,395,249 Inventory 153, ,273 Total Assets $ 2,504, , ,089 6,412,010 8,415,773 4,395,481 9,861,050 32,846,410 LIABILITIES AND FUND BALANCE Liabilities: Bank Overdraft $ 1,496,833 1,496,833 Accounts Payable 26, ,956 5, , ,699 1,127,015 Accrued Salaries and Benefits 69,476 19, ,367 65, ,969 Accrued Compensated Absences 53,185 3,220 1,227 5,153 10,914 73,699 Deferred Revenue 11, , , , ,713 2,113,897 Total Liabilities 161, , ,089 80, , ,343 2,566,506 5,036,413 Fund Balance: Reserved for Inventory 153, ,273 Reserved for Subsequent Year's Expenditures 2,343,818 1,863,620 7,669,247 6,443,269 18,319,954 Reserved for Debt Service 4,171,138 4,171,138 Undesignated, Reported In Special Revenue Fund 4,467, ,733 5,434,363 Capital Projects Fund (268,731) (268,731) Total Fund Balance 2,343,818 6,331,250 7,669,247 4,171,138 7,294,544 27,809,997 Total Liabilities and Fund Balance $ 2,504, , ,089 6,412,010 8,415,773 4,395,481 9,861,050 32,846,410 The accompanying notes are an integral part of these financial statements 24

31 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET WITH THE STATEMENT OF NET ASSETS June 30, 2004 Amounts reported for governmental activities in the Statement of Net Assets are different because: Total fund balances - governmental funds $ 27,809,997 Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. The cost of capital assets is 187,867,660 Accumulated depreciation is (47,973,523) 139,894,137 Delinquent property taxes not collected within thirty days after year-end are considered "available" revenues and are shown as deferred revenues on the balance sheet. 295,187 Long-term and certain other liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in governmental funds. Long-term and other liabilities at year-end consist of: Bonds payable (36,150,000) Compensated absences (294,813) Lease purchase payable (339,113) Accrued interest payable (663,974) (37,447,900) Total net assets - governmental activities $ 130,551,421 The accompanying notes are an integral part of these financial statements 25

32 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS For the Year Ended June 30, 2004 Fund Fund Fund Fund Fund Fund PL Other ESEA IDEA-B IMPACT BOND DEBT Governmental OPERATIONAL TITLE I ENTITLEMENT AID BUILDING SERVICE Funds TOTALS Revenues: Federal Sources $ 14,982,029 3,490,275 1,586,001 4,466,430 13,957,878 38,482,613 State Sources 25,491,386 7,916,092 33,407,478 Local Sources 945, ,887 4,852,494 2,333,841 8,247,425 Total Revenues 41,418,618 3,490,275 1,586,001 4,466, ,887 4,852,494 24,207,811 80,137,516 Expenditures: Education, Current: Direct Instruction 24,429,285 2,195,910 1,050,047 2,302,986 5,547,585 35,525,813 Instructional Support 8,178, , ,627 1,918,007 1,397,368 12,333,495 Administration 1,105, ,244 49, ,558 50, ,858 1,849,491 Business and Support Services 815, ,023 73,423 1,181,709 Operation and Maintenance of Plant 6,630,335 5,852 20, ,560 7,109,255 Food Services 2,757,262 2,757,262 Athletics 868, , ,296 Non-Instructional Support 194,842 47, ,494 Community Services 314, , , ,927 1,847,576 Student Transportation 86,209 3,063,119 3,149,328 Education, Non-Current: Non Operating 30,088 30,088 Debt Principal 2,875,000 2,875,000 Debt Interest 1,663,213 1,663,213 Capital Outlay 216,831 96,179 1,789,901 8,838,120 10,941,031 Total Expenditures 42,783,471 3,490,275 1,586,001 5,167,379 1,789,901 4,588,295 23,082,729 82,488,051 Revenues Over (Under) Expenditures (1,364,853) (700,949) (1,674,014) 264,199 1,125,082 (2,350,535) Other Financing Sources (Uses): Bond Proceeds 3,800,000 3,800,000 Operating Transfers In 6,392 6,392 Operating Transfers Out (6,392) (6,392) Lease Purchase Payments (355,135) (355,135) Net Other Financing Sources (Uses) (6,392) 3,800,000 (348,743) 3,444,865 Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Sources (1,371,245) (700,949) 2,125, , ,339 1,094,330 Fund Balance - Beginning of Year, as Previously Reported 3,715,063 6,859,771 5,543,261 3,906,939 6,690,633 26,715,667 Adjustments and Residual Equity Transfers 172,428 (172,428) Fund Balance - Beginning of Year, as Restated 3,715,063 7,032,199 5,543,261 3,906,939 6,518,205 26,715,667 Fund Balance - End of Year $ 2,343,818 6,331,250 7,669,247 4,171,138 7,294,544 27,809,997 The accompanying notes are an integral part of these financial statements 26