MEMORANDUM. FY18 Operating Budget, Montgomery County Public Schools

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1 AGENDA ITEM #SB May 15, 2017 Worksession MEMORANDUM Mayll,2017 TO: FROM: SUBJECT: County Council Craig Howar[fe'nior Legislative Analyst FY18 Operating Budget, Montgomery County Public Schools Today the County Council will review the FY 18 Operating Budget for the Montgomery County Public Schools (MCPS). Michael Durso, President, Board of Education; Jack Smith, Superintendent of Schools; and other representatives from MCPS are expected to participate in today's worksession. Summary of Education Committee Recommendations The Education Committee held two worksessions to review the MCPS Operating Budget. The Committee reviewed major elements of the Board of Education's request and the County Executive's recommendation; revenues including the local contribution, fund balance, and State Aid; the programmatic enhancements included in the Board's request; and the compensation and benefits cost elements of the FY 18 request. The Committee's initial operating budget recommendations from April 21, described below, included a recommendation to place $2.1 million on the Reconciliation List. Based on updated fund balance information provided by MCPS since the Committee last met, revised recommendations are included on the next page for Council consideration that would allow the Council to fully fund the Board of Education's FY18 request and remove the $2.1 million from the Reconciliation List. April 21 recommendations. At the April 21 worksession, the Committee unanimously (3-0) made the following recommendations: Support the Executive's recommended local contribution to MCPS of $1.663 billion, which is $19.0 million over the required Maintenance of Effort (MOE) funding level. Support the Executive's recommendation to use an additional $6.0 million in fund balance resources for MCPS' FY18 Operating Budget-$1.0 million in general fund balance carryover and $5.0 million from MCPS' group insurance fund balance. The additional fund balance resources do not count towards the MOE calculation, but provide MCPS with $25.0 million in total resources above MOE. Place $2.l million on the Reconciliation List for MCPS. This amount represents the difference between the Board's request and the Executive's recommendation after accounting for the additional fund balance resources.

2 MCPS FY17 fund balance update. In FYI7, MCPS will be receiving an additional $4.l million from the State as a one-time reimbursement for higher than projected normal costs rates related to the County's state pension contribution. As part of the FYI 7 budget bill, the General Assembly reserved funding for local school systems related to this issue that would have provided MCPS with approximately $6 million in one-time funding, but the Governor elected not to release these funds. Subsequently the General Assembly passed, and the Governor signed, HB I I 09 during the 20 I 7 session that relieved MCPS from $4. I million of its FYI 7 State pension obligation. MCPS plans to use $2.0 million of these additional FYI 7 dollars to fund an initial set of security enhancements at schools, and the remaining $2. I million will accrue to the year-end fund balance. As a result, the Council can increase MCPS' fund balance carryover for FYI 8 by $2. l million - allowing for full funding of the Board's FYI8 request without impacting MOE and eliminating the need to have additional funding for MCPS on the Reconciliation List. Revised recommendations. Based on the updated fund balance information for MCPS, the following revised recommendations are presented for Council consideration: Approve an MCPS general fund balance carryover for FY18 of $22,783,303, an increase of$2.l million from what the Committee recommended on April 2 I. Remove $2. I million for MCPS from the reconciliation list. Support the Executive's recommended local contribution to MCPS of$1.663 billion, which is $I9.0 million over the required MOE funding level. (no change from the Committee's April 21 recommendation). Support the Executive's recommendation to use $5.0 million from MCPS' group insurance fund balance for the FYI 8 Operating Budget. (no change from the Committee's April 21 recommendation). Support all other tax-supported and non-tax supported elements of the FYI8 MCPS Operating Budget as requested by the Board of Education and recommended by the County Executive, including the FYI 8 appropriation for the Technology Modernization CIP project. (no change from the Comm/ttee 's April 21 and May 3 recommendations). The table below shows the funding elements of the FYI8 MCPS Operating Budget in the revised recommendation compared to the Board's request and the initial Committee recommendation. FY18 MCPS Operating Budget - Available Resources CE Rec./ initial ED Revised Source BOE Request Recommendation Recommendation (4-21) (5/15) County $1,671,401,353 $1,663,280,683 $1,663,280,683 Fund Balance $19,662,633 $20,662,633 $22,783,303 Group Ins. Fund Balance -- $5,000,000 $5,000,000 State $680,031,801 $680,031,801 $680,031,801 Federal $74,317,537 $74,317,537 $74,317,537 Other Sources $10,057,940 $10,057,940 $10,057,940 Enterprise Funds $64,549,977 $64,549,977 $64,549,977 Special Funds $1,697,504 $1,697,504 $1,697,504 Total $2,521, 718, 7 45 $2,519,598,075 $2,521, 718,

3 BOARD OF EDUCATION'S REQUEST 1. Overview of Recommended Budget The Board of Education requested a total of $2,521,718,745 for the FY18 MCPS Operating Budget. This amount represents an increase of $64,244,984 or 2.6% compared to the FY 17 approved budget. The FYI8 tax supported budget request is $2,373,742,388, an increase of $62,164,168 or 2.7% over the FY I 7 amount. A summary table showing the major elements of the Board's request is attached at 14, and greater detail on funding for specific programs and services begins on page 7. Significant highlights include the following: The Board requested a local contribution that is $25.7 million above the Maintenance of Effort (MOE) level required for FY18. The required MOE contribution for FY18 is $1.644 billion, an increase of $28.1 million over the FYI 7 approved total County contribution due to enrollment increases. The Board's requested a local contribution of $1.671 billion. The Board's request includes a total of $58.6 million for the local contribution to State retirement for teachers, as required by the General Assembly in This FYI8 amount is essentially level with the prior year contribution amount, and is the second year that the full amount is included within MOE as required by statute. The Board's request includes an additional FTE ( 20) over the approved FYI 7 level, for a total of22,284.3 FTE in FY18. The increase is primarily in teacher positions (91.2 FTE). The Board projects a total enrollment of 161,302 for FY18. This is an increase of 2,292 over the actual FYI 7 enrollment. Comparing enrollment projections (which affect the budget changes year to year), the FY18 budget projection is an increase of 2,286 over the budgeted FYI 7 level ( 19). Enrollment of students with Limited English Proficiency is projected to increase by 500, for a total of 23,I50 students for FYI8. The FYI 8 budget request includes an additional 29.9 positions and $1.9 million to serve the increased number of students. Enrollment of students eligible for Free and Reduced Meals (FARMS) continues to rise, with a total of 58,852 students as of April 1. The Board's request adds $5.8 million and 64.8 FTE due to changes in special education enrollment and services. COUNTY EXECUTIVE'S RECOMMENDATION The County Executive recommended a total of $2,514,598,075 for the MCPS FY18 Operating Budget, which is an increase of $57.1 million or 2.3% over the approved FYl 7 level. This recommendation represents a decrease of $7. I million from the Board's request. The County Executive recommended a County contribution of $1.663 billion, which is $I 9.0 million above the required MOE funding level for FYI8. The Executive's recommendation also assumes that MCPS will increase its general fund balance carryover by$ I.O million and decrease its group insurance fund balance by $5.0 million. This additional $6.0 million in fund balance resources would not count towards the MOE calculation, but would provide MCPS with a net total of $25.0 million above MOE for instruction and enhancements. The total available resources provided to MCPS under the Executive's recommend budget would be $2. I million lower than the Board's request. The County Executive recommended that MCPS use $27.2 million from the County's Consolidated Retiree Health Benefits Trust (OPEB Trust) in FY 18 to pay retiree health claims. 3

4 The Board's budget also assumes that the County will contribute this amount outside of the MCPS budget; the Executive's recommendation would repeat the action taken in FYI 6 and FYI 7 to address this cost issue. The details and implications of this recommendation are discussed on page I I. As these funds have already been appropriated in prior years, the recommendation does not add to the County's FYI 8 expenditures nor to the FYI 8 MOE appropriation level. The County Executive typically recommends only aggregate totals for the MCPS operating budget and does not identify category allocations. State Jaw requires both the County Executive and the Council to specify changes in category recommendations. However, for many years only the Council has followed this requirement in its final appropriation. Related County support. The County Executive's budget includes a summary chart of additional County support for MCPS in his recommended FYI8 budget. The Council began tracking this related funding in recent years, to have a fuller context of all the County dollars that directly benefit the school system in addition to the MCPS agency appropriation. As these funds are not appropriated to the school system, they do not count toward the MOE requirement. The table below shows a recommended FY18 total of $316.4 million in additional County support for the school system above the MCPS local appropriation, a 5.4 % increase over FYl 7. This amount exceeds the budgets of the largest County departments, including the FYI8 recommended budget for the Department of Police ($274.I million), the Department of Health and Human Services ($225.8 million), and the Fire and Rescue Service ($2I4.4 million). Additional County Support for MCPS in FY18 Funding Type Debt service on school construction Pre-funding retiree health benefits Support Services Technology Modernization Total FY18Amount $150.4 million $74.2 million $65.8 million $26.0 million $316.4 million Many of the "support services" included above are funded in the Department of Health and Human Services budget, such as School Health Services, Linkages to Leaming, and funding for the George B. Thomas Leaming Academy. The Education Committee discussed these and other related early childhood services in a joint worksession with the Health and Human Services Committee on April 28. Support services also includes $2.7 million for School Resource Officers and $5.3 million for crossing guards. A breakdown of all the support services expenditures provided by OMB is attached at 42. MAINTENANCE OF EFFORT The State MOE law requires local jurisdictions to fund school systems at the same amount per pupil as the prior year. Any increase to the County contribution of new dollars above MOE adds to the base calculation for the next year and cannot be reduced in future years (absent a waiver). There are also provisions to remove non-recurring costs from the MOE calculation ifthe costs are approved by the Maryland State Department of Education (MSDE). The Council funded the school system at the required MOE level each year from FY13-FY16, before exceeding MOE by $89.3 million in FYI 7. Since MOE is a per pupil amount, the total funding level adjusts based on enrollment changes as well funding above the minimum. Montgomery County has been experiencing significant enrollment increases in recent years, and meeting the MOE requirement 4

5 resulted in increases to the County contributions of$21.5 million in FY14, $25.3 million in FY15, $24.2 million in FY16, and $20.0 million in FYI 7 based on enrollment alone. New County funding of $28.1 million is needed to meet MOE in FYI 8 based on enrollment and the new per pupil amount established by the Council's FYI 7 funding decisions. Pension Shift and MOE. In its 2012 session, the General Assembly required that counties begin contributing local funds toward the cost of the State pension plan for teachers (and other school employees eligible to participate in the State pension system). The law established a set phase-in schedule of contributions for each local jurisdiction, with full funding required beginning in FYI 7. State Pension Shift Funding Requirements Phase-in Period Full Fundin!! FY13 FY14 FY15 FY16 FY17 FY18 $27.2 million $34.S million $44.2 million $S0.8 million $S8.7 million $S8.6 million For FY13-16 these amounts were required in addition to a county's MOE requirement (i.e., they did not count towards MOE). The law specifies that these payments must be included in the MOE base amount beginning with the FYI 7 per pupil calculation. As a result, the MOE per pupil amount increased by nearly $300 from FY16 to FY17, from $9,759 to $10,054 per pupil, solely due to the addition of the state pension shift in the calculation. MOE Calculation and Projections. The County Executive's recommendation would increase the MOE funding level for FY18, adding $19.0 million to the base amount for future MOE calculations. The Board of Education's request would add $25.7 million to the MOE base. The table below shows the final FYI 7 MOE data and the projected FYI 8-FY20 MOE calculations based on three scenarios: I) an MOE only budget, 2) the County Executive's recommended budget, and 3) the BOE's requested budget. FY17 FY18 FY19 FY20 MOE enrollment 1Sl,94S 1S4,S86 1S6,791 1S8,7Sl No Increase Above MOE Per pupil amount $10,637 $10,637 $10,637 $10,637 MOE county contribution $1,616,183,9S8 $1,644,280,683 $1,667,729,408 $1,688,S7 6,026 MOE increase from prior year -- $28,096,72S $23,448,724 $20,846,618 CE Recommendation - $19.0 million over MOE in FY18 Cumulative MOE increase FY18-20 $72,392,067 Per pupil amount $10,760 $10,760 $10,760 MOE county contribution $1,663,280,683 $1,687,000,363 $1,708,087,867 MOE increase from prior year $47,096,72S $23,719,679 $21,087,sos BOE Request- $25.7 million over MOE in FY18 Cumulative MOE increase FY18-20 $91,903,909 Per pupil amount $10,802 $10,802 $10,802 MOE county contribution $1,669,9S3,714 $1,693,768,SS6 $1,714,940,663 MOE increase from prior year $S3,769,7S6 $23,814,842 $21,172,106 Cumulative MOE increase FY18-20 $98,756,704 5

6 This table illustrates the compounding nature of an increase in the MOE requirement in any given year. Whatever funding is added to the base must be carried forward while also adding increases for enrollment at a higher per pupil rate. However, the increases recommended by the Executive or requested by the Board would have a much smaller impact than the $89.3 million increase above MOE approved last year or than the pension shift impact detailed above. The data show: If the Council funds an MOE only budget in FYI 8, the MOE requirement would increase by $23.4 million in FYI9 and $20.8 million in FY20 under current enrollment projections. The County Executive's recommended funding level would increase the per pupil funding requirement by $I23 per pupil. The resulting MOE increase would be $23.7 million in FY19 and $21.1 million in FY20 under current enrollment projections. The Board's requested funding level would increase the per pupil funding requirement by $165 per pupil. The resulting MOE increase would be $23.8 million in FY I 9 and $2 I.2 million in FY20 under current enrollment projections. 2. REVENUE SUMMARY Table 1 below shows the FY I 6 actual and FY 17 approved MCPS operating budgets by revenue source along with the FY 18 Board of Education Request and FYI 8 County Executive recommendation. Source FY16 Actual - FY18 Requested MCPS Operating Budget by Revenue Source FY16 Actual FY17 Approved FY18 BOE Request FY18 CE Rec. $ % $ % $ % $ % County* 1,507,631, % 1,617,631, % 1,671,401, % 1,663,280, % Fund Balance 33,162, % 33,162, % 19,662, % 20,662,633 State 632,645, % 657,437, % 680,031, % 680,031,801 Federal 73,398, % 74,902, % 74,317, % 74,317,537 Other Sources 4,815, % 10,571, % 10,057, % 10,057,940 Enterprise Funds 65,405, % 62,024, % 64,549, % 64,549,977 Special Funds 1,654, % 1,742, % 1,697, % 1,697,504 Grand Total 2,318, 713, % 2,457,473, % 2,521, 718, % 2,514,598,07 5 Tax-Supported 2,175,018,144 2,311,578,220 2,373, 742,388 2,366,621, 718 Total *The FY16 County revenue includes $44.4 million for the County's State pension contribution, which was listed as a separate revenue source until FY % 27.0% 3.0% 0.4% 2.6% 0.1% 100% LOCAL CONTRIBUTION The County Executive's recommended County contribution of$ I.663 billion is $I 9.0 million above the MOE required funding level, and an increase of $45. 7 million over the FY 17 County contribution. The Board of Education requested a County contribution of $25.7 million over the MOE level. The County's contribution is 66.3% of the Board's total request, and 66.1 % of the Executive's recommendation. The proportion of local funding has remained around 65-66% in recent years. Montgomery County contributes one of the highest proportions of local funding for public schools in the State. Only 9 local jurisdictions contribute more than half of their school system's total revenue. In FYI 8, the County contribution includes $58.6 million for the pension contribution to the State. This required pension contribution represents 2.3% of the Board of Education's total request for FY18. 6

7 FUND BALANCE The Board requested that $19.7 million of fund balance be reappropriated for the FY18 budget, and the County Executive assumed an additional $I.O million of fund balance in his FY I 8 recommendation. In FYI6 and FYI 7, the CounciJ reapproriated a larger fund balance of $33.2 million. The fund balance reflects savings achieved by the school system and funds not spent in a given fiscal year. These funds cannot be spent by MCPS until the Council appropriates them. Typically, the Council reappropriates fund balance as a resource for the following year's budget as part of the annual appropriation resolution. The fund balance appropriation is not part of MOE, in that it does not affect the per pupil amount nor can it be counted toward the County's MOE contribution. MCPS' fund balance consists of unspent appropriation. MCPS is prohibited by State law from ending the year in deficit; as a result, MCPS ends each year with some surplus. The large carry over amounts of recent years are due in large part to several consecutive years of savings plans, hiring and expenditure restrictions, and budget uncertainty that MCPS experienced along with all County agencies. MCPS' monthly financial report ( 30) reflecting conditions as of January 31 projects a total FYl 7 fund balance of $20.6 million. This amount consists of a projected expenditure surplus of $I6.8 million; a projected revenue surplus of $SOOK; and $3.3 million carried over from remaining FY16 fund balance. This report indicates a funding gap of approximately $I OOK between the projected year-end fund balance and the fund balance assumption in the Executive's recommendation. While several factors may still affect the ultimate year-end fund balance, it is likely that MCPS will achieve sufficient fund balance to meet the Executive's recommendation. As discussed by the Education Committee at its September I 9 worksession, unlike in recent years this fund balance is not due to wide-ranging expenditures restrictions or a formal savings plan. Instead, the fund balance is similar in size to the years immediately prior to the "great recession." While some level of fund balance is important for an agency like MCPS to cushion against unanticipated expenditures, achieving $30+ million in year-end fund balance is not a sustainable long-tenp practice. Additionally, it could diminish the impact of the Council and Board of Education's efforts to direct more resources towards reducing class sizes and closing the opportunity gap. Going forward, the Superintendent and Board of Education have discussed a target year-end fund balance closer to the $I 0-$12 million range. STATE AID State Aid increases by a total of $22.6 million over the FYl 7 level. The largest component of the increase in FYI 8 is from State Foundation Grant funding, which increased by $13.3 million or 4. I% over last year. Foundation Grant funding is distributed based on enrollment and wealth, and MCPS enrollment increases represented 40.2% of the statewide enrollment increase in FYI 7. MCPS also received increases of $3.1 million for Limited English Proficiency, $2.4 million for Compensatory Education, and $1.3 million for Students with Disabilities. The overall increase in State Aid was $I 4. I million higher than anticipated in the Superintendent's recommended budget last December. The Board's approved budget used most of that unanticipated increase to reduce the requested local contribution from the Superintendent's recommendation - lowering the request from $36.9 million to $25.7 million above MOE. 3. PROGRAMMATIC ADJUSTMENTS The Board's overall requested FY I 8 budget increase of $64.24 million primarily reflects. enrollment increases, costs related to the negotiated compensation agreements and other employee 7

8 benefits (discussed on page 9), and operational cost increases. However, the Board's budget does maintain funding for the class size reductions approved by the Council last year, requests $11.0 million in additional funding for "strategic accelerators" to address persistent opportunity gaps among students as shown in the table below, and includes savings of $20.5 million from reductions and efficiencies. BOE FY18 Funding Request for Strategic Accelerators Strategic Accelerator FY18 Request Description Improve Teaching and Learning Focus on Learning, Accountability, and Results Focus on Human Capital Focus on Community Partnerships and Engagement Focus on Operational Excellence $3.61 million 13.5 FIE $2.68 million 4.0 FTE $1.27 million 1.5 FIE $1.25 million 2.0 FTE $2.20 million 6.0 FTE Increase opportunities for students to participate in rigorous coursework, programs, and co-curricular activities including in the STEM areas Expand achievement-focused extracurricular programs to all middle schools to increase outcomes and opportunities for students Expand home-school model special education programs Ensure effective mathematics instruction through robust materials, focused support, and approaches to scheduling Improve understanding of data through implementation of comprehensive data systems Provide assessment opportunities for students who want to take the S,-\T, ACT, or career certification assessments Implement climate surveys for staff and students Implement systems that result in comprehensive and systemic college/ career planning efforts Implement required professional learning for teachers and paraeducators to include cultural competence, implicit bias, and restorative practice Provide focused training for teachers on effective practices and content knowledge Develop comprehensive pathway programs for supporting services staff who want to become teachers Expand equity and excellence hiring efforts Develop and communicate resources and materials to provide parents and partners with information on available opportunities and improving outcomes for students Build pipelines from elementary schools to improve engagement and opportunities in arts, sciences, and mathematics programs Expand partnership with Montgomery College and the Universities at Shady Grove to increase number of schools in the ACES program Create efficiencies and ensure effective operations through updating and enhancing business systems Enhance air quality, maintenance support, and prevention programs Several of the programmatic enhancements and/or adjustments the Committee may be interested in are highlighted below. Class size reduction. The FYI 7 budget for MCPS resulted from an historic collaboration between the Board of Education and the Council. Specifically, the Council's appropriation for MCPS was $89.3 million above the Maintenance of Effort level with $37.9 million redirected within the budget directly for class size reductions and closing the opportunity gap by adding instructional and support staff. On October 4, 2016, the Superintendent updated the Council on how MCPS was utilizing those funds and noted that $2 I.3 million was allocated to reduce average class size as shown in the table below. The Board's FYI 8 budget request maintains both the class size reductions from FYI 7 and the $16.6 million for the other positions and initiatives. In addition, during FYI 8 MCPS plans to have an independent auditor conduct a review of the class size reduction efforts and benchmark MCPS class sizes against comparable jurisdictions. 8

9 MCPS Allocation of Additional FY17 Funding Reducing average class size $21.3 million Targeted staffing to support instruction and provide interventions for students in literacy and mathematics $6.4 million Increase staff capacity to meet student needs $3.9 million Professional learning to improve mathematics teaching $1.9 million Enhancing instructional and support programs $930,000 Professional learning to improve literacy teaching $387,000 Cultural proficiency $364,000 Collaboration for school improvement $280,000 Professional learning for rvfiddle School leadership $50,000 Leadership development $50,000 Providing enhanced curricular and instructional options $1. 7 million Instructional materials $1.5 million Marking period assessment development $137,000 Career and college readiness completion $26,000 Increasing programmatic access $3.3 million Pupil Personnel Workers and Psychologists $930,000 Counselors $838,000 Parent Community Coordinators (PCCs) $603,000 rvfinority program supports $329,000 Career Readiness Education..Academy (CRK-\.) $272,000 Elementary home school model $167,500 Dual language $86,000 Career readiness $70,000.Achieving College Excellence and Success (ACES) $30,000 Reduction of student fees and costs. The Board's request includes a revenue reduction of$700,000 from eliminating the independent activity fee charged to middle and high school students who participate in adult-supervised extracurricular activities. MCPS has begun a review of other curricular fees charged to students (i.e., fees associated with materials for certain classes that students keep) and will make recommendations on those fees as part of the FYI 9 budget. The request also includes $450,000 to ensure that any Grade 11 student interested in taking the SAT, ACT, or career certifications assessments will be able to do so. Dual-language immersion programs. The Board's request includes an addition of approximately $200,000 to expand two-way immersion programs at elementary schools and create a plan for middle school immersion program options. Reading initiative teachers. The Board's request restores $2.5 million and 35.5 FTE's for kindergarten through second grade reading initiative teachers. These positions were recommended for elimination in the Superintendent's December budget. Special education Home School Model. The Board's budget includes an increase of approximately $1.0 million and 12.5 FTE's to expand the Home School Model to 27 elementary schools. This model allows education access for students with disabilities at their assigned elementary school. Efficiencies and reductions. The Board's request cuts $20.5 million from the budget from efficiencies and program reductions. These include approximately $11 million in school-based reductions, $5 million in central services reductions, and $5 million in school-support operations 9

10 reductions. One of the major school-based reductions is the elimination of91.55 elementary and middle school data analyst positions for savings of approximately $6.2 million. While MCPS always takes a comprehensive review of programs and services in its base budget to identify opportunities for efficiencies, realignments, and reductions, these efforts for FY 18 represent a significant undertaking. The Superintendent's December 2016 recommended budget states that "While these and other smaller reductions are both difficult and painful, give the other funding requirements in this budget, coupled with our commitment to excellence for all our students, they must be included in this recommended budget." 1 4. Compensation and Benefits This section reviews pay adjustments, retirement costs, and active and retiree group insurance benefit costs included in the Board's FY18 budget request. In October and April of each year, the Board transmits a letter to the Council providing detailed information on the group insurance and pension fund expenditures within State Category 12, Fixed Charges. The Board's March 31 letter is attached at 22. COMPENSATION The Board's budget includes a net increase of $38.4 million for continuing and negotiated salaries for current employee in FY18. This includes an increase of $53. 7 million for FY 18 negotiated salary increases combined with a reduction for turnover and lapse. This year the Board entered into new agreements with its employee bargaining units. The term of the agreements is for one year for economic provisions and three years for non-economic provisions. For FY 18, the agreements call for employees to receive a general wage adjustment of 1.0% and increments averaging approximately 3.0%. Employees at the top of grade may also be eligible for longevity increments. FY18 MCPS Requested Pay Adjustments General Wage Employee Service Increment Adjustment Group (effective 7 /1/17) (effective 7 /1/17) MCEA 1.5%-5.5% (average MCAAP 1.0% of approximately SEIU 3.0%) Other Longevity increments for eligible employees. The FY18 cost of the GWA is approximately $17.2 million, and the cost of the service and longevity increments is approximately $36.5 million. Since the salary increases will be effective at the beginning of the fiscal year, the request reflects the full annualized costs of the increases. PENSION FUND MCPS makes an annual contribution to its pension fund to pay for cost of: (I) the "core" pension benefit offered employees who do not participate in the State-run pension plan; and (2) the "supplemental" benefit for all permanent employees. The Board determines the amount of the annual contribution based on an actuarial assessment of plan assets and liabilities. For FY18, MCPS is expected to pay $71.8 million into its pension fund. 1 http: /w\\\\.montgomervschoolsmd.orguploadedfiles. departments "budget f\ 20 I I 7 FY20 I 8Sups8udgetin BRIEF web.pdf, pg.18 10

11 Rating agencies consider a pension fund's "funded ratio" (among other factors) in determining the bond ratings for local governments. The term "funded ratio" refers to the percentage of the plan's liabilities covered by the current actuarial value of the plan's assets. At the start offy03, the MCPS pension fund held assets that were greater than its liabilities, that is, the funding ratio exceeded 100%. By FYIO, the MCPS pension funded ratio had dropped to below 70%. Two primary factors contributed to the sharp decline. First, in 2006, the Board of Education approved two pension plan enhancements that significantly raised the plan's unfunded liability. Second, the MCPS pension fund incurred a combined investment loss of more than $265 million during FY08 and FY09. In subsequent years, the MCPS pension fund experienced gradual improvement attaining a funded ratio of 81.5% as of July 1, As with most pension funds, the improvement in the MCPS funded ratio was a function of strong investment returns. More recently, however, the MCPS funded ratio declined to 77.8% as of July 1, In other words, the MCPS pension fund had only 77.8 cents of assets for every dollar of liability. The recent decline in the MCPS pension funded ratio is a product of multiple factors. First, MCPS has adopted updated actuarial assumptions (including those related to mortality rates and expected investment returns) that more accurately reflect current experience than the previous assumptions. In addition, pension fund investment performance in recent years has fallen below expectations, resulting in lower than projected fund assets. As a consequence of the current funding status, MCPS will need to devote steadily increasing resources to meet on-going pension obligations. MCPS' actuaries calculated that the agency's annual pension fund contribution will increase from $71.8 million in FY18 to $83.7 million in FY20, an increase of $11.9 million (or 17%) in just two years. Costs are projected to continue to grow to $92.9 million in FY23, an increase of$21.1 million (or 29%) over FYI8. This growth in required pension contributions will directly affect resources available to spend on educational initiatives. In February 20 I 6, the Office of Legislative Oversight issued a report that presented options to reduce MCPS pension costs. Last October, the Council's Education Committee discussed the OLO report with representatives ofmcps. At that meeting, Committee Chair Rice expressed interest in continuing a dialogue on opportunities to focus MCPS resources on efforts that directly affect the classroom. GROUP INSURANCE AND OPEB For FYI 8, the Board's request includes a total of $303.1 million for health benefits for active and retired employees, an increase of $1.8 million or 0.6% over the FY I 7 budget level. The relatively small increase reflects lower than anticipated health care claims as well as savings from group insurance plan changes. Active employee group insurance costs. The Board's FYI 8 request includes $274.5 million for active employee group insurance costs, and increase of 0.5% over FYI 7. The budget request reflects several changes to the structure of group insurance benefits in FY 18, as well as a change to the cost share penalty for tobacco users. MCPS group insurance plans will include the following changes as of January l,20i8: Reducing the number of plans offered to one Health Maintenance Organization (HMO) and one Point of Service (POS) plan in addition to the Kaiser HMO plan. 2 The funded ratios cited in this section are calculated based on the "market value of assets (MV A)." The MV A method values a fund's assets based on the amount of money the fund would receive if it sold all its investments. The MV A method produces funded ratios that are highly sensitive to fluctuations in the investment market. 1 I

12 Increasing prescription drug and specialist co-pays by $5. Implementing disease management programs for cholesterol and hypertension control compliance, and waiving co-pays on related medications for employees who participate in those programs. Additionally, MCPS plans to increase the cost share penalty for tobacco users from 3% to 25% effective January I. Currently, MCPS' group insurance cost share structure includes cost share credits of 1 % each for completing a biometric screening and a health risk assessment and a cost share penalty of 3% for tobacco users. As of March 1, 2017, MCPS reports that approximately 36% of enrollees are receiving the biometric screening credit, approximately 29% are receiving the health risk assessment credit, and about 32% of enrollees are paying the tobacco user penalty. Under the new cost share penalty structure, a tobacco user could have a group insurance cost share as high as 42% - compared to I 7% for a nontobacco user and 20% for a tobacco user under the current cost share penalty. MCPS employees must attest annually that they are a non-tobacco user to avoid the cost share penalty, and are subject to a $2,500 fine for a false attestation. While MCPS has taken an innovate approach with cost share credits and penalties to incentivize wellness and healthy behaviors, its base cost share rate (88/12 for HMO plans and 83/17 for non-hmo plans) continues to remain well below the cost share for County Government employees (80/20 for HMO plans, 75/25 for non-hmo plans). If MCPS had the same cost share as County Government, the result would be annualized savings in the range of $24 million. For the past several years, the Council has encouraged MCPS to align its cost share with that of County Government with the goal of channeling more tax dollars to initiatives that reduce class size and target the opportunity gap. Retiree pay-as-you-go group insurance costs. For FY18, the Board of Education's request and the County Executive's recommended budget proposes $55.8 in total retiree pay-as-you-go funding through $28.6 million in tax supported funding (an increase of 1.8% over FYI 7) and $27.2 million from MCPS' portion of the Consolidated OPEB Trust. In FYI5, the Council reduced MCPS' tax supported retiree health pay-as-you go funding by $27.2 million, MCPS used its internal OPEB Trust to fund that portion of pay-as-you-go expenditures, and the Council added $27.2 million to MCPS' portion of the Consolidated OPEB Trust to hold MCPS OPEB spending harmless. In FYI6 and FYI 7, the Council approved the County Executive's recommendation to provide MCPS $27.2 million from the Consolidated OPEB Trust for retiree health pay-as-you-go funding. Unlike the Council's actions in FYI5, the budget actions in FY16 and FYI 7 did not replace the expenditures in either trust. The FY 18 recommendation continues this same approach. OPEB pre-funding. MCPS' OPEB pre-funding is appropriated directly to the County's Consolidated OPEB Trust and is therefore not part of the Board's budget request. While the Executive's recommended budget proposes to fully fund MCPS' OPEB pre-funding requirement of $74.2 million, the use of $27.2 million in assets from MCPS' portion of the Consolidated OPEB Trust to pay current year claims creates a net impact of increasing MCPS' OPEB Trust balance (excluding any investment earnings) by $47.0 million in FY18 instead of $74.2 million. MCPS' pre-funding amount of $74.2 million in FY18 is an increase of $11.2 million or 17.6% from FYI 7 due to an updated actuarial valuation. The two primary factors contributing to the increase are plan assumption changes - updated mortality tables that reflect increased longevity for retirees and new health care claims and trend rates that project higher future costs. MCPS' long-term increase for OPEB pre-funding as shown in the County Executive's recommended FY18-23 fiscal plan ( 41) is substantial. Pre-funding MCPS retiree health benefits in FY18-23 is now projected to cost $547.8 million - an increase of $207.6 million or 61 % above the December 2016 projection. I2

13 According to the County Department of Finance, $I57.6 million of this increase results from the updated actuarial valuation, and the remaining $50 million is due to assuming additional pre-funding for MCPS beyond what is actuarially required to phase-out (over time) the annual use of $27.2 million from the OPEB Trust to fund current year claims. The fiscal plan assumes additional contributions of $5 million in FY20, $I 0 million in FY2 I, $15 million in FY22, and $20 million in FY23. GROUP INSURANCE FUND BALANCE MCPS maintains separate fund accounts for active and retired employees. MCPS ended FYI6 with a $9.4 million deficit (or -3.0%) in its group insurance fund for active employees. MCPS currently projects a positive FYI 7 year-end fund balance of $8.0 million (or 2.4%) due to lower than anticipated claims expenditures and increased revenue from prescription drug rebates. MCPS ended FYI6 with a $4.7 million balance (or 4.7%) in its group insurance fund for retired employees. MCPS currently projects an FYI 7 year-end fund balance of$9.0 million (or 8.3%), due to lower than anticipated claims expenditures, increased revenue from prescription drug rebates, and higher than anticipated reimbursements from Medicare Part D. As discussed on page 2, the County Executive's FYI 8 budget proposes reducing MCPS's combined active and retiree fund balance by $5 million to help fund the Board's request while keeping the increase above MOE at $I9 million. While the group insurance fund deficits experienced by MCPS in FY15 and FY16 illustrate the need to maintain a sufficient fund balance to cover unanticipated expenditures, Council staff believes that there is sufficient fund balance in FY18 to support the Executive's recommendation. Staff notes, however, that this use of fund balance will create a $5 million hole in MCPS' FY19 budget. 5. Technology Modernization The County Executive recommends $26.0 million in funding for the Technology Modernization CIP project in FY18, the same amount as approved in the FY17-22 CIP. The approved six-year funding schedule and the FYI 8 requested expenditures are shown below. Tech Mod Project 6-Year Total FY17 FY18 FY19 FY20 FY21 FY22,-\pproved Total 152,277 27,399 26,010 22,875 25,366 25,484 25,143 FY18 Requested Expenditures by Type Finance payment for purchased hardware (prior year debt service) Licensing maintenance payments for major software CIP funded staff related to Technology Modernization Amount $11.0 million $2.8 million $4.0 million 16 positions shifted from operating budget (transferred FY16) $1.7 million New desktops, laptops, and required operating licenses, including next phase of Chrome books $4.5 million Modernization of infrastructure and program $1.5 million Extended parts and service warranty: printers, scanners, mobile devices Total* *Total does not equal sum of components due to rounding. $0.7 million $26.0 million 13

14 E-RATE E-rate Federal reimbursement funding is another resource for the Technology Modernization project that is appropriated each year by the Council as a supplemental appropriation once the funding amount is known. In recent years, the Council has appropriated the E-rate funding as additive to the County funding to get the total Tech Mod appropriation closer to the Board's requested funding level. For FYl 7, MCPS estimates that the E-rate reimbursement amount will be $1.3 million. In budget discussions last spring, the Council assumed that the FYl 7 funding would be added to the approved $27.4 million level when it was received and requested by the Board. The Board of Education is tentatively scheduled to request an appropriation for the FY 17 E-rate reimbursement funds on May 9. This appropriation request will be added to the Council's calendar for introduction and public hearing when it is received. CHROMEBOOKS A key element of the Board's technology modernization strategy is the implementation of Chromebooks for student and staff use in the classroom. This began in the school year with implementation in Grades 3, 5, 6, and high school social studies classes. The Board and the Education Committee have heard directly from students, teachers, and parents the benefits of using the Chromebooks for class instruction and the innovative learning initiatives that the devices support. This school year was originally planned to be the final rollout year for the Chromebook initiative. The Board reduced funding for the initiative as part of the significant overall budget reductions that were required in the FY16 Operating Budget. To maintain continuity with the initiative, MCPS reprioritized already approved funds in the Technology Modernization project. The revised plan for the current school year is to implement Chromebooks in Grade 7, one-half of Grade 8, and one high school content area. The FYl 8 Tech Mod request would continue funding for Chromebooks on the revised rollout schedule. The Education Committee unanimously (3-0) recommends the following: Support the County Executive's recommended FYl 8 funding for the Technology Modernization project. Consistent with the Council's policy direction in past years, support adding the FY 18 E-rate reimbursement revenue to the FY 18 approved total when the request is received from the Board of Education. f:\howard\fyl 8 budget\meps\fyl 8 meps operating budget eel doex 14

15 MONTGOMERY COUNTY BOARD OF EDUCATION 850 Hungerford Drive Room 123 Rockville, Maryland The Honorable Isiah Leggett, County Executive Executive Office Building 101 Monroe Street, 2nd Floor Rockville, Maryland March 1, 2017 ~colm Bald lge J/Jlrt.t~onal Quality Award,,,, 010 Award Recipient The Honorable Roger Berliner, President, and Members of the Montgomery County Council Stella B. Werner Council Office Building 100 Maryland A venue, 6th Floor Rockville, Maryland Dear Mr. Leggett, Mr. Berliner, and Councilmembers: I am pleased to submit the Montgomery County Board of Education's Fiscal Year (FY) 2018 Operating Budget Request for Montgomery County Public Schools (MCPS). The Board of Education is requesting an operating budget of $2,521,718,745 for MCPS for FY This is an increase of $64,244,984, or 2.6 percent, compared to the current FY 2017 Operating Budget. This increase is needed to fund the same level of services for a growing number of students enrolled in MCPS, rising costs, and strategic accelerators to intensify efforts to close the persistent opportunity gap and improve academic excellence for all. This budget will build the foundation and structure that is needed to ensure that all MCPS students are able to achieve at higher levels. The MCPS tax-supported operating budget (excluding grants and enterprise funds) for FY 2018 is $2,373,742,388. This budget assumes Montgomery County will continue to fund $27,200,000 of MCPS retiree health benefits costs from the county's Consolidated Other Post-employment Benefits Trust Fund. State law requires the county to provide, at a minimum, $28,096,725 in increased funding for MCPS based on the Maintenance of Effort law to account for enrollment growth. However, the need is greater in FY 2018, and the Board's budget request seeks a total of $53,769,756 above the current funding level. This amount is inclusive of the Maintenance of Effort requirement. This additional investment is essential if we are to maintain the quality of our school system and address the much needed work to improve the educational outcomes for all MCPS s11:j.dents. Governor Lawrence J. Hogan's FY 2018 budget submitted to the Maryland General Assembly on January 18, 2017, reflected a total of $680,031,801 for MCPS. This is an increase of $22,594,411 compared to FY Our enrollment increase in the school year used to calculate Phone Fax boe@mcpsmd.org

16 The Honorable Isiah Leggett The Honorable Roger Berliner and Members of the County Council 2 March 1, 2017 state aid was the largest of any school district in the state. Of the statewide enrollment increase of 6,575 eligible students for allocating state aid, 2, of the increase, or 40.2 percent, were students enrolled in MCPS. This budget also assumes that it will be funded, in part, by funding projected to be available at the end of FY 2017 in the MCPS fund balance. The amount anticipated to be available to fund the FY 2018 budget is $19,662,633. This is $13,500,000 less than the amount ofmcps fund balance used to fund the FY 2017 budget. The three-year agreements with our employee associations that the Board ratified in March 2014 will expire at the end of FY We are making progress on negotiations with our employee associations on new contracts to be effective July 1, Funding is included in this FY 2018 budget to plan for the requirements of these contracts. Since 2009, our enrollment has increased by more than 19,700 students. Moreover, for the past four years, we have seen enrollment increases of more than 2,500 students each year. By FY 2023, we estimate our enrollment will increase to 168,480 students, or 9,470 more students than enrolled in the school year. This continued enrollment growth places significant operational and capital demands on the school district for which we must budget. The requirements in the FY 2018 budget for enrollment growth and opening the Bethesda/Chevy Chase Middle School #2 along with adding Grade 8 students at Hallie Wells Middle School increases the budget by $19,253,048. This includes non-recurring decreases from our FY 2017 budget. The Board is recommending targeted, strategic accelerators totaling 27.0 Full-time Equivalent (FTE) positions and $11,011,938. The strategic accelerators are grouped by the five strategic priorities that were outlined by the superintendent of schools in fall These include the core or principal strategy of improving teaching and learning. The second strategy is a focus on learning, accountability, and results. The third strategy focuses on our human capital. The fourth strategy is a focus on community partnerships and engagement. Finally, the fifth focus is on operational excellence. At the same time, we have closely reviewed the MCPS Operating Budget and identified program efficiencies, reductions, and other adjustments totaling FTE and $20,504,698 in FY While these reductions are difficult, given the other funding requirements in this budget, coupled with our commitment to excellence for all our student, they help offset the total budget request for FY2018. As in the past, this FY 2018 Operating Budget request was developed through a variety of collaborations. The Board held two public hearings in early January 2017 and heard testimony from more than 50 individuals. The Board held two evening work sessions on the budget on

17 The Honorable Isiah Leggett The Honorable Roger Berliner and Members of the County Council 3 Marchl,2017 January 17 and 19, Board members spent a great number of hours analyzing the budget and submitted a number of fonnal questions to MCPS staff tlmt eventually led to the Board's adopted budget request on February 14, This budget builds on investments the county and the school district have made in recent years that reflect our core values of learning, relationships, respect, excellence, and equity. It defines a dear path to improved achievement for all students and instills confidence that MCPS will fulfill its core purpose of preparing all students to strive in their future. The Board of Education looks forward to working with you in the coming weeks and months to fund an operating budget for MCPS for FY 2018 that meets the needs of all our students. MAD:JRS:ND:tpk Enclosure (_/} Sincerely, ' -;lcgll-u1-l_; If~.~ Michael A. Durso President

18 MONTGO:MERYCOUNTYBOARDOFEDUCATION Rockville, Maryland February 14, 2017 (as adopted by the Board of Education) DISCUSSION/ACTION 7.1 MEMORANDUM To: From: Subject: Members of the Board of Education Michael A. Durso, President AA A ~ Amendment to the Superintendent's Recommended Fiscal Year 2018 Operating Budget After hearing from the community and review of the information provided by staff, Board members have shared their belief that reading initiative positions should be added back into the Fiscal Year 2018 budget to support reading instruction. Therefore, on behalf of Board members, I offer the following resolution as an amendment to the Superintendent's Recommended FY 2018 Operating Budget. WHEREAS, On December 13, 2016, the superintendent of schools presented the Fiscal Year 2018 Recommended Operating Budget of$2,519,848,012 to the Board of Education; and WHEREAS, The Board of Education reviewed the budget and supports the Superintendent's Recommended Fiscal Year 2018 Operating Budget that includes funding for continued enrollment growth, increases in the cost of goods and services, funding to plan for the requirements of ongoing negotiations with the three empl6yee associations on new contracts to be effective July 1, 2017, and strategic accelerators to close the persistent opportunity gaps and improve academic excellence for all students; and WHEREAS, The Board of Education fully supports the recommended budget as amended by the superintendent of schools on February 14, 2017, but believes additional resources are needed for reading instruction in kindergarten through Grade 2; now therefore be it Resolved, That the Board of Education amend the Superintendent's Recommended Fiscal Year 2018 Operating Budget by adding 35.5 Full~time Equivalent reading initiative teacher positions in kindergarten through Grade 2, for a total of $2,475,915 as outlined in the following categories which encompasses $1,855,869 for salaries and $620,046 for benefits; and be it further ff)

19 Members of the Board of Education 2 Februar,y 14, 2017 Resolved., That the superintendent of schools provide the Board of Education with a summary of how the reading initiative positions are allocated, plans for how these positions will be used, as well as how impact of the positions will be monitored. SuperiateIJdent's Super.intendem' s Board's Amendment Boris ReoommendedFY 2018 Amended FY 2018 to the FY 2018 Adopted FY 2018 Cate~ Operating Budget Opera.ting Budget Operating Bl!dget Operating Budget Admi.tlstratiat $47,324,960 $48,980,000 $48,980,000 2 Mid-level Admiaistra1ion 145,739, ,989, ,989,827 3 Instructional Salaries 1,012,831, ,006,666 $1,855, ,862,535 4 Textbooks and Ins1IUCtional Supplies 26,032,605 26,066,768 26,066, her Instructional Costs 14,520,274 14,511,274 14,Sll,274 6 Special Education 3'29,747, ,308, ,308,503 7 Studelll: Personnel Sen.ices 12,025,325 11,993,()45 11,993,045 8 Health Services 3,630 3,630 3, Student Transportation 103,049, ,370, ,370, Operation of Plant and Equipment 132,636, ,893, ,893)98 11 Maintenance of Phmt 34,665,753 36).99,737 36)99, Fixed Charges 593,959, ,633, , ,253, Community Services 933, , , MCPS TelevisioD. Special. Revenue Fund 1,697,504 1,697,504 1,697, Re al Estate Fund 3,986,191 3,932,647 3!J32, Food Service Fund 54,302,680 54,213,534 54,213, Field Trip Fund 2,306,361 2,313,743 2,313, Entrepreneurial Activities 4,084,802 4,090,053 4,090,053 Total $2,519,848,012 $2,519,242,830 $2,475,915 $2,521,718,745 MAD:JRS:ND:tpk

20 Office of the Superintendent of Schools MONTGOMERY COUNTY PUBLIC SCHOOLS Rockville, Maryland February 14, 2017 REVISED DISCUSSION/ACTION 7.1 MEMORANDUM To: Members of the Board of Education From: Subject: Adoption of the Fiscal Year 2018 Operating B dget Executive Summary On January 5 and January 11, 2017, the Board held public hearings on the Superintendent's Recommended FY 2018 Operating Budget. In addition, on January 17 and 19, 2017, the Board held work sessions on the budget. Today, I am submitting to the Board my amended Recommended Fiscal Year (FY) 2018 Operating Budget totaling $2,519,242,830 for Montgomery County Public Schools (MCPS). This is an increase of $61,769,069, or 2.5 percent, compared to the current FY 2017 budget The tax"supported budget (excluding grants and enterprise funds) is $2,371,266,473, an increase of $59,688,253 or 2.6 percent compared to the current FY 2017 tax-supported budget. The amended budget of $2,519,242,830 is a decrease of $605, 182 compared. to the $2,519,848,012 that I recommended to the Board on December 13, This revision to my Recommended FY 2018 Operating Budget includes a revenue adjustment totaling an additional $14,128,891 in state aid compared to what was included in my December 2016 budget recommendation. On January 18, 2017, Governor Lawrence J. Hogan, Jr. presented his FY 2018 operating budget to the Maryland General Assembly. Our emollm.ent increase of 2, eligible students, a major factor in determining state aid, is the largest in the state, and represents 40.2 percent of the statewide enrollment increase. In addition, my amended FY 2018 budget recommendation reflects that MCPS no longer will charge a fee to middle and high school students to participate in extracurricular activities such as sports and clubs. This results in a decrease of $700,000 in projected revenue since my December 2016 budget recommendation. Finally, there is a decrease of $320,342 in anticipated revenue for other revenue sources from my earlier budget

21 Members of the Board of Education 2 February 14, 2017 On the expenditure side of the budget, my amended Recommended FY 2018 Operating Budget reflects a net decrease of $605, 182 and Full-time Equivalent (FTE) positions. This includes decreases of $2,177,750 and FTE positions from my December 2016 budget recommendation based on revised enrollment estimates for the school year. An increase of $804,123 and 5.0 FTE positions have been added for adjustments to the plan for strategic accelerators. There also is a restoration of reductions and other adjustments totaling $879,688 and 2.5 FTE positions as well as a cost neutral realignment including 7.5 FTE positions that were included in my December 2016 budget i:ecommendation. There is a net decrease of $111,243 and 7.0 FTE positions for federal and state grants as a result of continuing salary and benefits adjustments. The three revenue adjus1ments totaling $13,108,549 offset by a net expenditure decrease of$605,182, results in a reduction in the local contribution of$13,713,731 for FY 2018 compared to the amount in my December 2016 budget recommendation. This means a total local contribution of $1,668,925,438 for FY 2018, which is $51,293,841 greater than FY Following is a summary chart that reflects the revisions to the Recommended FY 2018 Operating Budget. Montgomery County Public Schools FY Operating Budget FY 2018 FY 2017 FY 2018 FY 2018 Changes from Current Budget Recmd. Bu9=,oet Amended Bud!ret FY 2017 Total Expenditures $2,457,473,761 $2,519,848,012 $2,519,242,830 $61,769,069 Local Revenue 1,617,631,597 1,682,639,169 1,668,925,438 51,293,841 State Revenue 657,437, ,902, ,031,801 22,594,411 Fund Balance 33,162,633 19,662,633 19,662,633 (13,500,000) Fed/Other Revenue , ,958 1, Total Revenue $2,457,473,761 $2,519,848,012 $2,519,242,830 $61,769,069 The details of the revisions to the Recommended FY 2018 Operating Budget submitted to the Board on December 13, 2016, follow. (i)

22 Members of the Board of Education 3 February 14, 2017 Revenue State Revenue On January 18, 2017, Governor Hogan submitted his FY 2018 budget to the Maryland General Assembly. Based on the Governor's FY 2018 budget, a total of $680,031,801 is reflected for all revenue categories from the state for MCPS. My recommended FY 2018 Operating Budget had included an estimate of $665,902,910 for total revenue from the state, an estimated increase of $8,465,520 more than FY The Governor's FY 2018 budget provides an increase of $22,594,411 for FY 2018, or $14, 128,891 more than my recommended budget. The following is a summary of the major state revenue amounts by category of aid for MCPS: Foundation Grant: The Governor's FY 2018 budget provides $338,809,272, an increase of $13,282,470 (4.1 percent) more than FY 2017, for the Foundation Grant, which is distributed on the basis of enrollment and wealth. This amount is $9,209,268 more than the estimate in my FY 2018 recommended budget. Geographic Cost of Education Index (GCEI): The Governor's FY 2018 budget funds GCEI at $36,854,599 for MCPS, an increase of$877, 729 (2.4 percent) more than FY This amount is $427,563 more than the estimate in my FY 2018 recommended budget. Limited English Proficiency (LEP): The Govern.or's FY 2018 budget provides $64,743,869 for LEP, an increase of $3,061,872 (5.0 percent) more than FY This amount is $2,290,067 more than the estimate in my FY 2018 recommended budget Compensatory Education: The Governor's FY 2018 budget provides $140,036,855 for Compensatory Education:. an increase of$2,422,540 (1.8 percent) more than FY This amount is $700,621 more than the estimate in my FY 2018 recommended budget - Students with Disabilities - Formula: The Governor's FY 2018 budget provides $38,947,354 for aid determined by formula for students with disabilities, an increase of $1,327,277 (3.5 percent) more than FY This amount is $856,550 more than the estimate in my FY 2018 recommended budget. Transportation: The Governor's FY 2018 budget provides $42,090,090 for transportation aid, an increase of$1,157,003 (2.8 percent) more than FY This amount is $644,822 more than the estimate in my FY 2018 recommended budget. Our enrollment increase in the school year used to calculate state aid in FY 2018 was the largest in the state. Of the increase of 6,575 eligible students enrolled statewide in the school year, a total of 2, of the increase in students is enrolled in Montgomery County. Moreover, MCPS comprised percent oftb.e statewide enrollment increase. Given that enrollment is a major factor in how state aid is allocated, it is not surprising that our state aid increase for FY 2018 totaled $22,594,411.

23 Members of the Board of Education 4 February 14, 2017 Local Revenue Based on revenue and expenditure adjustments that were highlighted earlier in this memorandum, a decrease of $13,713,731 in the local contribution is reflected in this amended budget compared to the December 2016 budget recommendation. The total amount for FY 2018 from local revenue is $1,668,925,438, an increase of $51,293,841 compared to FY The amount of increased local funding for FY 2018 based on the Maintenance of Effort (MOE) law is $28,096,725. Federal/Other Revenue A decrease of $1,020,342 is reflected in Federal/Other Revenue from the amount in my December 2016 budget recommendation. This includes a decrease in revenue of $700,000 as a result of not charging the independent activity fee beginning in FY 2018 to middle and high school students who participate in adult~supervised extracurricular activities. In addition, a decrease in revenue of $320,342 in grants and the enterprise fund is projected as a result of adjustments to continuing salary and benefit requirements. Expenditure Adjustments Savings from Revised Enrollment Estimates for FY 2018 Periodically, MCPS updates its enrollment projections for the coming years. Based on current trends and recent changes, an updated enrollment of 161,302 students currently is projected for the school year. This impacts teachers and other school-based positions at the elementary, middle, and high school levels. With the lower projected enrollment, we can reduce the expenditures in the FY 2018 Operating Budget by $2,177, 750 and FTE positions. This change is the result of a recalculation of all school by school formulas along with the addition of one more Focus school. Adjustments to the Plan for Strategic Accelerators Subsequent to the submission of my recommended FY 2018 Operating Budget, and following the public hearings with the Board of Education and the two budget work sessions held in January 2017, I am adding $804,123 and 5.0 FTE positions to my amended budget for changes to oui strategic accelerators. This includes three additional positions in the Internal Audit Unit and a budget specialist for the Board of Education. Change to the Plan for Reductions, Realignments, and.adjustments My amended FY 2018 budget restores $692,102 and 1.0 FTE position of reductions that were included in my December 2016 budget recommendation. This includes the restoration of $500, 000 that was to be reduced from our utilities budget for electricity, $158,085 and 1.0 FTE position for a Director II position for secondary schools in the Office of School Support and Improvement, and $34,017 for temporary part-time salaries. My amended FY 2018 Operating Budget includes

24 Members of the Board of Education 5 February 14, 2017 a net increase of $187,586 and 1.5 FTE positions for a variety of program realignments and adjustments. Adjustment Based on Continuing Salaries A decrease of $111,243 and 7.0 FTE positions is reflected in my amended FY 2018 Operating Budget as a result of adjustments to continuing salary and benefit requirements for grants. Realignments and Cha.nges Based on Negotiations The three-year agreements that the Board of Education ratified on March 11, 2014, will expire at the end of FY Negotiations for the new agreements began in October At the writing of this memorandum, we are close to reaching a tentative agreement with our employee associations _to be effective July 1, I included $55,000,000 in my recommended budget in December 2016 to plan for the requirements of these contracts. This funding now is moved from central accounts to the appropriate salary and benefit accollllts across the state categories. Based on the tentative agreements that include savings in employee benefits, funds have been moved from the employee benefit accounts to other accounts to fund the agreements. Conclusion The amended FY 2018 Operating Budget that I am recommending to the Board for adoption reflects the culmination of extensive internal and external feedback on the budget I recommended in December This amended budget will allow the district to manage the significant enrollment growth and build the foundation and structure th.at is needed to ensure that all MCPS students are able to achieve at higher levels. It reflects our core values oflearning, relationships, respect, excellence, and equity. It defines a clear path to improved achievement for all and instills confidence that MCPS will fulfill its core purpose of preparing all students to thrive in the future. Recommended Resolution WHEREAS, The superintendent of schools presented the Recommended Fiscal Year 2018 Operating ~udget of $2,519,848,012 to the Board of Education on December 13, 2016; and WHEREAS, The Recommended Fiscal Year 2018 Operating Budget includes the Fiscal Year 2018 Special Education Staffing Plan; and WHEREAS, The Superintendent's Recommended Fiscal Year 2018 Operating Budget as amended includes a local contribution request of $1,668,925,438, a decrease of $13,713,731 to the Recommended Fiscal Year 2018 Operating Budget; and

25 Members of the Board of Education 6 February 14, 2017 WHEREAS, The governor's Fiscal Year 2018 operating budget presented to the Maryland General Assembly reflects an increase of$14,128,891 in state aid to my Recommended Fiscal Year 2018 Operating Budget; and WHEREAS, The Superintendent's Recommended Fiscal Year 2018 Operating Budget as amended includes a decrease of $700,000 in revenue related to no longer collecting Extracurricular Activity Fees in the school year; and WHEREAS, The Superintendent's Recommended Fiscal Year 2018 Operating Budget as amended includes a decrease in revenue of $320,342 for other revenue sources based on revised salary and benefits estimates; and WHEREAS, A Montgomery County Public Schools fund balance of $19,662,633 continues to be estimated to be available for appropriation in Fiscal Year 2018; and WHEREAS, A revised enrollment projection for the school year results in a reduction of $2,177,750 and full-time equivalent positions; and WHEREAS, Adjustments to the plan for strategic accelerators result in an increase of $804,123 and 5.0 Full~time Equivalent positions; and WHEREAS, Changes to the plan for reductions in the FY 2018 Operating Budget result in an increase of $692,102 and 1.0 Full-time Equivalent position; and WHEREAS, Changes in program realignments and adjustments in the FY 2018 Operating Budget request in an increase of $187,586 and 1.5 Full-time Equivalent positions; and WHEREAS, A decrease of $111,243 and 7.0 Full~time Equivalent positions is the result ofless funding required for positions based on revised continuing salaries and benefits requirements; now therefore be it Resolved. That the Montgomery County Board of Education approve the Fiscal Year 2018 Special Education Staffing Plan as outlined in the Superintendent's Recommended Fiscal Year 2018 Operating Budget; and be it further Resolved, That upon final approval of the Fiscal Year 2018 Operating Budget in June 2017, the Special Education Staffing Plan will be submitted to the Maryland State Department of Education; and be it

26 Members of the Board of Education 7 February 14, 2017 Resolved. That the Montgomery County Board of Education adopt the Superintendent's Recommended Fiscal Year 2018 Operating Budget as amended totaling $2,519,242,830 as follows; Superintendent's Superintendent's Cate- Recorrnnended FY 2018 Amended FY 2018 gq!y Operating Budget Operating Budget Change 1 Administration $47,324,960 $48,980,000 $1,655,040 2 Mid-level Admfuistration 145,739, ,989,827 3,250,085 3 Instructional Salaries 1,012,831, ,006,666 (19,825,026) 4 Te:>ttbooks and Instructional Supplies 26,032,605 26,066,768 34,163 5 Other Instructional Costs 14,520,274 14,511,274 (9,000) 6 Special Education 329,747, ,308,503 7,561,074 7 Student Personnel Services 12,025,325 11,993,045 (32,280) 8 Health Services 3,630 3,630 9 Student Transportation 103,049, ,370,657 2,321, Operation of P!ant and Equipment 132,636, ,893,298 3,256, Maintenance of P!ant 34,665,753 36,299,737 1,633, Fixed Charges 593,959, ,633,855 (325,766) 14 Community Services 933, ,089 5, MCPS Television Special Revenue Fund 1,697,504 1,697, Real Estate Fund 3,986,191 3,932,647 (53,544) 61 Food Service Fund 54,302,680 54,213,534 (89,146) 71 Field Trip Fund 2,306,361 2,313,743 7, Entrepreneurial Activities 4,084,802 4,090,053 5,251 Total $2,519,848,012 $2,519,242,830 ($605,182)

27 TABLE 1 SUMMARY OF RESOURCES BY OBJECT OF EXPENDITURE OBJECT OF EXPENDITURE FY 2016 FY2017 FY2017 ACTUAL BUDGET CURRENT FY 2018 BUDGET FY2018 CHANGE POSITIONS Administrative Business/Operations Admin. Professional Supporting Services TOTAL POSITIONS 01 SALARIES & WAGES Administrative Business/Operations Admin. Professional Supporting Services TOTAL POSITION DOLLARS OTHER SALARIES Administrative Professional Supporting Services TOTAL OTHER SALARIES TOTAL SALARIES AND WAGES , , , , , , , , , $93,337,568 $98,038,346 $97,654,946 8,289,325 8,760,474 8,760,474 1,013,999,096 1,081,924,938 1,081,494, ,984, ,719, ,957,331 1,465,610,295 1,565,443, 131 1,564,866, , , ,528 56,020,655 62,646,960 62,969,159 28,200,923 24,372,869 24,409,920 84,549,615 87,405,357 87,764,607 1,550,159,910 1,652,848,488 1,652,631, , , ' (2.277) 22, $100,437,853 $2,782,907 9,367, ,697 1,113,218,664 31,724, , 104,850 3, 147,519 1,603, 128,538 38,261, ,528 (50,000) 61,102,202 (1,866,957) 24,971, ,262 86,408,912 (1,355,695) 1,689,537,450 36,905, CONTRACTUAL SERVICES - 27,650,990 27,127,134 27,344,361 35,088,353 7,743, SUPPLIES & MATERIALS 60,884,734 66,609,484 66,594,072 66,056,741 (537,331) 040THER Local/Other Travel Insur & Employee Benefits Utilities Miscellaneous TOTAL OTHER 05 EQUIPMENT GRAND TOTAL AMOUNTS 2,024,972 2,378, , ,246, ,689, ,689,148 38,878,609 41,564,244 41,564,244 55,362,297 58,744,721 58,773, ,512, ,376, ,405,571 17,379,186 18,511,706 18,498,306 $2,282,587,631 $2,457,473,761 $2,457,473,761 2,254,835 (124,323) 605,637,603 15, ,201,717 (362,527 63,202,676 4,429, ,296,831 19,891,260 18,739, ,064 $2,521,718,745

28 ITEM FY 2017 CURRENT OPERATING BUDGET FY 2018 CHANGES: ENROLLMENT CHANGES Elementary/Secondary Special Education TABLE 1A SUMMARY OF BUDGET CHANGES FY FY 2018 ($in millions) FTE AMOUNT 22, $2, ESOL Transportation Food Services I subtotal I!NEW SCHOOLS/ADDITIONAL SPACE I FY 2018 CHANGES CONTINUED: ITEM FTE AMOUNT EFFICIENCIES & REDUCTIONS Efficiciencies & Reductions ( ) (20.50)!subtotal ( ) (20.5oll.ITEM STRATEGIC PRIORITY ACCELERATORS Improve Teaching and Learning Focus on Learning, Accountability and Results Focus on Human Capital Focus on Community Partnerships ad Engagement Focus on O~erational Excellence I subtotal FTE AMOUNT "' EMPLOYEE SALARIES - CONTINUING AND NEGOTIATED SALARIES FOR CURRENT EMPLOYEES (including benefits) EMPLOYEE BENEFITS AND INSURANCE Employee Benefits Plan (active) Employee Benefits Plan (retired) Retirement FICA/Self-Insurance/Workers' Compensation, Fire Insurance Self-insurance, Worker's Compensation Administrative Costs/Fees MCAAP Leave Conversion/Flex Spending Pension Shift from State lli\li)l~tal INFLATION AND OTHER Textbooks, Instructional Materials, Building/Maintenance Supplies Utilities Special Education Maintenance Transportation Relocatables Tuition Reimbursement (10.500) (0.38) (0.25) I 0.48 (0.75) (0.65) Grants and Enterprise Funds (13.618) 2.05 Other l Subtota I [FY 2018 OPERATING BUDGET I FY FY 2018 CHANGE Less Grants Less Enterprise Funds Less Special Revenue Funds!SPENDING AFFORDABILITY BUDGET REVENUE INCREASE BY SOURCE Local State Federal Other Fund Balance Enterorise/Soecial Revenue Funds TOTAL REVENUE INCREASE Numbers may not add due to rounding. 22, , $2, (81.73) (64.55) (1.70) 2, (0.69) (13.50) ~

29 TABLE 2 BUDGET REVENUE BY SOURCE SOURCE FY 2016 FY 2017 FY 2017 FY 2018 ACTUAL BUDGET CURRENT ESTIMATED CURRENT FUND From the County: $1,463,274,812 $1,617,631,597 $1,617,631,597 $1,671,401,353 Local Contribution for State Retirement 44,356,785 Programs Financed Through Local Grants 72,985 Total from the County 1,507,704,582 1,617,631,597 1,617,631,597 1,671,401,353 From the State: Bridge to Excellence Foundation Grant 322, 176, ,526, ,526, ,809,272 Geographic Cost of Education Index 17,744,167 35,976,870 35,976,870 36,854,599 Limited English Proficient 60,287,318 61,681,997 61,681,997 64,743,869 Compensatory Education 136,727, ,614, ,614, ,036,855 Students with Disabilities - Formula 36,565,418 37,620,077 37,620,077 38,947,354 Students with Disabilities - Reimbursement 16,552,782 17,270,242 17,270,242 17,579,627 Transportation 39,786,572 40,933,087 40,933,087 42,090,090 Miscellaneous 138, , , ,000 Programs financed through State Grants 2,666, , , , 135 Total from the State 632,645, ,437, ,437, ,031,801 From the Federal Government: Impact Aid 98, , , ,000 Programs financed through Federal Grants 73,300,031 74,752,923 74,752,923 74, 167,537 Total from the Federal Government 73,398,498 74,902,923 74,902,923 74,317,537 From Other Sources: Tuition and Fees D.C. Welfare 166, , , ,000 Nonresident Pupils 528, , , ,000 Summer School 1,699,726 1,519,000 1,519,000 1,676,736 Outdoor Education 686, , , ,000 Student Activities Fee 756, , ,600 0 Miscellaneous 309, , , ,000 Programs financed through Private Grants 596,073 6,731,204 6,731,204 6,731,204 Total from Other Sources 4,742,467 10,571,804 10,571,804 10,057,940 Fund Balance 33,162,633 33,162,633 33,162,633 19,662,633 Total Current Fund 2,251,653,527 2,393, 706,34 7 2,393, 706,34 7 2,455,471,264 ENTERPRISE & SPECIAL FUNDS School Food Service Fund: State 2,041,615 2,305,057 2,305,057 2,211,852 National School Lunch, Special Milk and Free Lunch Programs 39,284,516 34,400,008 34,400,008 35,058,547 Sale of Meals and other 16,131,511 17,262,204 17,262,204 16,943,135 Total School Food Service Fund 57,457,642 53,967,269 53,967,269 54,213,534 5

30 TABLE 2 BUDGETREVENUEBYSOURCE SOURCE FY 2016 FY2017 ACTUAL BUDGET Real Estate Management Fund: Rental fees 3,536,447 3,686,191 Total Real Estate Management Fund 3,536,447 3,686, 191 Field Trip Fund: Fees 2,184,988 2,006,361 Total Field Trip Fund 2,184,988 2,006,361 Entrepreneurial Activities Fund: Fees 2,226,617 2,364,802 Total Entrepreneurial Activities Fund 2,226,617 2,364,802 Total Enterprise Funds 65,405,694 62,024,623 Instructional Television Special Revenue Fund: Cable Television Plan 1,654,209 1,742,791 Total Instructional Special Revenue Fund 1,654,209 1,742,791 GRAND TOTAL $2,318,713,430 $2,457,473,761 FY 2017 CURRENT FY2018 ESTIMATED 3,686,191 3,932,647 3,686, 191 3,932,647 2,006,361 2,313,743 2,006,361 2,313,743 2,364,802 4,090,053 2,364,802 4,090,053 62,024,623 64,549,977 1,742,791 1,697,504 1,742,791 1,697,504 $2,457,473,761 $2,521,718,745 Tax Supported Budget FY 2016 FY2017 ACTUAL BUDGET Grand Total $2,318, 713,430 $2,457,473,761 Less: Grants (76,635,383) (82, 128, 127) Enterprise Funds (65,405,694) (62,024,623) Special Revenue Fund (1,654,209) (1,742,791) Grand Total Tax-Supported Budget $2,175,018,144 $2,311,578,220 FY 2017 FY 2018 CURRENT ESTIMATED $2,457,473,761 $2,521,718,745 (82,128,127) (81, 728,876) (62,024,623) (64,549,977) (1,742,791) (1,697,504) $2,311,578,220 $2,373, 742,388 The Adult Education Fund was created July 1, 1991, but was discontinued effective July 1, 2006, because the program was transferred to Montgomery College and the Montgomery County Department of Recreation. The Real Estate Management Fund was created July 1, The Field Trip Fund was created effective July 1, The Entrepreneurial Activities Fund was created effective July 1, The Instructional Television Special Revenue Fund was created July 1,

31 TABLE 3 REVENUE SUMMARY FOR GRANT PROGRAMS BY SOURCE OF FUNDS Program Name and Source of Funding FY2016 FY 2017 FY2017 FY 2018 ACTUAL BUDGET CURRENT ESTIMATED Budgeted FEDERAL AID: NO CHILD LEFT BEHIND (NCLB) Title I A (941/942) $ 21,677,905 $ 25,274,192 $ 25,274,192 $ 25,124,592 Subtotal 21,677,905 25,274,192 25,274,192 25,124,592 Title I D Neglected and Delinquent Youth (937) 152, , , ,164 Total Title I 21,830,740 25,414,329 25,414,329 25,292,756 Title II A Skillful Teaching and Leading Program (915) 358, , , ,542 Teacher Mentoring (917) 481, , , ,720 Consulting Teachers (961) 2,853,601 2,902,171 2,902,171 2,211,828 Total Title II 3,6,93,716 3,507,094 3,507,094 3,340,090 Title Ill English Language Acquisition (927) 3,375,986 3,352,368 3,352, ,645 Title VII American Indian Education (903) 26,024 26,024 26,024 25,669 SUBTOTAL 28,926,466 32,299,815 32,299,815 32,024,160 OTHER FEDERAL, STATE, AND LOCAL AIC Head Start Child Development (931/932) Federal 3,603,676 3,771,965 3,771,965 3,667,684 Individuals with Disabilities Education (907/913) Federal 32,089,056 31,237,686 31,237,686 31,110,389 Infants and Toddlers - Passthrough from Montgomery County Department of Health and Human Services (930) Federal 791, , , ,602 State 232, , , , 135 Judith P. Hoyer Child Care Centers State (904/905) 644, , , ,000 Medical Assistance Program (939) Federal 4,956,871 5,010,522 5,010,522 5,117,501 National Institutes of Health (NIH) (908) Federal 266, , , ,388 Provision for Future Supported Projects (999) Other 3,307,875 6,731,204 6,731,204 6,731,204 Cart D. Perkins Career & Technical Ed. Improvement (950/951) Federal 1,169,596 1, 133,990 1,133,990 1,128,813 McKinney- Vento Homeless Children and Youth (910) Federal SUBTOTAL 47,060,997 49,828,312 49,828,312 49,704,716 TOTAL $ 75,987,463 $ 82,128,127 $ 82,128,127 $ 81,728,876 7

32 TABLE 3 REVENUE SUMMARY FOR GRANT PROGRAMS BY SOURCE OF FUNDS Program Name and Source of Funding FY 2016 FY 2017 FY 2017 FY 2018 ACTUAL BUDGET CURRENT ESTIMATED Summary of Funding Sources Federal $ 71,803,167 $ 74,520,500 $ 74,520,500 $ 74, 167,537 State 876, , , , 135 County Other 3,307,875 6,731,204 6,731,204 6,731,204 GRAND TOTAL $ 75,987,463 $ 82,128, 127 $ 82,128,127 $ 81,728,876 Additional grant appropriation through the Provision for Future Supported Projects as of November 15, 2016 NIST - Summer Institute for Middle School Science Teachers 12,000 NIST - Research Experience for Teachers 8,000 Title I, Part A-School Improvement 1003(a), Focus Schools 604,771 21st Century Community Learning Centers: Knight Time at Wheaton High School 240,665 Federal Prekindergarten Expansion Program 734,400 IDEA, Passthrough Part B 53,842 Preventive Services/Foundation School Grant 149,059 SUBTOTAL FEDERAL FUNDING 1,802,737 Ready 4 Kindergarten 152,240 SUBTOTAL STATE FUNDING 152,240 Middle Years Programme Study 10,000 Howard Hughes Medical Institute Science Education Project 545,000 SUBTOTAL OTHER FUNDING 555,000 TOTAL 2,509,977 8

33 TABLE 4 (Updated February 2, 2017) SUMMARY OF STUDENT ENROLLMENT FY 2015 THROUGH FY 2018 (1) (2) (3) (4) (5) CHANGE DESCRIPTION FY2015 FY2016 FY2017 FY2017 FY2018 COLUMN (5) LESS ACTUAL ACTUAL ACTUAL BUDGET PROJECTED**' COLUMN (4) 9/30/2014 9/30/2015 9/30/2016 9/30/2016 9/30/2017 # % ENROLLMENT PRE-KINDERGARTEN 1,912 2,152 2,278 2,285 2,285 HEAD START KINDERGARTEN 11,544 11,419 11,224 11,366 11, 187 (179) -1.6% GRADES 1-5 / 6 * 59,584 60,186 60,829 60,730 60,711 (19) SUBTOTAL ELEMENTARY 73,668 74,385 74,959 75,009 74,811 (198) -0.3% GRADES 6-8 ** 33,167 34,106 34,957 34,991 36,066 1, % SUBTOTAL MIDDLE 33, ,106 34,957 34,991 36,066 1, % GRADES ,257 45,797 47,131 46,817 48,342 1, % SUBTOTAL HIGH 45,257 45,797 47,131 46,817 48,342 1, % SUBTOTAL PRE-K GRADE , , , , ,219 2, % SPECIAL EDUCATION PRE-KINDERGARTEN 1,206 1,601 1,414 1,493 1,493 SPECIAL CENTERS (31) -6.4% SUBTOTAL SPECIAL EDUCATION 1,631 2,035 1,855 1,974 1,943 (31) -1.6% MONTESSORI CHARTER SCHOOL ALTERNATIVE PROGRAMS (85) - GATEWAY TO COLLEGE GRAND TOTAL 153, , , , ,302 2, % SOURCE: Division of Long-range Planning NOTE: Grade enrollments include special education students. The FY 2018 middle school enrollment includes Chevy Chase and North Chevy Chase Grade 6. The FY Elementary enrollment figures include enrollment numbers for Chevy Chase and North Chevy Chase Grade 6. **The FY middle school enrollment numbers excludes Chevy Chase and North Chevy Chase Grade 6 that are budgeted in th elementary schools' enrollment figures. 9

34 TABLE 5 ALLOCATION OF STAFFING POSITIONS BUDGET BUDGET BUDGET BUDGET FY 2013 FY2014 FY2015 FY 2016 CURRENT BUDGET FY17-FY18 FY2017 FY 2018 CHANGE Executive Administrative- (directors. supervisors, program 2 coordinators, executive assistants) Business/Operations Administrator- (leadership 3 positions supervised by directors and supervisors) (1.000) (2.850) Other Professional - ( 12-month instructional/ 4 evaluation specialists) (15.900) 5 Principal/Assistant Principal Teacher 10, , , , , , Special Education Specialist (speech pathologists, physical/occupational 7 therapists) Media Specialist Counselor 10 Psychologist Social Worker 12 Pupil Personnel Worker Instructional Aide and Assistant (paraeducators, media assistants, lunch-hour aides, parent 13 assistants, instructional data assistants) , , , , , , (67.927) Secretarial/Clerical (secretarial, clerical, fiscal, 14 personnel/transportation/other lower grade program) 15 IT Systems Specialist Security - (includes all positions except those in 16 lines 2,3, 14 above) Cafeteria - (Includes all positions except those in 17 lines 2,3,14,15 above) Building Services - (includes all positions except 18 those in lines 2,3, 14 above) 1, , , , , , Facilities Management/Maintenance - (includes 19 all positions except those in lines 2,3, 14, 15 above) Supply/Property Management- (includes all 20 positions except those in lines 2, 3,14, 15 above) (1.000) Transportation - (includes all positions except 21 those in lines 2,3 14, 15 above) 1, , , , , , (3.000) Other Support Personnel - (business, technology human resources.communications, printing, and 22 other support staff) TOTAL 20, , , , , ,

35 TABLE 6 COST PER STUDENT BY GRADE SPAN KINDERGARTEN/ TOTAL AMOUNT ELEMENTARY SECONDARY K-12* EXCLUDED* FY 2016 Bl,JDGET EXPENDITURES 1,027,204,678 1, 109, 773,603 2,316,978, ,410,655 STUDENTS 9/30/15 71,790 80, ,178 COST PER STUDENT 14,308 13,805 14,043 FY 2017 BUDGET EXPENDITURES 1,081,844,067 1, 188,672,804 2,270,516, ,956,890 STUDENTS 9/30/16 72,096 82, ,610 COST PER STUDENT 15,006 14,406 14,685 FY 2018 BUDGET EXPENDITURES 1,089,784,498 1,240,670,801 2,330,455, ,263,446 STUDENTS 9/30/17 71,898 84, ,896 COST PER STUDENT 15, ,596 14,854 TOTAL BUDGET** 2,318,388,936 2,457,473,761 2,521,718,745 COST PER STUDENT BY GRADE FY 2016 THROUGH FY ,500 15,000 FY ,500 14,000 13,500 13,000 12,500 12,000 KINDERGARTEN/ELEMENTARY SECONDARY TOTAL K-12 Notes: Enrollment figures used to calculate cost per student excludes students in PreK/Head Start. Operating budget funds used in the calculation excludes amounts for Summer School, Community Services, Tuition for Students with Disabilities in Private Placement, Prekindergarten, Infants and Toddlers, and Enterprise Funds. FY 2017 Figures Reflect Current Approved Budget *Based on tentative negotiated agreements, funds budgeted to support the contracts were moved to the appropriate salary accounts and the costs recalculated. 11

36 MONTGOMERY COUNTY BOARD OF EDUCATION The Honorable Roger Berliner, President Montgomery County Council Stella B. Werner Council Office Building 100 Maryland A venue Rockville, Maryland Dear Mr. Berlmer: 850 Hungerford Drive Room 123 Rockville, Maryland March 31, 2017 «!~IJ!,.~djge,,,010 Award Recipient As requested in your memorandum of January 18~ 2012, this letter provides the information regarding State Expenditure Category 12 for Montgomery County Public Schools (MCPS). The Boarq of Education Fiscal Management Committee closely monitors the expenditures in this category as we do with all ~xpenditures through our monthly financial monitoring process and financial reports to the Board. I look forward to working with you. councilmembers, other Board of Education members, and the superintendent of schools to continue to address the fiscal challenges we face. 1. Estimates of the amount of the annual employer contributions to the MCPS Pension fund for the next five fiscal years. The estimated annual required contributions are expected to be the following amounts: Amount Current Percentages FY 2017 $62.5 million 4.18 FY 2018 $7 I.8 million 4.68 FY2019 $72. 1 million 4.58 FY 2020 $83.7 million 5.19 FY 2021 $88.8 million 5.37 FY 2022 $92.0 million 5.43 FY 2023 $92. 9 million 5.35 On January 14, 2014, the Board of Education authorized that the contribution rate to the pension fund would not be reduced below Fiscal Year (FY) 2015 levels until the funded status of the plan reached 80 percent on an actuarial value method. This action was prudent to ensure the funding of the plan is adequate to provide for the plan's liabilities. It also would have had a positive impact on future contribution rates once the 80 percent fonding level was attained as the investment retums prodde future budget relief Phone Fax boe@mcpsmd.org

37 The Honorable Roger Berliner 2 March 31, 2017 The difficult budgetary situation unfortunately prevented implementation of this strategy during FY For FY 2017, the budget assumes that the funding will be at the actuarially required level of 4.18 percent, rather than the higher FY 2015 rate. The FY 2018 Operating Budget assumes that funding will be at 4.68 percent, a higher rate than the actuarially required level of 4.11 percent, but not the percent used in FY The 4.68 percent represents a change in the return assumption approved by the Fiscal Management Committee. 2. A description of the major factors (e.g., salary adjustments, changes in workforce size, investment performance, plan modifications, actuarial assumptions) that affect estimated pension fund contributions over the next five years. The calculation of the annual employer contribution is based on actuarial work performed by the MCPS actuary, AON Hewitt, and submitted to Ms. Nicola Diamond, chief financial officer, on February 26, 2017 (Enclosure A). The estimate is based qn the updated market value of the plan as of December 31, The actuary's estimate of the percentage of salary that is required to be contributed each year is applied to the anticipated salaries to be paid from the MCPS Operating Budget. The percentage contribution is based on actuarial assumptions as follows: Salary adjustments: Aggregate salaries for continuing employees will increase two percent overall during the next three years. Changes in workforce size: The number of employees will increase by ojie percent each year, with salaries adjusted to 0.57 percent to reflect the lower salaries paid to new employees. Investment Performance: MCPS will achieve its actuarial assumed rate of return on its pension fund of 7.5 percent until June 30, 2017, 7.25 percent from July 1, 2017, to June 30, 2018, and 7.0 percent after June 30, Pension ftmd investment perfonnance is included through December 31, Plan Modifications: The pension plan changes effective July 1, 2011, are amortized over a 30-year closed period, the same method used to incorporate the impact of the July 1, 2006, changes. Actuarial Assumptions: MCPS' actuary completed an experience study during Experience studies typically are done every five years. MCPS last had an experience study in Findings from this experience study included retirees living longer, employees retiring later, and inflation that has been lower than earlier periods during the past decade. MCPS adopted the revised assumptions for the FY 2015 aetuarial valuation. 3. A written summary of the Board's current strategy to achieve a desired pension funding level ("funded ratio") and the short- and long-term effects of this strategy on the Category 12 budget. As described in the letter of April 4, 2012, to then-council President Roger Berliner from then-president of the Board of Education Shirley Brandman and in the letter of March 26, 2013, to then-council President Nancy Navarro from then-board of Education

38 The Honorable Roger Berliner 3 March 31, 2017 President Christopher S. Barclay, the Board of Education Fiscal Management Committee discussed strategies to improve the fund's status in light of the current fiscal environment. A decision was made that it would be appropriate to recommend maintaining the contribution percentage to achieve an 80 percent funding level beginning with the FY 2015 budget. This action was approved by the Board of Education on January 14, Due to budgetary constraints, it was not possible to fund the strategy. On December 13, 2016, the superintendent of schools recommended to the Board ofeducation a funding strategy to maintain. the required contribution levels even should future actuarial studies recommend reductions in contribution rates until 90 percent actuarial funding is achieved. The investment portfolio is structured to achieve the actuarial expected rate of return with a prudent level of risk over the. long term through allocations to global public equities, fixed income, real estate, and other alternative investments including private equity and hedge funds. The investment portfolio has exceeded its policy benchmark in each of the past three calendar years. However, the weak overall financial market environment during that timeframe precluded the fund from achieving the expected return in that three-year period. For the threeyear period ending December 31, 2016, the fund returned 3.7 percent versus a policy benchmark of 3.1 percent In recent months, market sentiment has significantly improved leading to markedly higher public equity gains that benefited the portfolio. The fiscal year-to~ date investment return of the portfolio was 5.9 percent through January 31, The value of the pension fund was $1.523 billion as of January 31, A comparison of current fiscal year budgeted versus actual revenues and expenditures to date for the Active Employee and Retiree Group Insurance Funds. The comparison of current fiscal year budgeted versus actual revenue and expenditures as of February 28, 2017, is enclosed for active employees and retirees (Enclosures B and C, respectively). 5. The projected year-end balance for the Active Employee and Retiree Group Insurance Funds. This should include an accompanying explanation of the factors causing the variation (e.g., claims experience, plan enrollment} if the projected balance in either fund differs from what was assumed at the beginning of the fiscal year. These figures are based oil revenues and expenses as of February 28, Active employees Beginning fund balance Projected change to fund balance Projected ending fund balance ($9.4) million 17.4million $8.0 million

39 The Honorable Roger Berliner 4 March 31, 2017 Retirees Beginning fund balance Projected change to fund balance Projected ending fund balance $4. 7 million 4.3 million $9.0 million The active employee fund balance ]s projected to be $8.0 million, an increase of$17.4 million, from the ending balance of FY This is due to lower than projected claims and prescription drug costs. Furthermore, revenue for prescription drug rebates were higher than originally projected. The retiree fund balance is projected to increase by $4.3 million, leaving a positive balance of $9.0 million at the end of FY During FY 2017, the retiree account received $2.0 million more in revenue than was anticipated. This was a result of higher than expected prescription drug rebates and reimbursements from Medicare Part D. In addition, the increase in fund balance is due to lower than projected claims and prescription drug costs. The total Trust Fund will have a balance of$17.0 1nillion at the end of FY 2017, which is 3.9 percent of expenditures. This is within the three to five percent reserve level that MCPS strives to maintain as part of our prudent fiscal practices. The members of the Board of Education, the superintendent of schools, and MCPS staff are prepared to work with the County Council and Council staff to provide additional clarifications as needed. n Sincerely, ~A~l\.f? Michael A. Durso President MAD:JRS:ND:tpk Enclosures Copy to: Members of the Montgomery County Council Members of the Board of Education Dr. Smith Dr. Zuckerman Ms. Diamond Mr. Ikheloa

40 Enclosure A Empower Results February 20, 2017 Ms. Nicola Diamond Chief Financial Officer Montgomery County Public Schools 850 Hungerford Drive Rockville, MD Re: Six-Year Projection of Board Contributions to MCPS's Pension Plans - Projected Unit Credit Dear Nicky: We estimated Board contributions to the Montgomery County Public Schools Employees' Retirement and Pension Systems (the "Plan") for the next six years under the investment return/contribution assumptions used for the July 1, 2016 valuation. As a reminder, this assumes the December 31, 2016 assets will earn annually 7.50% gross (before Investment expenses are subtracted} until June 30, 2017, 7.25% from July 1, 2017 to June 30, 2018, and 7.00% after June 30, The actual contribution percentage will vary and may vary significantly from the results of this projection due to actuarial gains/losses and demographic: changes. The results are StJmmarized in the table below. -Board Valuation Fiscal Year (FY} Interest Contribution as % Funded % Funded Date Ending Rate % of Payroll AVA Basis MVA Basis July 1, 2016 June 30, % 4.11% 80.99% 76.64% July 1, 2017 June 30, % 4.58% 79.38% 76.32% July 1, 2018 June 30, % 5.19% 77.05% 74.84% July 1, 2019 June 30, % 5.37% 76.61% 75.96% July 1, 2020 June 30, % 5.43% 77.38% 77.52% July 1, 2021 June 30, % 5.35"/o % 79.25% July 1, 2022 June 30, % 5.27% 81.06% 81.06% The contribution increases for several years due to the decrease in interest rate and the phase out of historical asset losses, offset in part by the savings over time as more and more participants are covered by the new plan features. For a historical perspective, the table below shows the Board contributions from July 1, 1994 until now.... Board Contribution Valuation Date Fiscal Year Endmg 01 f p as,.. o ayrol 1 July 1, July 1, 1995 July 1, 1996 June 30, 1996 June 30, 1997 June 30, , Aon I Re!irement & lnvmun&fll ConsulUnQ 555 5a!lt Lancaster Awnue, Sulle 300 \ Radflor, PA t I f+1.ttt!l.bl I aonhewitt.com Proprietarv & Confid&nlial

41 Ms. Nicola Diamond February 20, 2017 Page3 Empower Remits Board Fiscal Year Expected Contribution as % Funded % Funded (FY) Ending Percentile Return - % of Payroll AVA Basis MVA Basis_ June 30, #1 (11.1%) 4.68% 77.99% 69.38% June 30, % 4.60% 78.97% 74.31% June 30, 2019 soth 6.3% 4.58% 79.29% 75.88% June 30, lh 10.Bo/o 4.55% 79.61% 77.49% June 30, lh 27.Wa 4.47% 80.71% 83.00% r The following statement can be used to Interpret the first row cf this chart: there is a 5% chance (or 1 chance in 20} that asset returns will be bad enough to result in a funded status of 77.99% or lower; and a Board contribution of 4.68% of payroll or higher. Similarly, there is a possibility that higher than expected returns will actually decrease the future board contributions needed to fund the Plan. These percentages assume a normal distribution of returns around the mean. There is a school of thought that a normal distribution understates the portion of returns in!he tails (i.e. below 10% of above 90%) of the curve. Assets through December 31, 2016 were considered in determining the returns. The normal distribution of return is based ori a short term period of 1 year. In order to complete this 6 year projection, we used the following methods and assumptions: All exits are replaced by new employees based on average new hire demographic information in the July 1, 2016 valuation data. " The funding method of Projected Unit Credil Total expenses are assumed to be 0.60% of beginning of year market value of assets. We amortize unrecognized gains and losses over an open 15--year period. For the contribution volatility exhibit, we have relied on portfolio volatility based on Aon Hewitt Investment Consulling's one-year time horizon projection. Unless otherwise noted, we used the same assumptions and Plan provisions as tor the 2016 valuation. We assumed there will be no changes to the valuation assumptions or provisions in the future. Please give us a can if you have any questions. Sincerely, Tom Vicente, FSA, EA, MAAA TV~mr Enclosure cc: Thomas P. Klausing Proprietary & Conf!Cl&nllal

42 Enclosure B MCPS Employee Benefit Trust Fund Schedule of FY 2017 Budgetary Expenditures for the Active Employee Trust Account As of June 30, 2017 (Actual Through February 28, 2017) FY17 Projected BudgeUProjection YTD actual Remaining Total Variance Fav - (Unfav) Revenue Receipts: County Appropriation $273,244,944 $268,244,944 $5,000,000 Enterprise Fund& 9,326,331 5,365,087 3,662,568 Capital Projects 1,100, , ,042 Supported Programs 8,236,962 4,750,591 3,224,604 Employee Payments 46,050,000 28,337,152 19,515,803 Optional Life 637, , ,044 Investment Earnings 30,000 37,679 11,048 Rebates/ Recoveries/Other 10,121,000 3,938,797 5,530,001 Total Revenue 348,746, ,738,499 37,567,111 Expenditures: Premiums: Prudential Life 3,435,600 2,347,662. 1,187,600 Carefirst Dental 1,803,600 1,239, ,600 Kaiser Permanente Health Plan 42,894,000 28,346,900 14,700,000 All Other 7,651,200 4,993,644 2,460,400 Clalms:.Dental 15,345,045 8,720,667 4,580,500 Health 188,688, ,479,211 66,988,800 Prescription 74,105,138 45,882,987 25,061,000 Vision 317, , ,600 Administrative Expenses: 3,106,050 1,508,249 2,044,167 Total Expenditures 337,347, ,853, , $ $98._8.MJ:!DO!$80229~561 $273,244,944 $0 9,027,655 (298,677) 1,057,131 (42,870) 7,975,195 (261,768) 47,852,955 1,802, ,205 (6,795) 48,727 18,727 9,468,798 (652,202) 349, ,371 3,535,262 (99,662) 1,822,741 (19,141) 43,046,900 (152,900) 7,454, ,156 13,301,167 2,043, ,468,011 2,220,936 70,943,987 3,161, ,037 (208,613) 3,552,416 (446,366} 330,650,565 6,696,439 $ S l0

43 Enclosure C MCPS Employee Benefit Trust Fund Schedule of FY 2017 Budgetary Expenditures for the Retired Employee Trust Account As of June 30, 2017 (Actual Through February 28, 2017) FY17 Budget/Projection YTD actual Projected Remaining Total Variance Fav - (Unfav) Revenue Receipts: County Appropriation Retiree Payments Investment Earnings Rebates/ Recoveries/Other Medicare Part D Reimbursements OPEB Shift to Trust Fund $28, 138,436 $28,138,436 36,901,265 25,336,667 5,000 10,982 6,992,359 2,215, ,000 8,885,146 27,200,000 5,440,000 $ , ,776,525 3,702,854 21,760,000 $28, 138,436 37,763,205 11,435 6,992, ,000 27,200,000 $0 861,940 6, ,120,000 0 Total Revenue 110,705,0(50 70,027,064 42,666, ,693,435 1,988,375 Expenditures: Premiums: VOYA Life Dental Kaiser Permanente Health Plan All Other 3,422,400 2,299, , ,567 8,632,200 5,770,898 3,990,000 2,670,708 1, 157, ,600 2,996,400 1,345,600 3,456, ,167 8,767,298 4,016,308 (34,217) (24, 167) (135,098) (26,308) Claims: Dental Health Prescription Vision Administrative Expenses: 5,,690,900 3,074, ,281,635 48,753,800 29,909,095 57, ,774,100 13,177,100 16,878,000 24,900 4,848,328 38,458,735 46,787,095 24, ,572 (1,225,335) 1,966,705 32, , , , ,402 (21,464) Total Expenditures 108,547,838 69,471,386 $2. 15_ $ :701!491 $ ,172,878 $5.52_Q55I 1,374,960 $3.3fil._335_

44 DISCUSSION Office of the Superintendent of Schools MONTGOMERY COUNTY PUBLIC SCHOOLS Rockville, Maryland March 14, 2017 MEMORANDUM To: From: Members of the Board of Education Jack R. Smith, Superintendent of Schools Subject: Monthly Financial Report for January 2017 This financial report reflects the actual financial condition of Montgomery County Public Schools (MCPS) for Fiscal Year (FY) 2017 as of January 31, 2017, and projections through June 30, 2017, based on program requirements and estimates made by primary and secondary account managers. A summary of the financial condition is provided and the attached tables and charts include additional details as follows: Attachment 1 presents budgeted and projected revenues along with a brief explanation for change. Attachment 2 details expenditure information by state category and object of expense. The report displays authorized (budgeted) expenditures, actual year-to-date expenditures and encumbrances, and the projected year-end balance including a brief explanation. Attachment 3 details by state category, the cumulative expenditures and encumbrances, projected expenditures, and projected surplus or deficit. Attachment 4 compares financial monitoring projections by month for FY 2016 andfy2017. Attachment 5 details by state category, expenditures and encumbrances by month and the percentage of the category's budget. Summary of MCPS Fiscal Condition and End-of-Year Projection The MCPS Operating Budget appropriation for FY 2017 is $2,457,473,761. This was an increase of$139,084,825 (6 percent) more than the FY 2016 Operating Budget. This included $33,162,633 of fund balance to be used for the FY 2017 Operating Budget. As a result of additional savings realized at the end of FY 2016, the FY 2017 beginning fund balance is $3,290,019. At this time, budgeted revenues have a projected surplus of $504,085, no change from the previous month's report. Expenses have a projected surplus of $16,800,000, an increase of $800,000 from

45 Members of the Board of Education 2 March 14, 2017 the previous month's report. Based on revenue and expenditure projections as of January 31, 2017, along with the beginning fund balance, the FY 2017 fund balance at year-end is estimated to be $20,594,104. This is an increase of $800,000 since last month's report. MCPS Employees Group Insurance Trust Fund Balance Update The MCPS Employees Group Insurance Trust Fund began FY 2017 with a $9.4 million deficit for active employees and a $4.7 million surplus for retired employees for a net Trust Fund deficit of $4.7 million. The FY 2017 Operating Budget was developed to provide a reserve in the Trust Fund by the end of the fiscal year. In January, we projected that the Trust Fund balance at the end of FY 2017 would reflect a $2.0 million surplus for active employees and a $7.5 million surplus for retired employees for a net Trust Fund balance of $9.5 million. This was based on our claims experience and higher than anticipated revenue from prescription drug rebates. Since then, employee contributions that changed on January 1, 2017, have increased beyond our projection. In addition, the claims experience continues to be significantly lower than projected. As a result, we are projecting a surplus of $7.0 million for active employees and a $7.5 million surplus for retired employees for a net Trust Fund balance of $14.5 million. This represents 3.4 percent of the projected yearly expenditures and brings us closer to building our target reserve in the self-insurance fund for future unexpected variances in costs. JRS:ND:TPK:jp Attachments

46 MONTGOMERY COUNTY PUBLIC SCHOOLS Monthly Financial Report and Year-end Projections As of January 31, 2017 ATTACHMENT 1 REVENUE Projection Current Report Source FY2017 Original Budget Revised As of Budget (a) 1/31/2017 As of 12/31/2016 Variance Over (Under) Revised Budget Explanation for Change County $ 1,617,631,597 $ 1,617,631,597 $ 1,617,631,597 $ 1,617,631,597 $ State 656,793, ,793, ,639, ,639, 159 (154,231) Nonpublic Placement revenue Is reduced by $154,231. It Is primarily due to 300% share rate Increased from $29,425 to $29,990 In addition to a decrease In the cost per pupil. Federal 150, , , , ,316 Increased revenue is from a reimbursement from FEMA for 2016 winter storm expenses. Other 3,840,600 3,840,600 3,653,600 3,653,600 (187,000) 1. DC Welfare (foster Care) and Non-ResidentTuition revenue Increased by $386K due to tuition rate and enrollment increases; 2. A decrease of $573K is mostly due to overstatement of 225 students enrollment from the audit of state aid programs. Appropriated fund balance 33,162,633 36,778,307 (b) 36,778,307 36,778,307 Subtotal 2,311,578,220 2,315, 193,894 2,315,697,979 2,315,697, ,085 Food Services 53,967,269 53,967,339 53,967,339 53,967,339 Real Estate Management 3,686, 191 3,660,746 3,660,746 3,660,746 Field Trip 2,006,361 2,006,361 2,006,361 2,006,361 Entrepreneurial Activities 2,364,802 3,866,054 (c) 3,866,054 2,366,054 Instructional Television 1,742,791 1,743,029 1,743,029 1,743,029 Supported Projects 82, 128, ,770,877 (d) 89,770,877 89,770,877 Total $ 2,457,473,761 $ 2,470,208,300 L _2,470,712,384 $ 2,469,~12,384 $ 504,085 Notes: (a) Revised budget includes carryover of prior-year encumbrances. (b) Includes $3,615,674 for prior-year encumbrances. (c) A supplemental appropriation of $1,500,000 was adopted by the Board on 1/10/17 for the School Bus Safety Camera Program, but waiting for approval by County Council. (d) Includes $7,642,750 carried forward from FY 2016.

47 ATTACHMENT 2 MONTGOMERY COUNTY PUBLIC SCHOOLS Monthly Financial Report and Year-end Projections As of January 31, 2017 EXPENDITURES Actual Expenditures Current Report Prior Report Year-to-Date and Projected Projected Projected Change Authorized Expenditures Encumbrances Expenditures Year-end Year-end Compared to Category Expenditures 1/31/2017 1/31/2017 6/30/2017 Balance Balance Prior Month Explanation 01 Administration $44,253,653 $23,911,359 $40,766,394 $2,987,259 $500,000 $500,000 $0 The projected end of year surplus of Salaries and Wages 34,232,090 17,147,031 32,039,347 $500,000 is unchanged from the prior Contractual Services 8,445,268 6,267,397 7,592,230 month. The surplus is the result of savings Supplies and Materials 508, , , 181 in position salaries due to higher than Other 404, , ,177 anticipated lapse and turnover. Egui(!ment 663, 116 4, , Mid-level Administration $144,354,910 $72,839,693 $141,528,890 $2,326,020 $500,000 $500,000 $0 The projected end of the year surplus of Salaries and Wages 143,042,918 72,335, ,843,659 $500,000 is unchanged from the prior Contractual Services 728, , ,750 month. The surplus is the result of savings Supplies and Materials 252, , ,907 in position salaries due to higher than Other 331, , ,574 anticipated lapse and turnover. E ui ment The projected end of year surplus of 03 Instructional Salaries $949,235,509 $441,031,823 $913,481,057 $23,254,452 $13,000,000 $12,500,000 $ $12,500,000 has increased by $500,000 to ' $13,000,000. The increase is the result of higher than anticipated salary lapse and Salaries and Wages 949,235, ,031, ,481,057 turnover savings. 04 Textbooks and Supplies $25,877,617 $17,838,811 $19,309,881 $6,567,736 $0 $0 $0 Supplies and Materials 25,877,617 17,838,811 19,309, Other Instructional Costs $11,679,698 $5, 149,021 $7,115,829 $4,563,869 $0 $0 $0 Contractual Services 4,901,100 2,265,041 3,397,941 other 4,581,359 1,879,974 2,026,986 Equipment 2,197,239 1,004,006 1,690,902

48 ATTACHMENT 2 Category 06 Special Education Salaries and Wages Contractual Services Supplies and Materials Other Eguiement 07 Student Personnel Services Salaries and Wages Contractual Services Supplies and Materials Other E ui ment 08 Health Services Salaries and Wages Sueelies and Materials 09 Student Transportation Salaries and Wages Contractual Services Supplies and Materials Other Equipment Authorized Expenditures $297,229, , 796, ,220 1,405,891 43,383,088 8,575 $11,375,877 11,217,751 45,525 15,263 97,338 $3,630 2,040 1,590 $104, 104,085 75,888,868 1-,507,984 12,049,310 1,235,325 13,422,598 MONTGOMERY COUNTY PUBLIC SCHOOLS Monthly Financial Report and Year-end Projections As of January 31, 2017 EXPENDITURES Actual Expenditures Current Report Prior Report Year-to-Date and Projected Projected Projected Change Expenditures Encumbrances Expenditures Year-end Year-end Compared to 1/31/2017 1/31/2017 6/30/2017 Balance Balance Prior Month Explanation $139,459,928 $285,082,739 $12,346,759 ($200,000) ($200,000) $O The projected deficit of $200,000 is unchanged from the prior month. The 117,327, ,207,744 deficit is the result of costs associated with 368, ,988 tuition for students with disabilities served in nonpublic settings. Due to varying 681, ,190 student needs, and the number of referrals for emotional disabilities and autism 21,076,001 37,486,091 services, these expenditures are often 6,432 7,726 volatile and not easily controlled. $5,705,198 $10,813,342 $362,535 $200,000 $200,000 $0 The projected end of year surplus of 5,640,229 10,745,588 $200,000 is unchanged from the prior 26,473 27,963 month. The surplus is the result of higher 8,430 9,724 than anticipated salary lapse and turnover 30,067 30,067 savings. $1,426 $1,426 $2,204 $0 $0 $0 1,426 1,426 $47, 138,422 $90,869,020 $11,735,065 $1,500,000 $1,500,000 $0 The projected surplus of $1,500,000 is 36,856,622 73,471, 120 unchanged from last month. The surplus is the result of gas prices totaling $1.66 cost 825, ,672 per gallon (CPG), which continues to be 5,088,172 5, 105,631 below the budgeted amount of $2.18 CPG, 694, ,329 along with continued savings from bus and vehicle parts and tires. 3,674,142 10,769,268 c;j\ v

49 ATIACHMENT 2 MONTGOMERY COUNTY PUBLIC SCHOOLS Monthly Financial Report and Year-end Projections As of January 31, 2017 EXPENDITURES Category Authorized Expenditures 10 Operation of Plant & Equipment $134,215,698 Salaries and Wages 81,247,245 Contractual Services 2,473,509 Supplies and Materials 3,674,683 other 46,234,506 Egui~ment 585, Maintenance of Plant $34,785,267 Salaries and Wages 24,004,034 Contractual Services 2,681,891 Supplies and Materials 3,302,229 Other 3,396,192 Egui~ment 1,400, Fixed Charges $558,027,927 Other 558,027, Community Services $50,525 Subtotal $2,315, 193, Food Services 53,967, Real Estate Management 3,660, Field Trip 2,006, Entrepreneurial Activities 3,866, Instructional Television 1,743,029 Supported Projects 89,770,877 Actual Expenditures Current Report Prior Report Year-to-Date and Projected Projected Projected Expenditures Encumbrances Expenditures Year-end Year-end 1/31/2017 1/31/2017 6/30/2017 Balance Balance $70,283,209 $108,556,535 $24, 159, 163 $2,000,000 $1,500,000 41,334,188 78,011,682 1,813,244 2,228,060 1,738,462 2,364,500 25,099,942 25,563, , ,716 $18,327,876 $31,515,043 $3,770,224 ($700,000) ($500,000) 12,095, ,661,874 2,031,972 3,017,294 2,378, 133 2,572,998 1,603,407 2,231, ,241 1,031,029 $319,787,889 $319,883,802 $238, 144, 125 $0 $0 319,787, ,883,802 $50,135 $50,135 $390 $0 $0 $1,161,524,789 $1,968,974,093 $330,219,801 $16,800,000 $16,000,000 30,271,363 41,136,126 12,831,213 1,740,471 2,371,573 1,289, , ,399 1,015,962 2,113,509 2,467,010 1,399, ,690 1,504, ,518 38,974,655 63,919,031 25,851,846 Change Compared to Prior Month Explanation $ The projected surplus of $1,500,000 is ' increased by $500,000 to $2,000,000. The increase is primarily in position salaries due to 74 vacancies. There also is a slight increase in surplus for utilities from the prior month due to lower than projected consumption in electricity and natural gas due to a very mild winter. The projected deficit of $500,000 is ($200,000) increased by $200,000 as the result of contractual services and maintenance supplies, mainly for HVAC repairs, roofing repairs, and mold remediation. The deficit in contractual services and supplies of $1,400,000 is offset by savings in position salaries of $700,000 due to 27 vacancies resulting in the overall projected deficit for Category 11 of $700,000. $0 $0 $800,000 Total $2,470,208,300 $1,236,360,224 $2,081,362,744 $372,845,557 $16,800,000 $16,000,000 $800,000 ~

50 $50 $40 $0.5 million surplus Spent/Encumbered, Projected Spending, and Surplus/Deficit for CATs 1, 4, 5, 7, and 11 {Dollars in Millions) Attachment 3 -$0.7 million surplus $30 $0.0 million surplus $20 $10 $0 ($10) CATl - $0.0million surplus $0.2 million surplus CAT4 CATS CAT7 CAT 11 Ill Spent and Encumbered Projected Expenditures Surplus/Deficit $160 $140 $120 $100 $80 $60 $40 $20 Spent/Encumbered, Projected Spending, and Surplus/Deficit for CATs 2, 9, and 10 $0.5 million surplus {Dollars in Millions) $1.5 million surplus. $2.0 million surplus $0 CAT2 Ill Spent and Encumbered CAT9 Projected Expenditures CATlO Surplus/Deficit $1,000 Spent/Encumbered, Projected Spending, and Surplus/Deficit for CATS 3, 6, and 12 $13.0 million surplus (Dollars in Millions) $800 $600 $0.0 million surplus $400 -$0.2 million surplus $200 $0 -$200 CAT3 CAT6 CAT12 Ill Spent and Encumbered Projected Expenditures Surplus/Deficit

51 MCPS Financial Monitoring Projections FY In Millions of Dollars ATTACHMENT 4 $ $3o.o I $29.0 $27.8 $27.8 $27.7 $26.6 a:~ I ;~ r' $25.0 $30.5 $31.4 $33.0 $20.0 $15.0 $10.0 $5.0 $0.0 Sept. Oct Nov Dec Jan Feb March April FY 2016 FY 2017 ~

52 Montgomery County Public Schools Operating Budget Spent and Encumbered by State Category (CAT) by Month ATTACHMENT 5 Sepember October November December January February March April 25% of Year 33.3% of Year 41.7% of Year 50% of Year 58.3% of Year 66.7% of Year 75% of Year 83.3% of Year Completed Completed Completed Completed Completed Completed Completed Completed CAT 1, Administration Budget $44,253,653 $44,253,653 $44,253,653 $44,253,653 $44,253,653 Spent for Month $11,914,257 $15,638,537 $18,457,555 $21,305,194 $23,911,359 Spent/Encumbered for Month $39,483,677 $40,341,437 $40,558,691 $41,019,393 $40,766,394 Month Spent % of Budget 26.9% 35.3% 41.7% 48.1% 54.0% Cumulative Spent/Encumb. % of Budget 89.2% 91.2% 91.7% 92.7% 92.1% CAT 2, Mid-level administration Budget $144,354,910 $144,354,910 $144,354,910 $144,354,910 $144,354,910 Spent for Month $27,814,003 $38,961, 775 $50,400,362 $61,895,385 $72,839,693 Spent/Encumbered for Month $140,693,790 $141,053,380 $141,135,748 $141,409,016 $141,528,890 Month Spent % of Budget 19.3% 27.0% 34.9% 42.9% 50.5% Cumulative Spent/Encumb. % of Budget 97.5% 97.7% 97.8% 98.0% 98.0% CAT 3, Instructional Salaries Budget $949,235,509 $949,235,509 $949,235,509 $949,235,509 $949,235,509 Spent for Month $105, 758,307 $189,248,197 $273,402, 799 $358,100,412 $441,031,823 Spent/Encumbered for Month $898,924,607 $903,326,624 $906,641,695 $910,656,534 $913,481,057 Month Spent % of Budget 11.1% 19.9% 28.8% 37.7% 46.5% Cumulative Spent/Encumb. % of Budget 94.7% 95.2% 95.5% 95.9% 96.2% CAT 4, Texbooks and Supplies Budget $25,877,617 $25,877,617 $25,877,617 $25,877,617 $25,877,617.Spent for Month $11,886,477 $14,088,278 $15,337, 761 $16,988,657 $17,838,811 Spent/Encumbered for Month $15,586,738 $16,611,077 $17,729,899 $18,544,501 $19,309,881 Month Spent % of Budget 45.9% 54.4% 59.3% 65.7% 68.9% Cumulative Spent/Encumb. % of Budget 60.2% 64.2% 68.5% 71.7% 74.6% CAT 5, Other Instructional Costs Budget $11,679,698 $11,679,698 $11,679,698 $11,679,698 $11,679,698 Spent for Month $2,897,374 $3,504,231 $3,873,417 $4,400,363 $5,149,021 Spent/Encumbered for Month $5,557,486 $5,799,977 $6,008,224 $6,328,729 $7,115,829 Month Spent % of Budget 24.8% 30.0% 33.2% 37.7% 44.1% Cumulative Spent/Encumb. % of Budget 47.6% 49.7% 51.4% 54.2% 60.9% CAT 6, Special Education - Budget $297,229,498 $297,229,498 $297,229,498 $297,229,498 $297,229,498 Spent for Month $35,815,583 $58,670,934 $85,623,636 $112,578,160 $139,459,928 Spent/Encumbered for Month $280,939,942 $280,998,479 $282,864,534 $284,065,052 $285,082, 739 Month Spent% of Budget 12.0% 19.7% 28.8% 37.9% 46.9% Cumulative Spent/Encumb. % of Budget 94.5% 94.5% 95.2% 95.6% 95.9%

53 Montgomery County Public Schools Operating Budget Spent and Encumbered by State Category (CAT) by Month ATIACHMENT5 Sepember October November December January February March April 25% of Year 33.3% of Year 41.7% of Year 50% of Year 58.3% of Year 66.7% of Year 75% of Year 83.3% of Year Completed Completed Completed Completed Completed Completed Completed Completed CAT 7, Student Personnel Svcs. - Budget $11,375,877 $11,375,877 $11,375,877 $11,375,877 $11,375,877 Spent for Month $2,317,986 $3,186,902 $4,029,796 $4,878,018 $5,705,198 Spent/Encumbered for Month $10,662,662 $10,707,742 $10, 738,257 $10, 799,436 $10,813,342 Month Spent% of Budget 20.4% 28.0% 35.4% 42.9% 50,2% Cumulative Spent/Encumb. % of Budget 93.7% 94.1% 94.4% 94.9% 95.1% CAT 8, Health Services - Budget $3,630 $3,630 $3,630 $3,630 $3,630 Spent for Month $453.$4S3 $453 $1,026 $1,426 Spent/Encumbered for Month $453 $453 $453 $1,426 $1,426 Month Spent % of Budget 12.5% 12.5% 12.5% 28.3% 39.3% Cumulative Spent/Encumb. % of Budget 12.5% 12.5% 12.5% 39.3% 39.3% CAT 9, Student Transportation - Budget $104,104,085 $104,104,085 $104,104,085 $104,104,085 $104,104,085 Spent for Month $12,189,989 $22,001,871 $30,049,331 $40,115,337 $47,138,422 Spent/Encumbered for Month $81,255,281 $83,959,139 $86,820,279 $89,088,816 $90,869,020 Month Spent % of Budget 11.7% 21.1% 28.9% 38.5% 45.3% Cumulative Spent/Encumb. % of Budget 78.1% 80.6% 83.4% 85.6% 87.3% CAT 10, Operation of Plant/Equip. - Budget $134,215,698 $134,215,698 $134,215,698 $134,215,698 $134,215,698 Spent for Month $26,326,067 $36, 738,230 $48,794,933 $59,359,915 $70,283,209 Spent/Encumbered for Month $88,225,932 $92, 746,587 $99,116,693 $103,410,493 $108,556,535 Month Spent % of Budget 19.6% 27.4% 36.4% 44.2% 52.4% Cumulative Spent/Encumb. % of Budget 65.7% 69.1% 73.8% 77.0% 80.9% CAT 11, Maintenance of Plant - Budget $34, 785,267 $34, 785,267 $34, 785,267 $34, 785,267 $34, 785,267 Spent for Month $7,281,098 $10,002,226 $12, 797,197 $15,898,540 $18,327,876 Spent/Encumbered for Month $28,168,524 $28,937,856 $30,347,411 $31,155,419 $31,515,043 Month Spent% of Budget 20.9% 28.8% 36.8% 45.7% 52.7% Cumulative Spent/Encumb. % of Budget 81.0% 83.2% 87.2% 89.6% 90.6% CAT 12, Fixed Charges - Budget $558,027,927 $558,027,927 $558,027,927 $558,027,927 $558,027,927 Spent for Month $169,360,579 $202,539,372 $236,597,650 $284,366,295 $319, 787,889 Spent/Encumbered for Month $169,494,804 $202,673,244 $236,719,843 $284,488,489 $319,883,802 Month Spent % of Budget 30.3% 36.3% 42.4% 51.0% 57.3% Cumulative Spent/Encumb. % of Budget 30.4% 36.3% 42.4% 51.0% 57.3% ~

54 Montgomery County Public Schools Operating Budget Spent and Encumbered by State Category (CAT) by Month ATTACHMENT 5 Sepember October November December January February March April 25% of Year 33.3% of Year 41.7% of Year 50% of Year 58.3% of Year 66.7% of Year 75% of Year 83.3% of Year Completed Completed Completed Completed Completed Completed Completed Completed CAT 14, Community Services - Budget $50,525 $50,525 $50,525 $50,525 $50,525 Spent for Month $50,000 $50,000 $50,000 $50,026 $50,135 Spent/Encumbered for Month $50,000 $50,000 $50,000 $50,026 $50,135 Month Spent % of Budget 99.0% 99.0% 99.0% 99.0% 99.2% Cumulative Spent/Encumb. % of Budget 99.0% 99.0% 99.0% 99.0% 99.2% Total Budget, without Enterprise Funds $2,315,193,894 $2,315,193,894 $2,315,193,894 $2,315,193,894 $2,315,193,894 Spent for Month $413,612,173 $594,631,007 $779,414,890 $979,937,327 $1,161,524,789 Spent/Encumbered for Month $1, 759,043,896 $1,807,205,994 $1,858,731,725 $1,921,017,329 $1,968,974,093 Month Spent % of Budget 17.9% 25.7% 33.7% 42.3% 50.2% Cumulative Spent/Encumb. % of Budget 76.0% 78.1% 80.3% 83.0% 85.0% ~

55 f c m 31 Beginning Reserves 32 Unre,.tricred General pgnd 33 Rev enue Slai>llb.arion Fvnd 34 Toral Reserves Addlllon1 lo Reserve.1 37 Unre1trlcred Genera.I F"nd 311 Revenue sra~ibatlon Fund 39 Total Change in Reserves I Ending Re.1erves 42 Unre.-trlcted Generctl Fwnd "3 Revenue Slabilb.a!lon Fvnd..t.t Total Reserv-e.s App. FYr '25.ol.7 37.o!.I < B0.3 <115.9 Eot. FYl %Chg. fv17-1b 22.9% 10.1% U.1% -B4.3% 9.1% "27.7% 10.0% 9_9,,-, 9.9% 'R"" FYIB ll l ' l % 9.9% 7.1% 755.5% 5.5% 69.5% 14.6% 9.5% 1U% Projede-d FYJ I l! 337_3 50a.o ~-Chg. FYI % 9.5% 11.1% -70.0% -26.4% % 3.l!% 6.4% 5.5% Proieded FY soa,o b lUJ B % Chg. FV l!% 6.4% 5.5% -13.0% % -46.6% 3.2% 2.6% 2..So/o Projected FY l! lll l %Chg. FY2l % 2.6% 2.B% 2.2% 5.2%.4.1% 3.2% 2.7% 2.9% Projected fy22 ll! B %Chg. FY % 2.7% 2.8% 18.8%.4.6% 9.9% 3.6% 2.7% 3.0% Projected FY23 ll!s l AS I Reserve.& as <1 % of Adjusted Governmental Revenues 8.4%.B.6% 8.9% 9.7% 10.0% l0.0% 10.0% 10.0% 46 Other Rnerve5 47.Montgomery CoDege 411.M-NCPPC.&9 MCPS 50 MCCP Spedal Funds l! l -S.4% 0.6% n/o -47.0% il % 11.1% n/.a l4.6% % 3.2% n/a 3.S% % 2.9% n/<1 3.2% % 3:0% n/a 3.2% % 3.1% n/a 3.6% MCG +Agency Re.serve as a% of Adju.sted Govt Revenues S.6% 9.6~-'o 9.1% 9;9% 10.2% 10.2% 10.2% 10.2~ 52 Reriree Hea'lth ln urance Pre-Funding 53 Monfgomttay County Public School (MCPS) 54 Montgome<y College jmq.55 MNCPPC 56 MCG 57 Subtotal Retiree H<>alrh ln1vrance Pre-Fundlng I S 43.S a 1.a BS ' :S U Adjusted Governmental Revenues 59 Toral Tax Supported R"venve.s 60 Capital Projecr1 Fund 61 Grant1 62 Tolcol Adlusl"d Governmental Revenue 4, I 4, s.a 115.a 4,944.7 I 4,963.l 2.B% 4, % % % :S, % 0.5% 2.3% 2.6% 4, :20.l 5, % 16.3% :2.4% 1.9% 5, l , % 4.1% :2.5~ 2.6% 5, ,495,4 3.0% 4.2% 2.5% 3.0% 5, , % 0.0% 2.5% 2.9% 5, ,826.8 ~ <ii ::J ~ ---+::: ~

56 OMB Summary of Additional County Support for MCPS in FY18 - Support Services Category DEPARTMENT FY18 PROGRAM NAME TAX-SUPPORTED GRANT/NON-TAX Police School Resource Officers 2,682,800 Police Schools Safety/Crossing Guards 5,332,395 Police Overtime for MCPS Supporting Events 60,000 Subtotal Police 8,o75,195 0 Recreation RecZones (formerly, Sports Academies) 1,142,108 Recreation Rec Extra 358,598 Recreation Summer Teen Programs 936,085 Recreation Excel Beyond the Bell 1,482,892 Recreation Anti-gang Soccer League 167,398 Recreation Food, Fun, and Fitness/TeenWorks Expansion 150,000 Recreation Child First programming 451,188 Recreation Teen Programming 471,190 Subtotal Recreation 5,159,459 0 DTS FiberNet Operation 213,609 DTS FiberNet Construction 504,600 DTS PEG Capital for equipment purchase 150,000 DTS Desktop Computer Modernization 220,624 DTS MCPS ITV 1,967,504 Subtotal Technology Services 220,624 2,835,713 Collection and Technology Mgmt direct K-12 school Libraries support with research databases, homework support, 5,395,080 reading list and curriculum materials K-12 MCPS and Early Literacy support via outreach, Libraries programming for all ages, teen coordination, and 2,252,103 school partnerships Subtotal Libraries 7,647,183 0 HHS Identity-After School 343,904 HHS Linkages to Learning 5,577,279 HHS George B Thomas Learning Academy (including Ruth I 955,872 HHS Kennedy & Watkins Mill Cliuster Program 427,936 HHS After School Programs 468,649 HHS MCPS Alternative Ed and Bridge Program Services 64,245 School Health Services (includes HRT, SCHN, HHS Summer School, Head Start/Pre-K, School Health 24,054, ,980 Services Center, Teen Pregnancy Prevention) HHS School Based Health Centers General Fund 2,777, ,480 High School Wellness (includes Northwood School HHS Based Health Center-PYO General Funds and 3,426,073 Gaithersburg, Watkins Mill, and Wheaton) HHS L & R - Food Service Inspections, Certified Food Manager, Pool Service Inspections 103,873 Subtotal Health and Human Services 38,199, ,460 In-kind support to MCPS. 40% of staff costs for Community Use of Public scheduling free use hours for MCPS & MCPS Facilities partners 446,552 M-NCPPC Maintenance of MCPS ballfields 890,700 Department of Environmental Protection Stormwater facility maintenance 1,500,000 Subtotal All Other Deaprtments 890,700 1,946,552 TOTALS 60,193,155 5,598,725 COMBINED TOTAL 65,791,880