Grosse Pointe Public School System Financial Transparency Series FUND EQUITY

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1 Grosse Pointe Public School System Financial Transparency Series FUND EQUITY

2 This Presentation Should Provide 2 A Definition of Fund Equity and How Fund Equity is Generated Provide Status on GPPSS Fund Equity An Explanation of the Significance of Fund Equity in the Proposal A Era

3 Common Funds for Local School Districts 3 Operational Funds General Fund School Services Fund Facility Funds Capital Projects Fund Sinking Fund

4 What is Fund Equity? Most Common Reference is to the General Fund s Equity 4 The accumulated revenue of a fund that has not been allocated for any expenditure Total Assets less Total Liabilities. It is NOT a cash account.

5 GPPSS 10 Year History of General Fund Equity 5 $25, % $20, % $15, % $10, % $5, % $ % Fund Equity Value Fund Equity % of Expenditures

6 Fall 2008 Fund Equity Benchmark Data District Name 6 Fund Equity Before Reserves Total General Fund Revenue Fund Equity as % of Revenue Bloomfield Hills S chool District $23,749,111 $91,195, % Farmington Public S chool District $35,015,827 $142,211, % R ochester Community S chool District $33,776,449 $153,665, % Troy S chool District $29,807,150 $135,868, % Birmingham City S chool District $22,065,027 $110,376, % Grosse Pointe Public S chools $20,236,956 $107,157, % East Grand R apids Public S chools $4,992,310 $27,846, % City of Harper Woods S chools $1,957,883 $12,217, % Ann Arbor Public S chools $31,920,873 $200,656, % Grosse Ile Township S chools $2,681,955 $19,240, % Forest Hills Public S chools $13,294,343 $98,049, % Chippewa Valley S chools $16,444,437 $124,994, % West Bloomfield S chool District $5,215,000 $71,752, % Plymouth-Canton Community S chools $10,582,739 $165,339, % Northville Public S chools $3,860,696 $62,791, % Michigan School Business Officials (MSBO) organization recommends 15-20% General Fund Equity

7 The Budget Cycle and Fund Equity Low likelihood that all assumptions will be 100% accurate 7 Budget Built Based on Assumptions Per Pupil Funding Enrollment Employee Bargaining Unit Contracts MPSERS Rate Health Care Costs Facility Repair Needs Other Fund sources Budget Executed Tremendous possibility for budget assumptions variability Aggressive strategies adopted for in cycle cost controls Budget Cycle Concludes Spending less than revenues contributes to General Fund Equity. End of year deficits require Fund Equity to balance budget

8 Budget Assumptions - Example 1 How moderate variability impacts projections 8 Each of these variables individually would amount to roughly 1% of the General Fund Budget 83 students $100MM Budget 1% in employee salaries $120 in per pupil funding 10% in health care costs 1.5% change in MPSERS rate

9 Budget Assumptions Example 2 How moderate variability impacts projections 9 This combination of variables would amount to roughly 1% of the General Fund Budget 17 students $100MM Budget 0.20% in employee salaries $25 in per pupil funding 2% in health care costs 0.3% change in MPSERS rate

10 Budgeting and Fund Equity in Practice A Five Year View of Budget Versus Actual 10 Budgeted Change to Fund Equity Actual Change to Fund Equity Year Total % of Revenue Total % of Revenue ($1,388,557) 1 (1.48%) $742, % ($2,872,889) 2 (2.77%) ($1,727,355) (1.70%) $1,319, % $4,053, % $ % $1,995, % $0 0.0% TBD After Official Audit Total ($2,941,237) (0.75%) 3 $5,063, % 3 1 Allocation of Fund Equity in anticipation of change in High School day from 7 to 6 periods 2 Allocation of Fund Equity to offer an Early Retirement Incentive to teachers. 3 Represents the average percentage change in revenue over years on chart.

11 General Fund Equity FAQ s 11 How could we have added to the General Fund s Equity in a supposed time of budget crisis? The funding challenges require intense scrutiny on budget planning and execution. Over the last five years we have beaten our budget by an average of just over 1% annually. The equivalent is a household with an income of $100,000 saving just $1,180/year.

12 General Fund Equity FAQ s (continued) 12 Shouldn t we be taking advantage of our General Fund s Equity position? Isn t this a rainy day? We have used Fund Equity by funding the Early Retirement Incentive, refinancing our bonded debt, maintaining the high school 7 period day, and reducing our borrowing costs. The means by which we have added to Fund Equity are not structural and highly variable. We incur greater financial risk by building structural cost increases into our budget.

13 Upward Pressures Maintaining Budget Equilibrium Balancing Opposing Structural Forces is Critical to Success 13 Revenues Expenses Downward Pressures Potentially Reduced Foundation Allowance Potential loss of 20J or Sinking Fund Declining Enrollment Increasing Employee Salary Costs Increasing MPSERS Retirement Costs Increasing Health Care Costs Reduced Act 18 (Special Ed) Funds Mandated All Day Kindergarten

14 Fund Equity s New Significance under Proposal A Before Proposal A When school districts were under financial distress they went to voters with a millage increase request and in GPPS case usually got it. But not everyone see Kalkaska. Tax increases could be relied upon to solve most budget problems. 14 After Proposal A The state is now the primary source of revenue. New millages are not allowed. The state s financial distress and declining enrollment threaten revenue like never before... See Detroit Public Schools and many other large urban districts. Fund Equity is the local district s only reliable financial lifeboat.

15 Fund Equity Summary 15 The difference of revenues & expenses over time constitutes a Fund s Equity. Over 80 years of operations, GPPS has saved $20MM or $250,000 per year. This is similar to a household income of $100,000 saving $250 per year. Structural options to increase revenues are limited. Structural threats to decrease revenue are real and already happening. Decisions to increase structural costs must be made with great caution.