Northwest Local School District (Hamilton County) 5-Year Forecast Assumptions May 27, 2011

Transcription

1 Northwest Local School District (Hamilton County) 5-Year Forecast Assumptions May 27, 2011 Disclaimers The 5-year forecast for Northwest Local School District (Hamilton County) is derived from the last three completed fiscal years (FY08 FY10) of historical data, the current fiscal year s (FY11) appropriations, and the next four fiscal years (FY12 FY15) of forecasted data based on current information, logical estimates and rational assumptions. As we continue to move forward in a volatile economy, the District s efforts of budget management has helped maintain a healthy cash balance but our financial concerns continue amidst the State s financial uncertainties and revenue predictions. School districts, local governments and state governments face treacherous times with high unemployment rates, a severe downturn in housing conditions and values, and the continued effects of a major recession both in the United States and globally. As we review the District s 5-year forecast we all must acknowledge this forecast as a work-in-progress as we continue to navigate through the storm of uncertainty. Many of the assumptions used in this forecast are derived from past experiences and spending history, however, many are a guess at best using the uncertainty of the current conditions and political climate we currently work in. I am confident with diligent management and a proactive stance using this data we can ride through this storm and continue the successes that our District is accustomed to. May 2011 Forecast Unlike prior assumption reports, I will begin with our District s expenditures exceeding our revenues. The graph below illustrates that beginning in the current fiscal year we have moved into deficit spending. Northwest Local School District, Randy Bertram, Treasurer/CFO 1

2 As illustrated, our spending deficit will be $1,825,677 in two years. I will refer to this as a structural spending deficit from this point forward. This structural spending deficit is where we should focus our efforts to eliminate it. This structural deficit has occurred for a few different reasons: Our enrollment estimates are several hundred students higher per year than previously estimated The State s new funding Evidence Based Funding Model works against Districts that our on the guarantee where the formula doesn t work The termination of ARRA funding from the Federal Government in fiscal year 2012 Health care costs continue to rise, and in some years well over estimates Financial Strategy The Superintendent and administrative team have continued their work in addressing the structural deficit of the district. We currently have a plan in place that has budget reductions in place through the 2014 fiscal year which are included in this forecast. We are reviewing this plan and will make modifications and recommendations to the Board of Education that will address deficit spending with budget cuts and revenue ideas. The sooner reductions are made or revenue is increased, the less impact there will be for reducing or eliminating educational programs. Northwest Local School District, Randy Bertram, Treasurer/CFO 2

3 Structural Operating Deficit Northwest Local School District, Randy Bertram, Treasurer/CFO 3

4 Revenue Assumptions Line 1.01 General Property Tax (Real Estate) In calendar years 2002 and 2008 Hamilton County went through real estate property updates and a reappraisal in The last two triennial occurrences plus new construction caused the valuations for agriculture, residential and commercial/industrial property to rise 16.94%, while the valuations for agriculture, residential and commercial/industrial property rose 1.81% in 2008 respectively. With the decline in real estate new home starts and sales, the slowing of the economy, the valuation update in 2008 yielded a decline in valuation of -.64%, and reappraisal in 2011 may also see a decline in total valuations. We estimate a decline of 7.09% in 2011 due to a lagging market and current sales data. The passage of an emergency 3-year operating levy for $ 6,478,778 (3.9 mills) on November 6, 2007 generated an additional 3.2 million in local tax collections in FY08 and the full 6.4 million in FY09 through FY10. In FY11 the final 3.3 million will be collected in the first half of the fiscal year. This levy was renewed on May 4, 2010 for a period of 5 years for FY11 through the first half of FY16 at its current rate of 3.88 mills. The prior October forecast estimate was $40,469,259 in tax revenue but due to the economy, job losses, and foreclosures, the District realized just $39,501,992 in real estate collections. These occurrences show an increase of tax delinquencies of 2.35% totaling around 4.5%. Duke energy has appealed their tax values for 2009 and 2010 and because of this they have held their full tax payment to the District by 40% thus decreasing our tax collections by approximately $760,000 annually. Duke has since then said they would reduce the 2009 payment 40% by half but we are yet to receive this tax payment as of this forecast period. In calendar year 2009 we started collecting two mills of our real estate to be moved to our Permanent Improvement fund. This move created the ability of our District to earmark the $3,200,000 for District building upkeep. Expenditures have also been moved to the PI fund. Because of this shift in tax collections the general fund received $36,742,762 in tax collections for fiscal year 2010 while the permanent improvement fund received $2,820,100. The outlook for real estate collections is projected at $37,765,658 in the current fiscal year and increasing slightly to $37,792,070 in FY There is very little increase in new construction while a decline in current values is projected. Effective Millage Information ** MILLAGE RECAP ** Tax Rate Tax Rate Tax Rate Tax Rate Tax Rate Tax Rate Tax Rate Tax Rate Millage FLOOR Effective Rate - Ag / Res Effective Rate - Comm/Ind/Min/PU Inside Millage Rate Full Voted Millage Rate Northwest Local School District, Randy Bertram, Treasurer/CFO 4

5 Because of the effects of HB920 in the 1970s, the real estate decline is causing our effective millage rates to increase therefore moving us away from the 20 mill floor. Northwest Local School District, Randy Bertram, Treasurer/CFO 5

6 Line 1.02 Tangible Personal Property Tax The projected decline in revenues received through tangible personal property is a result of a decline in valuation due to depreciation and HB 283 (July 1, 2003) and HB66 (July 1, 2005). HB 283 reduces the assessed valuation of the inventory component of personal property tax from 25% to 0% by HB 95 accelerated the reduction to 2% per year ending in In addition, the projected decline in revenues received through public utility taxes is a result of deregulation of public utilities. In July of 2005, HB 66 again accelerates the phase-outs of tangible personal property and public utilities by the calendar year There is a hold harmless piece in this bill for school districts through the forecast period 2010 less the previously approved phase-out in HB95. These phase-outs are estimated to reduce our tangibles from $4,393,382 to $619,300 fiscal years 2005 through The reimbursement portions of these House Bills are included in line property tax allocations. Line Unrestricted Grant-in-Aid In July 2009 Ohio changed the way it funds schools to an Evidence Based Model in House Bill 1. This legislation creates many changes to the funding principles for Ohio schools from the previous foundation program. The new funding model is now known as the PASS program, PAthway to Student Success. Detailed information about this new funding information can be found at: D=1599&Content= The net financial effects of this new PASS Program create a funding decline in state aid under its prior form. Under the old foundation formula we were guaranteed approximately $28,400,000 (FY09) annually in unrestricted aid, this forecast is as follows: FY09 $28,433,125 (Actual) *FY10 $26,448,893 (Actual) Northwest Local School District, Randy Bertram, Treasurer/CFO 6

7 *FY11 $25,597,396 *FY12 $25,506,850 FY13 $25,964,050 FY14 $25,964,050 FY15 $25,964,050 *There is additional pass-through funding from the Federal Stimulus Package that is Restricted Aid and will be identified in the next section. In summary, PASS will reduce our revenue annually (including restricted Federal aid in each year through fiscal year The Governor is vacating the EBM model and will replace it with something else to be determined in the second half of the biennium for At that point we may realize a slight increase in revenue from the prior year of not more than.75% of 1 percent under current law. Line Restricted Grant-in-Aid Restricted funds are those in which the State requires specific spending. NWLSD will be receiving funds of approximately $10,000 annually for career tech funding. In fiscal years 2010 and 2011 the District will also receive funding from the Federal Stimulus Package as passthrough funding by the State in the amounts of $1,801,780 and $1,942,331 respectively. In 2012 the District will receive approximately $1,370,000 for the Federal educational Jobs Bill which was passed in August This is modeled in the forecast. There is no replacement stimulus money projected. There may also be some monies received in this category from time to time for miscellaneous reimbursements such as special education catastrophic reimbursements. Northwest Local School District, Randy Bertram, Treasurer/CFO 7

8 Line Property Tax Allocation Rollback and Homestead Exemption All real property taxpayers receive a 10.0% credit or rollback on their tax bills that is reimbursed by the State of Ohio to the public entities. Homeowners are eligible for an additional 2.5% homestead exemption if they live in their home and it is on a parcel that is less than 2.5 acres. Additional credits are available to residents based upon income and age. The District estimates rollback and homestead exemption revenues at approximately 11% of the total real property tax generated for a given year. The District is anticipating that rollback and homestead will follow the same amount of change that real property experiences represented as a percentage of the real property taxes through fiscal year Tangible Personal Property Reimbursement - Additionally, reimbursements for the phase-out of tangible personal property (Line 1.020) are to be accounted for in line item Based upon calculations provided by the Ohio Department of Taxation the following amounts were included in the October 2010 forecast: FY09 $2,851,397, FY10 $3,745,169, FY11 $3,808,218, FY12 $3,136,179, FY13 $2,464,067, FY14 $2,016,055, FY15 $1,568,043, FY16 $1,120,030, FY17 $672,018, and in FY18 $224,006 Currently HB153 is once again changing the TPP reimbursement to the following: FY12 $2,259,706 and FY13 $711,194 thus reducing this reimbursement by $8,229,498 FY2014 through FY2018. Total forecasted revenues for line 1.05 are $8,906,811 in FY11, $7,323,446 FY12 decreasing to $5,096,072 in FY15 because of HB153. It should be noted that $2,527,464 was not paid in June 2009 as it normally is therefore; it was paid in July causing a skewed chart for fiscal years 2009 and Northwest Local School District, Randy Bertram, Treasurer/CFO 8

9 Line All Other Revenue Other Local Revenue Typically other local revenue consists of extra-curricular participation fees, commissions, rental income, payments in lieu of taxes and summer school tuition. The District also earns interest on accumulated cash reserves. The estimated other revenue is illustrated. Northwest Local School District, Randy Bertram, Treasurer/CFO 9

10 Line Advances-In and Transfers-In Advances-Returned This line represents the return of temporary monies made to funds experiencing cash flow shortfalls. Advances are not permanent and must always be returned. The District has anticipated advances during the projection of $350,000 annually. Line All Other Financing Sources Refund of Prior Year Expenditures This line represents funds received in refund of services or goods purchased and charged as expenditures in a previous fiscal year. Items refunded within the same year are treated as reductions of the expenditure. It s estimated to have $50,000 annually on this line item. Total Revenue Summary Total Revenues from all sources for the general fund account are estimated to be $81,145,822 in FY11 and declining to approximately $75,558,814 without the passage of a future levy through FY15 (includes the renewal of the 6,478,778 emergency levy in FY11). With the uncertainty of state revenue and the estimated decline of educational state aide, the District must make necessary adjustments in expenditures or find ways to increase revenue. Northwest Local School District, Randy Bertram, Treasurer/CFO 10

11 Expenditure Assumptions Line Personal Services (Salaries) Salaries - Staffing is based upon the anticipated programs for the school year including personnel reductions implemented due to the closure of Houston Elementary and the implementation of Butler Tech in For FY09 the NEA and transportation negotiated a 1% pay increase and the remaining staff received a 3% pay increase and a change from PPO insurance to a HDHP/HSA health savings account plan. An increase of 2% for all staff was implemented for FY10. Step freezes and base salaries are frozen for fiscal years 2012 through There was an estimated reduction in salaries for the closure of Houston Elementary and merger with Butler Tech of $700,000 and $1,520,000 respectively in FY09. Additionally, attrition cuts are assumed throughout this forecast for the District s declining enrollment projections and program changes. Additional salary reductions are forecast during the first four years of this forecast. These salary reductions range from $1,783,166, $1,099,240 and $644,594 during years 2012 through Cancelling the high school block schedules and returning to a seven bell day beginning in FY11 created significant cost reductions in both salaries and benefits. During FY10 special education and Title I salaries where shifted as allowed for the implementation of the ARRA IDEA_B and Title I funding received by the District in the amount of $1,527, from the general fund. An additional $1,107,421 was moved from the general fund to other various grant funding sources. $1,151,399 of these ARRA salaries has been moved Northwest Local School District, Randy Bertram, Treasurer/CFO 11

12 back into the GF in fiscal year 2011 while $204,393 will follow in A new program for alternative education has begun for the District in FY11 with projected expenses in stimulus funding and from the general fund. All stimulus funding will shift to the general fund in FY12 when that funding stops. The staffing changes are reflected in the staffing chart below. Northwest Local School District Historical Staffing Data (All Funds) Category Administrative Central Office Certified Licensed Classified Instructional Staff Teachers Instructional Specialists Librarians Instructional Coordinator Counselors Psychologists Support Staff Educational Assistants Nurses Health Technician Library Assistants Transportation/Delivery Food Service Secreterial/Clerical Data Processing Maintenance Custodial Total District Staff 1, , , , , , , Increase/(decrease) Prior Year (40.00) (7.00) (26.00) (53.50) With the above mentioned increases and projected salary decreases due to attrition, the District will anticipate general fund salaries ranging from $50,006,394 to $49,852,131 from fiscal years 2011 through A 2% wage increase is forecast in $50,500,000 $50,000,000 $49,500,000 $49,000,000 $48,500,000 $48,000,000 $47,500,000 $47,000,000 $46,500,000 Salaries Fiscal Year Northwest Local School District, Randy Bertram, Treasurer/CFO 12

13 Line Employees Retirement/Insurance Benefits Benefits - The District is required by law to pay 14% of employees salary into the State Teachers Retirement System and the School Employees Retirement System. SERS also charges a surplus cost for employees who earn less than $35,800 annually. This surcharge has an effect of the District paying approximately 15.5% into their retirement system. It s also required of the District to pay 1.45% of salaries to Medicare and we currently pay approximately 1.5% to the State Workers Compensation Program. With the cost of the District s share of retirement, Medicare and Workers Compensation Insurance, we contribute 17.36% of salaries. During 2009 we received an increase of about $221,000 in Workers Compensation premiums and in 2010 and we received an additional premium increase of $100,000. The chart below gives the historical data of our Workers Compensation premiums and claims since We are currently working towards going self-insured with our Workers Compensation program. I estimate a $200,000 savings for the 2012 fiscal year. District Annual Prior Year Increase Actual Difference % Premium Actual Year Payroll # Claims Premium W/C Rate Increase Since FY03 Claims Pmt - Claims Claims - Pmts Cost p/claim Cost p/claim ,110, $ 402, N/A $ 184, $ 217, % ,162, $ 256, % $ 55, $ 201, % ,222, $ 343, % $ 39, $ 303, % ,938, $ 320, % $ 107, $ 212, % $ 8, $ 2, ,024, $ 272, % % $ 373, $ (101,416.03) % $ 8, $ 11, ,678, $ 371, % 15.98% $ 174, $ 196, % $ 9, $ 4, ,230, $ 336, % 5.13% $ 107, $ 228, % $ 8, $ 2, ,379, $ 342, % 7.01% $ 63, $ 279, % $ 11, $ 2, ,122, $ 348, % 8.97% $ 59, $ 288, % $ 9, $ 1, ,733, $ 570, % 78.15% $ 68, $ 501, % $ 19, $ 2, Year Ave. 52,694, $ 373, % $ 141, $ 232, % $ 10, $ 4, ,314, $ 670, % % $ 6, $ 664, % $ 55, As of 6/30/10 Ohio Bureau of Workers' Compensation Payments & Actual Claims History We negotiated a tuition reimbursement of not more than $75,000 annually with NEA. Title II-A funding paid the first $68,000 in FY10 while the general fund will pick up the remainder. In FY11 the general fund will pay the entire obligation. Other than this, no significant changes are forecasted in these areas beyond increases due to the staff wage increases. In FY10 we had a 31% increase in health care costs for our HDHP plan but realized just a 5.24% increase with the teachers union agreeing to the HDHP/HSA plan beginning in FY10. In FY10 the District predicted annual increases of 15% for healthcare but due to some catastrophic claims the District realized a 36% increase September 1, This unexpected increase will cost the District $1,570,232 in premiums more than the prior year. The NAE and OAPSE employees are coming off a holiday premium in fiscal year 10 and once will begin paying 15% of their Health care costs thus netting the District a 19.90% increase for the current year. In 2010 total benefits were 33.45% of our salaries. The health insurance is capped at 10% increases with the employees paying everything above an annual increase of 10% starting in The estimated renewal rate for 2012 is 5.9%. The District will continue to engage its employee groups to reduce costs through coverage, alternative benefits plans or providers in the upcoming years to beat the assumptions and current usage trends for FY12 through FY15. The projected health care increases are 10% for the remainder of the forecast. Once again, health care increases contribute to the greatest opportunity for District control in spending with employee and union cooperation. Northwest Local School District, Randy Bertram, Treasurer/CFO 13

14 Benefits $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Fiscal Year Northwest Local School District, Randy Bertram, Treasurer/CFO 14

15 Line Purchased Services (Contracts) Increases in purchased services can be a result of increased utility costs, increases and additional specialized services for special needs students, and students enrolling in charter schools and other districts through open enrollment. 1.00% has been factored in as an estimated increase in purchased services annually. With the addition of an alternative educational program we anticipated a start-up cost of $425,800 in purchased services during FY11. Annually we anticipate an increase of about $100,000 for licensing and leases. Utilities for FY2011 through FY2015 are estimated to decrease approximately $250,000 annually. We are using vendors to help monitor and lower our energy costs. Costs from purchased services have been shifted to the permanent improvement fund beginning in fiscal year These costs are approximately $1,000,000 per year for the upkeep and maintenance of our school buildings. We will continue to monitor contracts and look for ways to reduce purchased services expenditures. Northwest Local School District, Randy Bertram, Treasurer/CFO 15

16 Line Supplies and Materials Supplies and materials are estimated to increase at a 2% rate annually in the forecast 2012 through The additional costs are for the assumed 3% inflationary factor while reducing student enrollment by 1%. Line Capital Outlay (Equipment) Supplies and materials are estimated to increase at a 2% rate annually in the forecast from 2012 to The additional costs are for the assumed 3% inflationary factor while reducing student enrollment by 1%. With the advent of our Northwest Passage program we have estimated a start-up cost for capital equipment of $183,000 in 2011 only. Northwest Local School District, Randy Bertram, Treasurer/CFO 16

17 Lines to Debt Debt The District currently pays outstanding debt through its Permanent Improvement and Bond Funds. Line Other Objects Any other costs not previously listed are other object expenses. These are assumed to increase 2% annually. These costs are projected as listed Actual Amount Expended in Prior Year 747, ,915 1,016,853 1,037,190 1,057,934 Adjustments to prior year amount: Annual Percentage Change 2.00% 2.00% 2.00% 2.00% 2.00% Calculated Dollar Increase 14,946 19,938 20,337 20,744 21,159 Adjustment to actual expenses for May forecast 234,668 Total Projected 996,915 1,016,853 1,037,190 1,057,934 1,079,093 Lines and Operating Transfers-Out and Advances-Out Transfers and Advances Transfer are monies approved by the BOE to give to another fund to maintain a legal balance. Advances are monies loaned to other funds with the approval of the BOE to keep those funds legal. Advances will be repaid to the general fund. We do anticipate advances of $350,000 annually. An additional $60,000 annually as been board approved in FY10 to transfer to the athletic funds for transportation needs while $90,000 is expected to be moved to the school fee accounts for fee waivered students starting in FY11. These advances may change annually as the Board sees fit. Northwest Local School District, Randy Bertram, Treasurer/CFO 17

18 Line All Other Financing Uses Refund of Prior Year Receipts We don t anticipate any refunds of prior year receipts of large significance in this forecast. Total Expenditure Summary Expenditures are anticipated to be $84,045,843 to $86,193,003 from FY11 through FY15 increasing annually less than.65%. Revenues exceeded expenditures in FY10 by $3,824,955 due to the Federal stimulus money we are receiving. The District will maintain a positive cash balance at fiscal year ends FY11 through FY15 of $14,867,942 to $1,362,726. We are in an operating deficit spending each year of this forecast as shown: Northwest Local School District, Randy Bertram, Treasurer/CFO 18

19 The District needs to recognize the upcoming deficits and take action to eliminate them in the near future. Without proper spending management and revenue review the District will be faced with financial hardships and tougher than usual decisions. Line Estimated Encumbrances Outstanding Encumbrances - Encumbrances are legal financial obligations of the District that have not been expended at fiscal year-end. We have anticipated the same amount each fiscal year of $400,000. In the event actual encumbrances are higher than anticipated on June 30, the expenditures in the aforementioned line items may be lower. Line Unreserved Fund Balance June 30 th The District unreserved balance is the cash balance less outstanding encumbrances. The current forecast has unreserved fund balances shown in the graph below. The Structural Operating Deficit exists in fiscal 2016 without proper financial management. Northwest Local School District, Randy Bertram, Treasurer/CFO 19

20 Executive Summary The five-year forecast is a compilation of data based on funding formulas, as they currently exist in State law. The five-year forecast is due to the State of Ohio every October 31 st and May 31 st and can be revised and updated anytime between. Assumptions are based on historical trends and analysis and it is important to monitor forecast activity on a monthly basis in an effort to ensure the budget stays on forecast. Utilization of the monthly Five-Year Forecast Analysis Report will allow management to monitor all major revenues and expenditures against the five-year forecast. It is important to modify the forecast as management learns of changes in laws or events that would cause a material change in forecasted numbers. Ohio law requires the District to operate within a balanced budget. In the event that significant events should alter the projections in the five-year forecast, management will assess the situation and make recommended changes to the forecast and budget in order to maintain a balanced budget. The 5-year forecast outlook presented has changed significantly over the prior versions prepared. The passages of the 3.9 mill 3-year emergency levy in November 2007, 3.88 mill 5- year emergency levy in 2010, and implementing district cuts; have prevented financial burdens and further devastating cuts by our District. The passage of the levy though did not solve the long-term financial challenges of the District. The uncertainty of the State s finances and next biennium budget, declining property values, increasing board of revision valuation challenges, Northwest Local School District, Randy Bertram, Treasurer/CFO 20

21 high unemployment, delinquent tax collections, home repossessions, declining house sales both in units and values (see below), and other economic issues make forecasting revenue a guessing game at best. We are faced with deficit spending in fiscal year 2011 that escalates rapidly without additional revenue and/or deepening cuts that would dramatically affect the success of our students. Many financial challenges are ahead in the short and mid-term periods. Careful management of the District s budget will be necessary to overcome these challenges. If you have any questions, feel free to contact the District Treasurer at Me dia n Jurisdiction Numbe r Me dia n Sa le s Ma rke t to County Jurisdiction Na me T ype Ye a r of Sa le s Price Price Ra tio HAMILTON COLERAIN Township $117, % Reappraisal Year HAMILTON COLERAIN Township $116, % HAMILTON COLERAIN Township $117, % HAMILTON COLERAIN Township $112, % Update Year HAMILTON COLERAIN Township $104, % HAMILTON GREEN Township $135, % Reappraisal Year HAMILTON GREEN Township $138, % HAMILTON GREEN Township $135, % HAMILTON GREEN Township $136, % Update Year HAMILTON GREEN Township $129, % HAMILTON SPRINGFIELD Township $126, % Reappraisal Year HAMILTON SPRINGFIELD Township $135, % HAMILTON SPRINGFIELD Township $126, % HAMILTON SPRINGFIELD Township $121, % Update Year HAMILTON SPRINGFIELD Township $122, % Northwest Local School District, Randy Bertram, Treasurer/CFO 21

22 How Northwest Local School District Compares with Similar Districts and the State Averages This graph compares the District's revenue sources to the state average and to the average of those districts considered most similar by the Ohio Department of Education. This graph compares the District's expenditures to similar districts, as well as to State averages. Northwest Local School District, Randy Bertram, Treasurer/CFO 22