State School Funding Update Athens PFR Tune-Up March 17, 2017 Matt Bunting, Consultant PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 1
Overview Key components of the funding formula Most challenging areas of the formula in 2018/2019 Will my district get wealthier or poorer? What are the impacts of the Governor s budget proposal and what to watch for through June PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 2
Key Elements of the Formula The State Share Index drives most funding The index will likely recalculate for FY 2018 What Matters? Relative Valuation per Pupil District Valuation (3 Year History) Index Data 2015 2016 Valuation Per Pupil $96,340 $98,654 Change in Dist Val PP 2.4% State Average PP Valuation $140,299 $139,128 Change in State Avg Val PP -0.8% Valuation Index (lower than 1 is less than state avg) 0.6867 0.7091 1.2 Core Aid State Share Index 65.51% 63.88% Since this district s valuation per pupil grows faster than the state, its state share percentage goes down PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 3
Key Elements of the Formula What causes relative valuation per pupil to increase? Valuation growth that is faster than the state Declines in ADM that are faster than the statewide decline Or a combination of the two Remember For the 2018 calculation, all of the factors will move forward by 2 years State share index was not recalculated for FY 2017 PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 4
Key Elements of the Formula The tax years in FY2016 calculations were 2012-2014 In FY2018 calculations will use tax years 2014-2016 For districts that went through Reappraisal or Triennial Update in 2014, that year had just a one-third weight in 2016 but will be fully weighted in 2018 41 counties had reappraisal or triennial in 2014 There is a big impact also on districts with reappraisal or triennial in 2015, although not as dramatic as on 2014 districts PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 5
Key Elements of the Formula The changes in agricultural property in 2014 and 2015 will have a big impact on 2018 funding The change in three-year average valuation from 2016 to 2018 statewide is at 2.1 percent There are 100 districts with a three-year average growth rate of at least 6.3 percent A minimum of three times the state average PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 6
Key Elements of the Formula In these 100 districts, the average agricultural valuation as a percentage of total valuation is 38 percent The statewide average agricultural value is 7.6 percent There are 80 districts whose three-year valuation change is zero or negative The average agricultural value in these 80 districts is 1.8 percent of total value PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 7
Why this Big Impact for Ag. Value? 238% Increase In 2016, state share would have double weighted 2011 and single weighted 2014 In 2018 state share will only use 2014. 2017 lower values will likely not factor until FY 2020 PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 8
Moving Districts off the Cap It is mechanically (and politically) easier to move districts off the cap than the guarantee The state could simply remove the cap Based on February #2 SFPR, this would send an additional $490 million to 161 cap districts Because of the tight upcoming state budget, this would likely crowd out most other school funding increases, essentially at the expense of the other 450 districts PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 9
Moving (or Keeping)Districts off the Guarantee This is very difficult to do other than by lowering the guarantee and allowing district allocations to decline Obviously not popular with districts and also not so popular politically, although the Governor has proposed allowing allocations to decline For many districts that have been on the guarantee for at least several years, enrollment has been declining faster than in the state as a whole With the formula driven by relative per pupil wealth, this naturally pushes districts further onto the guarantee PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 10
Moving (or Keeping)Districts off the Guarantee For 2018, with so many districts seeing valuation growth rates much higher than the statewide rate, the per pupil valuation changes will also be causing declines in state aid without guarantees Because of the tight budget, it is unlikely the state can push the per pupil funding or specific targeted aid up enough to offset the impact of the valuation changes PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 11
What to Keep and Eye on over the Next 3 + months Do state tax revenues stabilize and start to reverse current trends? Monthly financial report is published the 10 th of each month at OBM.Ohio.Gov Do the House and Senate make significant changes to the formula through the budget process? For PFR clients, we will provide budget analysis and guidance throughout the process and will have any changes in the budget incorporated in the five-year forecast software within weeks of the budget passing PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 12
Governor s FY18-19 School Funding Formula Overview State Share Index (SSI) updated All Per Pupil funding amounts in formula frozen at FY17 levels Transportation minimum state share reduced from 50% to 37.5% in FY18 and 25% in FY19 Guarantee will be reduced for districts that have experienced more than 5% enrollment loss from FY11 to FY16 Gain Cap set at 5% in both FY18 and FY19 TPP Supplement eliminated Dr. Howard Fleeter
Freezing of Per Pupil Funding Amounts Core opportunity aid per pupil amount remains at $6,000 in FY18 and FY19. The base per pupil amount has increased each year from at least FY1990 except for FY10 & FY11 (EBM did not use a per pupil amount) and FY12 & FY13 (Bridge Formula). Increases in the per pupil amount are necessary to keep pace with inflation. If the FY09 base cost of $5,732 (Building Blocks approach) were updated for inflation it would be $6,390 in FY17. FY09 was the last time the per pupil amount was based on an objective cost methodology. Increasing the per pupil amounts in the formula also acts as a safety valve as property values change over time. This is necessary because of phantom revenue. Dr. Howard Fleeter
Per Pupil Base Funding Amount Since FY09 FY09: $5,732 per pupil ( Building blocks method) FY10-11: OEBM - no per pupil amount FY12-13: Bridge Formula (not really a formula) FY14: $5,745 per pupil (no methodology) FY15: $5,800 per pupil (no methodology) FY16: $5,900 per pupil (no methodology) FY17: $6,000 per pupil (no methodology) FY18: $6000 per pupil (frozen) FY19: $6000 per pupil (frozen) Dr. Howard Fleeter
FY18-19 SSI Change by Typology Typology Group # of Districts in Typology Group # of Districts SSI Decrease in FY18-19 % Districts SSI Decrease in FY18-19 1. Poor Rural Districts 123 108 87.8% 2. Rural Districts 106 100 94.3% 3. Small Towns 111 73 65.8% 4. Poor Small Towns 89 44 49.4% 5. Suburban Districts 77 24 31.2% 6. Wealthy Suburban 46 12 26.1% 7. Urban Districts 49 11 22.4% 8. Major Urban Districts 6 0 0.0% 0. Outliers 3 1 33.3% Totals 610 373 61.1% Dr. Howard Fleeter
FY15-19 Guarantee & Gain Cap Transitional Aid Guarantee: FY15: $165.9 million (188 districts) FY16: $123.6 million (173 districts) FY17: $104.4 million (133 districts) FY18: $181.2 million (315 districts) FY19: $196.8 million (321 districts) Gain Cap (7.5% in both FY16 and FY17): FY15: $669.2 million (237 districts) FY16: $603.9 million (188 districts) FY17: $492.9 million (151 districts) FY18: $465.7 million (130 districts) FY19: $358.7 million (103 districts) FY17 figures are based on ODE January # 1 SFPR FY18 & FY19 figures from OBM budget spreadsheets Dr. Howard Fleeter
So Why Such a Large Increase in Districts on Guarantee? When FY14-15 SSI and FY16-17 SSI are compared, 389 districts had their SSI go down. When FY16-17 SSI and FY18-19 SSI are compared, 373 districts had their SSI go down. Yet the number of districts on the guarantee declined in both FY16 and FY17 and the number of districts on the guarantee in both FY18 and FY19 increased. The major difference is that in the FY18-19 biennium the per pupil amounts in the formula are all frozen, and in the FY16-17 biennium most per pupil amounts were increased and additional components (Capacity Aid, Transportation Supplement, were added). Dr. Howard Fleeter
How Governor s Guarantee Reduction Works Enrollment loss from FY11 to FY16 is computed. This is based on Total ADM for each year (actual # of students). Districts that have lost greater than 5% of enrollment and are on the guarantee will experience funding reductions. Districts losing greater than 10% of Total ADM will see a 5% funding cut. Districts between 5% and 10% enrollment loss will see a funding cut = % enrollment decline - 5% (i.e. 7.5% decline in enrollment = 2.5% funding reduction). Guarantee reduction = percentage of formula funding, not percentage of guarantee amount. Thus, a district with 10% or more enrollment loss and total state aid = $10 million including a guarantee of $1 million, would see their guarantee reduced by $500,000, NOT $50,000. The funding reduction cannot exceed guarantee amount. Dr. Howard Fleeter
Ohio Income Tax Trends FY05-19 With the exception of the economic recession in FY09 and FY10, state income tax revenues increased every year from 2005 through 2013. However, revenues fell from FY13 to FY14 as a result of the 8.5% rate reduction for 2014 and after rebounding in FY15, fell again in FY16 due to the 6.3% rate reduction. State income tax revenues have decreased by $1.6 billion from FY13 to FY17 and would decline by nearly $1.2 billion more by FY19 under the Governor s proposed budget.. FY19 income tax revenues under the Governor s proposed tax reforms are forecast by OBM to be at their lowest level since 1999. Dr. Howard Fleeter
Ohio Sales Tax Trends FY05-19 In contrast to the fluctuating and ultimately declining pattern exhibited by the income tax, Ohio sales tax revenues have increased steadily ever since the recession ended in 2010. Sales tax revenues have been at record levels each year since 2012. Combining income and sales tax revenues shows that in FY14 state GRF income tax revenues fell below sales tax revenues for the first time since 1988 - a 26 year span. As mentioned earlier, the shift away from the income tax and towards the sales tax represents a reduction in the equity of Ohio s state tax system. Dr. Howard Fleeter
The Public Finance Resources Team Matt Bunting, Consultant, has over 25 years of experience in the public finance sector. This includes 15 plus years as a school district treasurer, and 11 years with the Auditor of State where he led financial, legal compliance, and Federal single audits of government entities. Matt has served as interim school treasurer several times, as well as worked with Ernie and Stacy to test their forecasting software and instruct at their yearly seminars. He holds an Associates Degree in Accounting from Hocking College, and is a Certified Government Financial Manager. Ryan Ghizzoni, Consultant, began his career with the Auditor of State s Office and has served as a school district treasurer for the past 10 years. During his career, he has been the recipient of six Association of School Business Officials International Meritorious Budget Awards and was the recipient of the Ohio Association of School Business Officials 2011 Outstanding Treasurer of the Year Award. Ryan holds a Bachelors of Business Administration from the Youngstown State University, and is a Certified Administrator of School Finance and Operations. Debra Hoelzle, Chief Operations Officer, provides direct services to clients, and oversees the day-to-day operations of PFR. She brings with her operational experience from both the public and private sectors, including a school district and multiple corporations in the financial services industry. Debra holds her Masters of Business Administration from Ohio University, and her Bachelors of Science in Business Administration from The Ohio State University. Stacy Overly, Consultant, provides direct financial services to clients. He has over 20 years of experience serving as school district treasurer, including 15 plus years of developing financial forecasting tools, and providing instruction and training opportunities attended and used by over two hundred of Ohio s public school treasurers. Stacy works with clients to analyze trends and review local economic data to help determine a long-term operating strategy for the organization. He holds his Masters of Business Administration and his Bachelors of Business Administration in Finance from Ohio University. Mike Sobul, Consultant, brings 30 years of experience in public finance and tax analysis. Currently a school district treasurer, Mike spent nearly 25 years with the Ohio Department of Taxation where he led revenue forecasting efforts and provided analysis, training, and fiscal services to schools and local governments. Mike holds a Masters Degree in Public Policy from the University of Michigan and a Bachelors Degree in Economics and Political Science from Wittenberg University. Ernie Strawser, Consultant, provides direct services to our public finance clients. He has over 30 years of public finance experience as a CFO, consultant, and developer and instructor of financial forecasting techniques and tools which have been used by over two hundred Ohio school district CFOs. Ernie works with clients to facilitate their understanding of local financial results, trends, and strategies. He holds both a Masters of Science in Administration from Central Michigan University and a Bachelor of Science in Finance from Ohio University. PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 22
Services Five Year Forecast Software More than a compliance document Cash flow monitoring Modeling scenarios Graphics and dashboards Planning tool Consulting Maximize your effectiveness Financial consulting and cash flow monitoring Forecast review and analysis, what if planning Presentations to key stakeholders Special Projects Data Interpretation Data driven decision making Multi-year data sets to identify trends Benchmark analysis reports to see how you compare Graphics that are easy to read, understand and explain Data driven decision making PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 23
PFR Contact Information Matt Bunting Consultant Public Finance Resources, Inc. PO Box 1822 Columbus, OH 43216 matt@pfrcfo.com Phone: 614-732-5948 Debra Hoelzle Chief Operating Officer Public Finance Resources, Inc. PO Box 1822 Columbus, OH 43216 debra@pfrcfo.com Phone: 614-732-5948 www.pfrcfo.com PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 24