LEBANON, PENNSYLVANIA AUDIT REPORT JUNE 30, 2016
TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR S REPORT 1-3 MANAGEMENT S DISCUSSION AND ANALYSIS 4-12 BASIC FINANCIAL STATEMENTS Entity-wide Financial Statements: Statement of Net Position 13 Statement of Activities 14 Fund Financial Statements: Balance Sheet - Governmental Funds 15 Reconciliation of Balance Sheet - Governmental Funds to Statement of Net Position 16 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 17 Reconciliation of Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds to Statement of Activities 18 Budgetary Comparison Statement - General Fund 19 Statement of Net Position - Proprietary Fund 20 Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Fund 21 Statement of Cash Flows - Proprietary Fund 22 Statement of Net Position - Fiduciary Funds 23 Statement of Activities - Fiduciary Fund 24 NOTES TO FINANCIAL STATEMENTS 25-50
TABLE OF CONTENTS PAGE REQUIRED SUPPLEMENTARY INFORMATION Schedule of the District s Proportionate Share of the Net Pension Liability 51 Schedule of District Contributions 52 SUPPLEMENTARY INFORMATION Combining Balance Sheet - Nonmajor Governmental Funds 53 Combining Statement of Revenues, Expenditures, and Change in Fund Balances - Nonmajor Governmental Funds 54 SINGLE AUDIT SUPPLEMENT Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 55-56 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance 57-58 Schedule of Findings and Recommendations 59-61 Schedule of Expenditures of Federal Awards 62-63 Notes to Schedule of Expenditures of Federal Awards 64
Barbacane, Thornton & Company LLP 200 Springer Building 3411 Silverside Road Wilmington, Delaware 19810 INDEPENDENT AUDITOR S REPORT T 302.478.8940 F 302.468.4001 www.btcpa.com November 16, 2016 Board of School Directors Lebanon School District Lebanon, Pennsylvania Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the Lebanon School District ( the District ), Lebanon, Pennsylvania, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District s preparation and fair presentation of the financial statements in order to design audit procedures that - 1 -
Board of School Directors Lebanon School District are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Lebanon School District, Lebanon, Pennsylvania, as of June 30, 2016, and the respective changes in financial position, and, where applicable, cash flows thereof, and the budgetary comparison for the general fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 1 to the financial statements, the District has adopted the requirements of GASB Statement No. 72, Fair Value Measurement and Application. This statement addresses accounting and financial reporting issues related to fair value measurements. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 4 through 12, the schedule of the District s proportionate share of the net pension liability on page 51, and the schedule of District contributions on page 52 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. - 2 -
Board of School Directors Lebanon School District Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The combining nonmajor fund financial statements on pages 53 and 54 are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards on pages 62 and 63 is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is not a required part of the basic financial statements. The combining nonmajor fund financial statements and schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining nonmajor fund statements and schedule of expenditures of federal awards are fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 16, 2016 on our consideration of the District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District s internal control over financial reporting and compliance. BARBACANE, THORNTON & COMPANY LLP - 3 -
MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED JUNE 30, 2016 Management s Discussion and Analysis of the financial performance of the Lebanon School District ( the District") provides an overall review of the District s financial activities for the fiscal year ended June 30, 2016. The intent of this discussion and analysis is to look at the District s financial performance as a whole. Readers also should review the basic financial statements and the accompanying notes to enhance their understanding of the District s financial performance. Financial Highlights Key financial highlights for 2016 are as follows: In total, net position increased $3,132,064. Net position of governmental activities increased $2,482,207 while net position of business-type activities increased $649,857. Revenues totaled $71,522,106. General revenues accounted for $46,878,625, or 66 percent of total revenues. Program specific revenues in the form of charges for services and operating grants and contributions accounted for $24,643,481, or 34 percent of total revenues. The District had $65,191,600 in expenses related to governmental activities. Of these expenses, $20,799,253 was offset by program specific charges for services and operating grants and contributions. General revenues (primarily taxes and unrestricted grants and subsidies) of $46,874,554 were adequate to provide for these programs. Among major funds, the general fund had $67,490,812 in revenues and other financing sources and $66,501,608 in expenditures and other financing uses. Revenues and other financing sources exceeded expenditures and other financing uses at year end by $989,204, resulting in a fund balance of $21,317,726. The District used a tax increase of 0.63 mills and cost reduction strategies to offset increases in salaries, healthcare, pensions, and special education costs. A long-term financing strategy has resulted in the District assigning $10,000,000 of this General Fund balance and budgeting an additional $5,000,000 in the upcoming school year budget toward the construction of a new Northwest Elementary building. This strategy results in the District covering 60 percent or $15,000,000 of the total $25,000,000 project cost from the general fund balance. The District intends to borrow the remaining $10,000,000 required for the project in the upcoming fiscal year. Using this Annual Report This annual report consists of a series of financial statements and notes to those financial statements. These financial statements are organized so the reader can understand the District as a financial whole. The statement of net position and statement of activities provide information about the activities of the entire District, presenting both an aggregate view of the District s finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how the services were financed in the short-term as well as what remains for future spending. - 4 -
MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED (CONT D) JUNE 30, 2016 The fund financial statements also look at the District s most significant funds with all other nonmajor funds presented in total in one column. In the case of the District, the general fund is the most significant fund. Reporting the District as a Whole Our analysis for the District as a whole begins on page 6. One of the most important questions asked about the District s finances is, Is the District as a whole better off or worse off as a result of the year s activities? The statement of net position and the statement of activities report information about the District as a whole and about its overall activities. These statements include all the assets, deferred outflows of resources, liabilities, and deferred inflows of resources of the District (except for fiduciary funds held in trust for student purposes) using the accrual basis of accounting similar to the accounting used by private sector corporations. All of the current year s revenues and expenses are taken into consideration regardless of when cash is received or paid. These two statements report the District s net position and changes during the fiscal year. The change in net position provides the reader a tool to assist in determining whether the District s financial health is improving or deteriorating. The reader will need to consider other nonfinancial factors such as the District s property tax base, current property tax laws, student enrollment growth, and facility conditions in arriving at a conclusion regarding the overall health of the District. The entity-wide financial statements of the District are divided into two categories: Governmental Activities All the District s basic services are included here, such as instruction, administration, and community services. Property taxes, state, and federal subsidies and grants finance most of these activities. Business-type Activities These services are provided on a charge for goods or services basis to recover all of the expenses of the goods or services provided. The District s food service program is reported as a business-type activity. Reporting the District s Most Significant Funds Fund Financial Statements The fund financial statements of the District s major funds provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by state statute, while many other funds are established by the District to help manage money for particular purposes and compliance with various grant provisions. The District s three types of funds, governmental, proprietary, and fiduciary, use different accounting approaches as further described in the notes to the financial statements. Governmental Funds Most of the District s activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year end that are available for spending in future periods. These funds are reported using the modified accrual accounting - 5 -
MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED (CONT D) JUNE 30, 2016 method, which measures cash and other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District s general government operations and the basic services it provides. Governmental fund information helps the reader determine whether there are more or fewer financial resources available to spend in the near future to finance the District s programs. The relationship (or differences) between governmental activities (reported in the statement of net position and the statement of activities) and governmental funds is reconciled in the basic financial statements. Proprietary Funds Proprietary funds use the accrual basis of accounting, the same as on the entitywide statements; therefore, the statements will essentially match the business-type activities portion of the entity-wide statements. Fiduciary Funds The District is the trustee, or fiduciary, for its scholarship program and other items listed as private-purpose trusts. In addition, the District accounts for funds held on behalf of students of the District. All of the District s fiduciary activities are reported in separate statements of fiduciary net position and changes in fiduciary net position. The District excludes these activities from its other financial statements because the assets cannot be used by the District to finance its operations. The District as a Whole The statement of net position provides the perspective of the District as a whole. Table 1 provides a summary of the District s net position for 2016 compared to 2015: Table 1 Net Position Governmental Activities Business-type Activities Totals 2016 2015 2016 2015 2016 2015 Assets: Current and other assets $ 29,630,568 $ 27,696,339 $2,875,702 $2,113,651 $ 32,506,270 $ 29,809,990 Capital assets 67,408,681 67,029,135 348,815 380,302 67,757,496 67,409,437 Total Assets 97,039,249 94,725,474 3,224,517 2,493,953 100,263,766 97,219,427 Deferred Outflows of Resources 9,811,174 6,122,052 122,142 70,309 9,933,316 6,192,361 Liabilities: Current liabilities 10,576,728 9,634,727 56,097 25,682 10,632,825 9,660,409 Noncurrent liabilities 146,530,939 138,754,236 1,156,994 991,965 147,687,933 139,746,201 Total Liabilities 157,107,667 148,388,963 1,213,091 1,017,647 158,320,758 149,406,610 Deferred Inflows of Resources 560,957 5,758,971 7,043 69,947 568,000 5,828,918 Net Position (Deficit): Net investment in capital assets 11,155,433 8,113,298 348,815 380,302 11,504,248 8,493,600 Restricted 101,436 72,271 - - 101,436 72,271 Unrestricted (deficit) (62,075,070) (61,485,977) 1,777,710 1,096,366 (60,297,360) (60,389,611) Total Net Position (Deficit) $ (50,818,201) $ (53,300,408) $2,126,525 $1,476,668 $ (48,691,676) $ (51,823,740) - 6 -
MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED (CONT D) JUNE 30, 2016 Table 2 shows the changes in net position for fiscal year 2016 compared to 2015: Table 2 Changes in Net Position Governmental Activities Business-type Activities Totals 2016 2015 2016 2015 2016 2015 Revenues Program Revenues: Charges for services $ 175,252 $ 168,315 $ 288,331 $ 449,824 $ 463,583 $ 618,139 Operating grants 20,624,001 20,071,611 3,555,897 2,896,259 24,179,898 22,967,870 General Revenues: Property taxes 15,683,478 15,239,704 - - 15,683,478 15,239,704 Unrestricted grants and subsidies 28,759,894 27,750,749 - - 28,759,894 27,750,749 Other 2,431,182 2,158,134 4,071 3,843 2,435,253 2,161,977 Total Revenues 67,673,807 65,388,513 3,848,299 3,349,926 71,522,106 68,738,439 Expenses Program Expenses: Instruction 41,064,684 38,328,509 - - 41,0464,684 38,328,509 Support Services: Instructional student support 6,540,820 6,802,171 - - 6,540,820 6,802,171 Administrative and financial support services 6,172,700 5,550,333 - - 6,172,700 5,550,333 Operation and maintenance of plant services 6,575,809 5,795,394 - - 6,575,809 5,795,394 Pupil transportation 1,419,793 1,315,541 - - 1,419,793 1,315,541 Student activities 1,366,545 1,263,776 - - 1,366,545 1,263,776 Community services 2,821 - - - 2,821 - Interest on long-term debt 2,048,428 2,368,821 - - 2,048,428 2,368,821 Food service - - 3,198,442 3,145,221 3,198,442 3,145,221 Total Expenses 65,191,600 61,424,545 3,198,442 3,145,221 68,390,042 64,569,766 Change in Net Position $ 2,482,207 $ 3,963,968 $ 649,857 $ 204,705 $ 3,132,064 $ 4,168,673 The changes in net position table shows the cost of program services and the charges for services and grants offsetting those services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services. It identifies the cost of these services supported by tax revenue and unrestricted state entitlements. Table 4 shows, for business-type activities, the total cost of services and the net cost of services. - 7 -
MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED (CONT D) JUNE 30, 2016 Table 3 Governmental Activities 2016 2015 Total Cost Net Cost Total Cost Net Cost Instruction $ 41,064,684 $ 25,349,158 $ 38,328,509 $ 25,456,952 Support services: Instructional student support 6,540,820 5,399,726 6,802,171 4,728,136 Administrative and financial support services 6,172,700 5,477,072 5,550,333 4,972,099 Operation and maintenance of plant services 6,575,809 5,832,700 5,795,394 5,293,289 Pupil transportation 1,419,793 611,205 1,315,541 714,875 Student activities 1,366,545 1,177,167 1,263,776 1,112,871 Community services 2,821 2,481 - - Interest on long-term debt 2,048,428 542,838 2,368,821 (1,093,603) Total Expenses $ 65,191,600 $ 44,392,347 $ 61,424,545 $ 41,184,619 Table 4 Business-type Activities 2016 2015 Total Cost Net Cost Total Cost Net Cost Food service $ 3,198,442 $ (645,786) $ 3,145,221 $ (200,862) The District depends on a combination of tax revenues and governmental grants for governmental activities. For all governmental activities, general revenue support is 69 percent of the total governmental revenues. The community, as a whole, is the primary financial support for the District s students, although 31 percent comes from charges for services as well as operating grants and contributions, making them integral for the financial stability of the District. Business-type Activities Business-type activities include food service operations. This program had revenues of $3,848,299 and expenses of $3,198,422 for fiscal year 2016. Business-type activities receive no support from tax revenues. General Fund Budgeting Highlights The District s budget is prepared according to Pennsylvania law and is based on accounting for certain transactions on a basis of cash receipts, disbursements, and encumbrances. The most significant budgeted fund is the general fund. - 8 -
MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED (CONT D) JUNE 30, 2016 During the course of fiscal 2016, the District amended its general fund budget several times to accommodate differences from the original budget to the actual expenditures of the District. The District used site-based budgeting and the budgeting systems as designed to tightly control total site budgets but provide flexibility for site management. For the general fund, budgeted revenue and other financing sources totaled $65,436,785, but the District realized actual revenues and other sources of $67,490,812. The budgeted expenditures and transfers were $73,525,188 plus a budgetary reserve for unexpected building repairs of $2,000,000. The District expended $66,501,608 (including transfers) without the need to utilize the budgetary reserve. The District received additional state revenue after adoption of the final 2016 budget and placed these funds in reserve to address cost increases for the ensuing year. The District budgets expenditures based upon a long-term strategy of sustainability and reduced the actual expenditures during the year in support of that strategy. Delays in the approval process for the Northwest Elementary project resulted in budgeted construction expenditures not being required during 2016. Capital Assets and Debt Administration Capital Assets At the end of fiscal 2016, the District had $67.76 million invested in capital assets, with $67.41 million in governmental activities. Table 5 shows the fiscal 2016 balance compared to 2015: Table 5 Capital Assets at June 30 (Net of Depreciation) Governmental Activities Business-type Activities Totals 2016 2015 2016 2015 2016 2015 Land $ 682,029 $ 682,029 $ - $ - $ 682,029 $ 682,029 Buildings and improvements 87,210,599 86,588,036 - - 87,210,599 86,588,036 Furniture and equipment 2,183,846 1,412,625 713,791 702,722 2,896,637 2,115,347 Construction-in-progress 1,523,110 584,670 - - 1,523,110 584,670 Accumulated depreciation (24,190,903) (22,238,225) (364,976) (322,420) (24,555,879) (22,560,645) Totals $ 67,408,681 $ 67,029,135 $ 348,815 $ 380,302 $ 67,757,496 $ 67,409,437 Debt Administration At June 30, 2016, the District had $55.505 million in bonds and notes outstanding, with $2.99 million due within one year. The Series B of 2010 Notes requires a sinking fund to accumulate principal payments for the retirement of this note in 2029. The debt service fund shows a cumulative market value balance of $28,684 available for the retirement of this Note. Table 6 on the following page summarizes bonds and notes outstanding. - 9 -
MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED (CONT D) JUNE 30, 2016 Table 6 Outstanding Debt at Year End (In Thousands) Governmental Activities 2016 2015 General Obligation Bonds and Notes: Series B of 2010 Notes $ 15,000 $ 15,000 Series of 2011 6,795 7,475 Series of 2012 13,880 13,885 Series of 2013 2,955 2,985 Series of 2014 6,180 6,810 Series A of 2014 3,390 4,275 Series of 2015 7,305 7,995 Total $ 55,505 $ 58,425 The District issued General Obligation Notes, Series B of 2010, dated December 8, 2010, in the aggregate principal amount of $15,000,000 as part of an allocation from the State Public School Building Authority Federally Taxable Revenue Bonds, Series B of 2010. This bond issue is part of the Qualified School Construction Bond Program under the American Recovery & Reinvestment Act ( ARRA ) of 2009. The proceeds of the bonds are used for the costs of planning, designing, acquiring, constructing, furnishing, and equipping alterations, additions, improvements, and renovations to the existing Lebanon Senior High School and paying the costs of issuing the notes. The District issued General Obligation Bonds, Series of 2011, dated September 20, 2011, in the aggregate principal amount of $9,245,000. The proceeds of the bonds were used for the current refunding of the General Obligation Bonds, Capital Project Series, Subseries of 2005 and pay the costs and expenses related to the issuance of the bonds. The District issued General Obligation Bonds, Series of 2012, dated January 17, 2012, in the aggregate principal amount of $13,900,000. The proceeds of the bonds were used for the costs of planning, designing, acquiring, constructing, furnishing and equipping alterations, additions, improvements, and renovations to the existing Lebanon Senior High School and paying the costs of issuing the bonds. The District issued General Obligation Bonds, Series of 2013, dated February 19, 2013, in the aggregate principal amount of $3,055,000 to be used towards the current refunding of the District s outstanding General Obligation Bonds Series of 2007. The District issued General Obligation Bonds, Series of 2014, dated February 13, 2014, in the aggregate principal amount of $7,980,000 to be used toward the current refunding of the District s outstanding General Obligation Bonds, Capital Project Series, Series of 2006. - 10 -
MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED (CONT D) JUNE 30, 2016 The District issued General Obligation Bonds, Series A of 2014, dated December 22, 2014, in the aggregate principal amount of $5,140,000 to be used toward the current refunding of the District s outstanding General Obligation Bonds, Series AA of 2009. The District issued General Obligation Bonds, Series of 2015, dated February 18, 2015, in the aggregate principal amount of $8,665,000 to be used toward the current refunding of the District s outstanding General Obligation Bonds, Series A of 2009. The District has no special assessment debt. Long-term debt is liquidated from the general fund unless the liquidation is the result of a new debt issue, in which event the debt service fund is utilized. For the Future The focus of the District is to maintain financial stability while construction commences for a capital project to address the Northwest Elementary School. The District depends primarily on state and local sources of revenue to finance operations. The District does not expect growth in the local property tax base due to a lack of available undeveloped land within the District, so increasing local revenue will depend heavily on property taxpayers. The District approved a 19.30 mill operating levy for the 2016-2017 school year, which represented a 3.4 percent millage increase. The District will continue to work with state officials to secure needed support through adequate grant and subsidy funding to provide the necessary financial resources for a quality education of our resident students. While the District was successful in increasing its tax revenue millage, additional increases will be needed to fund the additional debt required to continue our capital improvements of our aging school facilities. Henry Houck Elementary School, Harding Elementary School, Southeast Elementary School, Southwest Elementary School, and Lebanon Senior High School are renovated. Long-term planning has been successful to address the capital requirements for a replacement building for the Northwest Elementary School. The School District allocated $15,000,000 of the General Fund Balance along with plans to borrow an additional $10,000,000 to complete the Northwest project with construction starting in the 2016-2017 school year. We can now turn our attention to the long-term planning for the renovation of our seventh and final building, Lebanon Middle School. These projects have been undertaken to protect the community s investment in our facilities and provide safe, efficient, and modern learning environments for the students in our District. In conclusion, the District is committed to a financial plan of retaining adequate reserves, budget practices that emphasize sustainability, and long-term facilities planning with the goal of maintaining safe and effective learning environments. All of the District s financial planning abilities will be needed to meet the challenges of the future. - 11 -
MANAGEMENT S DISCUSSION AND ANALYSIS UNAUDITED (CONT D) JUNE 30, 2016 Contacting the District s Financial Management This financial report is designed to provide our citizens, taxpayers, investors, and creditors with a general overview of the District s finances and to show the District s accountability for the money received. If you have questions about this report or need additional financial information, please contact Curtis O. Richards, Business Manager, Lebanon School District, 1000 South Eighth Street, Lebanon, PA 17042. - 12 -
STATEMENT OF NET POSITION JUNE 30, 2016 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES ASSETS: Cash and cash equivalents 1,828,175 Governmental Business-type Activities Activities Totals $ $ 2,862,368 $ 4,690,543 Investments 20,139,263-20,139,263 Investments with fiscal agent 28,684-28,684 Taxes receivable, net of allowance 1,669,726-1,669,726 Internal balance 36,960 (36,960) - Due from other governments 5,613,145 3,151 5,616,296 Other receivables 80,563 2,958 83,521 Inventories - 44,185 44,185 Prepaid items 32,765-32,765 Bond prepaid insurance 201,287-201,287 Land 682,029-682,029 Construction-in-progress 1,523,110-1,523,110 Buildings and improvements 87,210,599-87,210,599 Furniture and equipment 2,183,846 713,791 2,897,637 Accumulated depreciation (24,190,903) (364,976) (24,555,879) TOTAL ASSETS 97,039,249 3,224,517 100,263,766 DEFERRED OUTFLOWS OF RESOURCES: Deferred pension contributions 7,107,088 89,234 7,196,322 Deferred pension expenses 2,620,974 32,908 2,653,882 Deferred loss on refunding 83,112-83,112 TOTAL DEFERRED OUTFLOWS OF RESOURCES 9,811,174 122,142 9,933,316 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES $ 106,850,423 $ 3,346,659 $ 110,197,082 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION LIABILITIES: Accounts payable $ 1,226,962 $ 46,364 $ 1,273,326 Accrued salaries, payroll withholdings, and benefits 5,621,107-5,621,107 Accrued interest payable 376,838-376,838 Unearned revenues 84,332 9,733 94,065 Long-term liabilities: Portion due or payable within one year: Bonds and note payable, net 3,084,832-3,084,832 Capital lease payable 150,048-150,048 Earned income tax settlement payable 32,609-32,609 Portion due or payable after one year: Bonds and note payable, net 52,804,364-52,804,364 Capital lease payable 297,116-297,116 Earned income tax settlement payable 130,435-130,435 Accumulated compensated absences 1,398,862 12,945 1,411,807 Other post-employment benefit obligations 782,211-782,211 Net pension liability 91,117,951 1,144,049 92,262,000 TOTAL LIABILITIES 157,107,667 1,213,091 158,320,758 DEFERRED INFLOWS OF RESOURCES: Deferred pension expenses 560,957 7,043 568,000 TOTAL DEFERRED INFLOWS OF RESOURCES 560,957 7,043 568,000 NET POSITION (DEFICIT): Net investment in capital assets 11,155,433 348,815 11,504,248 Restricted 101,436-101,436 Unrestricted (deficit) (62,075,070) 1,777,710 (60,297,360) TOTAL NET POSITION (DEFICIT) (50,818,201) 2,126,525 (48,691,676) TOTAL LIABILITIES AND NET POSITION (DEFICIT) $ 106,850,423 $ 3,346,659 $ 110,197,082 The accompanying notes are an integral part of these financial statements. - 13 -
BUSINESS-TYPE ACTIVITIES: Food service 3,198,442 288,331 3,555,897 - - 645,786 645,786 TOTAL BUSINESS-TYPE ACTIVITIES 3,198,442 288,331 3,555,897 - - 645,786 645,786 TOTAL PRIMARY GOVERNMENT $ 68,390,042 $ 463,583 $ 24,179,898 $ - (44,392,347) 645,786 (43,746,561) GENERAL REVENUES Property taxes levied for general purposes 15,683,478-15,683,478 Taxes levied for specific purposes 2,176,936-2,176,936 Grants and entitlements not restricted to specific programs 28,759,894-28,759,894 Investment earnings 48,818 4,071 52,889 Miscellaneous 205,428-205,428 TOTAL GENERAL REVENUES 46,874,554 4,071 46,878,625 CHANGE IN NET POSITION 2,482,207 649,857 3,132,064 NET POSITION (DEFICIT), BEGINNING OF YEAR (53,300,408) 1,476,668 (51,823,740) NET POSITION (DEFICIT), END OF YEAR $ (50,818,201) $ 2,126,525 $ (48,691,676) STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 Program Revenues Operating Capital Net (Expense) Revenue and Changes in Net Position Charges for Grants and Grants and Governmental Business-type Expenses Services Contributions Contributions Activities Activities Totals GOVERNMENTAL ACTIVITIES: Instruction $ 41,064,684 $ 94,378 $ 15,621,148 $ - $ (25,349,158) $ - $ (25,349,158) Instructional student support 6,540,820-1,141,094 - (5,399,726) - (5,399,726) Administrative and financial support services 6,172,700-695,628 - (5,477,072) - (5,477,072) Operation and maintenance of plant services 6,575,809 47,332 695,777 - (5,832,700) - (5,832,700) Pupil transportation 1,419,793-808,588 - (611,205) - (611,205) Student activities 1,366,545 33,542 155,836 - (1,177,167) - (1,177,167) Community services 2,821-340 - (2,481) - (2,481) Interest on long-term debt 2,048,428-1,505,590 - (542,838) - (542,838) TOTAL GOVERNMENTAL ACTIVITIES 65,191,600 175,252 20,624,001 - (44,392,347) - (44,392,347) The accompanying notes are an integral part of these financial statements. - 14 -
BALANCE SHEET - GOVERNMENTAL FUNDS JUNE 30, 2016 Nonmajor General Governmental Fund Funds Totals ASSETS Cash and cash equivalents $ 1,754,197 $ 73,978 $ 1,828,175 Investments 20,139,263-20,139,263 Investments with fiscal agent - 28,684 28,684 Taxes receivable, net 1,669,726-1,669,726 Due from other funds 36,960-36,960 Due from other governments 5,613,145-5,613,145 Other receivables 80,563-80,563 Prepaid items 32,765-32,765 TOTAL ASSETS $ 29,326,619 $ 102,662 $ 29,429,281 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES LIABILITIES: Accounts payable $ 1,225,736 $ 1,226 $ 1,226,962 Accrued salaries, payroll withholdings, and benefits 5,621,107-5,621,107 Unearned revenue 84,332-84,332 TOTAL LIABILITIES 6,931,175 1,226 6,932,401 DEFERRED INFLOWS OF RESOURCES Unavailable revenues - delinquent taxes 1,077,718-1,077,718 TOTAL DEFERRED INFLOWS OF RESOURCES 1,077,718-1,077,718 FUND BALANCES: Nonspendable 32,765-32,765 Restricted - 101,436 101,436 Committed 163,044-163,044 Assigned 10,000,000-10,000,000 Unassigned 11,121,917-11,121,917 TOTAL FUND BALANCES 21,317,726 101,436 21,419,162 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES $ 29,326,619 $ 102,662 $ 29,429,281 The accompanying notes are an integral part of these financial statements. - 15 -
RECONCILIATION OF BALANCE SHEET - GOVERNMENTAL FUNDS TO STATEMENT OF NET POSITION JUNE 30, 2016 TOTAL GOVERNMENTAL FUND BALANCES $ 21,419,162 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. These assets consist of: Land $ 682,029 Buildings and improvements 87,210,599 Furniture and equipment 2,183,846 Construction-in-progress 1,523,110 Accumulated depreciation (24,190,903) 67,408,681 Some liabilities are not due and payable in the current period and, therefore, are not reported in the funds. Those liabilities consist of: Bonds and note payable, net (55,889,196) Capital lease payable (447,164) Accumulated compensated absences (1,398,862) Accrued interest payable (376,838) Earned income tax settlement payable (163,044) Other post-employment benefits (782,211) Net pension liability (91,117,951) (150,175,266) Issuance of debt resulted in prepaid insurance costs and deferred charges which will be amortized over the life of new debt but do not represent current rights. 284,399 Deferred inflows and outflows of resources related to the District's pension plan do not represent current resources or uses of resources and, therefore, are not reported in the funds. Deferred inflows and outflows of resources consist of the following: Deferred outflows of resources: Deferred pension contributions 7,107,088 Deferred pension expenses 2,620,974 Deferred inflows of resources: Deferred pension expenses (560,957) 9,167,105 Some of the District's revenues will be collected after year end but are not available soon enough to pay for the current period's expenditures and, therefore, are unavailable in the funds. 1,077,718 NET DEFICIT OF GOVERNMENTAL ACTIVITIES $ (50,818,201) These accompanying notes are an integral part of these financial statements. - 16 -
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2016 Nonmajor General Governmental Fund Funds Totals REVENUES Local sources $ 19,367,983 $ 96,842 $ 19,464,825 State sources 42,268,657-42,268,657 Federal sources 5,854,172-5,854,172 TOTAL REVENUES 67,490,812 96,842 67,587,654 EXPENDITURES Current: Instruction 39,342,405-39,342,405 Support services 19,039,251 72,677 19,111,928 Operation of noninstructional services 1,293,257-1,293,257 Capital outlay 1,610,951 597,840 2,208,791 Debt service 5,210,744-5,210,744 TOTAL EXPENDITURES 66,496,608 670,517 67,167,125 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 994,204 (573,675) 420,529 OTHER FINANCING SOURCES (USES) Transfers in - 5,000 5,000 Transfers out (5,000) - (5,000) Proceeds from extended-term financing - 597,840 597,840 TOTAL OTHER FINANCING SOURCES (5,000) 602,840 597,840 NET CHANGE IN FUND BALANCES 989,204 29,165 1,018,369 FUND BALANCES, BEGINNING OF YEAR 20,328,522 72,271 20,400,793 FUND BALANCES, END OF YEAR $ 21,317,726 $ 101,436 $ 21,419,162 The accompanying notes are an integral part of these financial statements. - 17 -
LEBANON SCHOOOL DISTRICT RECONCILIATION OF STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS TO STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 NET CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS $ 1,018,369 Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation and disposals in the period. 379,546 Because some property taxes will not be collected for several months after the District's fiscal year ends, they are not considered as "available" revenues in the governmental funds. Unavailable tax revenues increased by this amount this year. 86,153 The issuance of long-term debt (e.g. bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. Repayment of principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. This amount is the net effect of these differences in the treatment of long-term and related items. 2,530,568 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds: Compensated absences $ (128,750) Other post-employment benefits (14,810) Earned income tax settlement payable 32,609 Deferred outflows of resources - pensions 3,939,318 Deferred inflows of resources - pensions 5,198,014 Net pension liability (10,560,109) Accrued interest payable 1,299 (1,532,429) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ 2,482,207 The accompanying notes are an integral part of these financial statements. - 18 -
BUDGETARY COMPARISON STATEMENT - GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2016 Variance with Final Budget Budgeted Amounts Actual Positive Original Final (GAAP Basis) (Negative) REVENUES Local sources $ 18,566,732 $ 18,566,732 $ 19,367,983 $ 801,251 State sources 40,757,035 40,757,035 42,268,657 1,511,622 Federal sources 6,113,018 6,113,018 5,854,172 (258,846) TOTAL REVENUES 65,436,785 65,436,785 67,490,812 2,054,027 EXPENDITURES Instruction: Regular programs 26,511,372 26,511,372 25,758,304 753,068 Special programs 9,272,854 9,272,854 9,991,460 (718,606) Vocational programs 1,146,200 1,146,200 1,176,714 (30,514) Other instructional programs 819,966 819,966 739,233 80,733 Pre-Kingergarten programs 1,541,000 1,541,000 1,676,694 (135,694) Total Instruction 39,291,392 39,291,392 39,342,405 (51,013) Support services: Pupil personnel services 3,090,464 2,865,256 2,492,159 373,097 Instructional staff services 2,666,986 2,892,194 3,152,138 (259,944) Administrative services 3,903,402 3,903,402 3,926,736 (23,334) Pupil health 522,127 522,127 532,275 (10,148) Business services 1,088,671 1,088,671 1,031,229 57,442 Operation and maintenance of plant services 5,895,621 5,895,621 5,761,629 133,992 Student transportation services 1,313,500 1,313,500 1,340,728 (27,228) Central support services 458,624 458,624 791,598 (332,974) Other support services 10,865 10,865 10,759 106 Total Support Services 18,950,260 18,950,260 19,039,251 (88,991) Operation of noninstructional services: Student activities 1,224,620 1,224,620 1,290,443 (65,823) Community services - - 2,814 (2,814) Total Operation of Noninstructional Services 1,224,620 1,224,620 1,293,257 (68,637) Capital outlay 8,213,300 8,213,300 1,610,951 6,602,349 Debt service 5,840,616 5,840,616 5,210,744 629,872 TOTAL EXPENDITURES 73,520,188 73,520,188 66,496,608 7,023,580 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (8,083,403) (8,083,403) 994,204 9,077,607 OTHER FINANCING USES Budgetary reserve (2,000,000) (2,000,000) - (2,000,000) Transfers to other funds (5,000) (5,000) (5,000) - TOTAL OTHER FINANCING USES (2,005,000) (2,005,000) (5,000) 2,000,000 NET CHANGE IN FUND BALANCE (10,088,403) (10,088,403) 989,204 11,077,607 FUND BALANCE, BEGINNING OF YEAR 20,328,522 20,328,522 20,328,522 - FUND BALANCE, END OF YEAR $ 10,240,119 $ 10,240,119 $ 21,317,726 $ 11,077,607 The accompanying notes are an integral part of these financial statements. - 19 -
STATEMENT OF NET POSITION - PROPRIETARY FUND JUNE 30, 2016 Food Service Fund ASSETS AND DEFERRED OUTFLOWS OF RESOURCES ASSETS: Cash and cash equivalents $ 2,862,368 Due from other governments 3,151 Accounts receivable 2,958 Inventories 44,185 Furniture and equipment 713,791 Accumulated depreciation (364,976) TOTAL ASSETS 3,261,477 DEFERRED OUTFLOWS OF RESOURCES: Deferred pension contributions 89,234 Deferred pension expenses 32,908 TOTAL DEFERRED OUTFLOWS OF RESOURCES 122,142 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES $ 3,383,619 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION LIABILITIES: Accounts payable $ 46,364 Due to other funds 36,960 Unearned revenues 9,733 Long term liabilities: Accumulated compensated absenses 12,945 Net pension liability 1,144,049 TOTAL LIABILITIES 1,250,051 DEFERRED INFLOWS OF RESOURCES: Deferred pension expenses 7,043 TOTAL DEFERRED INFLOWS OF RESOURCES 7,043 NET POSITION: Net investment in capital assets 348,815 Unrestricted 1,777,710 Total Net Position 2,126,525 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION $ 3,383,619 The accompanying notes are an integral part of these financial statements. - 20 -
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION - PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2016 Food Service Fund OPERATING REVENUES Food service revenues $ 288,331 Total Operating Revenues 288,331 OPERATING EXPENSES Salaries 269,432 Employee benefits 268,248 Purchased professional and technical services 1,051,279 Other operating expenses 3,147 Supplies 1,563,780 Depreciation 42,556 Total Operating Expenses 3,198,442 OPERATING LOSS (2,910,111) NONOPERATING REVENUES Earnings on investments 4,071 State sources 179,880 Federal sources 3,376,017 Total Nonoperating Revenues 3,559,968 CHANGE IN NET POSITION 649,857 NET POSITION, BEGINNING OF YEAR 1,476,668 NET POSITION, END OF YEAR $ 2,126,525 The accompanying notes are an integral part of these financial statements. - 21 -
STATEMENT OF CASH FLOWS - PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2016 Food Service Fund CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 300,903 Payments to suppliers (2,114,214) Payments to employees (487,388) NET CASH USED BY OPERATING ACTIVITIES (2,300,699) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: State sources 179,881 Federal sources 3,197,058 NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES 3,376,939 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Purchase of capital assets (11,069) NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES (11,069) CASH FLOWS FROM INVESTING ACTIVITIES: Earnings on investments 4,071 NET CASH PROVIDED BY INVESTING ACTIVITIES 4,071 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,069,242 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,793,126 CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,862,368 RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES: Operating loss $ (2,910,111) Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation 42,556 Donated commodities 196,654 Decrease (Increase) in: Accounts receivable 15,219 Due from other funds 272,750 Inventories 10,933 Deferred outflows of resources - pension (51,833) Increase (Decrease) in: Accounts payable 33,062 Due to other funds (9,407) Unearned revenues (2,647) Accrued salaries and benefits (585) Net pension liability 165,614 Deferred inflows of resources - pension (62,904) NET CASH USED BY OPERATING ACTIVITIES $ (2,300,699) SUPPLEMENTAL DISCLOSURE: Noncash noncapital financing activity: USDA donated commodities $ 196,654 The accompanying notes are an integral part of these financial statements. - 22 -
STATEMENTS OF NET POSITION - FIDUCIARY FUNDS JUNE 30, 2016 Private- Purpose Trust Agency ASSETS Cash $ 335,395 $ 166,465 TOTAL ASSETS $ 335,395 $ 166,465 LIABILITIES AND NET POSITION: LIABILITIES Accounts payable $ - $ 166,465 NET POSITION 335,395 - TOTAL LIABILITIES AND NET POSITION $ 335,395 $ 166,465 The accompanying notes are an integral part of these financial statements. - 23 -
STATEMENT OF ACTIVITIES - FIDUCIARY FUND FOR THE YEAR ENDED JUNE 30, 2016 ADDITIONS Private- Purpose Trust Contributions $ 36,104 Interest income 685 TOTAL ADDITIONS 36,789 DEDUCTIONS Scholarships awarded 34,805 TOTAL DEDUCTIONS 34,805 CHANGE IN NET POSITION 1,984 NET POSITION, BEGINNING OF YEAR 333,411 NET POSITION, END OF YEAR $ 335,395 The accompanying notes are an integral part of these financial statements. - 24 -
NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Lebanon School District ( the District ), located in Lebanon County, Pennsylvania, operates five elementary schools, one middle school, and one high school, serving approximately 4,800 students to provide education and related services to the residents of Lebanon City and West Lebanon Township. The District operates under current standards prescribed by the Pennsylvania Department of Education in accordance with the provisions of the School Laws of Pennsylvania. The governing body of the District is a nine-member Board form of government who are each elected to a four-year term. The daily operation and management of the School District is carried out by the administrative staff of the School District, headed by the Superintendent of Schools who is appointed by the Board of School Directors. The financial statements of the District have been prepared in accordance with generally accepted accounting principles ("GAAP") as applied to governmental units. The Governmental Accounting Standards Board ("GASB") is the authoritative standard-setting body for the establishment of governmental accounting and financial reporting principles. Reporting Entity GASB Statement No. 14, "The Financial Reporting Entity," as amended by GASB Statement No. 39 and GASB Statement No. 61, established the criteria for determining the activities, organizations, and functions of government to be included in the financial statements of the reporting entity. In evaluating the District as a reporting entity, management has addressed all potential component units which may or may not fall within the District's financial accountability. The criteria used to evaluate component units for possible inclusion as part of the District's reporting entity are financial accountability and the nature and significance of the relationship. On the basis of these criteria, the Cedar Foundation of the Lebanon School District is included in the District s financial statements as a blended component unit. Blended Component Unit The Cedar Foundation of the Lebanon School District The Cedar Foundation of the Lebanon School District ( the Foundation ) was established in 1994 to provide scholarships and funding for the expansion and operation of innovative education projects which will benefit students of the District and are complementary to existing educational opportunities which cannot be funded by other sources. The Foundation is taxexempt under Section 501(c)(3) of the Internal Revenue Code. Basis of Presentation Entity-wide Financial Statements The statement of net position and the statement of activities display information about the District as a whole. These statements distinguish between activities that are governmental and those that are considered business-type. These statements include the financial activities of the primary government, except for fiduciary funds. - 25 -