MOHAWK LOCAL SCHOOL DISTRICT Wyandot COUNTY, OHIO IRN #050740 605 State Highway 231 Sycamore, Ohio 44882 FIVE YEAR FINANCIAL FORECAST FISCAL 2012-2016 Prepared by Treasurer, Roy B. Swartz, CPA October 24, 2011
INTRODUCTION I am pleased to present to the Board of Education and the Community an updated forecast of the District s finances over the next five years. Recognizing the importance of discussing school district finances, the Ohio Department of Education (ODE) has developed this guide to assist administrators, Boards of Education, teachers, community members or other individuals in developing a general understanding of a school district s forecasts, definitions of key terms, an expectation of key lines, some general beliefs on what a good forecast should contain and a lineby-line explanation of the forecast. A forecast is somewhat like a painting of the future based upon a snapshot of today. That snapshot, however, will be adjusted and the further into the future the forecast extends, the more likely it is that the projections will deviate from the actual experience. A variety of events will ultimately impact the latter years of the forecast, such as state budgets (adopted every two years), tax and income tax levies (new/replacement/renewals), the value of taxable property in the district (updated every three years), district enrollments and increased personnel costs. The five-year forecast is viewed as a key management tool and must be updated periodically. The fiveyear forecast encourages district management teams to examine future years projections and identify when challenges will arise. If you have any questions or concerns about the information in this document, please feel free to contact me. Respectfully submitted, Roy B. Swartz, CPA Treasurer/Chief Financial Officer
FIVE YEAR FORECAST ASSUMPTIONS Significant Revenue Assumptions: The local real estate tax base for agriculture is anticipated to increase significantly due to continued adjustments to the actual market value of this land that has been undervalued since the 1980 s. The tax base for residential property is projected to decline due to the slow housing market and current economic conditions. It is expected that overall the district will maintain small inflationary increases to the tax base. Below is a chart which shows the increases to residential and agricultural properties that have occurred and are projected to occur after a reappraisal or triennial update. Wyandot County: 2004-U 2007-R 2010-U 2013-R 2016-U 4.83% 12.80% 6.59% 7.00% 4.80% Seneca County: 2002-U 2005-R 2008-U 2011-R 2014-U 2.70% 6.25% 9.44% 6.10% 5.00% Crawford County: 2003-U 2006-R 2009-U 2012-R 2015-U 7.80% 16.0% 5.64% 3.00% 7.00% -R = Reappraisal -U = Update Italic = Projected The following is a history and projection of the total district valuation: HISTORY 2006 2007 2008 2009 2010 $98,087,441 $103,225,600 $108,837,180 $109,483,600 $113,233,360 FIVE-YEAR PROJECTION 2011 2012 2013 2014 2015 $117,608,669 $118,709,148 $122,796,023 $127,028,153 $128,446,492 Tangible personal property tax and the corresponding replacement monies have been eliminated as prescribed in the State budget bill. State funding is drastically different from the past with the implementation of the budget bill HB 153. It is unclear what changes will be made in the next year. Federal stimulus dollars are complete at the end of this fiscal year. All expenditures needing to continue have been re-classified to the general fund and are reflected in this forecast beginning in FY 12. EdJobs legislation was approved in August 2010 and is to be used to offset salaries for teachers and pupil support personnel. This one-time money to be used
in either FY11 or FY12. The district will use its allocation of $222,922 in FY12 to pay for teacher salaries. Significant Expenditure Assumptions: A 2% pay increase is obligated for FY12. No base increases in FY13 through FY16. Eliminate four teachers and secretary in FY12. Hire an FFA teacher in FY12 that will be offset in cost by eliminating this program from Vanguard Sentinel. Add a new High School algebra teacher in FY13 if needed. No health insurance increase in FY12. A 6.7% yearly increase in health insurance expenses through the remainder of the forecast. $97,000 will be saved in FY12 due to changes to the insurance plan implemented in the middle of FY11. Eliminate $121,277 in curriculum and special education services purchased from the North Central Educational Service Center. Purchase two school busses at a cost of $144,200 in FY12. No busses were purchased in FY11. HOW TO READ A FIVE YEAR FORECAST Tips and Explanations on Understanding a School District s Forecast PURPOSE/OBJECTIVES OF THE FIVE-YEAR FORECAST Here are the three purposes or objectives of the five-year forecast: 1) To engage the local board of education and the community in long range planning and discussions of financial issues facing the school district. 2) To serve as a basis for determining the school district s ability to sign the certificate required by O.R.C. 5705.412, commonly known as a 412 certificate. 3) To provide a method for the Department of Education and Auditor of State to identify school districts with potential financial problems. O.R.C. REQUIREMENTS O.R.C. 5705.391 requires a Board of Education to submit a five-year projection of operational revenues and expenditures along with assumptions to the Department of Education prior to October 31 of each fiscal year and to update this forecast between April 1 and May 31 of each fiscal year. ODE encourages school district to update their forecast whenever events take place that will significantly change the forecast. Required Funds to be included in the forecast for Mohawk Local Schools are: General Funds (001) Stabilization Funds (532) ended in FY11 EdJobs Funds (504) ending in FY12 DEFINITIONS Following are some definitions of terms commonly used to discuss the five-year forecast: 412 certificates ORC5705.412 requires the Treasurer, Superintendent, and President of the Board of Education to certify that adequate revenues will be available to maintain all personnel and programs for the current fiscal year and for a number of days in the
succeeding fiscal years. 412 certificates must be attached to: Appropriations for the current fiscal year Qualifying contracts covering the term of the contract Negotiated agreements and contracts for benefits Encumbrances Money obligated to pay for any purchase. An end of the year encumbrance is money obligated in the current fiscal year to be paid in the next fiscal year. Expenditures The spending of any public money for a specified purpose as approved by the BOE policy and procedures. Fiscal Year In education and state government, the fiscal year runs from July 1 through June 30 and each fiscal year is dated by the ending date. Example: FY12 would start July 1, 2011 and end June 30, 2012. Revenues Receipts generated from property taxes, state foundation formula, and local monies (such as donations, fees, tuitions, etc.) GOOD FORECASTING PRACTICES AND HELPFUL HINTS ODE believes that there are certain practices that help make the forecast a more accurate management tool, allowing decision makers and stakeholders to use it with greater confidence. Following are tips to assist the reader in better understanding a forecast: The five-year forecast starts with three years of historical revenue and expenditure data. These historical numbers can be used to develop trends when forecasting. Know when the three-year and six year reappraisals for the school district s valuation occur. Tax revenue may change the year after reappraisal because of increased or decreased valuations. Wyandot s last reappraisal was in 2007 and the update was in 2010. Seneca County s last reappraisal was in 2011 and the next update will be in 2014. Crawford County s reappraisal occurred in 2006 and the last update occurred in 2009. Be aware of the school district s Average Daily Membership and whether the number of students is increasing or decreasing. Mohawk Local Schools enrollment projections are listed under the Treasurer s section of the district s website. Look specifically at Line 6.010. This line shows the schools district s expenditures as over or under revenue. A school district experiencing more than one year of expenditures exceeding revenues (overspending) will almost always experience fiscal concerns or insolvency. A clear, concise narrative is critical to understanding the Assumptions used by the local BOE and Treasurer. Be aware of different types of levies and when they are collected. Building Maintenance and Bond levies cannot be used to fund general operations of the district. Think long term and look at many data sources to make informed decisions. It is not uncommon to see deficits in years four and five of a forecast. Given the uncertainty of future state budgets, local economic factors, state or federal mandates, etc., years four and five are difficult to project. The key is recognizing how these conditions relate to current operations. Identifying future years deficits allows for districts to engage in planning for those conditions prior to their arrival and eliminating the projected deficit. Longer time
horizons allow reductions in expenditures to be spread out over several years, reducing their impact on students and staff. Also, reductions may take several years before realizing their full impact. A forecast is divided into two sections: revenue and expenditures. Below is a line by line explanation of the Mohawk local Schools Five-Year forecast. REVENUE Line 1.010 General Property Tax Revenue These are taxes levied by a school district by the assessed valuation of real property within the school district. As appraisals are conducted by the county auditor, home sale receipts are compared to what the appraised value is set for that particular home. The county aims to appraise these homes at about a 95% appraised to sale ratio. If this number is higher than 95%, this reflects a decrease in property values in the district. Any increase in property values which results from higher appraised values does not generate new revenue because of HB920. There are some exceptions to this rule, but HB920 in simple terms requires by law that when property values increase through reappraisal that the millage is reduced so that the revenue received by a school district from the community remains flat. Tax value from new construction does provide new revenue as well as when a district is at the 20 mill floor. Mohawk is on the 20 mill floor at this time. Line 1.020 Tangible Personal Property Tax Businesses, in the past, were to pay tangible personal property tax on equipment or supplies/materials of which they owned. This tax was replaced by the Commercial Activities Tax (CAT) starting in FY06 with the implementation of a tax reduction by 25% per year. The tax on general businesses and railroad property was eliminated at the end of FY09. The tax on telephone and telecommunications property was eliminated in FY 2011. Formulas and schedules were also set up for state reimbursements to school districts for the loss of local tax revenue in a manner that provides reimbursements in amounts lost at the time in the fiscal year when the district would have received the tax payments. These reimbursements are paid through the state budget and therefore reflected in line 1.050. Line 1.030 Income Tax Income tax is collected at 1% of the earned wages of residents that live within the school district. These collections have been increasing by an average of over 5% during the five years prior to 2009. However with a nationwide recession, the tax collection increased by only 2.48% in fiscal year 2009 and dropped by 14.2% in fiscal year 2010. This amounted to $182,452 less in tax revenue when compared to the previous fiscal year. In 2011, with the recession ending, it increased by 5.87% and recouped $64,683 of the previous year s loss. It is assumed that the recovery will continue to put people back to work over the next three years. Below is a table of the historical and projected tax collection increases: Historical FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 6.91% 9.37% 2.48% -14.20% 5.87%
Projected FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 6.18% 5.94% 6.72% 4.00% 4.00% Line 1.035 Unrestricted Grants-in-Aid The State has introduced a new bridge formula derived from the amount of funding received per student from the State in FY11 and reduced in conjunction with a district s relative property wealth. For instance a higher property wealth district had more money deducted from there allocation than a lower wealth district. Mohawk s property wealth is 92% of the State average, thus it s deduction in funding was less than the average deduction amount. With an anticipated appraisal increase in the Seneca County, it is projected that Mohawk s property wealth will rise to 98% of the State average which still insures that Mohawk will receive less of a deduction than the average district will receive in FY12, but it closer to the average than it was in FY11. Line 1.040 Restricted Grants-in-Aid This line is strictly for the allocation for career-tech students. Line 1.045 Restricted Federal Grants-in-Aid This line strictly is to reflect Federal aid for the stabilization funds received (Fund 532) and the EdJobs allocation (Fund 504). Stabilization funds are reflected in FY2010 and FY2011. These funds have been eliminated after FY11 for the remaining years in the forecast. The EdJobs allocation of $222,922 is shown mostly in FY12. These are one-time dollars. Some of the EdJobs monies will not be spent until the beginning of next year and $18,801 of these restricted dollars are reflected in FY13 for this purpose. Line 1.050 Property Tax Allocation For all residential home owners the State of Ohio forgives or rolls back 10% of the tax bill and this amount is paid by the State to public entity that levied a real estate tax. This also holds true for the 2.5% homestead exemption. These amounts are semiannually aggregated and paid as a reimbursement by the State. This payment is one of the primary components of line 1.050. The homestead/rollback payment mirrors impacts of property values. Starting in FY08, schools are required to post hold harmless reimbursements for the loss of tangible personal property value and changes from the reduction of public utility assessment rates on this line of the forecast. School district TPP reimbursement of fixed-rate operating levies will take the form of direct payments made in each fiscal year offset by any increase in the twice monthly state foundation payments due to lower charge-off valuations. Other fixed-rate levies (such as permanent improvement levies) will take the form of direct payments made in each fiscal year. These fixed-rate levies are reimbursed during the hold-harmless period (2006-2010) regardless of whether the levy remains in effect or not. Then in tax year 2011 the direct payment part of the reimbursement will be eliminated in accordance to the new budget bill. Phase out of this was originally scheduled through FY19 and the district will experience a loss of $92,611 immediately instead of over the next 8 years. Fixed-sum levies (such as bond issues and emergency levies) are reimbursed for as long as they are in effect. When property values drop for these levies, the rate is adjusted upward to yield the fixed sum approved by the voters. As part of the TPP phase-out, the first half mill of the rate increase is absorbed by the taxpayers and any required increase above the half-mill threshold is paid by the state. These payments will take the form of direct payments twice a year.
Line 1.060 Other Revenue The estimate for this category encompasses a number of revenue sources. Most of these sources are driven by inflationary pressure as well as district policy. Investments, classroom fees, and rental fees are all included in this category. In FY12, there is a decrease reflected due to the elimination of a pay to participate fee. EXPENDITURES Line 3.010 Personnel Services This line accounts for the salaries of the entire faculty and staff paid from the General Fund, the Federal Stabilization Fund, and the EdJobs allocation. It also covers the costs for extra and co-curricular activity contracts, overtime, and leaves of absences. The amounts for salaries and benefits are based on existing negotiated agreements and work rules. Education is a human resources intensive business. Approximately 71 percent of the budget goes toward salaries and benefits for employees. In any school district, about 80-85 percent of the budget goes toward these expenses. Mohawk Local Schools is significantly below the state averages at this time. With the continual reduction in State funding, the district has been forced to reduce staff over the last several years. In FY12, three teachers were eliminated through attrition and one teacher and one secretary was eliminated by lay-off. At this time, a base salary increase of 2% is scheduled for FY12. However, no base salary increases are currently scheduled in FY13 through FY16. Employees are typically on an indexed salary schedule, meaning they receive small pay increases for each year of experience. Line 3.020 Employee Retirement/Insurance Benefits This category consists of mandatory retirement contributions, health, dental, vision, and life insurance premiums, workers compensation premiums, and mandatory contributions to Medicare and unemployment. Employers are required to contribute 14% of payroll to the State Teachers Retirement System (STRS) and the School Employees Retirement System (SERS) on behalf of the employees. Beginning on January 1, 2011, the employees agreed to pay more for their share of insurance premiums and/or a reduction in their benefits saving the district $317,378 over the FY11 and FY12 fiscal years. The forecast reflects a 0% premium increase in FY12, and beginning in FY13, reflects an annual 6.7% increase. Line 3.030 Purchased Services This category accounts for fixed-item costs such as utilities and property insurance. Other budgeted items in this area include professional/technical services property services, leases, repairs/maintenance, postage, legal fees, and staff development. This is a growing expenditure classification for the district, as past increases have averaged over 7%. A significant portion is for open enrollment students leaving the district and students leaving to attend community schools.
Line 3.040 Supplies and Materials This category accounts for instructional supplies, office supplies, library books, textbooks, software, fuel, maintenance and custodial supplies, etc. Line 3.050 Capital Outlay This category accounts for the purchase of new and/or replacement equipment including busses and grounds vehicles. Line 4.300 Other Expenditures This category accounts for items such as fleet and liability insurance premiums, taxes and assessments, county auditor/treasurer fees, memberships, and annual financial audits. This is scheduled to increase by approximately 2% per year on this forecast. Line 8.010 Encumbrances Encumbrances are financial obligations the district has made to vendors but not paid in the year appropriated and carried to the subsequent fiscal year for payment. Since all purchases are required to be encumbered when ordered, the amount of encumbrances at year-end is directly related to the timing of ordering, delivery and subsequent payment. Line 13.030 Cumulative Balance of New Levies None REPLACEMENT/RENEWAL LEVIES The district has no levies that it needs to renew or replace. It does however have a 1% income tax issue that was renewed in May of 2009 and is effective from January 2011 through December 2016. FUTURE NEEDS The District will need to keep a close eye on revenues and expenditures during the next year. One item of concern that will need to be evaluated on a yearly basis is line 6.01 of the forecast that indicates that the district will be spending more than it is bringing in during fiscal year 2013. A decision will need to be made in the near future to determine how to address this shortfall.
MISCELANEOUS GRAPHS Surplus / (Deficit) $100,000 $50,000 $- $(50,000) $(100,000) $(150,000) $(200,000) $(250,000) $(300,000) $(350,000) Projected Excess of Revenues Over (Under) Expenditures $(400,000) 2012 2013 2014 2015 2016 Fiscal Year
$800,000 Projected End of Year Unencumbered Cash $600,000 Unencumbered Balances $400,000 $200,000 $- $(200,000) $(400,000) 2012 2013 2014 2015 2016 Fiscal Year
Revenue as a Percentage of Total
Expenditures as a Percentage of Total
Our Revenue Compared To Other Districts $5,500 $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Per Pupil Local State Federal Revenue Sources MOHAWK LOCAL SCHOOL DISTRICT SIMILAR DISTRICTS STATE AVERAGE 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.
Our Expenditures Compared To Other Districts $7,000 $6,000 $5,000 Per Pupil $4,000 $3,000 $2,000 $1,000 $0 Instruction Building Oper Administration Pupil Support Staff Support Type of Expenditure MOHAWK LOCAL SCHOOL DISTRICT SIMILAR DISTRICTS STATE AVERAGE This graph compares the District's expenditures to similar districts, as well as to State averages.