Financial Forecast Summary & Report March 24, 2015 Brett Griffith, CFO Loveland City Schools (griffibr@lovelandschools.org)
Forecast Purpose This forecast is intended to assist the school district in the financial management of its resources. The forecast will provide trend information to help in the determination of local tax levy needs, union negotiations, program resource allocation, and overall effort to balance the district s budget. The forecast is also intended to provide insight into the future, rather than reaction to the past. This report includes information regarding key revenue and expenditure assumptions as well as the resulting implications. Particular attention should be given to not only the relationship of expenditures to revenue, but the rate of any adverse trend (expenditures exceeding revenue). Cash balance reserves should be recognized as the stabilizing resource that they are, rather than as a revenue source to support ongoing operations. Public Finance Resources, Inc. provides financial forecasting software and services to local government CFOs and Organizations. www.pfrcfo.com Page 2
Financial Forecast Update May, 2015 For the May, 2015 forecast update there are no recommendations for change to the district s financial forecast approved in September, 2014. The September forecast is included, in its entirety, in the sections following this update. This update section includes: A forecast comparison of actual revenue and expenditures through February, 2015, as compared to the October, 2014 forecast Health insurance renewal potential impact Proposed state funding formula Forecast Comparison The district s actual revenue and expenditures through February, 2015 support the original projections made and submitted to the Ohio Department of Education in October, 2014 (Board approved in September, 2014). Column A below represents the district s approved forecast. Column B represents actual cash flow activity through February, including estimates for the remaining months (March through June) of this fiscal year. At present there is an expected net variance of 0.3%. May Update 1
Because the actual activity through February is aligned with the forecasted amounts there are no recommendations to change the forecast through fiscal year 2019 at this time. A full forecast through fiscal year 2020 will be prepared and presented to the board in September, 2015. There are two update items (health insurance and proposed state funding) that follow and are worthy of disclosure. Benefits (Health Insurance) With respect to health insurance, the district was advised in March, 2015 that the health insurance increase to be assessed effective July 1, 2015 by the Greater Cincinnati Insurance Consortium (GCIC) is zero percent. The district s forecast reflects an eight percent increase effective July 1, 2015. The two tables below present benefit cost (eight percent increase) as modeled in October, and the estimated benefit cost with a zero percent increase. The table below is an attempt to reflect the information just received from GCIC. This estimate will be refined and included in the full forecast presented in September, 2015. The reduced premium increase is expected to save the district s general fund about $400,000 annually. Proposed Change to State Funding Formula In February, 2015 Governor Kasich introduced his executive budget. The budget proposed a material change to the existing school funding formula in that it would include a penalty for district communities with higher taxpayer incomes. The statewide median taxpayer income is $32,180 May Update 2
and Loveland s median taxpayer income is $50,879. The theory behind the new formula is that since Loveland taxpayer income is higher than the state s, they can pay more locally to support their schools. This concept is referred to in the new formula as capacity. With the higher taxpayer income level one would expect Loveland s state share of Core Funding to decline over time. According to the modeling performed for the district the state s share of per pupil funding is projected to drop from the current level of 35.92% to a projected level of 23.86%. The graph below illustrates the modeling of the state share of per pupil funding under the current school funding formula as well as the proposed. A decline is projected using the current formula because the district s property values are projected to increase faster than the state as a whole. Property values are a component of both the current and the proposed formula. The proposed formula accelerates the drop in the state s long term share of per pupil funding. Such a financial change is expected to put more pressure on local tax effort as the proposed formula shifts burden from the state to local taxpayers. Of course any burden shift to local taxpayers must be approved at the ballot. In the short term there is an interesting dynamic in that the state revenue flowing to Loveland schools under the proposed formula is expected to increase state revenue over what is projected. The reason for this change is that the proposed formula includes a more favorable year over year May Update 3
funding guarantee. The proposed formula includes a guarantee of the amount received in the prior year less one percent of the district s total revenue. This change enables the district to establish a much higher guarantee funding threshold that is then reduced by no more than about $400,000 per year. The current formula utilizes a funding guarantee at the district s fiscal year 2013 level. The 2013 level is about $2.0 million less than the district s peak funding of $12,691,162 projected to be established in 2016. The cumulative impact of the proposed funding formula is additional revenue of $2.491 million by fiscal year 2019. May Update 4
The forecast to be presented to the board in September, 2015 will include the final (hopefully) state budget decision. In terms of advocacy for the district it is a tough call. On one hand the long term impact of a lower state share percentage of per pupil funding is detrimental to the district. In the short term, the same proposed formula generates additional funding. The proposed formula is not law, it is not approved, and it is receiving considerable scrutiny because of its shift of burden away from the state to local taxpayers. The board will be kept apprised of substantive updates as the budget bill is debated, modified, and eventually approved. May Update 5
Table of Contents Forecast Purpose Forecast Update (May, 2015)...May Update-1 Table of Contents... 3 Executive Summary... 4 Forecast Summary & Notes... 6 Revenue, Expenditures and Cash Balance... 6 Sources of Revenue and Annual Changes... 7 Significant Revenue Assumptions... 8 Types of Expenditures and Annual Change... 13 Significant Expenditure Assumptions... 14 State Funding Supplement... 22 Forecast Compare... 23 Fiscal Year 2014... 23 Fiscal Year 2015... 24 Traditional Five Year Forecast Page... 25 Cash Reserve Supplement.26 Page 3
Executive Summary Revenue, Expenditures and Sustainability The new levy has enabled the district to stabilize finances through the forecast period that ends June 30, 2019. The district s revenue and expenditures are projecting a typical levy cycle in that revenue exceeds expenditures initially and then expenditures begin to outpace revenue. The district has incorporated modest expenditure increases for curriculum and technology purposes as outlined in more detail later in this report. Income and Expense Simplified Statement LOVELAND CITY SCHOOL DISTRICT HAMILTON COUNTY Income and Expense Simplified Statement Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2015 2016 2017 2018 2019 Beginning Balance 4,038,660 5,925,953 8,532,766 10,207,072 9,546,257 + Revenue 45,455,629 47,284,998 47,852,621 47,347,826 48,155,337 + Proposed Renew/Replacement Levies + Proposed New Levies Expenditures (43,568,336) (44,678,185) (46,178,315) (48,008,642) (49,943,268) = Revenue Surplus or Deficit 1,887,293 2,606,813 1,674,306 (660,815) (1,787,931) Ending Balance w/renewal&replacement Levie 5,925,953 8,532,766 10,207,072 9,546,257 7,758,326 Page 4
Cash Balance and Stability The district is projected to remain stable through the interim forecast period ending June 30, 2017. The assumptions behind the financial forecast will lose some reliability over time thus an interim period of the current fiscal year plus two years is established. The 2017 forecast period provides the district with a valid benchmark of its revenue versus expenditures and the time to strategically construct a response. As the graph to the right reveals, the district s cash balance will remain adequate against all presented benchmarks through June 30, 2017. Page 5
Revenue, Expenditures and Cash Balance $60,000,000 Revenue, Levies, Expenditures and Cash Balance $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 2012 Actual 2013Actual 2014Actual 2015Proj. 2016Proj. 2017Proj. 2018Proj. 2019Proj. Total Revenue Replace/Renew Levies New Levies Total Expenditures Cash Balance PROJECTED 2015 2016 2017 2018 2019 Total Revenue $45,455,629 $47,284,998 $47,852,621 $47,347,826 $48,155,337 Replace/Renew Levies $0 $0 $0 $0 $0 New Levies $0 $0 $0 $0 $0 Total Expenditures $43,568,336 $44,678,185 $46,178,315 $48,008,642 $49,943,268 Revenue Over/(Under) Expenditures $1,887,293 $2,606,813 $1,674,306 ($660,815) ($1,787,931) Cash Balance $5,925,953 $8,532,766 $10,207,072 $9,546,257 $7,758,326 Loveland City School District passed a new operating levy in May, 2014. The levy will begin generating additional revenue in the first half of calendar year 2015. The financials above reflect a very typical levy cycle with revenue exceeding expenditures in the early years of the new levy, and expenditures exceeding revenue toward the end of the levy's 'life cycle.' The district's revenue surplus of $2,606,813 is expected to be the peak and will occur in fiscal year 2016. The farther away from the new levy start date the more that the district will trend toward revenue shortfalls. The cash balance is expected to be adequate throughout the forecast period. The district will continue studying its cash balance needs to ensure stabilty for students, staff, and taxpayers. Page 6
Sources of Revenue and Annual Changes 2009 Personal 2018 Real Estate 55% Property 3% Income Tax 0% Real Estate 63% Personal Property 2% Income Tax State Foundation & 0% Restricted All Other Revenue 3% Property Tax Allocation 8% 31% All Other Revenue 3% Property Tax Allocation 8% State Foundation & Restricted 24% Previous PROJECTED Projected 5-Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 5-Year Average 2015 2016 2017 2018 2019 Average Annual % Annual % Real Estate 3.79% 9.41% 8.62% 1.45% 1.79% 1.89% 4.63% Personal Property -0.78% 1.05% 2.49% 1.00% 1.00% 1.00% 1.31% Income Tax 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% State Foundation & State Restricted 0.39% 11.20% -4.29% 0.50% -8.93% 1.21% -0.06% Prop Tax Allocation 5.28% 1.48% 1.57% 1.54% 1.87% 1.99% 1.69% All Other Revenue 0.86% 8.18% 1.50% 1.50% 1.50% 1.50% 2.84% Total Oper. Revenue 2.64% 9.02% 4.02% 1.20% -1.05% 1.71% 2.98% Note: Existing Renewal Levies Included as Renewed, No New Levies Included Line 1.07 Operating Revenue Only, Does not include Other Sources (Transfers, Advances, etc.) State Unrestricted (1.034), Restricted (1.04), and Prior Years' SFSF (1.045) = "State Foundation & State Restricted" Operating revenue is expected to grow at an average annual rate of 2.98% over the five years of the forecast. Much of this growth is attributed to the revenue from the new levy. The new levy will be phased into revenue over fiscal years 2015 and 2016. State revenue is expected to grow in fiscal year 2015 at the same time 2015 is expected to represent the peak state revenue. This revenue source is dependent on enrollment and detail is provided later in this report that specifically highlights the assumptions going into the state revenue calculation. If the district's enrollment remains constant rather than decline as modeled then additional state money could be realized in fiscal years 2016 through 2019. Page 7
Significant Revenue Assumptions - I Real Estate Revenue is dependent upon valuations, tax rates, and collection (rate) performance by local taxpayers. 92.27% of Total Real Estate Reve 7.73% of Total Real Estate Revenue Effective Effective Gross Real Property Year-Over-Year Residential Year-Over-Year Business Year-Over-Year Collection Tax Year Valuation Change Tax Rate Change Tax Rate Change Rate 2009 783,778,270 3,198,740 All Taxes 2010 783,600,260 (178,010) 32.28-32.11-2011 731,368,780 (52,231,480) 37.84 5.56 38.15 6.04 99.2% Actual 2012 734,212,080 2,843,300 37.92 0.08 38.69 0.54 98.8% Actual 2013 741,392,320 7,180,240 37.92 0.00 38.70 0.01 99.8% Actual 2014 771,552,757 30,160,437 42.38 4.47 43.90 5.21 98.6% Projected 2015 787,431,743 15,878,986 42.12 (0.26) 44.10 0.20 98.6% Projected 2016 800,465,089 13,033,346 42.03 (0.09) 44.30 0.20 98.5% Projected 2017 852,999,329 52,534,240 40.24 (1.78) 43.14 (1.16) 98.5% Projected 2018 869,153,226 16,153,897 40.15 (0.09) 43.33 0.19 98.5% Projected Note: Tax Rates Include Existing Renewal Levies Included as Renewed, No New Levies Included Real Estate Revenue $21,688,948 $22,062,149 $22,988,843 $24,108,647 $24,344,791 $26,635,898 $28,931,262 $29,352,177 $29,877,999 $30,443,487 The district's taxpayers continue to pay taxes at the rate of an average of 99% of taxes billed. The forecast is modeling a 98.6% and 98.5% collection of taxes during the forecast period. As much as an additional 1.0% could be realized beyond these modeled assumptions. If the full 1.0% in potential revenue is realized then the revenue would increase by about $280,000. Some projection difficulty exists because Clermont county does not provide the breakdown between taxpayer property classes (Residential vs. Business). There often is considerable variance between the two types of property taxes and having the separate information complements a more thorough estimating process. Still, revenue is expected to trend up as valuations continue to grow in an improving economy. Any disruption or economic slowdown would require a review of these assumptions. Page 8
Significant Revenue Assumptions - II Public Utility Personal Property Tax Year 2013 2014 2015 2016 2017 2018 Tax Rate 69.74 75.34 75.34 75.34 75.34 75.34 Valuation $12,607,890 $12,733,969 $12,861,309 $12,989,922 $13,119,821 $13,251,019 Public Utility PP Revenue $729,661 $525,253 $672,828 $788,976 $931,163 $940,912 $964,366 $974,010 $983,750 $993,587 The F.Y. 2014 increase in revenue to $931,163 is believed to be due to prior year deqlinquencies paid in the first half of calendar year 2014. While the revenue settlement information provided to the district does not offer this documentation, the actual revenue exceeded calculated by about $78,000. If this $78,000 had not been received in 2014 for prior year amounts owed then the revenue would have been about $853,000 instead of $931,163. This is worth documenting because the new levy would be expected to generate a larger increase in 2015 realtive to 2014. The year-over-year increase is diminished because of the inflated 2014 basis. Valuations are expected to grow at the rate of about one-percent per year over the forecast period. Page 9
Significant Revenue Assumptions - III Property Tax Allocation 2014 2015 2016 2017 2018 2019 Reimbursement for: Tangible Pers. Fixed Rate $0 $0 $0 $0 $0 $0 Tangible Pers Fixed Sum (Emerg.) $0 $0 $0 $0 $0 $0 Reimbursement for Rollback and Homestead Real Estate $3,563,902 $3,616,536 $3,673,400 $3,730,143 $3,800,031 $3,875,801 Property Tax Allocation Revenue $5,146,613 $4,078,971 $3,491,792 $3,510,261 $3,563,902 $3,616,536 $3,673,400 $3,730,143 $3,800,031 $3,875,801 The district's new 2014 levy does not qualify for state reimbursement of the 10.0% and 2.5% rollback. As such there is no increase in reimbursement in 2015. This revenue source is a percentage of Class I residential taxes billed. With the new levy 12.8% of the district's total effective millage does not qualify for reimbursement. 2014 2015 Millage Not Qualifying for Reimbursement 0 5.44 Percentage of Total Millage Not Qualifying 0% 12.8% Percentage of Taxes Billed Rolled Back for "10%" 9.93% 8.65% Percentage of Taxes Billed Rolled Back for "2.5%" 2.24% 1.95% This change in state tax policy does shift more cost onto the local taxpayer and less on the state as a whole. Page 10
Significant Revenue Assumptions - IV Foundation and Restricted State Funding 2015 2016 2017 2018 2019 Funded Enrollment 4,549 4,419 4,372 4,306 4,299 Valuation Per Pupil $0 $0 $0 $0 $0 Per Pupil Core Funding $5,800 $5,887 $5,975 $6,065 $6,156 State's Share 35.9% 33.6% 33.6% 29.7% 29.7% Net Per Pupil (State Share) $2,084 $1,976 $2,006 $1,799 $1,826 2014 2015 2016 2017 2018 2019 Core Foundation Funding $11,170,029 $11,997,380 $11,714,590 $11,774,802 $10,644,249 $10,779,793 All Other State Funding $576,236 $789,365 $649,049 $651,759 $654,497 $657,262 Restricted State Funding $63,427 $345,502 $205,345 $205,538 $205,647 $206,028 Foundation and Restricted State Funding $11,342,048 $11,808,393 $10,441,121 $10,870,342 $11,809,691 $13,132,246 $12,568,984 $12,632,099 $11,504,392 $11,643,083 The district's funded enrollment is projected to decline from the current modeled level of 4,549 in 2015 to 4,299 in 2019. Actual enrollment higher than that which is modeled will generate additional funding with the assumed property valuation changes. As a benchmark the district should realize that if enrollment were to stay at the current 2015 modeled level throughout the forecast then additional revenue could be realized throughout the forecast period. The district's enrollment will be monitored throughout the fiscal year and if warranted an updated state revenue projection will be provided. In addition, the district has commissioned a formal study and report on its enrollment demographics. Page 11
Significant Revenue Assumptions - V All Other Revenue 2013 2014 2015 2016 2017 2018 2019 Total $952,137 $1,044,590 $1,130,036 $1,146,986 $1,164,191 $1,181,654 $1,199,379 Other Revenue $865,275 $1,025,361 $964,738 $952,137 $1,044,590 $1,130,036 $1,146,986 $1,164,191 $1,181,654 $1,199,379 All other revenue is comprised of tax incentive payments made by developers and companies, student fees, medicaid reimbursement, special education tuition paid by other districts, and finally, transportation reimbursements from school activities and groups connected with trips other than regular education transportation to and from school. Page 12
Significant Revenue Assumptions - VI Non Operating Revenue Sources 2013 2014 2015 2016 2017 2018 2019 Transfers In $0 $0 $0 $0 $0 $0 $0 Advances In $30,000 $0 $0 $0 $0 $0 $0 Other Financing Sources $200,257 $38,591 $0 $0 $0 $0 $0 Debt $0 $0 $0 $0 $0 $0 $0 Non Operating Revenue Sources Non $13,255 $30,200 $14,920 $230,257 $38,591 $0 $0 $0 $0 $0 $13,255 $30,200 $14,920 $38,591 $0 $0 $0 $0 $0 $230,257 Non Operating Revenue includes reimbursements from other funds for advances provided by the general fund. Also, in 2013, the district received a refund on prior year expenses. There is no expected revenue in 2015 through 2019. Page 13
Types of Expenditures and Annual Change 2009 2019 Salaries 64% Benefits 22% Salaries 61% Benefits 24% Other Exp 2% Capital Outlay 0% Purch Serv 8% Supp & Mat 4% Capital Outlay 1% Other Exp 1% Purch Serv 9% Supp & Mat 4% Previous Projected Projected 5-Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 5-Year Average 2015 2016 2017 2018 2019 Average Annual % Annual % Salaries 1.64% 2.33% 2.64% 3.22% 3.56% 3.62% 3.08% Benefits & Retirement 1.82% 7.80% 1.15% 5.43% 5.83% 5.91% 5.22% Purchased Services 6.76% -0.16% 2.61% 2.63% 3.16% 3.18% 2.28% Supplies and Materials 2.64% 17.56% 7.80% -2.41% 3.00% 3.00% 5.79% Capital Outlay n/a n/a 0.00% 0.00% 0.00% 0.00% 0.00% Debt and Intergov. Pmts 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% All Other Exp. 1.85% 20.37% 5.94% 2.00% 2.00% 2.00% 6.46% Operating Expenditures 1.98% 5.11% 2.55% 3.36% 3.97% 4.03% 3.80% Note: Debt and Intergovernmental Payments Combined The district's operating expenditures are projected to increase at an annual average rate of 3.80%. Some of this increase is due to expenditures planned for curriculum related purchases and instructional technology upkeep and replacement. Growth in benefit cost continues to outstrip the pace of growth in salaries. The growth in benefits and purchased services is causing the percentage of budget allocated to salaries to drop from its current level of 64% to 61%. Page 14
Significant Expenditure Assumptions - I Salaries 2012 2013 2014 2015 2016 2017 2018 2019 Total $26,367,506 $26,010,679 $25,980,302 $26,586,372 $27,289,161 $28,168,638 $29,171,377 $30,226,649 Annual Dollar Increase -$356,827 -$30,377 $606,070 $702,789 $879,478 $1,002,739 $1,055,271 Annual Percent Growth -1.35% -0.12% 2.33% 2.64% 3.22% 3.56% 3.62% Salaries Year-Over-Year Percentage (%) Change 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% Year-over-Year Expenditure Variance Actual 5-Year Average Projected 5-Year Average History Projected Enrollment Change Compared to Staffing Change Student Employee ADM % Change FTE % Change 2009 4,657 507 2010 4,716 1.27% 524 3.37% 2011 4,621-2.01% 510-2.73% 2012 4,655 0.74% 495-2.94% 2013 4,664 0.19% 487-1.68% 2014 4,636-0.60% 492 1.06% 2015 4,608-0.60% 493 0.31% 2016 4,493-2.50% 491-0.41% 2017 4,478-0.33% 489-0.41% 2018 4,424-1.21% 489 0.00% 2019 4,417-0.16% 489 0.00% The year-over-year change in salaries reflected above is a function of both the number of employees and changes in salaries paid. With respect to the number of employees or (FTE's) the district is projecting growth of one FTE in 2015 and a decrease of two FTE in both 2016 and 2017. Trend factors include experience, education changes, and salary changes. These trends are only historical indicators that will assist the board of education in financial planning. Page 15
Significant Expenditure Assumptions - II Benefits 2013 2014 2015 2016 2017 2018 2019 Health Insurance $ Chg $28,221 $243,357 $376,076 $406,162 $438,655 $473,748 Health Insurance % Chg 0.6% 5.5% 8.0% 8.0% 8.0% 8.0% Health Insurance $4,402,063 $4,430,284 $4,673,641 $5,049,717 $5,455,879 $5,894,534 $6,368,282 All Other Benefits $4,998,346 $4,796,208 $5,272,098 $5,010,148 $5,150,014 $5,330,006 $5,519,427 Total $9,400,409 $9,226,492 $9,945,739 $10,059,865 $10,605,893 $11,224,540 $11,887,709 Benefits Year-Over-Year Percentage (%) Change 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% Year-over-Year Expenditure Variance Actual 5-Year Average Projected 5-Year Average Per Pupil Fringe Benefit Expenditures for General Fund $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 1,815 1,757 1,903 1,976 2,016 1,990 2,158 2,239 2,368 2,537 2,691 2009 The district's benefit cost increased above trend in 2015 because of a one-time advance payment made to establish health insurance premiums at a current status rather than a one-month delay. The elimination of this one-time payment in 2016 reduces the district's growth below historical trends. The 2017 through 2018 projections are consistent with historical trends, current employee FTE modeling, and health care inflation. Page 16
Significant Expenditure Assumptions - III Purchased Services 2013 2014 2015 2016 2017 2018 2019 Comm. School Tuition $296,801 $313,633 $329,315 $345,780 $363,069 $381,223 $400,284 Open Enrollment Out $79,422 $250,694 $263,229 $276,390 $290,210 $304,720 $319,956 Scholarships & Transfers $212,628 $289,170 $303,629 $318,810 $334,750 $351,488 $369,062 Other $2,824,533 $3,204,738 $3,155,612 $3,216,388 $3,278,749 $3,364,084 $3,452,115 Total $3,413,384 $4,058,235 $4,051,783 $4,157,369 $4,266,778 $4,401,515 $4,541,417 YOY $$ Change $694,621 $644,851 -$6,452 $105,585 $109,410 $134,737 $139,902 YOY % Change 25.5% 18.9% -0.2% 2.6% 2.6% 3.2% 3.2% 30.0% Purchased Services Year-Over-Year Percentage (%) Change 20.0% 10.0% 0.0% -10.0% -20.0% Year-over-Year Expenditure Variance Actual 5-Year Average Projected 5-Year Average The district's number of students attending other districts through open enrollment increased by about 30 students in 2014. About 17 of the students attended the Cincinnati Public Schools, other notable changes were with Goshen SD and Milford SD. For all three types of tuition the district is expected to spend about $900,000 in fiscal year 2015. The district experienced growth in other purchased services due to the services required and provided to special needs students. The growth in fiscal year 2014 was about $400,000. The 2015 estimate is built upon the 2014 basis and with only modest increase. Continued monitoring of this category is warranted. Page 17
Significant Expenditure Assumptions - IV Supplies and Materials 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% 2013 2014 2015 2016 2017 2018 2019 Total $1,363,898 $1,606,191 $1,888,315 $2,035,523 $1,986,411 $2,046,003 $2,107,383 Supplies & Materials Year-Over-Year Percentage (%) Change -10.0% Year-over-Year Expenditure Variance Actual 5-Year Average Projected 5-Year Average Supplies & Materials Year-Over-Year Dollar ($) Change $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 -$50,000 -$100,000 The district is proposing an additional $250,000 for catching up curriculum related expenses in 2015, with an additional $100,000 increase in 2016. The reduction in 2017 reflects an alignment of the district's projected expenses at the post catch-up level established in 2015 and 2016. Page 18
Significant Expenditure Assumptions - V Capital Outlay 2013 2014 2015 2016 2017 2018 2019 Total $0 $0 $400,000 $400,000 $400,000 $400,000 $400,000 Capital Outlay Year-Over-Year Dollar ($) Change $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 The district is projecting a $400,000 setaside of dollars to be used in the capital outlay category for the replacement and upkeep of mobile technology equipment. This change will provide for $400,000 per year through the forecast period. Page 19
Significant Expenditure Assumptions - VI Other Operating Expenditures 2013 2014 2015 2016 2017 2018 2019 Intergovernmental, Debt & Interest $0 $0 $0 $0 $0 $0 $0 Other Objects $660,086 $561,701 $676,127 $716,268 $730,594 $745,206 $760,110 Other Operating Expenditures ### $846,429 $967,136 $660,086 $561,701 $676,127 $716,268 $730,594 $745,206 $760,110 $822,244 $846,429 $967,136 $660,086 $561,701 $676,127 $716,268 $730,594 $745,206 $760,110 Other operating expenditures include the payment of county auditor and treasurer fees. These fees are the largest single component of the category. The amount expended in 2014 declined due to a refund of fees. The 2015 level is expected to return to historical levels. However, the 2015 and 2016 levels are increased slightly to account for higher fees associated with the new levy. Page 20
Significant Expenditure Assumptions - VII Non-Operating Uses 2013 2014 2015 2016 2017 2018 2019 Advances Out $50,000 $0 $0 $0 $0 $0 $0 Transfers Out $0 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 Other Financing Uses $0 $0 $0 $0 $0 $0 $0 Non-Operating Uses $0 $76,226 $20,000 $50,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $0 $76,226 $20,000 $50,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 Other Uses includes a small provision for miscellaneous transfers to other funds. Page 21
Enrollment Declining (As Modeled in Forecast) Enrollment and State Funding If the district s historical trend factors continue then funded enrollment (column A) could drop from its 2015 peak of 4,549 to a low of 4,299 in 2019. As a result, the district s state share index (the percentage of basic aid paid by the state) is expected to drop from a high of 35.92% to a low of 29.67% in 2019 (see column H). Enrollment Static (What if?) If the district s enrollment were to stay at the 2015 level then the state share index in column H would remain higher than with a declining enrollment. As a result the district would receive more dollars per student from the state and for more students. Conclusion Column A Column C Column E Number of District District Median Column F Funded Students Per Pupil Column D Taxpayer Blended Column H Column I Head Count, Column B Valuation District Income as % Valuation Index Column G State Share of State Share Projected + Comm. Schl, Per Pupil Index as % of Taxpayer of State Median Index Full Core Aid Core Per Pupil Funding Year + Open Enroll Out Valuation State Median Median Income Median Wealth Index Per Pupil Funding Per Pupil 2015 4,549 $166,203 118.15% $50,879 158.11% 1.1815 $5,800 35.92% $2,084 2016 4,419 $171,107 122.87% $52,151 159.67% 1.2287 $5,887 33.57% $1,976 2017 4,372 $171,107 122.87% $52,151 159.67% 1.2287 $5,975 33.57% $2,006 2018 4,306 $184,339 130.67% $53,455 161.24% 1.3067 $6,065 29.67% $1,799 2019 4,299 $184,339 130.67% $53,455 161.24% 1.3067 $6,156 29.67% $1,826 Column A Column C Column E Number of District District Median Column F Funded Students Per Pupil Column D Taxpayer Blended Column H Column I Head Count, Column B Valuation District Income as % Valuation Index Column G State Share of State Share Projected + Comm. Schl, Per Pupil Index as % of Taxpayer of State Median Index Full Core Aid Core Per Pupil Funding Year + Open Enroll Out Valuation State Median Median Income Median Wealth Index Per Pupil Funding Per Pupil 2015 4,549 $166,203 118.15% $50,879 158.11% 1.1815 $5,800 35.92% $2,084 2016 4,548 $166,286 119.41% $52,151 159.67% 1.1941 $5,887 35.30% $2,078 2017 4,548 $166,286 119.41% $52,151 159.67% 1.1941 $5,975 35.30% $2,109 2018 4,549 $174,557 123.74% $53,455 161.24% 1.2374 $6,065 33.13% $2,009 2019 4,549 $174,557 123.74% $53,455 161.24% 1.2374 $6,156 33.13% $2,040 Over the course of the forecast the additional students at today s enrollment would generate approximately $4.4 million over five years. It is highly unlikely that this high range would occur but it does point out that the formula is currently working for the district and every student gained generates funding and every student loss reduces funding. Declining Enrollment Static Enrollment Projected State Core State Core Year Funding Funding 2015 $12,342,881 $12,342,881 2016 $11,919,935 $12,528,025 2017 $11,980,340 $12,715,945 2018 $10,849,895 $12,381,003 2019 $10,985,821 $12,552,631 Total $58,078,873 $62,520,485 Five year Increase $4,441,612 Page 22
Comparison of Previous Forecast Amounts to Current Fiscal Year 2015 Forecasted Amounts Column A Column B Column C Column D Previous Current Dollar Percent Forecast Forecast Difference Difference Amounts For Amounts For Between Between F.Y. 2015 F.Y. 2015 Previous Previous Prepared on: Prepared on: and and Revenue: 04/22/2014 9/14/2014 Current Current 1 Real Estate & Property Allocation $28,022,618 $30,252,434 $2,229,816 8.0% 2 Public Utility Personal Property $883,846 $940,912 $57,066 6.5% 3 Income Tax $0 $0 $0 n/a 4 State Foundation Restricted & Unrestricted $12,930,654 $13,132,246 $201,592 1.6% 5 Other Revenue $935,420 $1,130,036 $194,616 20.8% 6 Other Non Operating Revenue $0 $0 $0 n/a 7 Total Revenue $42,772,538 $45,455,629 $2,683,091 6.3% Expenditures: 8 Salaries $26,669,859 $26,586,372 $83,487 0.3% 9 Fringe Benefits $10,274,199 $9,945,739 $328,460 3.2% 10 Purchased Services $3,512,105 $4,051,783 $539,678 15.4% 11 Supplies,Debt, Capital Outlay & Other $2,650,590 $2,964,441 $313,851 11.8% 12 Other Non Operating Expenditures $20,000 $20,000 $0 0.0% 13 Total Expenditures $43,126,753 $43,568,336 $441,583 1.0% 14 Revenue Over/(Under) Expenditures $354,215 $1,887,293 $2,241,508 5.2%* 15 Ending Cash Balance $2,696,774 $5,925,953 $3,229,179 911.6%* The district's revenue increased because of the new levy passed in May, 2014. State funding increased in 2015 because of the state's delay in making a 2014 payment (deferred to 2015). Other revenue increased because of an increased tax incentive payment. Other non operating revenue increased because of a county auditor refund of prior year fees. Salaries trended lower in 2014 than estimated in May. This lowered basis from 2014 was used to build the 2015 forecast estimate. The 2015 estimates include recently negotiated salary changes and updated personnel information (Full Time Equivalanecy). Additional detail is provided in the expenditure notes of this report. Actual 2015 health insurance increases are less than projected in May. Purchased Services increased because of costs associated with special needs children in 2014. The 2014 basis was used as a starting point for 2015. Page 23
Comparison of Previous Forecast Amounts to Current Fiscal Year 2016 Forecasted Amounts Column A Column B Column C Column D Previous Current Dollar Percent Forecast Forecast Difference Difference Amounts For Amounts For Between Between F.Y. 2016 F.Y. 2016 Previous Previous Prepared on: Prepared on: and and Revenue: 04/22/2014 9/14/2014 Current Current 1 Real Estate & Property Allocation $28,450,201 $32,604,662 $4,154,461 14.6% 2 Public Utility Personal Property $892,685 $964,366 $71,681 8.0% 3 Income Tax $0 $0 $0 n/a 4 State Foundation Restricted & Unrestricted $12,272,827 $12,568,984 $296,157 2.4% 5 Other Revenue $949,451 $1,146,986 $197,535 20.8% 6 Other Non Operating Revenue $0 $0 $0 n/a 7 Total Revenue $42,565,164 $47,284,998 $4,719,834 11.1% Expenditures: 8 Salaries $27,320,926 $27,289,161 $31,765 0.1% 9 Fringe Benefits $10,813,096 $10,059,865 $753,231 7.0% 10 Purchased Services $3,547,226 $4,157,369 $610,143 17.2% 11 Supplies,Debt, Capital Outlay & Other $2,808,333 $3,151,791 $343,458 12.2% 12 Other Non Operating Expenditures $20,000 $20,000 $0 0.0% 13 Total Expenditures $44,509,581 $44,678,185 $168,604 0.4% 14 Revenue Over/(Under) Expenditures $1,944,417 $2,606,813 $4,551,230 10.2%* 15 Ending Cash Balance $752,358 $8,532,766 $7,780,408 400.1%* The basis established in 2015 served as the starting point for 2016. The second half of the new levy is reflected in real estate and public utility. Page 24
LOVELAND CITY SCHOOL DISTRICT HAMILTON COUNTY Schedule Of Revenue, Expenditures and Changes In Fund Balances Actual and Forecasted Operating Fund ACTUAL FORECASTED Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2012 2013 2014 2015 2016 2017 2018 2019 Revenue: 1.010 General Property Tax (Real Estate) 22,988,843 24,108,647 24,344,791 26,635,898 28,931,262 29,352,177 29,877,999 30,443,487 1.020 Public Utility Personal Property 672,828 788,976 931,163 940,912 964,366 974,010 983,750 993,587 1.030 Income Tax 1.035 Unrestricted Grants in Aid 10,358,120 10,809,173 11,746,264 12,786,745 12,363,639 12,426,562 11,298,745 11,437,055 1.040 Restricted Grants in Aid 67,289 61,169 63,427 345,502 205,345 205,538 205,647 206,028 1.045 Restricted Federal Grants in Aid SFSF 15,712 1.050 Property Tax Allocation 3,491,792 3,510,261 3,563,902 3,616,536 3,673,400 3,730,143 3,800,031 3,875,801 1.060 All Other Operating Revenues 964,738 952,137 1,044,590 1,130,036 1,146,986 1,164,191 1,181,654 1,199,379 1.070 Total Revenue 38,559,322 40,230,363 41,694,137 45,455,629 47,284,998 47,852,621 47,347,826 48,155,337 Other Financing Sources: 2.010 Proceeds from Sale of Notes 2.020 State Emergency Loans and Advancements 2.040 Operating Transfers In 2.050 Advances In 30,000 2.060 All Other Financing Sources 14,920 200,257 38,591 2.070 Total Other Financing Sources 14,920 230,257 38,591 2.080 Total Revenues and Other Financing Sources 38,574,242 40,460,620 41,732,728 45,455,629 47,284,998 47,852,621 47,347,826 48,155,337 Expenditures: 3.010 Personnel Services 26,367,506 26,010,679 25,980,302 26,586,372 27,289,161 28,168,638 29,171,377 30,226,649 3.020 Employees' Retirement/Insurance Benefits 9,197,100 9,400,409 9,226,492 9,945,739 10,059,865 10,605,893 11,224,540 11,887,709 3.030 Purchased Services 2,718,763 3,413,384 4,058,235 4,051,783 4,157,369 4,266,778 4,401,515 4,541,417 3.040 Supplies and Materials 1,422,676 1,363,898 1,606,191 1,888,315 2,035,523 1,986,411 2,046,003 2,107,383 3.050 Capital Outlay 400,000 400,000 400,000 400,000 400,000 3.060 Intergovernmental Debt Service: 4.010 Principal All Years 4.020 Principal Notes 4.030 Principal State Loans 4.040 Principal State Advances 4.050 Principal HB264 Loan 4.055 Principal Other 4.060 Interest and Fiscal Charges 4.300 Other Objects 967,136 660,086 561,701 676,127 716,268 730,594 745,206 760,110 4.500 Total Expenditures 40,673,181 40,848,456 41,432,921 43,548,336 44,658,185 46,158,315 47,988,642 49,923,268 Other Financing Uses 5.010 Operating Transfers Out 20,000 20,000 20,000 20,000 20,000 20,000 20,000 5.020 Advances Out 50,000 5.030 All Other Financing Uses 5.040 Total Other Financing Uses 20,000 50,000 20,000 20,000 20,000 20,000 20,000 20,000 5.050 Total Expenditures and Other Financing Uses 40,693,181 40,898,456 41,452,921 43,568,336 44,678,185 46,178,315 48,008,642 49,943,268 Excess of Rev & Other Financing Uses Over (Under) 6.010 Expenditures and Other Financing Uses (2,118,939) (437,836) 279,807 1,887,293 2,606,813 1,674,306 (660,815) (1,787,931) Cash Balance July 1 Excluding Proposed Renewal/ 7.010 Replacement and New Levies 6,315,628 4,196,689 3,758,853 4,038,660 5,925,953 8,532,766 10,207,072 9,546,257 7.020 Cash Balance June 30 4,196,689 3,758,853 4,038,660 5,925,953 8,532,766 10,207,072 9,546,257 7,758,326 8.010 Estimated Encumbrances June 30 25,000 25,000 Reservations of Fund Balance: 9.010 Textbooks and Instructional Materials 9.020 Capital Improvements 9.030 Budget Reserve 9.040 DPIA 9.050 Debt Service 9.060 Property Tax Advances 9.070 Bus Purchases 9.080 Subtotal Fund Balance June 30 for Certification 10.010 of Appropriations 4,171,689 3,733,853 4,038,660 5,925,953 8,532,766 10,207,072 9,546,257 7,758,326 Rev from Replacement/Renewal Levies 11.010 Income Tax Renewal 11.020 Property Tax Renewal or Replacement 11.030 Cumulative Balance of Replacement/Renewal Levies Fund Balance June 30 for Certification 12.010 of Contracts, Salary and Other Obligations 4,171,689 3,733,853 4,038,660 5,925,953 8,532,766 10,207,072 9,546,257 7,758,326 Revenue from New Levies 13.010 Income Tax New 13.020 Property Tax New 13.030 Cumulative Balance of New Levies 14.010 Revenue from Future State Advancements 15.010 Unreserved Fund Balance June 30 4,171,689 3,733,853 4,038,660 5,925,953 8,532,766 10,207,072 9,546,257 7,758,326 ADM Forecasts 20.010 Kindergarten 286 236 300 325 325 20.015 Grades 1 12 4,322 4,257 4,178 4,099 4,092 Page 25
Cash Reserve Analysis The district s financial planning is dependent upon maintaining adequate cash reserves to withstand financial stress. Currently the district s monthly cash flow through June 30, 2016 is adequate reaching a low of $4,264,547 in December of 2015. This is quite different from last year when the cash balance low point was less than $500,000. $18,000,000 $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 4,264,547 $2,000,000 $0 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 2015 2016 Cash Balance Indicators What if the district started the fiscal year with a $0 cash balance? $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 $225,887 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 2015 2016 The district s cash balance would drop to only $225,887 in December. Financial stress should be modeled. For example, one such stress is a delay in real estate tax collection for up to sixty days. Page 26
Summary While it is understood that an organization the size of Loveland City School District cannot manage its cash balances to $0.00, the question remains regarding what is an adequate amount. The district should prepare for a certain amount of financial stress. Certainly the last five years of economic activity demonstrated this need. The following graph is repeated from the executive summary because it points out certain benchmarks that are relevant to the district s cash balance planning, strategies, and goal. The following graph offers a good basis of discussion while the district is presented with its current financial stability. A cash balance goal should be an expected outcome from these policy discussions. Page 27