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CLAT Presentation February 8, 2020 Hoover High School Shashank Aurora, CFO
Agenda • General Fund & General Fund Revenue • Spending Authority & Solvency • Expenditures • Non-General Fund Funds • Financial Health Indicators 3
Restricted Budget State & Federal law dictate School districts have allowable expenditures … restricted funding even for General Fund sources dollars • Not all funds can be • Administrative Rules can spent on anything the further clarify/restrict district decides State law 4
DMPS Fund Structure Proprietary Funds Fiduciary Funds Governmental Funds Special Operating Capital Debt Service Internal Service Revenue Enterprise Funds Fund Projects Fund Fund Trust Funds Funds Funds SAVE General Management (Statewide Debt Service Food & Nutrition Self-Insurance Penny) Private Purpose PPEL Child Care Risk Management Pension PERL Home Building Print Shop Agency Student Activity Student Auto Body/Mechanic Governmental Trust 5
Putting it All T ogether: Revenue, Fund Accounts, & Restricted Uses Funding Source State Aid Property Levy Federal Program Sales Tax Tax Funds Fees Enter: Enter: Debt Special Special Special Operating Fund: Capital Fund Account Service: Rev: Rev: Food & Child Rev: General Fund Projects: Debt PPEL PERL Nutrition Care Management Statewide Penny Service (Voted) PPEL ( (Brd.) ) Uses of Funds 6
General Fund: Basic Principles Funding amount per student, set by Budget is student driven legislature (Supplemental State Aid). Schools are budget limited , not tax Doubling property value does NOT equate rate limited. to higher cost per pupil Tax rate is driven by formula more than district actions and doesn’t impact Spending Authority. District can only spend funds on allowable purposes. T wo Key Financial Measures: Spending Authority & Solvency 7
General Fund Sources of Revenue (FY20 Budget) GENERAL FUND REVENUE SOURCES (FY 20 BUDGET) Sources of Revenue 0.2% 7.4% • State Aid • Property Taxes (Levies) 32.3% • Other 60.2% • Federal Funds State Local Federal Other 8
General Fund: Spending Authority State controls maximum amount each district can spend. • It is illegal for a school district to exceed its total Spending Authority. • Why? Equal between districts. Every child in Iowa should receive same amount of funding, no matter where they live. Limit on spending is the amount of Spending Authority a district has. • Amount of cash or fund balance not considered. Spending Authority is directly tied to student enrollment. • Cost Per Pupil: Fixed dollar amount set by the State that will be funded (through both State and local sources) for every student. 9
Equal versus Equitable 10
General Fund: Spending Authority Spending Authority restriction only applies to the General Fund • For all other funds, if you have the cash, you can spend it District must account for two things in the General Fund • Fund Balance (cash) • Spending Authority (state limit on spending) 11
T otal Spending Authority in a Year Calculating Spending Authority - Simplified Current year Spending Authority + Previous year’s surplus Spending Authority = Total Spending Authority 12
Where Does Spending Authority Come From? Basic Formula Important Notes: Number of Students • Student count is a year behind • Always use prior year Cost per Pupil x count – this October’s T otal current year Spending = number = the number Authority used for next year’s budget • Cost per child is set by the Iowa Legislature by setting State Supplementary Assistance Rate • Spending Authority is then funded by a combination of State Aid and Property Taxes 13
Growth in Spending Authority Three Basic Ways Increase in Supplemental State Aid Increase in Student Enrollment Increase in Miscellaneous Income 14
Historical Look at Supplemental State Aid Annual Percent Growth 16% 1973 – 1994 Average Annual Growth: 6.42% 2011 – 2020 1995 – 2010 Average Annual Growth: 3.22% Average Annual Growth: 14% 1.77% 12% 10% 8% Allowable Growth no longer set by formula 6% 4% 2% 0% 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 15
Student Enrollment Trend ENROLLMENT 35000 32500 30000 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21 21-22 22-23 (est.) (est.) (est.) Actual Enrollment DE Projection DMPS Assumption 16
Student-Driven Funding Formula Regular Programs = per student Categorical funding for certain General Fund programs = mostly per student Based on cost of educating the student Certain Programs = Weightings add students to the number Weighting of students that is multiplied by the per pupil spending authority 17
Weighting Regular Ed = 1.0 All weightings are additional to the 1.0 for regular ed. Special Education • Weight driven by the services in the student’s IEP; no time restriction • 0.72 • 1.21 • 2.74 • Can apply to SBRC for additional spending authority for expenses incurred above the weight English Language Learner • 0.295 (for up to 5 years) • Can apply to SBRC for additional spending authority for expenses incurred above the weight (within the 5 years) OR additional time beyond the 5 years 18
Why is Spending Authority So Important? It is illegal for a school district to exceed its total spending authority Phase II Financial Viability Audit The State Board of Education can close a school district for no other reason than financial unviability (not educational reasons) 19
How is Spending Authority Funded? Combination of State Aid and Property Taxes: Uniform • $5.40 Property Tax Levy Levy • Backfills up to 87.5% of the State Aid Cost Per Pupil Additional • Property Tax Levy that funds the last 12.5 % of the Cost Per Pupil Levy • No rate limit – adjust automatically to fund as much as needed 20
Example: $7,000 Cost Per Pupil $7,000.00 $875 $875 $875 $6,000.00 $325 $5,000.00 $3,825 $4,000.00 $5,205 $3,000.00 $5,800 $2,000.00 $2,300 $1,000.00 $920 $0.00 Property Poor District Average Valuation Property Rich District Uniform Levy State Aid Additional Levy 21
General Fund Levies that Increase Spending Authority Regular General Fund Levy • Automatic; tied to cost per pupil Instructional Support Levy (ISL) • How much do we want to increase? • How do we fund it? • Voter approval – up to 10 years • Board approval – up to 5 years Dropout Prevention • Maximum between 2.5% - 5% of Regular Program District Cost • Used for services to dropouts or those at-risk of dropping out • Effectively funded by all property tax 22
General Fund: Cash Reserve Levy • T wo Types: – SBRC: used to fund the spending authority granted by the SBRC, primarily for SPED deficits, open enrollment out – Other: cash flow (DMPS does not utilize) • Does NOT create additional spending authority – Cannot levy your way out of a spending authority problem • No rate limit on the levy, but a district cannot levy the Cash Reserve Levy if fund balance exceeds 20% 23
Solvency Ratio “Solvency Ratio” is a moment-in-time (June 30) measure of the financial health of the district’s General Fund Fund Equity Position Why is the Solvency Ratio so important? Revenue Comes in Waves Tax Ratings • Expenditures ≈ • Number one factor rating agencies look for $46M per Month 24
Downsides to Dramatic Changes In Solvency Increases Decreases • Public perception • Impact on bond that the district is ratings “flush” • Inability to cover • Run into Cash expenses due to Reserve Levy Limits revenue/expenditure timing 25
General Fund Expenditures (FY20 Budget) • 82% of funds pay for staff The remaining 18% is spent on curriculum, utilities, supplies, materials, PD, • transportation, educational programming, etc. GENERAL FUND EXPENDITURES GENERAL FUND BY FUNCTION EXPENSES AEA Support, 3.7% Non-Instruction, 0.3% Plant Operations, 8.4% Everything Else Central Administration, 4.1% 18% Instruction, 60.6% Student Support, 22.8% Compensatio n 82% 26
Why focus on the General Fund? • Largest source of Revenue & Expenditures Pays for educational programs • Biggest Risk • • Focus is on SPENDING AUTHORITY not Fund Balance – Negative Spending Authority is illegal and can cause a district to close – Negative Fund Balance can be solved locally Fund % of Annual Revenue % of Annual Expenses General Fund 80% 77% Special Revenue 5% 5% Capital Project 6% 9% Debt Service 4% 4% Enterprise Funds 5% 5% 27
General Fund Key Measures Unspent Budget Authority – by far most important measure •Look at trend •Usually measured on a percentage basis •Impact by reducing (or shifting) expenditures (not Special Ed) Solvency Ratio – Fund Balance (cash) expressed on a percentage basis •Look at trend •Impact by reducing expenditures, increasing Cash Reserve Levy Other key indicators •Salary + Benefits cost •As a percent of GF expenditures •Class size •Staffing Ratios •Other expenditures – one time vs. ongoing (e.g., curriculum vs. electricity) 28
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