SCHOOL FINANCE 101Presented by Brenda Burkett, CPA, SFO

Chief Financial Officer

Norman Public Schools

October 2015

Budget and Funding Timeline

JUN JUL AUG SEP OCT NOVFinal State Aid Allocation from

Prior Year

Tentative State Aid Allocation

County Assessor Certifies Valuation

Estimate of Needs Due to Excise

Board

Budget Approved by School Board

Inform returning teachers of intent

to rehire

Negotiations with Employee

Bargaining Groups

Staffing Adjs for Enrollment Changes

Student Counts for State Aid

DEC JAN FEB MAR APR MAY1st Half Taxes Due

to County by Taxpayers

Legislature Convenes

2nd Half Taxes Due to County by

Taxpayers

Legislature Adjourns (budget bill is typically last)

Revised State Aid

Final Certification of State Revenue

Estimates (Budget Shortfall?)

Supplemental Appropriations for Funding Shortages

Note: School District Budget Act (Norman uses) establishes Budget July 1…and there is no Est of Needs in Oct. School Board approves budget amendments throughout the year as needed.

8.7%

Fund Balance

• What is a fund balance?Fund balance is the “unencumbered” or “available” balance of funds at the end of a fiscal year. This is also referred to as a “carryover” or “surplus.”

• Why is a fund balance necessary?1. To pay operating expenses during the first half of the year before

the majority of ad valorem taxes are collected.

2. To meet any unanticipated expenses.

3. To help fund future budgets if planned expenditures exceed anticipated revenues (e.g. funding cliff when one-time revenue sources are not replaced or operating expenses are anticipated to increase for reasons such as a new school opening).

Funding Sources /UsesFund Primary Revenue Sources Primary Allowable Uses

General Fund Local & county taxes, state aid, dedicated state revenue, federal program reimb, other reimb

Payroll, transportation expense, supplies, materials, furniture, equipment, textbooks, general operating expenses

Building Fund Local & county taxes Repair & maintenance of facilities, furniture, equipment, utilities, custodial

Child Nutrition Fund

Student & staff lunch purchases, state & federal reimbursements

Food, payroll, supplies & equipment

Bond Funds Sale of bonds after voter approval Construction projects, furniture, equip., uniforms, textbooks, school buses, etc.

Activity Funds Student activities, fundraisers, vending commissions, donations

Student activities, supplies, materials, equipment, refreshments

Sinking Fund Local taxes after voter approval of bonds

Bond principal and interest payments

Gift Fund Restricted grants from private sources As specified in grant

Sanctioned Parent Groups(not District money)

Fundraisers, donations, dues Support of student and school activities(wider latitude than activity fund)

Sources of RevenueGeneral Fund*

*Statewide All Districts General Fund 2013-14 from SDE transparency website. Includes return of assets; does not include fund balance forward.

Local24%

County3%

State Aid40%

State Dedi-cated

and Line Items21%

Federal10%

Other2%

Total State 61%

Sources of General Fund RevenueSelect Metro-area Districts

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

7%

43%

22% 20%

33%24%

4%

4%

4% 4%

4%

4%

80%

43%

66% 66%

56%

57%

8% 5% 8% 8% 8%15%

1%4%

0% 1% 0% 0%

Local County State Federal Other

Source: 2012-13 OCAS Data.

Guthrie Mid-Del NormanBethany Edmond Oklahoma City

Sources of RevenueGeneral Fund*

*Statewide All Districts General Fund 2013-14.

Local24%

County3%

Local + County (27% combined)

• Primarily property taxes

Also includes:

• Investment Income, Rental Income

• Local Grants/Partnerships

Recent laws reducing property taxes:

SQ766 (2012) exempting intangible property from taxation cost schools over $30 million statewide

SQ758 (2012) capped yearly valuation increases at 3% vs 5% previously

Ad Valorem Taxes

Property Market Value $ 100,000

Assessment Ratio 11%

Assessed Valuation 11,000

Less Homestead Exemption (1,000)

Net Assessed (Taxable) Value 10,000

Mill Levy (1/10th of a cent) 117.95

Total Tax $ 1,179.50

EXAMPLE:

Ad Valorem Taxes - $10,000 Taxable Value

EXAMPLE (cont):Entity Mills Tax

School District:

General Fund 35.88 $358.80

Building Fund 5.12 51.20

Sinking Fund 25.75 257.50

Total School District 66.75 $667.50

County-wide School 4.11 41.10

Vo-tech 15.38 153.80

City-county Health 2.57 25.70

County 10.28 102.80

City 12.75 127.50

Metro Library 6.11 61.10

Total 117.95 $1,179.50

Sources of RevenueGeneral Fund*

*Statewide All Districts General Fund 2013-14.

Federal10%

Other2%

Federal

• 2011-12 was last year of federal stimulus

• Two largest programs are subject to sequestration (5%)/yr for 10 years:

-Title I (No Child Left Behind) 41% of total NPS: FY14 (4.14%); FY15 (6.59%)

- IDEA (Special Ed) 27%of total NPS: FY14 +.59%; FY15

+.39%

Other

• Reimbursements/Transfers from other funds:

-Activity fund for lost books, parking fees, etc

-Payroll, postage, printing reimbursements

Sources of RevenueGeneral Fund*

*Statewide All Districts General Fund 2013-14.

State Ded-icated and Line

Items21%

State Dedicated

• Gross production tax

• Motor vehicle tax

• School land earnings

• Rural electric cooperative tax

State Line Items

• Textbook allocation

• Employee health insurance

• Specific state programs and reform measures

Sources of RevenueGeneral Fund*

*Statewide All Districts General Fund 2013-14.

State Aid40%

State Aid

• Formula funding based on number of students

State Aid Funding Formula

Legislative Intent

• Recognize that cost of providing education varies with students and districts

• Based on student membership and characteristics

• Attempt to equalize revenue among districts through “chargeables”

• Perfect equalization would produce same revenue per weighted student in every district

State Aid Calculation:

Weighted Average Daily Membership (WADM)• ADM (child count for days enrolled)• Pupil Grade Level Weight• Pupil Category Weight (special ed, gifted, free/reduced)• District Calculation (for small or isolated districts)• Teacher Index (for districts whose avg teacher is > the state

average-based on college degree and years of experience)

x State Aid Factor $3,079.60 (factor as of Aug 2015)

+ Transportation Supplement (Average Daily Haul x $33.00 per capita x $1.39 factor)

Less - Chargeables• Local Ad Valorem• County 4-mill (75%)• Gross production tax• Motor vehicle tax• School land earnings• Rural electric cooperative tax

STATE AID FORMULAAMOUNT PER WEIGHTED STUDENT

$2,6

73.2

0

$2,4

90.4

0

$2,6

22.4

0

$2,6

39.2

0 $2,8

64.2

0

$2,9

19.6

0 $3,1

89.0

0

$3,2

75.6

0

$3,2

10.0

5

$3,1

13.4

0

$3,0

40.2

0

$3,0

35.0

0

$3,0

32.0

0

$3,0

75.8

0

$3,0

79.6

0

$1,900.00

$2,100.00

$2,300.00

$2,500.00

$2,700.00

$2,900.00

$3,100.00

$3,300.00

$3,500.00

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY1608/17/15

State Aid Formula Then vs. Now

July 2009• All formula dollars

committed to common education = $3,291.20 per weighted student.

Aug 2015• All formula dollars

committed to common education = $3,079.60 per weighted student.

Difference in Funding

• For FY 2015-16, schools have $211.60 less per weighted student than was allocated at the beginning of school year FY 2009-10.

• For NPS, $211.60 less per weighted student = FY16 ($5,257,536) !

Recession and Recovery:Impact on Education Funding

• The recession of 2008 greatly impacted state revenues and jeopardized public education.

• The federal government responded in 2008-09 by providing one-time supplemental funding for Title I (disadvantaged) and IDEA (special ed) programs.

• Further federal assistance was afforded to states 2009-10 in the form of fiscal stabilization and education jobs funding to retain jobs and “fill the hole” in funding.

• Once exhausted, one-time federal stimulus money was not replaced by state funding, creating a “funding cliff” in 2012-13.

In FY11, the State Rainy Day Fund was fully depleted

By FY13, the State Rainy Day Fund was restored to $535.2 million

Enrollment and State Aid Funding2008-2015

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 $1,700,000,000

$1,750,000,000

$1,800,000,000

$1,850,000,000

$1,900,000,000

$1,950,000,000

$2,000,000,000

$2,050,000,000

$2,100,000,000

610,000

620,000

630,000

640,000

650,000

660,000

670,000

680,000

690,000

700,000

$1,992,584,507

$2,035,970,233

$1,881,900,431 $1,894,269,216

$1,816,091,355 $1,816,091,355

$1,837,570,777

$1,877,570,777

641,721 644,777

654,542

659,615

666,150

673,190

681,578

688,300

State Aid Appropriation Enrollment

Stat

e Ai

d (m

illio

ns)

Stat

ewid

e En

rolle

mnt

* State Aid includes Education Stabilization component of the American Re-covery and Reinvestment Act (ARRA) funding.

2014 Legislation Affecting School Funding• Supplemental appropriation to fund 2012-13 ad valorem reimbursement

for lost tax revenue due to manufacturing tax exemptions

• SB2127 $40 million additional in state aid formula

• HB2513 $40 million additional for employee health insurance

• SB1469 extended the moratorium on accreditation standards to include class size limits and textbook and library media spending

• HB1378 required student CPR training; no funding provided

• SB1246 cut the top state income bracket from 5.25% to 4.85% triggered by growth in the state’s General Revenue Fund

• Expiring horizontal drilling tax rate incentives were replaced. Production tax rates were scheduled to return to 7% but will now be 2% for the first 3 years of the well, then increase to 7%

District Revenue Limitations• Any growth in local taxes is deducted from state aid.

• Any growth in dedicated state revenue (e.g. motor vehicle collections, gross production tax, school land earnings) is deducted from state aid.

• Federal programs are being CUT due to sequestration.

• Grants and donations are usually specific in purpose and are not intended for operating expenses.

• Money from other funds (e.g. Building Fund, Child Nutrition Fund, Bond Funds) is restricted in the ways it can be spent.

Expenditures• Budget dollars must be reserved or “encumbered” prior to purchase.

• Legal budget is determined by projected local tax collections plus revenue to be received from state, federal, and other sources plus the beginning fund balance.

• Personnel is a high percentage of total general fund expenditures:

Statewide 81.8%

Bethany 73.4%

Edmond 95.5%

Guthrie 84.6%

Mid-Del 91.5%

Norman 90.7%

Oklahoma City 70.9%

Source: 2012-13 OCAS data, payroll and benefits object codes.

Instruction59¢ Student

Support Services

11¢

Student Transportation

4¢

Operations &Maintenance

10¢

School Administration

6¢ Business3¢

General Admin3¢

Other2¢

Child Nu-trition 2¢

Source: 2012-13 Statewide OCAS Data.

How Each Dollar of the General Fund is Spent

8.7%

Legal Borrowing Methods

1. Non-payable warrants• Short-term cash flow solution• Similar to overdraft protection

2. Lease-purchase agreements• Lease which transfers ownership of asset at end of term

3. Bonds• Requires 60% approval by voters• Restricted to capital expenditures• At least 85% of proceeds must be spent on the projects listed in

the bond resolution approved by voters• Bond proceeds and interest earnings CANNOT be used to pay

salaries, benefits, or related costs

8.7%

Bond Payments

Amount needed to pay

bonds in upcoming year is calculated on “Estimate

of Needs”

County Excise Board

approves Estimate of Needs and authorizes

tax levy

County Assessor

bills property owners

Taxes are collected by County and remitted to

school’s sinking fund

Bond principal and

interest payments are

made by school district

ResourcesOklahoma State Department of Education Technical Assistance Document

http://ok.gov/sde/sites/ok.gov.sde/files/documents/files/FY%202014%20TAD%20FINAL.pdf

Oklahoma County Assessor websitehttp://www.oklahomacounty.org/assessor/

Oklahoma State Department of Education Transparency Website

https://sdeweb01.sde.ok.gov/OCAS_Reporting/StateReports.aspx