BOARD OF EDUCATION Finance Presentation

Thursday, February 9, 2012

Agenda

2011-12 Budget Amendment

2012-13 Budget Discussion

Summary

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2011/2012 Budget Amendment - Revenue

Decrease in projected property tax revenue.

Increase assumption of prior year adjustment from state aid.

Federal grant revenue increased to reflect approved grant awards.

Increase Tuition revenue charged for non-resident Special Education students to reflect amount collected to date.

Increase in state foundation allowance to account for greater than anticipated student count.

Total amendment increases revenues by $439,220

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2011/2012 Budget Amendment - Expenditures

Wages and fringe benefits adjusted to better reflect current staffing levels.

Federal grant expenditures were increased to reflect approved grant awards.

Increase in tax abatement line item as we have spent 95% of our budget to date.

Transfer $1,750,000 to Property Maintenance Fund

Total amendment increases expensed by $1,927,709

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2011/2012 RevenuesRevenues

Adopted Budget

Budget Amend #1

Difference b/wAdopted vs. Amend #1

Budget Amend #2

Difference b/wAmend #1 vs.

Amend #2 Local $20,062,900 $20,062,900 $0 $19,766,200 ($296,700)State $27,792,000 $27,792,000 $0 $28,135,908 $343,908Federal $2,421,167 $2,421,167 $0 $2,719,840 $298,673Other $4,151,573 $4,151,573 $0 $4,244,912 $93,339Total $54,427,640 $54,427,640 $0 $54,866,860 $439,220

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2011/2012 ExpensesExpenses

Adopted Budget

Budget Amend #1

Difference b/wAdopted vs. Amend #1

Budget Amend #2

Difference b/wAmend #1 vs.

Amend #2 Instruction $31,480,926 $31,979,848 $498,922 $31,822,605 ($157,243)Instructional Support $9,559,247 $9,729,880 $170,633 $9,952,007 $222,127Support Services $10,019,667 $10,319,459 $299,792 $10,361,353 $41,894Community Services $70,000 $73,670 $3,670 $146,831 $73,161Capital Outlay $335,820 $1,551,486 $1,215,666 $1,546,016 ($5,470)Outgoing Transfers $3,716,300 $3,716,300 $0 $5,469,540 $1,753,240Total $55,181,960 $57,370,643 $2,188,683 $59,298,352 $1,927,709

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2011/2012 Fund Balance

Adopted Budget

Budget Amend #1

Difference b/wAdopted vs. Amend #1

Budget Amend #2

Difference b/wAmend #1 vs.

Amend #2 2010/2011 Fund Balance Audited $6,466,212 $9,363,009 $2,896,797 $9,363,009 $02011/2012 Budget Surplus (Deficit) ($754,320) ($2,943,003) ($2,188,683) ($4,431,492) ($1,488,489)2011/2012 Projected Fund Balance $5,711,892 $6,420,006 $708,114 $4,931,517 ($1,488,489)

• Fund Balance assumes 100% use of carryover money.• Carryover added as expense with Budget Amendment

#1 in the amount of $2,188,683

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Budget - History

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2011/2012 Budget Amendment Summary

Amended BudgetGeneral Fund Revenue 54,866,860$ General Fund Expenditures 59,298,352$ Revenues Over (Under) Expenditures (4,431,492)$ Anticipated Expenditure Carryover 2,100,000$ Fund Equity June 30, 2011 9,363,009$ Projected Fund Equity June 30, 2012 7,031,517$

Change in Fund Balance (2,331,492)$

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2012/13 Budget Development

Budget Timeline

Significant Impact ItemsNegative Positive

Fund Balance

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2012/13 Budget Timeline

January 3 - April 30 Budget PreparationApril 30, 2012 Recommended Budget DevelopedMay 22, 2012 Public Hearing and Millage Rate AdoptionJune 14, 2012 Budget Adoption

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Significant Impact Items

Foundation AllowanceEnrollmentRetirement RateKindergartenARRA Edu-Jobs

Best Practice MoneyMPSERS CategoricalCompliance CostsCollective BargainingFacility Needs

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• Generated for each student and accounts for over 83% of all revenue• Comprised of three components

1. Non-Homestead Millage2. Hold Harmless Millage3. State of Michigan

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Enrollment Projections

Total2011-12 (Actual) (49)2012-13 (45)2013-14 (16)2014-15 122015-16 112016-17 3

Projected student head count (Sept. – Sept.) increase/ (decrease) is a follows:

Projected student blended count increase (decrease)is as follows:

2011-12 (Actual) (108.90)2012-13 (45.44)2013-14 (17.45)2014-15 10.202015-16 10.802016-17 13.00

10/90 Blended Count 10% previous

February Count 90% of current

September Count

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Blended Count History and Projections

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Declining Enrollment Impact

Loss in revenue resulting from student enrollment Blended Student Loss 45.44 Projected Per Pupil Funding 8,608$ Impact (391,148)$

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Retirement Rate Increases

Note: * Rate for Pension Employees hired prior to July 1, 2010 ** Rate for Pension Plus Employees hired after July 1, 2010. Both rates will be adjusted down by 3 percentage points if the injunction in McMillan et al. v. MPSERS et al. preventing the use of the 3% employee contribution is lifted.

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Retirement Rate Impact

Assuming Wages stay the same, the retirement rate increase for 2012/2013 will cost an additional $780,000

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2012/ 13 Kindergarten Programming

Beginning 2012-2013 school year, Kindergarten will be funded with a full foundation allowance for a full day program and ½ the foundation allowance for a ½ day program.

The decision to move to a full day Kindergarten program will cost an additional $650,000

Maintaining the currently Kindergarten program would result in a loss of $1,227,000 of revenue.

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Elimination of One Time Money

Funding Source AmountEDUJOBS (603,167)$ Best Practice Incentive (517,110)$ MPSERS Offset (550,498)$ Total (1,670,775)$

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Summary of Significant Impact Items

Impact Item AmountDeclining Enrollment (391,148)$ Retirement Costs (780,000)$ Kindergarten Costs (650,000)$ Elimination of One Time Revenue (1,670,775)$ Total Impact of Items (3,491,923)$

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Other Impact Items – Unknown CostsCompliance Costs P.D, Software, Evaluation, etc…

Contract Expiration/Collective Bargaining Unclassified Employees ROEA – Teachers ROESA – Support Personnel

Facility Needs 2011 Facility Assessment identified $20 million

worth of projects

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Facility NeedsFacility assessment estimated the cost of the many building as site needs:

The District has no funding source to address the identified building and site projects.

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Site 3,568,650$ Building 4,507,856$ Roofing 1,475,629$ Mechanical 8,824,748$ Electrical 272,565$ Technology 756,000$ Total 19,405,448$

Facility Needs

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Funding Options1. Sinking Fund Millage

Voter approval required Legally can levy up to 5 mills for 20 years Royal Oak Schools would only seek no greater than 1 mill

for 10 years. Provides stream of tax revenue with no interest costs Used for major building renovations and repairs

2. Property Sales Market dependent Finite source

Facility Needs

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Funding Options3. Bond Issue

Voter approval required Provides a one-time influx of funding Interest costs are incurred Used for major building renovations and repairs Millage levied to pay principal and interest

4. Find Funding Within General Fund Budget No millage election Deeper program cuts must happen to free up funding Will be insufficient to address needs

The Flip Side – Positive Impact Items

Positive Impact ItemApproximate

AmountHealth Care Legislation * 1,400,000$ IDEA Reallocation 150,000$ Line Item Reductions 100,000$ Shared Time Services w/ Parochials ?Total 1,650,000$

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* Savings is subject to legal interpretation of PA 152 of 2011

Positive Speculation*

Positive Speculation ItemsApproximate

AmountMPSERs Fix 780,000$ Continuation of MPSERS Offset Categorical 550,498$ Continuation of Best Practice Funding 517,110$ Total 1,847,608$

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* Based on comments from Lansing suggesting no additional cuts to K-12 education will occur for fiscal year 2012-12

Fund Equity• Importance

Cash FlowPrevents borrowingInterest revenueEmergencies

• Target GoalAuditor’s recommendation of 15%Board of Education established target of 15%

• Appropriate UseOne-time moneyDesignated for specific purposesNot for on-going expenditures 28

Summary Scenario – A*Amount

Current Projected Fund BalanceJune 30, 2012 7,031,517$ Potential Negative Impacts (3,491,923)$ Potential Positive Impacts 1,650,000$ Projected Fund Balance June 30, 2013 ** 5,189,594$

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* Does not include Positive Speculation amount.** Assuming $53 million in revenue, fund balance would be 9.8%

Summary Scenario – B*Amount

Current Projected Fund BalanceJune 30, 2012 7,031,517$ Potential Negative Impacts (3,491,923)$ Potential Positive Impacts 1,650,000$ Positive Speculation 1,847,608$ Projected Fund Balance June 30, 2013 ** 7,037,202$

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* Includes Positive Speculation amount.** Assuming $53 million in revenue, fund balance would be 16.6%

Possible Action Steps

Initiate Process to Develop Significant Expenditure Reductions for 2012-2013Continue to look at line items savings, but do not develop potential significant expenditure reductionsDecide to use a defined amount of fund equity to address most critical capital need(s)Other

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