Budgeting & COVID-19WHAT THIS MEANS FOR YOUR SCHOOL’S

FY2021 BUDGET AND BEYOND

1

Agenda

Objectives

Charter Choices – About Us

Reimbursement Rates

◦ Expenditures

◦ Revenues

◦ Take-Aways

PSERS Trends

Things to Expect….. and Uncertainty

Things You Can Control and Influence

Thinking Through Scenarios

Summary

2

Objectives

Generate discussion and share ideas

Provide context and historical examples

Identify key factors and potential impacts

Examine several possible scenarios

Share best practices, regardless of current environment

3

Independent organization serving charter schools and

related entities in Pennsylvania for over 15 years.

Offices located in Philadelphia and Pittsburgh

Advisors to boards, school leaders, and business managers

Currently serving more than 50 clients, providing:

◦ Full-service back office support

◦ Accounting and financial services

◦ District billing services

◦ Strategic planning consulting

◦ Compliance and reporting support

◦ Including PIMS reporting

◦ Capital financing services

◦ Charter applications and renewal

◦ Audit preparation

Mission:

To support innovative and high quality schools

We are a group of visionary choice advocates, accountants, analysts, billing-gurus, designers, forward thinkers, backwards thinkers, never-ending learners, former teachers and forever students. Most of all, we’re here to help your school grow, innovate and succeed.

4

About Us

KEVIN CORCORAN, MBA, MPP

Kevin brings more than 20 years of financial, accounting and management experience to serving clients, including 10 years in leadership positions at one of the largest charter schools in the state including 6 years as its Chief Financial Officer. He also has served in client service and consulting organizations with an emphasis on operations management, procurement and contracts. Kevin is a trusted advisor to Boards and school leaders, providing guidance during pivotal events such as audits, charter application and renewal, and leadership transitions. He has helped educate legislators and officials in Harrisburg on key charter school issues and has provided testimony to the Senate Education Committee. Kevin has also served for more than 20 years in the United States Navy, where he holds the rank of Captain and Commanding Officer of a reserve unit providing logistics support to the Pacific Fleet. Kevin is a native of Philadelphia and earned dual MBA/Master of Public Policy degrees from Duke University and B.S. from Villanova University.

kevin@charterchoices.com

JOE MARTIN, MPA

Joe has served as the Director of Capital Financing since 2014, working with clients around the Commonwealth to secure over $130 million in debt for refinancing, capital improvements, and new construction. In addition to his financing work, Joe also works with clients to build multi-year financial projections and conducts market and compensation analyses to improve outcomes for schools. Joe also leads our Data Solutions team which provides thought leadership to schools, charter advocacy groups, and lobbying efforts. Joe holds a Masters of Public Administration from the Rockefeller College of Public Affairs and Policy and has previously worked for Public Financial Management and the City of Philadelphia.

joe@chartechoices.com

5

“Everyone has a plan until they get punched in the mouth.”

- MIKE TYSON

6

Setting the Stage……….

• Reminder on district rates: 20-21 charter funding based on 19-20 district budgets

• SB751 ensures District and Charter funding for 19-20, based on March enrollment

• Initial Federal response includes Title-style grant through PDE (CARES Act)

• Median Charter School revenue mix:

• 90-95% District funding (Gen Ed, Special Ed)

• 3-7% Federal (Title programs, IDEA)

• 1-3% State (Health reimbursement, Lease reimbursement, Safety/PCCD)

• 1-3% Fundraising/Development/Other

7

COVID in Context

2001 - 2002

Weakening economy, Tech bubble, Shock of

9/11

Unemployment increases from 4% to 6.5%

over 2-year period

Stock market loss 2001-2002:

Dow >20% Loss

NASDAQ >40% Loss

2008 - 2009

Weakening economy, Real estate/subprime

bubble, Liquidity fears

Unemployment increases from 5% to 10%

over 2-year period

Stock market loss

45% decline before rebound

8

COVID in Context (cont’d)

2020 - ?

Stable economy and shock event, Sharp and

sudden suspension in demand/consumption

26+ million unemployment claims in ~30 days,

PA rate growth from 4% to 6% in two weeks.

Forecast 25-30% within 3 months

Markets: 33% loss in March, has regained half

of losses but remains highly volatile

State and local tax base decimated: Sales tax,

gaming revenue, real estate transfer taxes,

income and corporate taxes, wages taxes

March impact alone (half month of measures):

State revenue 6.2% below budget

CBO: double-digit unemployment thru 2021

PASBO: 4-6% decrease in State funding to

districts in 20-21

9

Reimbursement RatesCOMPOUND ANNUAL GROWTH RATES – TUITION

REIMBURSEMENT

District Wide

2001-09 2010-13 2014-20

Reg Rate 4.1% 0.7% 3.7%

Sped Rate 5.4% 0.2% 4.2%

Ultimately the largest impact to charter

school’s will be the change in revenue at the

district level and how that effects

reimbursement rates.

Historically in periods of stable government

funding, reimbursement rates have grown

between 3-5% annually

In the 4 years after the Great Recession,

rates grew by less than 1% annually

Top 20 Highest Tuition Paying Districts

2001-09 2010-13 2014-20

Reg Rate 3.9% 0.8% 3.0%

Sped Rate 5.7% 2.0% 3.4%

Philadelphia School District

2001-09 2010-13 2014-20

Reg Rate 4.3% -0.4% 2.7%

Sped Rate 5.8% 2.8% 3.8%

10

Statewide District Expenditures vs Average Reimbursement Rates

$6,035 $6,166 $6,507 $6,766 $7,131 $7,542 $7,880 $8,210 $8,664 $9,023 $9,303 $9,433 $9,266 $9,564

$10,079 $10,558

$11,107 $11,309 $12,283 $12,317

$11,092 $11,435 $12,223

$13,002 $13,952

$14,953 $15,880

$16,734

$17,874 $18,832 $18,646

$19,120 $19,003 $19,938

$21,163

$22,335

$23,760 $24,200

$26,412 $26,543

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Total District Spending Average Reg Rate Average Sped Rate*expenditures in millions

FY19 AFR data not available.

11

Top 20 Tuition Paying Districts Expenditures vs Average Reimbursement Rates

$12,449 $12,954

$13,730 $14,685

$15,791 $16,911

$17,938

$19,267

$20,573 $21,103 $20,860

$21,962 $22,851

$23,349

$24,813

$26,300 $27,003 $27,400

$29,002 $29,581

$6,169 $6,277 $6,562 $6,840 $7,197 $7,507 $7,881 $8,232 $8,739 $9,137 $9,384 $9,605 $9,423 $9,350

$9,873 $10,248 $10,654 $10,840 $11,414 $11,500

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Total District Spending Average Sped Rate Average Reg Rate*expenditures in millions

FY19 AFR data not available

12

Philadelphia School District Expenditures vs Reimbursement Rates

$10,642 $11,164 $11,332

$12,032 $13,062

$14,309 $15,346

$16,760 $17,658 $17,789

$18,512 $19,423 $19,831

$22,307 $23,293 $23,697

$24,574

$26,197

$29,300 $28,980

$5,558 $5,860 $6,139 $6,286 $6,544 $7,101 $7,248 $7,708 $8,088 $8,184 $8,608 $8,773

$8,064 $8,417 $7,992 $7,738 $8,139 $8,327 $9,099

$10,157

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Total District Spending Average Sped Rate Average Reg Rate*expenditures in millions

FY19 AFR data not available

13

Revenue Changes

In the aftermath of the “Great Recession” 2008-09:

◦ Statewide district local tax revenue only decreased in 2009

◦ State revenue decreased between 2010-2012 before recovering

◦ Federal Revenue via ARRA Funding in 2011 and 2012 more than doubled to supplant the declining

local and state revenues.

◦ A consistent upward trajectory was not re-established until 2016

Ongoing effects and aftermath of COVID:

◦ Impact on local tax revenue could be much more pronounced and drawn out

◦ How long it will take to return pre-COVID conditions is impossible to know at this stage

14

District Revenue Statewide by Source

$8,600 $9,039 $9,664 $10,331 $11,017 $11,699 $12,277 $12,788 $12,720 $13,072 $13,479 $13,851 $14,311 $14,634 $15,177 $15,590 $16,083 $16,629$462 $462$429

$434$536

$694$850 $846 $694 $702 $676 $646 $670 $727 $709 $720 $756 $821

$5,841 $6,095$6,272

$6,627$7,135

$7,410$7,987

$8,383 $9,173 $8,755 $8,670 $8,918$9,152

$9,583$10,022

$10,475$11,311

$11,495

$566$619

$717$832

$851$857

$808$818

$851 $1,770 $2,174 $1,048$1,037

$813$815

$775$843

$897

$15,647 $16,756 $17,270

$18,528 $19,829

$20,964 $22,139

$23,074 $23,726

$24,620 $25,379 $25,031

$26,005 $26,218 $27,578

$28,494

$30,751 $30,282

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Tax Revenue Other Local Revenue State Revenue Federal Revenue Other Revenue Total Revenue*revenues in millions

15

District Revenue Statewide by Source

16

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Tax Revenue $12,277 $12,788 $12,720 $13,072 $13,479 $13,851 $14,311 $14,634 $15,177 $15,590 $16,083 $16,629

Other Local

Revenue $850 $846 $694 $702 $676 $646 $670 $727 $709 $720 $756 $821

State Revenue $7,987 $8,383 $9,173 $8,755 $8,670 $8,918 $9,152 $9,583 $10,022 $10,475 $11,311 $11,495

Federal

Revenue $808 $818 $851 $1,770 $2,174 $1,048 $1,037 $813 $815 $775 $843 $897

Other Revenue $218 $238 $288 $320 $380 $568 $834 $461 $855 $934 $1,759 $439

Total Revenue $22,139 $23,074 $23,726 $24,620 $25,379 $25,031 $26,005 $26,218 $27,578 $28,494 $30,751 $30,282

*revenues in millions

Change in District Revenue Statewide by Source

107.9%

22.8%

-51.8%

-1.1%

-21.7%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

-

0

0

1

1

1

1

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

% Change Tax Revenue % Change State Revenue % Change Federal Revenue

17

Reimbursement Rate Take-aways

Charter school reimbursement rates are based on the general fund budget of the receiving

district’s previous year. For example, your FY20 rates are based on districts FY19 budgeted

expenditures. (PDE 363)

Reductions in State assistance to Districts ripples through to charters beyond the more direct

measures (e.g. Health and Lease reimbursement)

Federal assistance was invaluable in filling gaps in 2009-11. We do not yet know what

federal support will look like beyond the next few months

Funding rates for 20-21 can go lower if a district submits a revised 19-20 Budget (Phila SD)

budget

.

18

PSERS Trends

Over the past 10 years PSERS employer contribution rates have risen by nearly 30%

These contributions have increased to close the gap on PSERS unfunded liability

The decrease in the funded ratio despite an increase in employer contributions is driven by:

◦ Decreased value of assets

◦ Decrease of number of employees paying into system vs the increase in annuitant members

As the state realizes losses in the value of assets and as the state freezes hiring and salary increases, the unfunded liability is likely to grow without an increase in employer or employee contributions

The rate currently projected by PSERS are likely not the rates we will have. However, ER rate increases will not be immediate

As PSERS employer contributions have a large direct impact on your budget, increases in employee contributions should also be considered when calculating total compensation for your employees

Questions:

What is your exposure

to PSERS?

Are you still hiring into

PSERS? If so, why?

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PSERS ER Contributions vs Funded Ratio Assets/Liabilities

8.76%6.04% 4.61%

1.94% 1.09% 1.15%3.77% 4.23% 4.69% 6.46% 7.13%

4.76% 4.78% 5.64%8.65%

12.36%16.93%

21.40%25.84%

30.03%32.57% 33.43% 34.29% 34.77% 35.19% 35.84% 36.30%

110.6%

119.0%123.8%

114.4%

104.8%

97.2%91.2%

83.7%81.2%85.8%86.0%

79.2%75.1%

69.1%66.4%63.8%62.0%60.6%

57.3%56.3%56.5%58.1%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

-

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

ER Contributions vs Funded Ratio Assets/Liabilities

Value of Assets Accrued Liability ER Contribution Funded Ratio

20

*FY22 and forward are estimates and likely to change

EE and ER Contributions vs Funded Ratio

8.76%

6.04%4.61%

1.94%1.09% 1.15%

3.77% 4.23% 4.69%

6.46%7.13%

4.76% 4.78%5.64%

8.65%

12.36%

16.93%

21.40%

25.84%

30.03%

32.57%33.43%

5.65% 5.69% 5.72% 5.77% 6.43% 7.10% 7.08% 7.12% 7.16% 7.21% 7.25% 7.29% 7.32% 7.34% 7.37% 7.40% 7.43% 7.46% 7.49% 7.52% 7.54% 7.57%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

ER Contribution EE Contribution Funded Ratio

21

PSERS Membership vs Funded Ratio

63.5% 62.7% 63.6% 64.7% 63.2% 62.9% 62.1% 62.0% 61.9% 61.1% 61.1% 61.1% 60.4% 58.9% 57.5% 56.1% 55.2% 54.2% 53.3% 52.7% 52.4% 51.9%

36.5% 37.3%36.4% 35.3% 36.8% 37.1% 37.9%

38.0%38.1% 38.9%

38.9% 38.9% 39.6% 41.1% 42.5% 43.9% 44.8% 45.8% 46.7% 47.3% 47.6% 48.1%347,517 356,364 368,268 376,027 384,030 392,393 399,453

411,984 425,163 432,049

446,230 457,664

466,975 473,774 475,519 476,632 477,212 479,643 481,908 485,959 489,650 493,088

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

-

100,000

200,000

300,000

400,000

500,000

600,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Active Members Annuitant Members Total Members Funded Ratio

22

PSERS Rate Take-aways

PSERS funded ratio was already low before COVID. The increase in employer contributions were an attempt to bring that percentage upward.

Because of COVID, the unfunded liability will be exacerbated by:

◦ Decrease in the number of employees paying in to the system due to layoffs

◦ Continued increase in the number of retirees collecting benefits

◦ Reduced investment value of assets

To mitigate this problem the state may:

◦ Increase employee contributions

◦ Increase employer contributions

◦ Modified pension benefits for new employees

◦ Do nothing and let the unfunded liability grow

For charters this all boils down to an increased urgency to switch to 403b plan for all new employees. The minimum employer contribution is 5% which would be over a 30% savings per employee by FY22.

23

Looking Ahead: Things We Know or Might Expect

There will be financial hardship for charters in the next 1-5 Years

Charter School budget challenges will begin in earnest in FY21-22 - but arrive earlier

if your feeder districts amend their FY19-20 budgeted expenditures downward

Districts will be stressed and stretched from Local challenges as well as possible

reduction in State funding to districts (which ripples through to charter rates)

Federal support (e.g. CARES Act, etc.) available to charters as well as districts will

become more important to fill gaps at State and Local levels

24

Things We Know or Might Expect (Cont’d)

• Fundraising and Development success may not come as easily as recent years

• Low interest rates means lower Interest Revenue for schools

• Health insurance costs likely to increase 10% or more in 20-21

• Tech replenishment costs (e.g. Chromebooks and kids a volatile mix) to increase, especially in event of

2nd wave and any 20-21 closures

• District hiring freezes, salary freezes and possible layoffs mean a labor market more favorable to charters

• Changes to EITC funding

• Charters lost the State Social Security reimbursement in FY11 and the State PSERS reimbursement in

FY14. The Lease Reimbursement may be next in line.

25

….and Things That We Don’t Know

Extent of damage to state and local district budgets

Duration of recession and recovery

Ability/willingness of federal government to provide sustained support

Impacts of recurring physical closures on economy

Outcome of state and federal elections and potential impact

26

Control & Influence

There are many factors beyond your control………be sure to make the best

decisions for your school on those factors you can control or influence.

Control Influence Neither

Salary Increases District Rates

Discretionary Spending Rent Facility Federal Support

Enrollment State Support

PSERS vs 403b for new employees

Contract Negotiations

Review Insurances and policy quotes

Political Environment

27

Best-case Scenarios

FY2020 (19-20) FY2021 (20-21) FY2022 (21-22) FY2023 (22-23)

FY20 District budgets not

amended

Flat local funding Decrease in tuition

reimbursement rates

Flat or small increases in

tuition reimbursement

rates

School receives federal

support (CARES, etc.)

Continued federal support

(CARES)

Strong federal support Strong federal support

Use additional funds to

support rainy day fund for

coming years

Slight decrease in state

support

State support rebounds Stabilization of state

revenues

No change to current funding formula

Minimum increase to PSERS employee and employer contributions as market rebounds to reduce unfunded liability

growth

3-month closure followed by V-shaped recovery

28

Worse Case Scenarios

FY2020 FY2021 FY2022 FY2023

Districts revise their 2019-

20 budgets downward

Decrease in tuition

reimbursement rates

Additional decrease in

tuition reimbursement

rates

Additional decrease in

tuition reimbursement

rates

School receives some

federal support (CARES)

Continued federal support

(CARES)

Additional federal support

goes away

Return to pre-COVID

federal support levels

Use additional funds to

support rainy day fund for

coming years

Moderate decrease in

state support

State support does not

rebound

Stabilization of state

revenues

Large increases in PSERS employee and employer contributions while unfunded liability grows

Prolonged economic shutdown followed by W-shaped or anemic recovery

29

And WORST Case Scenario

FY2020 FY2021 FY2022 FY2023

FY20 District budgets

amended their budget

Decrease in tuition

reimbursement rates

Additional decrease in

tuition reimbursement

rates

Additional decrease in

tuition reimbursement

rates

School receives some

federal support (CARES)

Continued federal support

(CARES)

Additional federal support

goes away

Return to pre-COVID

federal support levels

Use additional funds to

support rainy day fund for

coming years

Loss of Rental

Reimbursement

State support does not

rebound

Stabilization of state

revenues

Changes to funding formula – district/union win political battle: sped rates decrease 15-30%

Large increases in PSERS employee and employer contributions while unfunded liability grows

Governor and Districts prevail in imposing drastic Special Educating funding cuts…………

Add: Special Ed funding

decrease

30

Budgeting for Scenarios

Conservative budgeting of tuition reimbursement rates in FY20-21

Include federal CARES Act money for FY2021

Health insurance growth at 10% with expectation rates will increase over the next few years

Expect moderate dips in reimbursement rates in future years and don’t expect rates to

recover until FY2025

PSERS ER and/or EE contribution rates to increase over the coming years

Hiring freezes and low/no salary increases are available tools; high mobility of staff unlikely

as Districts will freeze hiring first

31

Best practices in any scenario

Plan now, get out ahead, build safety net, communicate

Unless in dire straits, earmark CARES Act funds for future help

Re-examine cost structure: does spending reflect priorities?

Scrutinize capital projects and large expenditures

Protect Cash and establish Line of Credit with your bank

Educate staff and stakeholders; prepare for coming hardship

For the few remaining charter schools still hiring into PSERS, please…..Stop hurting yourself

32

Summary

Unprecedented spike in unemployment and collapse of tax bases

District reimbursement rates - by far biggest revenue sources for charters – will see reductions of

unknown magnitude and duration – most likely a year from now

Reduced state aid to districts has indirect but important impact

Direct Federal dollars (e.g. CARES Act) are helpful but not game-changing

Level, duration and deductibility of Federal funds for rate determination all variables to watch

Savings, discipline and communication now will make inevitable challenges in 1 to 3 years more

bearable

Stay flexible: we are only in the middle of the movie

33

143K Rising

143K Rising provides the 143,000 charter

school students and their families a

platform to share their stories and contact

their elected officials.

Please share this link with anyone on your

team who may be able to assist with getting

this information disseminated to your

families. We are asking that each school

make this a priority over the next few weeks.

https://143krising.com/

34

“The future depends on what we do in the present.”

- MAHATMA GANDHI

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