Basic School Finance 101 Everything You Wanted To Know But Were Afraid To Ask! Prepared by Galen...

Basic School Finance 101

Everything You Wanted To

Know But Were Afraid To Ask!

Prepared by

Galen Howsare, RSBA

Associate Superintendent of Administrative Services

West Des Moines Community School District

howsareg@home.wdm.k12.ia.us

226-2716

Goals

Help everyone to LEARN and UNDERSTAND some of the complexities of Iowa School Finance.

ANSWER your questions.

What if you don’t understand?

Have a question?

I would appreciate it if you would interrupt me, by raising your hand or calling my name, so that I can address your question at that time.

Thanks in advance for your cooperation!!!!!!

Want to know more?

Helpful ResourcesIowa Department of

Education (www.state.ia.us/educate)

School Laws of Iowa (www.edinfo.state.ia.us/web/law.asp)

Iowa School Finance Manual (Iowa Association of School Boards)

Certified Annual Report Spreadsheets(www.state.ia.us/educate/fis/sft/car/spreads.html)

Helpful Resources (continued)

Iowa Condition of Education Reportwww.state.ia.us/educate

Uniform Administrative Procedures for Iowa School Officials (UAP) and Uniform Financial Accounting Manual (www.state.ia.us/educate/fis/sft/pubs.html)

Helpful Resources (continued)

Iowa Association of School Boards (www.ia-sb.org/finance/finance.asp)

District Documents Proposed Certified Budget 2001-02; Certified Budget Enrollment

September 21, 2001;

10-year Facility Master Plan (on web); Board Policies (on web)

District’s Web Site

http://www.wdm.k12.ia.us

Check it out!!!

Where do we start?

You have to know the rules first!

Good stuff to know!!!!!!!

Dillon’s RuleDistrict Boundaries versus

City BoundariesDifferent FundsSchool Foundation

FormulaAllowable Growth and

Enrollment

Good stuff to know!!!!!!!

Spending Authority versus Money in the Bank

What is the source of spending authority and cash?

Where does the money go?Long term debtCost efficiencies

Good stuff to know!!!!!!!

Dillon’s Rule

Dillon’s Rule severely limits the district’s legal authority

In 1868 I issued a decision that schools only have authority for things which are expressly granted or necessarily implied in governing statutes. They don’t have HOME RULE authority.

Home Rule

Cities/Counties have the broad authority to exercise any power or perform any function deemed appropriate except for statutory prohibition.

“Do whatever you want except for what law says you can’t”

Home Rule Is Far Less Limiting Than Dillon’s Rule

Cities &

Counties

Schools

Home Rule

Dillon’s Rule

Good stuff to know!!!!!!!

District Boundaries versus City Boundaries

School District Map

60th Street

142nd Street

School District versus City

Boundaries for school districts are INDEPENDENT of city

boundaries. Therefore, as city boundaries change, school district boundaries remain

unchanged.

Good stuff to know!!!!!!!

Different Funds

District FundsGeneralActivityManagementPhysical Plant

and Equipment Levy (Regular and Voted PPEL)

Public Education & Recreation Levy (PERL)

Capital Projects includes Sales and Services Tax Fund

Debt ServiceEnterprise-

School NutritionEnterprise-

Community Education

Trust

GENERAL FUND

Description: Used to account for all financial resources except those required in another fund. Typical items include employee salaries, benefits, services, supplies, maintenance and equipment

Revenue Sources: Foundation Formula determines property tax and state aid, cash reserve, federal dollars and funding from other sources (miscellaneous income) such as tuition, earned interest, and open enrollment

Authority: State Foundation Formula & Board

ACTIVITY FUND

Description: Student-related activities such as fundraising events, athletics, and other extra curricular

Revenue Sources: Student fees,

gate admissions, sales

Authority: Board and student groups

MANAGEMENT FUND

Description: Used to pay district unemployment charges, non-employee insurances, and early retirement benefits

Revenue Sources: Property tax with rate dependent on dollars needed

Authority: Board

PHYSICAL PLANT AND EQUIPMENT LEVY (PPEL)

Description: (Iowa Code Chapter 298.3) Used for the purchase and improvement of sites, buses, and major building repair and re-modeling, single units of equipment over $1,500

Revenue Sources: Property tax (calculated on Taxable Valuation plus Tax Increment Finance Valuation)

Authority: Regular (33-cents per $1,000) and Voted (max. $1.34). Currently, WDMCSD max. is $1.34.

Public Education and Recreation Levy (PERL)

Description: (Iowa Code Chapters 276 and 300) This levy is used for the support of community education in WDMCSD.

Revenue Sources: Property tax

Authority: Voters, maximum allowed 13.5 cents per $1,000 of valuation, stays in place unless petitioned for election

CAPITAL PROJECTS FUND

Description: Used to account for the resources that pay bills for school building additions and loans authorized by Chapter 297.36 or the local option sales and services tax

Revenue Sources: Bond proceeds, Local Option Sales and Services Tax

Authority: Voters, requires 60% for bonds

DEBT SERVICE FUND Description: Used for the

accumulation of dollars for, and the payment of, general long-term debt, principal and interest

Revenue Sources: Property tax (calculated on Taxable Valuation plus Tax Increment Finance Valuation)

Authority: Board, rate set as needed to meet scheduled payments

ENTERPRISE: SCHOOL NUTRITION FUND

Description: Used for school lunch and breakfast program

Revenue Sources: Lunch and breakfast sales, ala carte sales, federal and state subsidies

Authority: Board approves lunch prices

ENTERPRISE: COMMUNITY EDUCATION FUND

Description: Used for educational programs available to the public such as KIDS WEST, construction technology class, and student stores

Revenue Sources: Fees and sales

Authority: Board, CE Advisory Board

TRUST FUND

Description: Used for the assets held by the district from memorials not donated to the educational foundation*.

Revenue Sources: Donations

Authority: Board

* West Des Moines Community Schools Foundation for Educational Excellence

Good stuff to know!!!!!!!

School Foundation Formula

State Foundation Formula

Used to calculate a school district’s general fund budget, which primarily supports the education program of a school district. Each school district is responsible for calculating its budget (revenues and expenditures) under the state foundation formula. The formula also determines the maximum amount (spending authority limit) for the district’s expenditures.

State Foundation Formula

In other words, the state foundation formula SETS AN EXPENDITURE CEILING for each school district’s total spending authority and TELLS the school district how to fund its spending authority.

The maximum limit on a credit card is much like spending authority.

The maximum limit does not necessarily mean you have the money to spend to that limit.

Spending authority is a calculation. It does not generate its own money.

School Foundation Principles

Equity in expenditures

Property tax relief Equalization of

method of taxation Uniform state aid

allocation formula Predictable Simple

Pupil driven Provide for

local discretion and incentives

ESTABLISH MAXIMUM SPENDING CONTROL

One formula for AEA & K-12

Equity in Expenditures

Enrollment # Districts 1999-2000<250 25 6,402$

250-399 53 5,835$ 400-599 71 5,591$ 600-999 105 5,477$

1,000-2,499 84 5,447$ 2,500-7,499 24 5,515$

7,500+ 9 5,936$ WDMCSD 5,618$

STATE AVG 5,630$ Total 371

Average General Fund Per Pupil Expenditures by Enrollment

Equity in Expenditures

Wow!Wisconsin spent nearly$1,900 more per pupil

than the Iowa average in 1999-2000!

Rank 1999-2000Iowa 34 6,008$

Nation 6,627$ Illinois 26 6,149$ Kansas 23 6,386$

Minnesota 14 7,435$ Missouri 37 5,846$ Nebraska 32 6,000$

South Dakota 45 5,369$ Wisconsin 11 7,886$

Source: Iowa Condition of Education (NEAoriginal source)

Surrounding States Average General Fund Per

Pupil Expenditures

Pupil Driven

times DCPP =

DCPP = District Cost Per Pupil = Property Tax/State Aid Revenue per pupil

Certified Enrollment

This is the number of resident pupils on the third Friday in September. This count generates the budget and spending authority for the following school year.

Certified Enrollment History

SEPT. PK-6 7-8 9-12 Total1996 4,680.3 1,358.6 2,454.7 8,493.6 1997 4,620.9 1,375.0 2,581.4 8,577.3 1998 4,698.7 1,382.2 2,612.9 8,693.8 1999 4,744.6 1,346.7 2,589.0 8,680.3 2000 4,761.0 1,314.1 2,657.5 8,732.6 2001 4,781.5 1,383.4 2,688.7 8,853.6

2002 * 4,745.0 1,475.0 2,705.0 8,925.0 2003 * 4,743.0 1,455.0 2,779.0 8,977.0

* Projection

Open Enrollment

Open Enrollment History/Projections

-

100.0

200.0

300.0

400.0

500.0

600.0

Stu

de

nt

Co

un

t

IN OUT

Current projectionsshow the gap between

ins and outs narrowing.

What is Allowable Growth?Allowable Growth is the percentage increase of the State Cost Per Pupil, which is set each year by the Iowa Legislature. This percentage, when multiplied by the current year’s State Cost Per Pupil, determines the amount of dollar growth in each district’s cost per pupil. For example, if the State Cost Per Pupil is $4,512, then a 4% allowable growth means that it will increase by $180 for the next year ($4,512 x 4% = $180). So, $4,692 ($4,512 + $180) becomes the State Cost Per Pupil for the next year.

How is Allowable Growth determined?

State Cost AG% $ Incr.

93-94 3,406$ 2.85% 97$ 94-95 3,503$ 3.50% 123$ 95-96 3,626$ 3.30% 120$ 96-97 3,746$ 3.50% 131$ 97-98 3,877$ 3.50% 136$ 98-99* 4,013$ 3.00% 158$ 99-00 4,171$ 4.00% 167$ 00-01 4,338$ 4.00% 174$ 01-02 4,512$ 4.00% 180$ 02-03 4,692$ ????03-04* Adjusted for $38 G&T

State Cost AG% $ Incr.

93-94 3,406$ 2.85% 97$ 94-95 3,503$ 3.50% 123$ 95-96 3,626$ 3.30% 120$ 96-97 3,746$ 3.50% 131$ 97-98 3,877$ 3.50% 136$ 98-99* 4,013$ 3.00% 158$ 99-00 4,171$ 4.00% 167$ 00-01 4,338$ 4.00% 174$ 01-02 4,512$ 0.00% -$ 02-03 4,512$ 1.00% 45$ 03-04 4,557$

* Adjusted for $38 G&T

We planned on this! Right now itlooks this!!!

Why is Allowable Growth Important?

ACTUAL AG 4% AG 1% AG 0%2001-02 2002-03 2002-03 2002-03

Allowable Growth Increase 180$ 45$ -$

DCPP * 4,512$ 4,692$ 4,557$ 4,512$ x

Budget Enrollment 8,732.6 8,853.6 8,853.6 8,853.6 =

Spending Authority 39,401,491$ 41,541,091$ 40,345,855$ 39,947,443$

INCREASE 2,139,600$ 944,364$ 545,952$

Teacher Contract Increase 1,700,000$ 1,700,000$ 1,700,000$

Dollars remaining for all other increases such as

salaries (e.g. secretaries, custodians, bus drivers, principals),

benefits (e.g. medical insurance, FICA, etc.), supplies, utilities, fuel,

books, etc. 439,600$ (755,636) (1,154,048)

Why is this IMPORTANT?This is really serious! I hope parents and staff understand the significance that theallowable growth rate has in determiningthe district’s ability to maintainCURRENT programs and services forstudents.

District’s Cost Per Pupil

The District’s Cost Per Pupil, DCPP, is the same as the state cost per pupil.

State Cost Per Pupil Analysis

53% of the districts have a DCPP HIGHER than the state cost per pupil! There is no way for WDMCSD to be higher than the state minimum.

Cost Per Pupil Comparisons

$4,400

$4,450

$4,500

$4,550

$4,600

$4,650

$4,700

Cost Per Pupil

JohnstonAnkenySE PolkDes MoinesUrbandaleWest Des MoinesMaximum

What if WDMCSD DCPP was the….?

Same as Des Moines

WDMCSD would receive an additional $68 per student (spending authority and money) or $593,818 for FY02

Same as State Maximum

WDMCSD

would receive an additional $175 (spending authority and money) per student or $1,528,205 for FY02.

Regular Program Calculation

2000-01 2001-02 2002-03

BudgetEnrollment 8,680.3 8,732.6 8,853.6

DCPP $4,338 $4,512 $4,512

RegularProgram $37,653,753 $39,401,491 ?

Dollar Increase $1,391,913 $1,747,738 ?

% Increase 3.84% 4.64% ?%

What willthis number

be?

Instructional Support Program Levy (ISP)

Local district has the ability to generate up to 10% of the Regular Program in spending authority.

Funding is a combination of property taxes and state aid which counts as miscellaneous income.

Total state dollars have been capped since inception of the ISP. So as more districts approve an ISP, there are fewer state dollars for each district.

Instructional Support Program Levy (ISP)

POSSIBLE SOLUTION: Legislation which would give the district full spending authority for state share with money coming from local taxpayers or FULL STATE FUNDING.

Spending Authority

How is it calculated?

Line numbers refer to Aid & Levy Worksheet

Pupil CountCost per

PupilRegular Program (Line 5.1) 8732.6 4,512$ 39,401,491$ Supplemental Weighting (Line 5.3) 57.187 4,512$ 258,028$ Special Education weighting (Line 5.4) 794.84 4,512$ 3,586,318$ AEA Special Ed support (Line 5.5) 9527.44 190.39$ 1,813,929$ AEA media services (Line 5.7) 10177 36.79$ 374,412$ AEA ed services (Line 5.8) 10177 40.30$ 410,133$ AEA prorata reduction (Line 5.9) (127,770)$ Dropout-Allowable Growth (Line 5.10) 837,764$ SBRC-Allowable Growth #1 (Line 5.11) 545,952$ SBRC-Allowable Growth #2 (Line 5.12) -$ Instructional Support Program (Line 10.27) 3,592,692$ Current year's Spec. Ed deficit 200,000$ Current year's Miscellaneous Income 6,021,191$ TOTAL OF ALL ITEMS ABOVE EQUALSTOTAL SPENDING AUTHORITY (without previous year's unspent balance) 56,914,140$

Increase over previous year 3.96%

TOTAL EXPENDITURES 57,207,995$ Increase over previous year 6.73%

Excess/(Deficiency) (293,855)$

Unspent Balance (Cumulative unused spending authority from previous years)

Beginning of Year 9,168,406$ End of Year 8,874,551$

2001-02

For those who want the more technical calculation..

Fund Balance

Assumes $902,000 reduction state aid

Use Aid & Levy Lines for Expected Use CAR for ACTUALS

EXPECTED EstimateProperty Tax-District Cost (Line 15.3) 22,909,579$ 22,878,294$ Property Tax-Instruct. Supt.- (Line 15.4) 3,364,887$ 3,364,887$ Property Tax-Cash Res. (Lines 15.9+15.10) 300,000$ 300,000$ State Aid to District (Line 16.9 + M&E) 20,946,247$ 20,085,804$ State Aid to AEA (Line 16.8) 2,470,704$ 2,470,704$ State Aid-Instruct. Supt (Line 10.24) 227,805$ 227,805$

SBRC On-time Funding -$ -$

Miscellaneous Income 6,021,191$ 6,021,191$ AdjustmentsTOTAL REVENUE 56,240,413$ 55,348,685$

-1.80% -3.16%

PROJECTED EXPENDITURES 57,207,995$ 57,207,995$ 6.73% 6.73%

Excess/(Deficiency) (967,582)$ (1,859,310)$

Fund Balance Beginning of Year 12,668,585$ 11,661,151$ End of Year 11,701,003$ 9,801,841$

2001-02This is for the

accounting folks.Too technical? Justgo to the next slide.

Authority FundBeginning Balance 8,687,258$ 9,614,548$

Annual Authority/Revenue 57,993,418$ 58,489,177$

ExpendituresSalaries 37,130,481$ 37,130,481$

Benefits 9,578,946$ 9,578,946$

Services 5,612,161$ 5,612,161$

Supplies 4,664,599$ 4,664,599$

Equipment 599,524$ 599,524$

Other 32,296$ 32,296$

AEA/Transfers 2,970,704$ 2,970,704$

TOTAL 60,588,712$ 60,588,712$

Excess(Deficiency) ($2,595,294) ($2,099,535)

Ending Balance 6,091,964$ 7,515,013$

% of Expenditures 10.1% 12.4%

Projection 0% AG2002-03

One possible scenario for

2002-03

How can the district increase spending authority?

Higher allowable growth rate

Increase certified enrollment

Increase miscellaneous income

School Budget Review Committee request for unique circumstances

Decrease expenditures

How can the district increase its cash balance?

Increase the cash reserve levy

Increase miscellaneous income

Decrease expenditures

Property Valuation History

General, PERL, Management

Fund Valuation % Inc.Dallas

TIF Polk TIF % Inc.

PPEL and Debt Service

ValuationPercent

Increase

01-Jan-01 100% 4,404,297,917$ 7.8% -$ 373,457,003$ 59.4% 4,777,754,920$ 10.6%

Taxable 2,954,384,680$ 1.0% -$ 342,502,293$ 46.2% 3,296,886,973$ 4.3%

01-Jan-00 100% 4,085,502,521$ 2.0% -$ 234,321,659$ 49.2% 4,319,824,180$ 3.8%

Taxable 2,925,201,385$ 2.8% -$ 234,308,589$ 49.6% 3,159,509,974$ 5.3%

01-Jan-99 100% 4,006,234,228$ 7.2% -$ 157,082,649$ 141.1% 4,163,316,877$ 9.5%

Taxable 2,844,945,014$ 4.5% -$ 156,667,349$ 141.0% 3,001,612,363$ 7.6%

01-Jan-98 100% 3,737,875,841$ 5.4% -$ 65,159,550$ -60.6% 3,803,035,391$ 2.4%

Taxable 2,723,358,157$ 7.9% -$ 65,018,540$ -53.3% 2,788,376,697$ 4.7%

Rollback-What is it?It is the percentage of residential property that is taxed.

Residential Residential100% Valuation $150,000 $150,000times Rollback 0.5444 0.5167

Taxable Valuation 81,665$ 77,505$

Rate per $1,000 13.49 13.49

District Tax Levy 1,102$ 1,046$

less Homestead Credit 65$ 65$

Taxpayer Pays 1,036$ 980$

Rollback-What’s the difference?

General Fund-Increases state aid necessary PPEL and Debt Service-DECREASES

dollars generated for the district

Residential Residential100% Valuation $150,000 $150,000times Rollback 0.5444 0.5167

Taxable Valuation 81,665$ 77,505$

PPEL rate 1.67 1.67

District Tax Levy 136$ 129$

Rollback Impact on PPEL

Residential Residential100% Valuation $2,804,732,950 $2,804,732,950times Rollback 0.5444 0.5167

Taxable Valuation 1,526,980,760$ 1,449,205,515$

PPEL rate 1.67 1.67

District Tax Levy 2,550,058$ 2,420,173$

Difference $129,885

Comparison of Valuations

Comparison of 100%, Taxable and Commercial Valuations

$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

1995 1996 1997 1998 1999 2000 2001

Assessment year

Valu

ati

on

in

Do

llars

$

100% Residential

Taxable Residential

Commercial

Property Tax Valuation

January 2001

Ag Land0.1%

Utilities0.7%

Personal Property R.E.0.1%

Industrial1.2%

Ag Buildings0.0%

Residential47.0%

Commercial48.4%

Gas & Electric2.6%

TAXABLE VALUATION PER PUPIL

85,000

170,000

313,000 320,000

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

LowAverageWDMCSDHigh

Property Tax versus State Aid

0%10%20%30%40%50%60%70%80%90%

100%

Low Val. Avg. Val. High Val.

AdditionalLevyState Aid

UniformLevy

How does our tax rate compare?

Polk County School District Tax RatesFY02

DC-Grimes CSD 17.82$ Des Moines ISD 17.14$ Ankeny CSD 17.05$ Carlisle CSD 16.33$ SE Polk CSD 15.13$ Johnston CSD 15.09$ Saydel CSD 14.78$ North Polk CSD 14.63$ Bon-Farrar CSD 14.60$ WEST DES MOINES CSD 13.49$ Urbandale CSD 12.91$

Tax Rate and Levy for Each Fund

Rate LevyGeneral Fund 9.09$ 26,574,460$ Management 0.72$ 2,100,002$ PPEL regular 0.33$ 1,042,638$ PPEL voted 1.34$ 4,233,743$ PERL 0.14$ 394,902$ Debt Service 1.88$ 5,934,709$

TOTAL 13.49$ 40,280,454$

2000-01

Miscellaneous Income Examples

Tuition Open

enrollment Bus fees Textbook

fees Earned

interest Rentals Donations

Categorical money

All federal source dollars

Good stuff to know!!!!!!!

Where is the source of money?

Where does the money go?

What are the sources of funding for the General Fund?

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

2000-01

State Aid

Property Taxes

Other-Local

Other-State

AEA

Federal

What are the sources of funding for the General Fund?

Misc. Income

11%

State Aid39%

Property Tax50%

2000-2001

Miscellaneous Income

All money that is NOT property tax or state aid.

Categorical Funding Examples

Phase II/III Class Size

Reduction Student

Achievement and Teacher Quality

Technology Vocational Aid Nonpublic

Technology

Title VI Title I Carl

Perkins Eisenhower STAR Goals 2000 Drug Free E-rate

Phase II Teacher Payment History

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

96-97 97-98 98-99 99-00 00-01

ActualWith AG

Can we do more somehow?

Currently, the district is taking advantage of EVERY AVAILABLE source of funding within the Iowa School Foundation Formula.

Where did the money in the General Fund go?

Central/Non-instr0%

AEA & Transfer5%

Instruction64%

Transport.4%

Bldg. Admin5%

Operations10%

Student/Staff Support

8%

Board/Central Admin

4%

2000-01

Where did the money in the General Fund go?

Other0%

Salaries63%

Capital Outlay1%

Supplies7%

AEA5%

Benefits15%

Purchased Services

9%

2000-01

Key Financial Measures

Unspent BalanceFund BalanceFinancial Solvency

Ratio

Unspent and Fund Balances

Comparison of Unspent Balance and Fund Balance

02000000400000060000008000000

100000001200000014000000

91 92 93 94 95 96 97 98 99 00 01 02est

03est

Budget Year

Unspent Balance Fund Balance

Unspent and Fund Balances Financial Goals

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

99 00 01 02 03 04

Fiscal Year

Pe

rce

nt

of

Ex

pe

nd

itu

res

Unspent Fund

Financial Solvency Ratio

General Fund

Unreserved, undesignated fund balance divided by Total Revenues

Financial Solvency Ratio

16.0%

18.3%

22.4%

18.5%

15.9% 13.6%

12.8%

16.7%

9.9%9.9%

10.8%11.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

91 92 93 94 95 96 97 98 99 00 01 02 est

Good stuff to know!!!!!!!

Long term debt

Bonded Indebtedness Schedule

$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

03 04 05 06 07 08 09 10 11 12

Fiscal Year

Current New

By keeping debtservice level, currentdebt can be paid off

sooner. Provides option for bringing

on new debt ($28 m.)without increasing

taxes.

Good stuff to know!!!!!!!

Cost efficiencies

Significant Ways District Maximizes Resources

Maximum Instructional Support Program Levy

Maximum PPEL and PERL levies

K-6 class size policy of 26 and 28

Bus policy (43% ride bus)Minimum number of

attendance centers for number of students

Financial Comparison

In spite of the funding challenges, the district’s financial condition remains one of the top districts in the state.

Gold Star!!!

Comprehensive Annual Financial Report (CAFR) - Certificates of Excellence in Financial Reporting

Association of School Business Officials International every year since 1984-85

Government Finance Officers Association every year since 1986-87

QUESTIONS???

Thank you!