Developing a Financial Condition Indicator System (FCIS) for New York State School Districts Condition Reports Public Forum June 6, 2003 William Duncombe,

Developing a Financial Condition Indicator System (FCIS) for New York State School Districts

Condition Reports Public ForumJune 6, 2003

William Duncombe, Bernard Jump, Syracuse UniversitySalwa Ammar, Ronald Wright, Le Moyne [email protected] at: http://www-cpr.maxwell.syr.edu/faculty/duncombe/

School Districts Are Facing Unprecedented Fiscal Stress Many states are facing large budget deficits:

$30 billion in FY 2003 $80 billion in FY 2004

At least 18 states have budget gap of 10% or more. State education budgets will not be spared:

Predicted that half of the states will cut state education budgets in FY2004

At same time that state and federal accountability standards are being imposed.

Need for Greater Visibility on School District Financial Condition General public usually has little awareness of

school financial condition until a crisis emerges. By then the choices are often limited and can

require painful expenditure cuts or tax increases. The best prevention against financial

emergencies is regular monitoring of district fiscal health, and appropriate budget adjustments.

Objectives of Project To develop a FCIS that captured the multiple

dimensions of financial condition. To develop a modular system, where the different

components of financial condition can be used separately.

To develop a system that can effectively use the judgment of financial experts.

To develop a system that is flexible, and can adapt to changing circumstances.

Outline of Presentation Framework for Financial Condition

Indicator System (FCIS) Development process and methodology FCIS example Overall results Potential uses of FCIS

Definition of Overall Financial Condition Used in building FCIS Financial condition of school districts is

defined as the ability to finance adequate student performance over the long-run with reasonable tax burdens and without temporary disruptions of service.

Adequate student performance implies students reaching the academic standards set by the New York State Board of Regents.

Financial Condition Framework

Overall FinancialCondition

LR Financial Condition

Student Performance

SR Financial Condition

Economic Condition

Note: Composite measures (rule bases) are shaded.

Short-Run Financial Condition Ability to pay bills over the course of the year,

balance the budget, and maintain adequate fund balance without extraordinary measures. Categories of indicators include: Liquidity: Ability to pay bills. Fund balance: Does district have adequate reserves

to cover financial emergencies? Tax capacity: Can district raise significant revenue

without heavy tax burden or political opposition?

Long-Run Financial Condition Ability to finance adequate services over the long-run

without onerous tax burdens and debt burdens. Consider similar factors as credit rating agencies: Debt burdens/Capital spending: Can district support

adequate capital spending without undue debt burdens? Fund balances: Can the district maintain adequate reserves

to protect itself against financial emergencies? Revenue indicators: Does the district have a diversified and

stable revenue base that can support adequate spending without high tax burdens?

Economic Condition Ability of the local economy to support adequate

expenditure levels without undue local tax burdens. Costs: How expensive will it be for the district to provide

adequate services due to input costs and student needs? Fiscal capacity: Does the district have a strong tax base that

continues to grow? Population: Is population growing, and is the demographic

picture changing in ways that will affect school district? Enrollment: Is enrollment growing and has it been stable? Employment: Is the county economy growing, diversified,

and does it provide high wage employment?

Student Performance Measure Based on published data in school report cards, and

measures used in System for Accountability for Student Success (SASS) developed by SED. 4th and 8th Math and ELA Exams: Percent of students

reaching levels 2, 3, and 4. Regents Math and English: Percent of students (who

entered high school 3-years before) that received a 55 to 64 (level 2), 65 to 84 (level 3), and 85 and above (level 4).

Outline of Presentation Framework for Financial Condition Indicator

System (FCIS) Development process and methodology FCIS example Overall results Potential uses of FCIS

Our Approach to Developing FCIS

SED appointed an advisory board to serve as panel of experts.

Developed a comprehensive framework for evaluating financial condition.

Advisory board played a key role in selecting and refining the measures used in the system.

Used state-of-the-art technology to capture the judgment of the advisory board on how to combine measures into an overall evaluation.

Advisory BoardSteven Hancox, Assistant Deputy Comptroller for Municipal AffairsJack Dougherty, Chief Examiner (Performance Services and Risk Assessment)John Clarkson, Assistant ComptrollerOffice of the State Comptroller

George Perry, Executive DirectorSteven VanHoesen, Deputy DirectorNYS Association of School Business Officials

Robert Loretan, Emeritus Director Tom Rogers, Executive DirectorBob Lowry, Associate Director for Governmental RelationsNew York State Council of School Superintendents

Tim Kremer, Executive DirectorDavid LittleNew York State School Boards Association

Advisory BoardMartin D. Handler, District SuperintendentSullivan County BOCES

Marianne VanDuyneR.S. Abrams and Company

Terry Schruers, Assistant Superintendent for BusinessNew Hartford Central School District

Shane Higuera, Associate Superintendent of Management Services Eastern Suffolk BOCES

Charles Szuberla, Coordinator, Office of School Operations and Management ServicesDeborah Cunningham, State Aid Work Group Coordination and Cost-EffectivenessDan Tworek, Director, Audit ServicesMichael Abbott, Audit Manager, Office of Audit ServicesNYSED

Methodology Used for FCIS: Fuzzy Rule-Base System (FRBS) FRBS is a method for organizing all the key factors affecting

the financial condition in a way to capture the key tradeoffs that exist among factors.

FRBS is a method for converting all data into common measurement scale that can be combined, but still preserve all the information. All variables converted into membership levels in 3 sets (“fuzzy sets”). A district can have membership in more than one set.

FRBS is a systematic method for capturing the judgment of experts on how they evaluate data under different situations. We call this capturing the “contextual judgment” of experts using “rule bases”.



District AOverall

Poor Fair Good0.63 0.37 0.25

Short RunPoor Fair Good0.01 0.70 0.30

PerformanceLow Mod High1.00 0.00 0.00

EconomyPoor Fair Good0.63 0.37 0.00

Long RunPoor Fair Good0.01 0.75 0.25

114.3

District AShort Run


Tax CapacityPoor Fair Good0.20 0.67 0.33

Fund BalancePoor Fair Good0.01 0.99 0.00

LiquidityPoor Fair Good0.00 0.70 0.30

Full Value/PupilLow Mod High0.54 0.46 0.00

Trend in Tax BurdenDec. Low High0.33 0.67 0.00

Tax BurdenLow Mod High

0.00 0.80 0.20

# of DefeatsNone One Two+1.00 0.00 0.00

Unreserved BalanceLow Mod High0.01 0.99 0.00

ReservedLow Mod High0.42 0.58 0.00

UUBLow Mod High0.00 0.00 1.00

Trend in UnreservedNeg. Stable Pos.0.08 0.92 0.00

GF Quick RatioLow Mod High

0.00 0.70 0.30

Average GF Quick RatioLow Mod High0.00 0.40 0.60

TF Quick RatioLow Mod High0.30 0.70 0.00

$196,178

1.9%

0

-1.0%

5.5%

5.9%

-0.2%

1.7%

2.55

3.62

1.20

Fund BalanceSee Short Run

District A

Long Run Poor Fair Good0.01 0.75 0.25

DebtPoor Fair Good0.00 0.74 0.26

RevenuePoor Fair Good0.20 0.75 0.25

BurdenHigh Mod Low0.00 0.06 0.94

Capital SpendingLow Mod High0.74 0.26 0.00

LimitLow Mod High1.00 0.00 0.00

Adj. Debt Vs FVLow Mod High0.94 0.06 0.00

Debt Vs FVLow Mod High0.89 0.11 0.00

Debt ServiceLow Mod High0.66 0.34 0.00

Payoff RateLow Mod High0.00 0.00 1.00

11-year averageLow Mod High0.74 0.26 0.00


Property TaxPoor Fair Good0.20 0.75 0.25

% of FVLow Mod High0.00 0.80 0.20

% of incomeLow Mod High0.25 0.75 0.00

FV/ EnrollmentLow Mod High0.54 0.46 0.00

Income/EnrollmentLow Mod High0.00 1.00 0.00

Tax BurdenPoor Fair Good0.20 0.75 0.25

TrendNeg. Low High0.00 0.60 0.40

DefeatsNone One Two+

1.00 0.00 0.00

AV/FVLow Mod High0.72 0.28 0.00

Total AidLow Mod High0.00 0.31 0.69

DiversityHigh Mod Low0.00 0.83 0.17

StabilityHigh Mod Low0.47 0.53 0.00

3.5%

67.8%%2.8%90%

0.04%

0.2%

1.3%

23.2%

$322

$2461.9%

3.8%

$196,178

3.5%

0

25.7%

$97,771

DebtPoor Fair Good0.00 0.74 0.26

Debt BurdenHigh Mod Low0.00 0.06 0.94

Capital SpendingLow Mod High0.74 0.26 0.00

Debt LimitLow Mod High1.00 0.00 0.00

Adj. Debt Vs FVLow Mod High0.94 0.06 0.00

Debt Vs FVLow Mod High0.89 0.11 0.00

Debt ServiceLow Mod High0.66 0.34 0.00

Payoff RateLow Mod High0.00 0.00 1.00



3.5%

0.04%

0.2%

1.3%

23.2%

$322

$246

RevenuePoor Fair Good0.20 0.75 0.25

Property TaxPoor Fair Good0.20 0.75 0.25

% of FVLow Mod High0.00 0.80 0.20

% of incomeLow Mod High0.25 0.75 0.00

FV/ EnrollmentLow Mod High0.54 0.46 0.00


Tax Burden


TrendNeg. Low High0.00 0.60 0.40

DefeatsNone One Two+

1.00 0.00 0.00

AV/FVLow Mod High0.72 0.28 0.00

Aid DependenceLow Mod High0.00 0.31 0.69

DiversityHigh Mod Low0.00 0.83 0.17

StabilityHigh Mod Low0.47 0.53 0.00

67.8%

2.8%

90%

1.9%

3.8%

$196,178

3.5%

0

25.7%

$97,771

District A


CostPoor Fair Good1.00 0.00 0.00

Student NeedsPoor Fair Good1.00 0.00 0.00

SparsityPoor Fair Good0.00 0.00 1.00

Regional CostLow Mod High0.00 0.19 0.81

Free LunchLow Mod High0.00 0.00 1.00

LEPNone Mod High0.00 0.55 0.45

High CostLow Mod High0.00 0.00 1.00

EnrollmentLow Mod High0.00 0.20 0.80

Pupil DensityLow Mod High0.00 0.20 0.80

EmploymentPoor Fair Good0.00 0.19 0.81

GrowthLow Mod High0.00 0.99 0.01

Enr. per CapitaLow Mod High0.41 0.59 0.00

Trend in Enr per CapitaNeg. Stable Pos.0.52 0.48 0.00

Pop/EnrPoor Fair Good0.00 0.59 0.41

116.17

72%

4.0%

2.5%

3000-5000

700

0.35%

14.4%

-1.3%

FV/EnrollmentLow Mod High0.54 0.46 0.00


FV GrowthLow Mod High1.00 0.00 0.00

Income GrowthLow Mod High

0.63 0.37 0.00

$196,178

$97,771

-3.4%

3.7%

FiscalPoor Fair Good0.63 0.37 0.00

PopulationPoor Fair Good0.00 0.59 0.41

EnrollmentPoor Fair Good0.00 0.56 0.44

High WageLow Mod High0.03 0.97 0.00

UnemploymentLow Mod High0.84 0.16 0.00

Growth ’00-‘02Neg. None Pos.0.00 0.19 0.81

Growth ’96-‘00Neg. None Pos.0.00 0.29 0.71

3.5%

35%

0.9%

0.9%

Growth ’91-‘01Low Mod High0.00 0.57 0.43

Growth ’96-‘01Low Mod High0.00 0.39 0.61

Stability ’91-‘01High Mod Low0.00 0.44 0.56

Stability ’96-‘01High Mod Low0.21 0.89 0.00

1.7%

2.1%

5.6%

1.3%

FV/Enrollment

Low Mod High0.54 0.46 0.00

Income/Enrollment

Low Mod High0.00 1.00 0.00

FV Growth

Low Mod High1.00 0.00 0.00

Income Growth

Low Mod High

0.63 0.37 0.00

$196,178

$97,771

-3.4%

3.7%

Fiscal CapacityPoor Fair Good0.63 0.37 0.00

CostPoor Fair Good1.00 0.00 0.00

Student NeedsPoor Fair Good1.00 0.00 0.00

SparsityPoor Fair Good0.00 0.00 1.00

Regional CostLow Mod High0.00 0.19 0.81

Free LunchLow Mod High0.00 0.00 1.00

LEPNone Mod High0.00 0.55 0.45

High CostLow Mod High0.00 0.00 1.00

EnrollmentLow Mod High0.00 0.20 0.80

Pupil DensityLow Mod High0.00 0.20 0.80

116.17

72%

4.0%

2.5%

3000-5000

700

District BOverall


Short RunPoor Fair Good1.00 0.00 0.00

PerformanceLow Mod High0.00 0.00 1.00


Long RunPoor Fair Good0.36 0.64 0.00

189.2



Relationship between Measures SR condition and LR condition are highly

related (0.76), but they are not correlated strongly with economic condition.

SR condition is not strongly related to property values or income.

Revenue, economic condition, and student performance are strongly related to property values and income.

Comparison of Overall Financial Condition by Need/Resource Capacity Categories

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

BIG 4 HIGH-NEEDURBAN/SUBURBAN

HIGH NEED RURAL AVERAGE NEED LOW NEED

Mem

ber

ship

lev

els

GoodFairPoor

Comparison of Short Run Financial Condition by Need/Resource Capacity Categories

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7



Mem

ber

ship

lev

els

(ove

rall

sco

re)

GoodFairPoor

Comparison of Long Run Financial Condition by Need/Resource Capacity Category

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7



Mem

ber

ship

leve

ls (

ove

rall

sco

re)

Good

Fair

Poor

Comparison of Economic Condition by Need/Resource Capacity Categories

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9



Mem

ber

ship

lev

els

(ove

rall

sco

re)

GoodFairPoor

Share of Districts with Poor Financial Condition by Component and Need/ Resource Capacity Category

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1



Lo

w s

core

dis

tric

ts a

s sh

are

of

tota

l

Total

Short Run

Long Run

Economic

Student Performance

Note: Districts with membership levels in the poor set of at least 0.50.

Share of Districts with Good Financial Condition by Component and Need/ Resource Capacity Category

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1



Hig

h s

core

dis

tric

ts a

s sh

are

of

tota

l

Total

Short Run

Long Run

Economic

Student Performance

Note: Districts with membership levels in the good set of at least 0.50.



Potential Uses of FCIS Early warning system to help SED identify districts at risk

of financial problems. Training tool for SED and other education organizations on

key components of strong financial condition. Benchmarking tool for district administrators to compare

their financial condition to similar districts. Can peel back layers of system to see where condition is good and where it needs improvement.

Oversight tool for school boards to monitor district finances.

Information system for the general public—could be used to develop interactive school district financial report card.

Documents

Developing a Financial Condition Indicator System (FCIS) for New York State School Districts Condition Reports Public Forum June 6, 2003 William Duncombe,