Public Schools of Petoskey

Budget Update & Outlook

September, 2004

Last Time We Met….

February 2003 – State had just sent Executive Order cuts to all districts.

Per Pupil Allowance at start of year had been set at $6,700.

Executive Order in Feb. 2003 reduced the per pupil allowance by 3.8%; approximately $60 per pupil.

Cost to PSP: $188,411

The Belt Tightening Begins

Between Feb. 2003 and June 2003 we: Reduced supply budgets 20% Reduced conferences and reimbursements Eliminated remaining major equipment purchases Restored full 18 mills on non-homestead property taxes

End Result Budgeted Loss for FY 02-03: $213,049 Actual Result: Gain of $188,471

Per Nov 2003 MSBO survey

What Did Other Districts In Michigan Do?

In response to their budget issues in FY 2002-03 303 (58%) districts laid off employees. 366 (70%) did not fill open positions. 188 (36%) eliminated programs or services. 288 (55%) increased class size. 147 (28%) froze salaries and benefits for some employees. 277 (53%) reduced or eliminated field trips. 115 (22%) reduced transportation services. 246 (47%) deferred maintenance on existing facilities.

Refresher on State Aid:State Aid Formula

(# Pupils Multiplied by

Per Pupil Foundation Allowance) Less

(18 mills X District Non-Homestead TV) Equals

Amount State pays the district

State Aid Key Points

Pupil count is an uncontrollable variable. Per Pupil Foundation Allowance is set by the State.

($6,700 for 02-03,03-04 & 04-05). This is the minimum any district receives.

Amount of $$ sent from Lansing to PSP is reduced as our property values increase.

INCREASED PROPERTY VALUES DO NOT EQUAL MORE MONEY FOR SCHOOLS!!!

How the Per Pupil Allowance is Split Between Taxes & State

State - Foundation

37%

Prop Taxes63%

From Standard & Poor’s Latest Report

The District’s state-source operating revenue per student is exceptionally below the state average, and lower than the peer group average.

Statewide, only 3.8% of Michigan’s school districts receive less per-student revenue from state sources than the district.

What Does All This Mean?

As the property values in the Petoskey area increase, the benefit of the increased property tax revenue does not accrue to Petoskey Schools.

The State of Michigan benefits, as the amount of money sent from Lansing decreases as the local property tax revenue increases.

Major Revenue Sources

Prop Taxes57%

State - Foundation

33%

ISD3%

State - Categorical

3%

Federal2%

Other Local2%

Major Expenses

SALARY55% RETIREMENT

8%

FICA4%

EMPLOYEE INSURANCE

15%

OTHER EXPENSES

18%

Transportation

4%

Instructional Staff Support

4%

Business Services

1%

Operation and Maintenance

10%

Instructional

Programs

68%

Support

Services

32%

Pupil Services

3%

Tranfers to

Athletics

2%

Community

Support Services

0.4%

School

Administration

6%

General

Administration

2%

Instruction to Support Costs Comparison

Observations About PSP by Standard & Poor’s

On a per-student basis: the district’s instructional expenditures are comparable to

the state average, but higher than the peer group average. the district’s operating expenditures are moderately

below the state average, but comparable to the peer group average.

Statewide, 18.1% of Michigan’s school districts spend less per student on administration than the district.

Statewide, only 9.2% of Michigan’s school districts spend less per student on central administration.

More Data from Standard & Poor’s

How We Compare With Other Districts

The Budget Dance Continues – FY 2003-2004

State set per pupil foundation allowance at $6,700.

In November, State once again issued cuts to schools. This time cut was $74 per pupil.

Cost to PSP: $228,797

FY 2003-2004 Budget Changes: Revenue Losses

State Ordered Per Pupil Cuts State Drivers Ed Funding Lost

Total Revenue Losses

$ 228,797

26,415

$ 255,212

FY 2003-2004 Budget Changes: Cost Increases

Salary & Fringe Increases Property / Casualty Insurance Transportation Cost Increases

Total Cost Increases

$ 1,080,066

16,791

37,792

$ 1,134,649

FY 2003-2004 Budget Changes: Revenue Increases

Increased Pupil Count Increased Tuition & Fees Misc. Other Sources One Time Revenue Sources

Sale of Property & Equipment Special Ed Reimbursement

Total Revenue Increases

$ 60,00096,48651,853

81,970 290,323

$ 580,632

FY 2003-2004 Budget Changes: Cost Cuts Made

Program Cuts Energy Conservation Measures Supplies Major Equipment Hiring Delays / Reductions

Total Cost Cuts Made

$ 58,131

77,237

159,678

252,158

36,961

$ 584,165

End Result – FY 2003-2004

Had we not changed a thing on how the district spends its money, we would have lost $1.7 million.

Instead, we made cuts, looked for new revenue, scrimped on spending, saved our pennies and nickels for the entire year and…..

And instead of losing $1.7 Million, our loss came in at only $36,500.

Per K-16 Coalition for Michigan's Future survey

And What Did Other Michigan School Districts Do?

273 (52%) laid off employees (approximately 5,900 laid off state-wide).

393 (75%) did not fill open positions. 277 (52%) increased class sizes. 434 (83%) reduced supply budgets. 273 (52%) deferred maintenance on existing

facilities. 189 (32%) froze salaries and benefits for some

employees.

And That Brings Us to FY 2004-2005

As of September 27, we are still waiting on a State Aid bill, which sets the per pupil allowance……

Which means our budget, required by law to be adopted by June 30, is using an assumption for its main source of revenue!

Per Pupil Allowance – FY 2004-2005

The State is indicating the per pupil allowance will be $6,700 for a third year in a row.

If we get the full $6,700 it will be the first time; we have been cut in each of the other two years.

State economy is lagging behind projections, so our assumptions for the budget set the per pupil allowance at only $6,650.

General Fund Budget FY 2004-2005

Total Revenues Total Expenditures Excess Expenditures Est. Fav. Budget Variance Est. Use of Fund Balance Fund Balance:

June 30, 2004 June 30, 2005 (Est.)

$23,214,589 24,904,579(1,689,990) 366,468(1,323,522)

$3,678,452$2,354,930

So What’s The Big Deal?

We turned a possible $1.7 million loss in 2003-04 into an almost break-even actual result.

So why can’t we do that again in 2004-05?

The Budget Cutting Has Already Happened

We have already cut an additional $574,000 out of the budget for FY 2004-05, and created $153,000 in additional revenue. Three year total of cuts is approx. $1.7 million. Three year total of new revenue sources is approx. $1.2

million. We have cut for three years in a row now. The easy cuts are well behind us. We have no more “rabbits to pull out of the hat”.

FY 2004-2005 Budget Changes: Revenue Decreases

Anticipated Reduction of State Aid Grants & Misc. Reductions Loss of One Time Revenue Sources

Used in 03-04

Total Revenue Decreases

$ 149,078

26,118

372,293

$ 547,489

FY 2004-2005 Budget Changes: Expense Increases

Salary & Fringe Increases Add 1 Special Ed Teacher Add .5 Developmental Kindergarten Teacher Transportation Contract Increase Transfer to Athletic Fund for Coaches Salaries Property / Casualty Insurance Increase Utilities & Services Increases

Total Expense Increases

$ 1,454,83656,24432,54620,95925,68815,675

61,017

$ 1,666,965

FY 2004-2005 Budget Changes: Revenue Increases

18 mills non-homestead property tax restoration

Tuition / Rent Increases

Total Revenue Increases

$ 127,353

25,977

$153,330

FY 2004-2005 Budget Changes: Cost Cuts Made

Staffing Reductions Administration Aides Secretaries Custodial / Maintenance All Other

Savings from Retiring / New Staff Pay Differential Shift Staffing Expenses into Grants Supplies & Services Reductions

Total Cost Cuts Made

$ 85,365 31,649

40,32281,84246,179

157,91557,914

73,056

$ 574,242

Per K-16 Coalition for Michigan's Future Survey

Any Idea What Other Districts Will Do?

215 (41%) will lay off approx. 2,400 employees. 77% of these districts expect teachers to be among those laid off.

330 (77%) will not fill open positions. 226 (52%) will increase class size. 90 (21%) will reduce the number of school days. 135 (26%) will increase student fees for extra-

curricular activities.

Per K-16 Coalition for Michigan's Future Survey

Any Idea What Other Districts Will Do?

256 (59%) will reduce budgets for professional development.

265 (61%) will attempt to freeze wages and fringes. 154 (36%) will reduce hours for some existing staff. 217 (50%) will delay the purchase of new textbooks.

340 (79%) will spend from their savings.

One Cost Cutting Suggestion We Have Not Implemented

General Fund Budget FY 2004-2005

Total Revenues Total Expenditures Excess Expenditures Est. Fav. Budget Variance Est. Use of Fund Balance Fund Balance:

June 30, 2004 June 30, 2005 (Est.)

$23,214,589 24,904,579(1,689,990) 366,468(1,323,522)

$3,678,452$2,354,930

Taking a Moment to Celebrate Our Success

According to S&P: Well above average MEAP excelling rate. Well above average MEAP passing rate. Moderately above average ACT scores. Well above average AP scores.

“Relative to other school districts in Michigan, Petoskey Public Schools achieves well above-average student results with moderately below-average spending per student.”

Now a Look Into Our Crystal Ball

The Picture FY 2005-2006 and Beyond

Major Assumptions Used: Modest increases in per pupil allowance. Flat enrollment. Minimal increases in salaries. 15% - 18% increases in fringe benefit costs. Hiring freeze. No increase in supplies, major equipment

purchases, or services.

The Picture FY 2005-2006 and Beyond

FY 2005-06 FY 2006-07

Total Revenue $23,090,184 $23,885,462

Total Expenditures 25,994,888 27,340,339

Excess Expenditures (2,904,704) (3,454,877)

Fav. Budget Variance 388,229 406,374

Use of Fund Balance (2,516,475) (3,048,503)

Fund Balance

Beginning of Year $2,354,930 $ (161,545)

End of Year $ (161,545) $(3,210,048)

So What Does This All Mean?

The District will be bankrupt at the end of FY 2005-06 unless: Significant revenue increases are granted by the

State. Significant cuts in spending are enacted.

How Did We Get in this Situation?

Three years in a row of flat or declining revenue. Decline in revenue is caused by a structural

imbalance in the State’s budget. The poor economy is only partly to blame for the

State’s budget problem: Since 1994, the legislature has enacted tax cuts that

directly impact the funding of our children’s education by $550 million a year.

Per Pupil Revenue and Expense History

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Expense Per Pupil Revenue Per Pupil

Why Not Use Fund Balance?

We Are!! But we will still be bankrupt by the end of FY

2005-06. Financially sound Districts maintain some

amount of fund balance for many reasons: Cash Flow Emergencies Protect programs and services

So Where Do We Go From Here?

Continue to look for ways to save on costs. Your ideas are important. Please let us know!

Budget Planning Calendar – Plan in place by Spring 2005.

Talk to your Legislators! Tell them education is important, and should be funded as if it

is important. Fix the structural deficit that exists in the current funding

mechanism. Waiting to fix things until there is “blood in the streets” is not

acceptable.

Questions and Answers