School District Revenues

School District Revenues
SF101A-School Finance - Revenues
Benny L. Gooden
July 9, 2012
Reasons for Attendance
 ASBO Certification Credit
 Personal Knowledge Base
 Revenue portion of Tier 1 initial training
 Tier 1 annual update or Tier 2 annual training
 Professional Interaction with Colleagues
 To avoid the wrath of the State Board of
 To add excitement to an otherwise dull life
Plan for the Day
 Sources of Revenue
 Issues in making projections
 Revenue Trends
 Related Issues/Legislative Updates etc.
 Issues which lead to Trouble
Legal Authority for School
District Revenue in Arkansas
 Constitution of Arkansas (1874 as Amended)
 Article 14
§ 1. Free school system
§ 2. School fund—use –Purposes
§ 3. School tax—Budget—Approval of tax rate
Amendments 11, 40 & 74
§ 4. Supervision of schools
Legal Authority…continued
 Constitutional Amendments
 Amendment 40—Budget
publication/restricted use of school funds
 Amendment 59—Tax rate rollbacks after
 Amendment 74—25 mill uniform rate of tax
 Amendment 79—Property tax relief
Selected Statutory Guidelines for
School District Finance Powers & Duties of Board of Directors
Attend meetings of school board.
Determine mission and direction of district.
Adhere to state and federal laws.
Enact, enforce and obey policies.
Employ staff.
Understand and oversee school district finances.
Manage facilities.
Approve curriculum and ensure that it is taught.
Visit district schools and classrooms.
Obtain training and professional development.
Do “all other things necessary and lawful..”
§ 6-13-620 A.C.A.
Revised 2009
(6)Understand and oversee school district
finances required by law to ensure alignment
with the school district’s academic and facility
needs and goals, including without limitation:
 (A) Reviewing, adopting and publishing
the school district’s budget;
 (B) Overseeing and monitoring the
school district finances, including:
Real Property
(6)Understand and oversee school district
finances ……
 (C) Borrowing money as necessary, but in no
case shall the school board of directors permit
the school district to end the fiscal year with a
negative legal balance;
 (D) Entering into contracts for goods and
services necessary to operate the school
 (E) Buying, selling, renting, and leasing real
property and personal property on behalf of the
school district;
 (F) Receiving, reviewing, and approving each
annual financial audit report and presenting it
to the public.
Statutory Guidelines…continued
Publication of budget--Amt. 40 § 6-13-622
Appointment of Treasurer § 6-13-701
Deposit of School Funds § 6-20-222
Requirements for financial reporting
§ 6-20-2103 & § 6-20-2201 et.seq
Records as required by ADE
 District debt-current & bond § 6-20-401
§ 6-20-801 et.seq. § 6-20-1201 et.seq.
 Public School Funding Act § 6-20-2301 et.seq.
Statutory Guidelines..continued
 Board disbursing officer § 6-13-618
 Best Financial Practices § 6-15-2301
 Classified School Employee Minimum Salary
§ 6-17-2203
 Teacher compensation guidelines
§ 6-17-2104 and § 6-17-2403
 Independent Audit deadlines § 6-20-180
 Training Requirements § 6-20-1805
 Educational Excellence Trust Funds § 6-5-307
Certifications by Superintendent
Two of many…..
X 9
X 9
68 pages
Arkansas schools receive more than
90% of resources in these categories.
The Big Question:
Total Revenue
How much Total Revenue
will your school district
receive in 2012-2013?
What effect does Legislative action or
changes in local economic conditions
have on resources for the coming
•ADM increased or decreased
•Assessed valuation changed
Guessing is not Preferred
Using systematic techniques to
develop reasonable and defensible
estimates of school revenue…
Why are accurate projections
 To provide a stable fiscal environment
 To gain the confidence of board of
education, staff and community
 To verify the revenue calculations of
 To avoid fiscal distress
All Categories of Revenue
Must be Considered
 Local
 State
 Federal
Factors Determining
Local Revenue
 Assessed Valuation
 Tax Rate (Millage)
 Collection Rate
 Other Local Revenue/Miscellaneous
Assessed Valuation
 Real Property
 Personal Property
 Utility Property
Abstract of Assessed Valuation
Source: County Assessor/Clerk
Current Taxes/
40% 36%Pullback
From Abstract of Assessments
Source: ADE Website
How Does 40% Pullback work in
Arkansas school finance?
60% Current
40% Pullback
60% Current
40% Pullback
60% Current
40% Pullback
60% Current
40% Pullback
Ending Soon !!!!!
Each FISCAL year contains: Taxes due and payable in that FY (Current Tax)
Taxes due and payable in the next FY (40% Pullback)
A 40% Pullback Transition
 Revenue receipts: include local taxes actually
collected from July 1-June 30 regardless of
assessment year.
 Deferred: revenues in excess of 40% to which
district is entitled for future fiscal year.
Know status
 Accrued: revenues included in the imputed 40%
from the future fiscal year, but not actually
 Phase-out: Adjustments made to accrued
Know status
revenues during a period of up to ten (10) years
following June 30, 2012.
Defined by § 6-20-401
Transition options to end 40%
 Immediate—Absorb either accrual or deferral
revenue in the current year budget.
Advantage: This makes change in one year.
Disadvantage: There will be an apparent
increase or decrease in the legal fund balance.
 Phase in—Accrual may be reduced by 10% per
year, i.e. 36% in 2011-2012, 32% in 20122013, etc.
Advantage: Effect in one year is minimized.
Disadvantage: Accounting can become
problematic for a number of years.
Revenue Estimation after the 40%
Pullback Concept is eliminated
 Look at collection trends from several past
 Determine tax revenue received as current
taxes in the July 1-December 30 period.
 Determine tax revenue received as current
taxes in the January 1 – June 30 period.
 Make estimates based on past historyTRENDS.
 Consider changes in assessed valuation in
estimating for future fiscal year.
During the 40% Pullback
 The immediate or gradual transition away
from 40% pullback does not result in
additional revenue—nor does it result in less
 The effect is only a matter of timing for the
recognition of revenues resulting from ad
valorem taxes.
 This point must be made clear to educators,
school board members and the public.
Abstract of Assessment
ADE Certification Signature
ADE Certification Signature
Assessment Abstract Issues
 Signatures by appropriate officials
 Accuracy of Data
 Amendments during the year
If you don’t check it, who will?
Establishing Trend Data
 Assessed Valuation-by Category
 Collection Rates
Current Tax
Delinquent Tax
Amendment 79-Homestead Credit
Excess Commissions
36% 40% Pullback—If Applicable
 Interest on taxes held by Collector
 Timing of Revenue Receipts
 Average Daily Membership (ADM)
Growth in dollars and
5-year averages
Trends are
Influenced by
A variety of
Unusual activity
Appraisal Cycles
Review Trends in Context
 Past History
 Environmental Changes
 Economic Growth or Decline
 Population Changes
 Reappraisal Cycles
 Legislative Action
Assessed Valuation/Tax
 Verify Assessed Valuation as Certified by
County Assessor and Clerk to ADE
 Verify Tax Rate as Certified by the
Quorum Court in accordance with ballot
language approved at Annual School
 Verify millage allocation as approved by
Other Property Tax Issues
 Mandatory Reappraisals
 3-year vs. 5-year cycle
 Limits on annual additions to individual
property assessments Amendment 79
 “Frozen” assessments for those 65/over
•Amendment 59 rollbacks
•10 % maximum increase from all sources
Review of Assessed Valuation
From A Sample District
 Year 1
 Year 2
$ 94,533,310
Personal $ 36,722,125
$ 6,562,305
$ 137,817,740
$ 83,400,923
-11,132,387 -11.77%
Personal $ 48,638,552
+11,916,427 +32.45%
Utility $ 7,092,685
+ 530,380
Total $ 139,132,160
Increase of $ 1,314,420 +.95%
Property Taxes Include:
 Current Taxes *
 Amendment 79 Replacement
Homestead Credit (* Included in both current
taxes and 36% pullback)
Ending Soon
 36% Pullback *
 Delinquent Taxes
 Excess Commissions
 Interest on taxes held by Collector
All these comprise “Net Revenue”
Collection Rate Determination
 Delinquent Taxes
 Tax Collector/Treasurer
 Excess Commissions
 Assessor
 Never Collected
Why is
This Important?
Ending Soon
Total Tax – Deductions =
Current Tax & 36% Pullback
 Monitor Property Tax Rebate Payments
Estimating Collection Rate
Never Collected
Tax Collector/Treasurer
Excess Commissions
2.0 %
Assessor’s Office
Current Taxes/36% Pullback
Ending Soon
Includes Homestead Rebate
Source: Fort Smith Public Schools
Tax Rate Considerations
 Timeline for Budget of Expenditures and
Proposed Tax Rate Publication
60 days prior to annual school election
 Multiple County Districts
 Consolidation/Annexation of Districts
Multiple rates in merged districts
 ADE Certification of Bonded Debt
Payment and Available Mills
Property Tax Timelines
Fiscal Year
School Election
Tax Bills Issued
Tax Pmt
Fiscal Year
Fiscal Year
School Election
Tax Bills Issued
Tax Pmt
Year 2
Year 1
Calculation of Revenue:
Checking your estimate
 Assessed Valuation X Millage Rate
Total Property Tax Revenue
X Collection Rate
Allocated as: Current Taxes
Ending Soon
36% Pullback
Amdt. 79-Homestead Credit
Plus:Delinquent Taxes
Excess Commissions
Important: Total must not exceed 100%
of collection in any year!
Millage Rates-Schools
25 mills for maintenance and operation
(Amendment 74)
Additional maintenance and operation
(Approved by Voters)
Debt Service Mills to pay debt
(Approved by Voters)
Regular bonds/Mandatory Call bonds
Dedicated Maintenance and operation
(Approved by Voters)
Voted Millage vs. Actual
Application- A Sample District
 Voted Millage
6.90 Debt Service
 25.00 M & O
 N/A Dedicated
 Actual Application
6.45 Required
 25.45 M & O Avail.
25.00 Amdt 74
N/A Ded/M & O
.45 Excess Debt
31.90 Total
Property Tax Reminders
 36% Pullback is at 100% Collection
Ending Soon
 Delinquent tax, Excess Commissions, Fee
Office Costs and taxes not collected are
taken from Current Tax Estimates
 M & O Tax Rate must be 25 mills or higher
The BEST estimate is one
supported by past collection
Other Local Revenue
 Payments in lieu of Taxes
 Mineral leases, Severance Tax, etc.
 Contributions
 Interest
 Private, Foundation, Corporate Grants
 Rentals of district facilities
 Fees for tuition, services, etc.
 All Activity Funds *Maintained Separately
 Vending/beverage contracts
Payments in Lieu of Taxes
 Act 9 of 1960 authorized issuance of exempt
bonds to finance industrial development.
Cities and Counties must authorize with
notification of affected taxing entities.
Payments in lieu of taxes are negotiable.
Payments made by financing recipients are
distributed by the County Collector.
Revenues are included as “miscellaneous
funds” for the purpose of Foundation Aid
Miscellaneous Funds
Defined by Act 825 of 2007
Clarified by Act 266 of 2011
Federal forest reserves
Federal grazing rights
Federal mineral rights
Federal impact aid
Federal flood control
Wildlife refuge funds
Severance taxes
Revenue in lieu of taxes
Local sales and use taxes dedicated to
§ 6-20-2303
Miscellaneous Funds included in
Foundation Aid calculation
 Average of previous five-years
• If a district did not receive a category of
miscellaneous funds in the previous
year, then that category of
miscellaneous funds will not be included
in the calculation for the next school
 Payments in lieu of taxes only are
counted in proportion of URT to total
millage rate.
• Calculations are made annually.
Local Revenue Issues to Cause
Insomnia—or Worse
 Reappraisal of residential property with a
decline in value
 (Re)determination of the reappraisal cycle
 Litigation regarding gas well
values/determination of well values
 Taxpayer challenges to values
 Economic impact of recession
 Tax Increment Financing Districts (TIF)
Local Revenue-Recording
 Pentamation Reports from Levels II and III
 Recorded using Revenue Code Series 1xxxx
Refer to Financial Accounting Handbook provided by
ADE to secure latest revenue codes. Additional
changes may be announced in Commissioner’s
ADE State Aid Notice
Source: Arkansas Department of Education
Keep all State Aid
Notices for future
Revised State Aid Notice
Compare changes
to original and ask
State Foundation Aid is a
combination of:
Local Funds per student based on
local assessed valuation x URT x 98%
State Funds to bring total aid to
established adequacy level per
$ 6,267*
Rate for 2012-2013
$ 2,816
$ 3,451
Amendment 74
Approved in 1996
 25 mill Uniform Tax for Maintenance and
Operation @ 98% Collection
Assessed Valuation X .025
X 98%
This revenue source should grow 3-4% annually in
a normal economic environment as statewide
assessed valuations increase. Based on the
Arkansas Supreme Court decision, state general
revenue can be decreased when URT revenues
exceed required funding for “adequacy.”
2012-2013 Foundation
Funding per ADM
Aid Per Student
$ 6,267*
The Foundation Aid per Student is not
subject to adjustment for fluctuations
in state revenue. However a higher
amount must be approved by the
General Assembly each biennium as
“Adequacy” is defined.
State Foundation Aid for each
school district is determined by:
• Legislative Appropriation for Foundation
Aid per student—Determined to be
• Uniform Tax (Amendment 74)
Assessed Valuation x 25 mills x 98%
• 100 % of Miscellaneous Funds
(Five-year average)
TOTAL÷ Prior Year’s ADM (3 quarters)
Used to compute Total Aid
2012-2013 Example
Foundation Aid “Adequacy”
$ 6,267
AV $139,132,160 X URT .025 X 98%
$ 3,408,737
Miscellaneous Funds
3 Qtr. ADM for prior year 1,236.54
2012-2013 Example…cont.
Total Local Resources $ 3,482,437
Students (ADM)
Adequate Foundation Aid
$ 6,267
State Aid per ADM
$ 3,451
Total State Foundation Aid ?????
2012-2013 Example…cont.
Total State Aid Per ADM
$ 3,451
Prior Year ADM (3 Qtr.)
Total State Foundation Aid $ 4,267,299
Compare local calculations to State Aid Notice.
Minor variations will likely result from rounding.
Requirements for Tracking Foundation
Aid as it relates to Expenditures
 A unique Fund/Source of Fund Code is
required for the several categories of
expenditures paid with Foundation Aid
and selected other state funds.
 Refer to FIN-09-047, FIN-10-008 and
FIN-11-080 to clarify coding
 The purpose of this distinction is purportedly to
determine the actual amount of educational
services purchased by the level of state funding
determined as “Adequacy”.
Warning Signs
Combinations of:
Declines in Average Daily Membership
Changes in Assessed Valuation
All require individual
analysis in each district
Counting Students
• Enrollment-Represents the number of
students eligible to attend at any
• ADA-Average Daily Attendance
Represents the average number of
students in attendance on each day.
• ADM-Average Daily Membership
Represents the average number of
enrolled students in attendance and
absent on each day.
Each statistic results in slightly different results in
determining resources/expenditure per student
Student Data Calculation
Average Daily
Average Daily
∑ Days Attended
Days in Session
= ∑ (∑ Days Attended)+(∑ Days Absent)
Days in Session
1. Aggregate
2. Cumulative
3. Date Specific
What about the 98% collection assumption
used to compute Foundation Aid?
 Beginning in 2007-2008 Act 272 of 2007 provides a
“guarantee” of funding equal to the 98% collection from
local ad valorem taxes as anticipated in the State
Foundation Aid formula.
 Adjustments will be made following calculations of
actual collections.
 Supplemental payments will be made from a Legislative
 Refunds of tax collections in excess of 98% will be
 Act 633 of 2011 modified data collection.
State Funding Categories
 Foundation Funding Aid
 General Facilities Funding
 Supplemental Millage Incentive Funding
 Special Needs Isolated Adequacy
 Declining Enrollment Funding
 Declining Enrollment Adequacy
 Student Growth Funding
 98% of URT
State Funding Categories
Alternative Learning Environment
English Language Learners
NSL State Categorical Funding
NSL Growth Funding
Professional Development
Bonded Debt Assistance
Isolated Funding
Special Needs Isolated Funding
Special Needs Isolated Transportation
Educational Excellence Trust Fund
National School Lunch Students
Eligibility for free or reduced-price meals
90% or greater at $1,549 per student
70% but less than 90% at $1,033 per student
Less than 70% at $517 per student
Paid in 2012-2013 based on student data from the
previous October 1.
•Consideration for districts with “significant growth”
Defined as 1% increase in three successive years.
•Transition process for increase or decrease--3 years
Alternative Learning Environment
Based on $4,228 per ADM for FTE
students enrolled during the previous
school year.
Subject to rules promulgated by the State
Board of Education.
Secondary Vocational Center
 Based on $3,250 per student served during
the prior year.
Maybe—Unless the
pie is divided into
smaller pieces
English-language learner
Based on $305 per student identified
as an English-language learner
Proficiency is subject to “stateapproved English proficiency
assessment instrument”
Subject to rules promulgated by State Board of
Professional Development
Based on an amount up to $ 52 per
student as determined by the
previous school year ADM. ($42.38
in 2011-2012)
Subject to rules promulgated by State Board of
Additional Reporting Required
for Selected Revenue Sources
 General Facilities Funding
 Distance Learning
 Gifted and Talented
 Student Growth
 Declining Enrollment
 Special Education Catastrophic
 Special Education Services
 Technology Grants
 Debt Service funding supplement
6-20-2201 A.C.A.
Spending Requirements for
Categorical Funds Act 1220 of 2011
 Effective by June 30, 2012
 At least 85% of NSLA Funds must be spent
 Transfer authority among categories is
Commissioner may grant waivers
Balance in categorical funds shall not exceed
20% of annual allocation
Provisions for 10% annual reduction required
Failure to comply results in deduction
Subject to rules promulgated by State Board of Education
Academic Facilities
Partnership Funding
Requires current local school district facility
master plan
Establishes standards for maintenance
Requires that 9% of Foundation funding be
dedicated for facility costs
Establishes standards for academic facilities
Provides for designation of school districts in
“academic facilities distress” with various
sanctions and corrective action
Provides for state inspections
Provides Partnership funding for approved
Academic Facilities Wealth
Index Computation Act
Applicable wealth index is based on the value of one
mill per student in each school district as determined
by total assessed valuation of taxable real, personal
and utility property divided by the ADM.
The results for all school districts are ranked from
lowest to highest and allocated into percentiles, and
assigning the 100th percentile to the district
corresponding to the percentile of student millage
rankings of 99.5 percentile.
State shares result from subtracting school district’s
percentage share from 100% and assuming that
districts at or above the 99.5 percentile are at that
Student Growth Funding
 Beginning in 2007-2008 Student Growth Funding is
computed on a quarterly basis by comparing each
quarter ADM with the three quarter ADM of the
preceding year.
 Payments will be made based on a quarterly
 Increases based solely on consolidation or
annexation are excluded.
 A final adjustment will be made in the following
fiscal year.
 Overpayments must be refunded.
Declining Enrollment Funding
 Requires a decline in ADM over the two
immediately preceding school years.
 Funding equals the difference between
the average of the two immediately
preceding year’s ADM and the ADM for
the previous year multiplied by the
current year Foundation funding
No district shall receive both declining enrollment
funding and student growth funding during the same
fiscal year.
Other State Aid Issues
 Educational Excellence Trust Fund
Increase above highest year since
1991 must be used to increase salaries
to certified staff including FICA and
Teacher Retirement matching
Increases cannot be used for increments based
on education or experience in 2005-2006 and
thereafter. (Act 2165 of 2005)
 Salary Schedule Requirements
 Required Expenditures in targeted
State Revenue-Recording
 Pentamation Reports recorded in Levels II
and III reporting
 Record State revenues using Revenue Code
Series 3xxxx
Refer to ADE Handbook for correct
code designations. Revisions will be
announced through Commissioner’s
Federal Aid Issues
 Basic Premise: Federal Aid is categorical
and tied to specific programs and purposes.
If the Act approved by Congress, CFR
language or ADE written interpretations do
not authorize a particular use, Federal
revenues must be segregated and used as
specifically authorized.
Key Federal Items
 Safeguard signed grant award letter.
 Account for revenues as directed by ADE
with Source of Funds code.
 Be aware of timing….State FY, Federal FY,
carryover provisions.
 Keep careful records for all employees—
especially pro-rated employees paid from
Federal funds.
Federal Aid—Recording
 Pentamation Reports recorded in Levels II
and III reporting
 Record Federal revenues using Revenue
Code Series 4xxxx
Refer to ADE Handbook for correct code
designations. Additional rules and
changes will be announced in
Commissioner’s Memos.
Resources Include:
 Arkansas Department of Education
 Training through Educational Service
ADE/Professional Group Listserve(s)
County Officials
Other School Leaders
The Best Revenue Estimate
is one based on past
experience and upon
Reasonable Projections!

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