School District Revenues SF101A-School Finance - Revenues Benny L. Gooden ASBO 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 Education 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 reappraisals 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: Revenues Expenditures Investments Debts Obligations Inventory 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 district; (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. Selected 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 Penalty 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. Selected Statutory Guidelines..continued Board disbursing officer § 6-13-618 Best Financial Practices § 6-15-2301 Classified School Employee Minimum Salary Act § 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 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 year? •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 important? To provide a stable fiscal environment To gain the confidence of board of education, staff and community To verify the revenue calculations of others 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 Funds Assessed Valuation Real Property Residential Business/Industrial Agricultural/Timber Minerals Personal Property Business Vehicles/Aircraft Livestock 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? JAN JAN ASSESSMENT YEAR JAN JULY FISCAL YEAR 60% Current JULY JAN 40% Pullback JULY 60% Current 40% Pullback 60% Current 40% Pullback 60% Current 40% Pullback Ending Soon !!!!! JAN JULY 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 Vocabulary 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 received. 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% Pullback 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 years. 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 Transition—Remember: The immediate or gradual transition away from 40% pullback does not result in additional revenue—nor does it result in less revenue. 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) Historical Trends in Assessed Valuation Growth in dollars and Percent 5-year averages Trends are Influenced by A variety of Factors Economy Unusual activity Appraisal Cycles Mistakes Review Trends in Context Past History Environmental Changes Economic Growth or Decline Population Changes Reappraisal Cycles Legislative Action Assessed Valuation/Tax Rate 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 Election Verify millage allocation as approved by voters 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 Real Year 2 $ 94,533,310 Personal $ 36,722,125 Utility Total $ 6,562,305 $ 137,817,740 Real $ 83,400,923 -11,132,387 -11.77% Personal $ 48,638,552 +11,916,427 +32.45% Utility $ 7,092,685 + 530,380 +8.08% 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 * Or NOT 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 1.48% Never Collected 3.49% Delinquent .75% Tax Collector/Treasurer 2.10% Excess Commissions 2.0 % Assessor’s Office 90.18% Current Taxes/36% Pullback NOW Ending Soon Includes Homestead Rebate 100% Total 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 Publication Fiscal Year School Election Tax Bills Issued Assessments Tax Pmt Deadline Publication Fiscal Year Fiscal Year School Election Tax Bills Issued Assessments Tax Pmt Deadline Publication Year 2 Year 1 July Jan July Jan July 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 M&O Actual Application 6.45 Required Debt 25.45 M & O Avail. 31.90 Total 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 history! 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 calculations. 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 Education § 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 year. 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 Memos. ADE State Aid Notice Source: Arkansas Department of Education Keep all State Aid Notices for future reference Revised State Aid Notice Compare changes to original and ask “Why?” State Foundation Aid is a combination of: EXAMPLES Local Funds per student based on local assessed valuation x URT x 98% State Funds to bring total aid to established adequacy level per student $ 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 “ADEQUATE” • 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 $ 73,200 TOTAL LOCAL RESOURCES $ 3,482,437 3 Qtr. ADM for prior year 1,236.54 2012-2013 Example…cont. Total Local Resources $ 3,482,437 ÷ Students (ADM) 1,236.54 LOCAL RESOURCES PER ADM $ 2,816 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 X Prior Year ADM (3 Qtr.) 1,236.54 = 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 requirements. 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 (ADM) Changes in Assessed Valuation All require individual analysis in each district Counting Students • Enrollment-Represents the number of students eligible to attend at any time. • 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 ADA Average Daily Attendance ADM Average Daily Membership Enrollment ∑ 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 appropriation. Refunds of tax collections in excess of 98% will be required. Act 633 of 2011 modified data collection. State Funding Categories Unrestricted 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 Restricted 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 (NSLA) 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 (ALE) 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 (ELL) 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 Education. Professional Development Funding 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 Education Additional Reporting Required for Selected Revenue Sources General Facilities Funding Distance Learning Gifted and Talented Student Growth Declining Enrollment Special Education Catastrophic Occurrences 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 granted 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 facilities 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 level. 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 computation. 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 amount. 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 categories 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 Memos. 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 Cooperatives ADE/Professional Group Listserve(s) County Officials Other School Leaders Auditors Publications ASBO AAEA The Best Revenue Estimate is one based on past experience and upon Reasonable Projections!