Tuesday, February 21, 2017

A Penny Still Buys a Lot

On March 10th the school district will receive bids for phase one of our elementary school renovation project. Located in what we refer to as the 'East Wing', we will be doing work in the kindergarten classrooms and fine arts area. The project will also include the auxiliary gymnasium and kitchen, and there are plans in this phase to make our competition gym handicap accessible by installing a ramp and ADA restroom in the vicinity of our elementary art and music room. Specifically speaking, we will be installing new windows, air conditioning, ceilings and LED lighting fixtures. We will also be replacing all the temperature controls for our heating system. All told, our estimation for this phase of the project is between $550,000 and $600,000. 

You should take note that this is phase one, which obviously indicates future phases. Indeed, the board has earmarked roughly $500,000 a year for the next several years to completely renovate and modernize our elementary attendance center. At the same time we are doing this, we'll be replacing school buses, putting new roofs on our buildings, purchasing appliances for our kitchen, and acquiring new desks and furniture for our classrooms. Speaking of which, we have identified roughly $30,000 in furniture expenses for the 2017-2018 school year; a big portion of which will be used to replace lockers in the middle school. 

I haven't even mentioned the unknown expenses yet, those that typically rear their head at the worst possible time. So far this year, those emergencies that pop up have encumbered an expense of just over $20,000. Luckily, all of these things are budgeted for, even that unplanned emergency. In case you are wondering, through the month of February we have invested $720,093.94 in capital expenditures during this fiscal year, with the majority of them falling over the previous summer.

There are two revenue sources that make up our capital projects fund; the Physical Plant and Equipment Levy (PPEL) and Secure an Advanced Vision for Education (SAVE). For the sake of clarity, the SAVE fund is the one cent sales tax. Between these two revenue streams we receive between $800,000 and $850,000 annually, with the SAVE fund providing the lions share of these resources. As you can see from the table above, since 2009, Hudson has received $4,946,078 in sales tax revenue.

Without the SAVE fund we wouldn't be able to do many of the facility upgrades and renovations that we have planned. With our PPEL fund only, we would likely be able to manage the upkeep of our transportation fleet and cover the costs associated with computer hardware replacement. Anything beyond that would be quite a stretch. That is why we advocate for the extension of the SAVE statewide penny which is scheduled to sunset in 2029.

Arguably some may suggest that there should be no rush in the renewal since there is currently still 12 years remaining. Yet the fact is, many school districts bond against future revenue in the form of 'anticipated revenue bonds'. Currently, school districts have limited bonding capacity since this window is so short and beginning to close. Now, in our case the board has been committed to a 'pay as we go' philosophy, one that quite frankly has served us well. But for our planning purposes it is important to always be forward thinking. Once we finish our elementary renovation project, our sites will turn to the high school. After all, that building is now approaching 20 years old! Our current facility plan, by the way, projects out to the 2020-2021 school year. I can promise you that in 2021 and beyond (2029 for example), we are not magically going to have all of our building needs addressed. 

Luckily House File 230 has been introduced, which extends SAVE to January 1, 2050, giving schools a 20 year extension on this valuable resource. Absent the SAVE fund, school districts would be forced to either delay facility upgrades or rely on General Obligation bonds, which require a 60% super majority to pass and usually come along with a property tax increase. The Board of Directors has identified the preservation and extension of the statewide penny as one of it's legislative priorities. 

I often hear positive comments from our citizens about the numerous projects or improvements we have made to our facilities. Indeed it fills us all with pride to have great facilities for our students and visitors to our district. To keep our facilities up to date and modern we need your help. Please contact your legislators and tell them to support House File 230! You can find your legislator here

Wednesday, February 15, 2017

How the Budget Guarantee Impacts Property Tax

Reader's note: This article originally appeared on April 1st, 2015 as a way to explain the relationship between low supplemental state aid and a mechanism known as the budget guarantee. It has been updated here as a companion to last week's article, 'Supplemental State Aid: The Die Has Been Cast' to illustrate the correlation between low supplemental state aid and how it negatively effects property tax. I share this updated version because as was the case in 2015, Hudson Schools will be impacted by the budget guarantee. As was my invitation in 2015, if you are reading a hard copy edition of this article in the Hudson Herald, I would invite you to please access it online at www.superintendentvoss.blogspot.com. This will enable you to view the animated slides and deepen your understanding of the budget guarantee.

The budget guarantee is a mechanism in the Iowa school finance foundation formula that is designed to soften the blow of declining enrollment in schools. In school parlance, we refer to this as the 101% guarantee. As a practical matter, this means when supplemental state aid doesn't keep up with a decrease in enrollment, the school district is guaranteed an increase of at least 1% over the prior year's Regular Program District Cost without that guarantee. Let me explain further.

Regular Program District Cost is calculated by multiplying the number of certified students by the District Cost Per Pupil. In fiscal year 2017, we had 679 students on our certified enrollment count. Multiplying 679 X $6,766 tells us that the Regular Program District Cost for our current fiscal year is $4,595,467.

Because the legislature set supplemental state aid last week, we know the cost per pupil is set to rise by 1.11%. Therefore the cost per pupil next fiscal year in Hudson increases $73 to $6,839. But now, we have a certified enrollment number of 666. Multiplying 666 X $6,839 tells us that our Regular Program District Cost for the fiscal year that begins on July 1, 2017 (Fiscal Year 2018) is now $4,554,774.

Because our Regular Program District Cost for the new fiscal year is less than it was the prior fiscal year, we are on the budget guarantee. (click right arrow above)

The reason we call this the 101% guarantee is because of the math that is used to calculate the new figure. To get to this new number, we multiple the Regular Program District Cost from the previous fiscal year by 1.01: $4,595,467 X 1.01. This provides us with a new number that is know as the Regular Program District Cost with budget Guarantee or $4,641,423 (click right arrow above)

Now then, the question becomes how does this number impact property taxes? Well, if you look at the row above [where the arrow is pointed] titled 'Budget Guarantee', you will notice the number $86,648. (click right arrow above). The budget guarantee is funded solely through property taxes. We arrive at this number by subtracting the Regular Program District Cost without budget guarantee from the Regular Program District Cost with the budget guarantee: $4,641,423-$4,554,774=$86,648.

Last week you probably recall me stating that our actual budget growth for next year is expected to be around $45,390.73, or a .57% increase. We arrive at this number by simply subtracting last year's Regular Program District Cost with budget guarantee from this year's Regular Program District Cost with budget guarantee: $4,641,423-$4,595,467=$45,955.(click the right arrow above) Notice that we are currently not on the budget guarantee. Each year that a school district is on the budget guarantee, it is always calculated from the Regular Program District Cost without the budget guarantee from the prior fiscal year. As a result over time, school districts experience an erosion of funding as enrollment decreases.

You may also recall last week I shared that as supplemental state aid increases, tax rates decrease. This is because as supplemental state aid is added to the mix, the amount of property tax reliance falls. As you click the right arrow above, notice on the next slide that as the amount of state supplemental aid is increased, the budget guarantee amount decreases. As a result of that, the property tax decreases. It is not until the Supplemental State Aid is 4% the district is no longer on the budget guarantee, and thus citizens are subject to a greater property tax burden. 

Wednesday, February 8, 2017

Supplemental State Aid: The Die Has Been Cast

The good news is that we won't spend the next several months trying to figure out what supplemental state aid is going to be for the fiscal year that begins on July 1, 2017 (FY 2018). The bad news is that we know what it is, and it is woefully inadequate. To remind everyone, supplemental state aid (SSA) is not the dollar amount that we can expect school budgets to grow in the coming fiscal year. It is instead the amount that the state cost per pupil is expected to rise. Basic school funding is determined by multiplying the number of students that attend a school by the state (or in our case district) cost per pupil. Therefore if a school district is experiencing a decrease in enrollment, it takes a greater amount of supplemental state aid to avoid a funding cliff.

Supplemental state aid for the new fiscal year has been proposed (and will be approved) at 1.11% which means the state cost per pupil will increase by $73. That means the state cost per pupil will grow from $6,591 to $6,664. The total cost of this increase statewide is around $40 Million. To put that in perspective, the number that is being used as a benchmark for statewide budgetary growth is $178 Million. This is noteworthy in and of itself because remember, our legislators have consistently stated that education is a priority and always receives the lion's share of budget growth. At 22%, this hardly seems to suggest a state where public education is a priority.

At the local level, this means the district cost per pupil will also grow by $73: from $6,776 to $6,839. The trouble is, as I stated above districts [that have a decrease in enrollment] don't see as much budget growth. And in Hudson our enrollment decreased for the fiscal year budget we are currently developing. That means our supplemental state aid will be in the vicinity of $45,955. To put that number in its proper frame of reference, our entire general fund budget expenditures for the current fiscal year are anticipated at $7,963,287. When you increase that by .57% you are somewhere in the neighborhood of $45,390.73. So as you can see, this isn't anywhere near 1.11%. Here is another interesting point: based on current estimates, our budget will increase $69,620.85 just by turning our calendar from June 30, 2017 to July 1, 2017. That is before we do anything else.

Trouble is, we need to do some other things. For starters we will have an additional 30+ students in our high school next year. That means we are going to need more electives for these youngsters, particularly in our Business program. While we have had lower than normal enrollment in the high school the last several years, we have been able to make this work; but adding this many students makes the current staffing configuration a pretty steep hill to climb. On top of that we currently have two sections of sixth grade. I suppose that would be okay for next year too....that is of course if we are willing to have these two sections with more than 30 students in them. Then there are two special education rosters [at] or exceeding recommended caseloads, so that needs to be addressed as well. Then, if you have been paying attention lately, you are aware that we are in the process of trying to start a public preschool program in Hudson.

Now, if this was an anomaly that was due to a bad economy or a recession, one might expect a year or even two where the growth in state aid is low. However, this isn't an anomaly, but rather a pattern. According to "Parents for Great Iowa Schools", this isn't just another year of low school aid, but the third lowest rate of supplemental state aid since the adoption of the school foundation formula in 1973! And worse yet, the other two low points have occurred since 2012!

Fortunately we have a school board that has exercised fiscal restraint over the last several years and have ample reserves on hand to weather this storm. Plus we are poised to begin seeing enrollment rise with our smallest class graduating from high school this year. The challenge is, if you examine the chart that is included above, it is evident this is part of a trend that doesn't appear to be headed anywhere but down. 

In spite of the fact that we have ample reserves on hand the board will have to be very careful and deliberate when making decisions about how to allocate resources. Because as we all know, once the reserves are gone, they are gone for good. Based on the trajectories above; any hope at refilling them could take a very, very long time. Hudson and other schools like us who are in good financial condition will be forced to dip into reserves to make their budgets work. Perhaps that is why reserves exist. Yet interestingly enough, the legislature refuses to dip into the state reserves, which are completely full and what many would argue are precisely designed to be tapped in situations like this.

One final point: Remember three paragraphs above where I stated this might be expected if we were in a recession or bad economy? Iowa's economy is currently growing by 4.2%, and for the fiscal year that begins on July 1, 2017 revenue is expected to grow by 4.8%.