School Finance For Superintendents

1. School Finance For Superintendents A.R.C.C. 5 West First Street; Suite 300 Duluth, MN 55802 August 2005

2. Finance Basics -The Balance Sheet

3. Finance Basics Assets � Resources owned by the district. (Cash, Investments, Receivables, Inventory, Etc) Liabilities � Amounts owed by the district. (Payables, Short-Term Indebtedness, Etc.) Fund Balance � Net worth. (Unreserved, Reserved, Designated)

4. Finance Basics What does reserved fund balance mean? Account was created by the Legislature to ensure that revenues are used only for a specified purpose. If all of the revenues are not used within a fiscal year, they are held separate from other balances to be expended in future years for its specified purpose. Generally, a reserved fund balance cannot go into deficit without specific legislative authority. However, some reserved balances expenditure amounts may exceed the available fund balance and create a deficit fund balance until future funding is received (i.e.. Health & Safety). What does unreserved/undesignated fund balance mean? Represents resources available to meet any current and future years� expenditures. What does designated fund balance mean? Unreserved funds set aside by board action. Indicates a plan for use of the funds in a future period.

5. Finance Basics So: Assets - Liabilities = Fund Balance $150,00 - $100,000 = $50,000

6. Finance Basics So the long formula is*: Assets = Liabilities + Fund Balance Assets = Liabilities + (Beginning Fund Balance + Revenues � Liabilities) $150,000 = $100,000 + ($25,000 + $75,000 - $50,000) $150,000 = $100,000 + $50,000 $150,000 = $150,000 * This formula can be helpful if your closing entry has not been done in SMART Finance, but keep in mind that all of your year end entries may not be done so your ending fund balance number may not be the final audited number.

7. Finance Basics Fund 01 � General Fund In 95-96, the state merged pupil transportation (fund 03) and capital expenditures (fund 05) into the general fund. We, as a region, decided to keep the funds split as fund 01, fund 03, and fund 05 so that we had comparable data and could easily maintain those costs separately. When we report to the state, they see all the revenues/expenditures in fund 01, fund 03, and fund 05 as fund 01 only. However, we see them locally as three separate funds on our books. Fund 02 � Food Service Fund Fund 04 � Community Service Fund Fund 06 � Building Construction Fund Fund 07 � Debt Service Fund Fund 08 � Trust Fund Fund 09 � Agency Fund Fund 20 � Internal Service Fund

8. Finance Basics Balance Sheet Coding __ __ - __ __ __ - __ __ __

9. Finance Basics Balance Sheet: A balance sheet is a financial statement that reports the assets, liabilities, and fund balances of a district. It exhibits the financial position of the district at a specific date. Balance sheet accounts are meaningful in understanding the financial status of each fund.

10. Finance Basics �Cash versus Fund Balance

11. Finance Basics Cash and Investments (Assets): 101 � Cash and Cash Equivalent Currency on hand along with checking accounts and liquid savings accounts deposited with board-approved banks or other financial institutions. Petty cash, change funds, travel advance funds are to be included as cash on hand. Investments which, when acquired, mature in 3 months or less can be considered a cash equivalent. 103 � Cash with Fiscal Agent Includes deposits with fiscal agents such as commercial banks, for the payment of bond principal and interest. 104 � Investments Includes purchases of securities for the production of revenue, such as certificates of deposit.

12. Finance Basics

13. Finance Basics

14. Finance Basics �Timing of Financial Reporting

15. Finance Basics

16. Finance Basics

17. Finance Basics

18. Understanding the Levy �The Levy Process

19. Understanding the Levy

20. Understanding the Levy

21. Understanding the Levy In December, the levy is certified and you are typically paid that amount. However, it may not all come to you as tax receipts from your county. Depending on your district, you may see your certified levy amount come to you in the following forms: Tax receipts (from the County � Source 001) Taconite Homestead Credit (from the County � Source 014) Fiscal Disparities (from the County � Source 009) Market Value Credit (from IDEAS State Payments � Source 234) Agricultural Market Value Credit (from IDEAS State Payments� Source 234) Disparity Aid (from IDEAS State Payments � Source 229) = Total Certified Levy

22. Understanding the Levy

23. Understanding the Levy -Basic Concepts

24. Understanding the Levy

25. Understanding the Levy

26. Levy Certification

27. Tax Shift

28. Tax Shift

29. Tax Shift

30. Tax Shift Two parts to tax shift: Early Recognition of Levy Revenue (recognize revenue a year early) ROWS C, D, E, F, G, H, I, L, M State Aid Adjustment (the MDE doesn�t pay aid due the district and has them recognize deferred taxes instead) Rows A, B, K

31. Tax Shift

32. Tax Shift

33. Tax Shift

34. Tax Shift

35. General Education - Compensatory Revenue

36. General Education - Compensatory Revenue  What is it? Compensatory revenue is state aid that has two components Basic Skills and Limited English Proficiency Compensatory revenue must be reserved and used to meet the educational needs of pupils who enroll under-prepared to learn and whose progress toward meeting state or local content or performance standards is below the level that is appropriate for learners of their age.

37. General Education - Compensatory Revenue What can it be used for? Direct instructional services under the assurance of mastery program according to section 126D.66.. Instruction at one or more grade levels from K-8 for students in grades 9-12 who have failed the basic skills tests. If an assessment of pupils needs demonstrates that eligible pupils in grades K-8 are being appropriately served, a district may serve eligible pupils in grades 9-12. Instruction must be provided under the supervision of the eligible pupil�s regular teacher. Instruction may be provided by that teacher, by another teacher, by a team of teachers or by an educational assistant or aide. A special education teacher may provide instruction, but that instruction would not be eligible for aid under this section.

38. General Education - Compensatory Revenue What can it be used for (cont�)? Direct instructional services under the assurance of mastery program according to section 126D.66 cont.. Instruction that is provided must differ from the initial instruction the pupil received in their regular classroom. It may differ: In that it is provided at a different rate or sequence than initially presented. In that different teaching methods or techniques are used. In that different instructional materials were used. Remedial instruction in reading, language arts, mathematics, other content areas or study skills to approve achievement level. Additional teachers and aides to provide more individualized instruction through individual tutoring, lower instructor-to-learner ratios or team teaching.

39. General Education - Compensatory Revenue What can it be used for (cont�)? Longer school days or weeks during regular school year or through a summer program that may be offered directly by site or under a performance-based contract with a community based organization. Comprehensive/ongoing staff development consistent with district and site plans according to section 122A.60, for teachers, aides, principals and other personnel to improve their ability to identify the needs of these learners and provide appropriate remediation, intervention, accommodations or modifications. Instructional materials and technology appropriate for meeting the individual needs of these learners.

40. General Education - Compensatory Revenue What can it be used for (cont�)? Programs to reduce truancy, encourage completion of high school, enhance self-concept, provide health services, provide nutrition services, provide a safe and secure learning environment, provide coordination for students receiving services from other governmental agencies, provide psychological services to determine the level of social, emotional, cognitive and intellectual development, and provide counseling services, guidance services and social work services. Bilingual programs, bicultural programs and programs for learners of limited English proficiency. All day kindergarten. Extended school day and extended school year programs.

41. General Education - Compensatory Revenue What can it be used for (cont�) Substantial parent involvement in developing and implementing remedial education or intervention plans for a learner, including learning contracts between the school, the learner, and the parent that establish achievement goals and responsibilities of the learner and the learner�s parents or guardian.

42. General Education - Compensatory Revenue Any special rules? A district must allocate its compensatory revenue to each school building in the district where the children who have generated the revenue are served. A district may allocate up to 5% of the amount of compensatory revenue that the district received during the previous fiscal year to school sites according to a plan adopted by the school board. A building means an educational site as defined in section 123B.04, subdivision 1. If the pupil is served at a site other than one owned by and operated by the district, the revenue shall be paid to the district and used for services for pupils who generate the revenue. A school site decision making team or the instruction and curriculum advisory committee shall recommend how the compensatory education revenue will be used to carry out the purpose of this revenue.

43. General Education - Compensatory Revenue Any special rules (cont�)? Each district that receives basic skills revenue shall maintain separate accounts to identify expenditures for salaries and programs related to basic skills revenue. Each year a district that receives basic skills revenue must submit a report identifying the expenditures it incurred to meet the needs of eligible learners. The report must conform to UFARS requirements. The report must also determine whether increased expenditures raised student achievement levels. New legislation: Clarifies that 100% of the basic skills revenue generated by students attending an ALC, including compensatory and LEP funding, must be reserved for program costs associated with the ALC. Clarifies that 100% of basic skills revenue generated by students attending a contract alternative school must follow the student to the school.

44. General Education - Compensatory Revenue Any special rules for Alternative programs or ALCs? When the district contracting with an alternative program changes prior to the start of a school year, the compensatory revenue generated by pupils attending the program shall be paid to the district contracting with the alternative program for the current school year (not the school contracting for services for the prior year). When the fiscal agent district for an area learning center changes prior to the start of a school year, the compensatory revenue shall be paid to the fiscal agent district for the current school year.

45. General Education - Operating Capital Revenue

46. General Education - Operating Capital Revenue Operating Capital is an Aid/Levy revenue source that can be used to: Acquire land for school purposes. Acquire or construct buildings for school purposes. Rent or lease buildings, including the costs of building repair or improvements that are part of a lease agreement. Improve and repair school sites and buildings, equip or re-equip school buildings with permanent attached fixtures, including library media centers. Surplus school building that is used substantially for a public non-school purpose. Eliminate barriers or increase access to school buildings by individuals with a disability.

47. General Education - Operating Capital Revenue Operating Capital is an Aid/Levy revenue source that can be used to (cont�): Bring school buildings into compliance with the Uniform Fire Code adopted according to chapter 299F. Remove asbestos from school buildings, encapsulate asbestos, or make asbestos-related repairs. Clean up and dispose of polychlorinated biphenyls found in school buildings. Clean up, remove, dispose of, and make repairs related to storing heating fuel or transportation fuels such as alcohol, gasoline, fuel oil and special fuel as defined in section 296A.01. Energy audits for school buildings and to modify buildings if the audit indicates the cost of modifications can be recovered within 10 years.

48. General Education - Operating Capital Revenue Operating Capital is an Aid/Levy revenue source that can be used to (cont�): Improve buildings that are leased according to section 123B.51, subdivision 4. Pay special assessments levied against school property but not to pay assessments for service charges. Pay principal and interest on state loans for energy conservation according to section 216C.37 or loans made under the Douglas J. Johnson Economic Protection Trust Fund Act according to sections 298.292 and 298.298. Purchase or lease interactive telecommunications equipment.

49. General Education - Operating Capital Revenue Operating Capital is an Aid/Levy revenue source that can be used to (cont�): By board resolution, to transfer money into the debt redemption fund to: Pay the amount needed to meet, when due, principal and interest payments on certain obligations issued according to chapter 475, or Pay principal and interest on debt service loans or capital loans according to section 126C.70. Pay operating capital related assessments of any entity formed under a cooperative agreement between two or more districts. Purchase or lease computers and related materials, copying machines, telecommunications equipment, and other non-instructional equipment.

50. General Education - Operating Capital Revenue Operating Capital is an Aid/Levy revenue source that can be used to (cont�): Purchase or lease assistive technology or equipment for instructional programs. Purchase textbooks. Purchase new and replacement library media resources or technology. Purchase vehicles.

51. General Education - Operating Capital Revenue Operating Capital is an Aid/Levy revenue source that can be used to (cont�): Purchase or lease telecommunications equipment, and related equipment for integrated information management systems for: Managing and reporting learner outcome information for all students under a results-oriented graduation rule. Managing student assessment, services and achievement information required for students with individual education plans. Other classroom information needs. Pay personnel costs directly related to the acquisition, operation, and maintenance of telecommunications systems, computers, related equipment and network and application software.

52. General Education - Operating Capital Revenue Statistics are submitted annually to Phil Allmon that Include**: District Name Building Name (and identification number) Use of Building Building Average Age Building Square Foot These statistics are used to calculate a weighted average age for the district based on the age of all square footage within each of the districts buildings. ** See copies of input sheet in binder

53. General Education - Operating Capital RevenueCalculation of Average Age for Proctor

54. General Education - Operating Capital Revenue Now that we have calculated the average age for the district, we must calculate the Facilities Age Index for Proctor. Average Age = 27.72 X .01 = .2772 Add 1.00 = 1.2772 This gives Proctor a Facilities Age Index of 1.2772

55. General Education - Operating Capital Revenue Now that we have calculated the Facilities Age Index, we need to calculate the Operating Capital Allowance for Proctor. $100 x Facilities Age Index + $73 $100 $100.00 x 1.2772 = $127.72 + $ 73.00 = $200.72

56. General Education - Operating Capital Revenue Operating Capital Revenue is calculated by taking your Operating Capital Allowance times your Adjusted Marginal Cost Pupil Unit and adding $30 times your year round WADM. Proctor�s Operating Capital Allowance $200.72 Times Proctor�s AMCPU 2105.73 = Proctor�s Operating Capital Revenue* $422,662.13 *Proctor has no year round WADM

57. General Education - Operating Capital Revenue In most cases, districts with newer buildings generate less revenue per AMCPU but other items can change operating capital including: Increases or decreases in actual square footage through purchase, building, renovation or selling of district property Increases or decreases in AMCPU and year round WADM

58. General Education - Operating Capital Revenue How did Proctor�s Operating Capital change from 04 to 05?

59. General Education - Operating Capital Revenue What is Aid and what is Levy?

60. General Education - Operating Capital Revenue Revenue received and expenditures should all be closed to a Capital Reserve Account. The UFARS code for this balance sheet account is 05-424-XXX. Some districts may still use 05-401-XXX or 05-402-XXX and cross walk these numbers to 05-424-XXX. Review the trial balance included in your materials to see how revenues and expenditures closed out to your Capital Reserve Account(s).

61. General Education RevenueTelecommunications Access

62. Telecommunications/Internet Access Equity Aid What is it? A new aid program established to help districts fund telecommunications/ITV/Internet access. This program is very similar to the TARP program. A total of $3,700,000.00 has been allocated for Telecommunications/Internet Access Equity Aid for the entire state of Minnesota. To maximize the funding, districts MUST file for e-rate discounts through the Universal Service Fund. If requests exceed the allocation, funding will be prorated. Districts are responsible for the first $15 per AMCPU of eligible expenditures; however, districts belonging to a telecommunications cluster are exempt from this $15 per AMCPU co-payment. Telecommunications/Internet Access Equity Aid must be distributed to the telecommunications access cluster for the districts that is a member of an eligible telecommunications access cluster.

63. Telecommunications/Internet Access Equity Aid What is covered? On-going costs associated with leased T1 lines for data, Internet access and Video. On-going costs for Internet access. The equivalent of one data line, video link or integrated data/video link at a minimum speed of 1.544 megabytes per second (T1 speed) for each elementary, middle or high school. On-going costs for contractual or vendor provided maintenance on the school�s wide area network to the point of presence at the router. Nothing on the local area network (LAN). Collaborative telecommunication costs for the delivery of telecommunications and Internet access between schools, post secondary institutions, and libraries, including network gateways, peering points, regional network infrastructure, Internet 2 access, network support, maintenance and coordination.

64. Telecommunications/Internet Access Equity Aid What is not covered? Local and long distance telephone services. Equipment (phones, computers, network hardware, etc). Costs associated with laying fiber. Costs associated with wiring school buildings. Internet filtering. District staff time (wages or benefits). Costs associated with digital content, on-line learning, distance learning or information databases.

65. Telecommunications/Internet Access Equity Aid Can you tell me more? By August 15th of each year, schools will submit their actual costs less e-rate discounts. We do not yet know if this will be a paper submission or on-line. If formally requested, districts are required to provide on-going telecommunications access to non-public schools in their district. The non-public school is responsible for the cost of this access not covered by this funding. We are waiting for the Minnesota Department of Education to define a telecommunications cluster. The Department stated that they may actually require copies of bills and contracts to verify costs (which is something they did not do under the TARP program).

66.  Telecommunications/Internet Access Equity Aid Example of district who does NOT belong to an eligible telecommunications cluster

67. Telecommunications/Internet Access Equity Aid Example of district who belongs to an eligible telecommunications cluster