Finance Basics LEA’s compared to AEA’s

1. Finance Basics LEA’s compared to AEA’s Barb Harms Business Manager Grant Wood Area Education Agency L&L Team Meeting – 1/7/10

2. Funding for LEA’s: 5 basic principles • Funding based on number of students • State “equalizes” funding through a mix of state aid & property taxes • Legislature sets allowable growth – the annual increase in the “cost per student” • Local property taxes are a critical part of the formula • Funding sources have restrictions on their use

3. Funding for LEA’s: • # 1: Funding based on number of students Increases or decreases in enrollment affect district budgets. • The certified enrollment count (Oct 1) is used to establish the district’s budget for the following year • Special education count determines weighted-funding amount

4. Funding for LEA’s: • # 2: Equalization - the school aid formula relies on two sources of revenue • State General Fund appropriations • Locally raised property taxes • Results in a maximum expenditure per pupil and therefore a maximum amount a district can raise and spend

5. School Foundation Formula • Three components • Uniform Levy - Property tax levy of $5.40 per thousand of taxable valuation. • State Foundation Percentage - Amount the state pays in excess of $5.40 - varies by district (87.5% of cost per pupil). • Additional Levy - Property tax levy which funds the difference between the Combined District Cost and the sum of the Uniform Levy and the State Foundation Percentage. This is a statewide formula over which a local district has little control

6. School Foundation Formula

7. School Finance - Spending Authority • Spending authority is the sum of: • Combined District Cost (property tax and state aid) • Miscellaneous income (interest, grants, fees) • Unspent balance from previous years • Why important? • Districts cannot exceed spending authority • Not the same as cash

9. Funding for LEA’s: • # 3: Allowable growth The Legislature sets the annual increase in the “cost per student”. • Growth rate is set over a year in advance to allow schools to meet budget deadlines • Rate for 2009-10 was 4% ($5,768 per student) • Rate for 2010-11 is 2% ($5,883 per student)

10. Funding for LEA’s: • # 3: Allowable growth (cont’d) - When is 2% allowable growth not 2%? • If a district has an enrollment increase, their “new money” will be more than 2% • If a district has an enrollment decline, their “new money” will be less than 2% • The budget guarantee has been used to cushion districts that have enrollment declines – it is now being phased out and will be zero by FY 2014 (40% for FY 10)

11. Funding for LEA’s: • # 4: Local property taxes Why not remove property taxes from formula? • Lawmakers would have to replace over a billion dollars statewide with sales tax or income tax • Property taxes add stability – if sales tax was used, funding would fluctuate based on spending • Diversification of funding sources

12. Funding for LEA’s: • # 5: Restrictions on funding sources • Finance formula revenues go to the General Fund (salaries, supplies, etc.) • Separate funding streams for facilities • Can’t be commingled or use excess in general fund for facilities

13. LEA Funding - Facilities Facility Related Levies • Board-Approved Physical Plant and Equipment Levy (PPEL). • Voter-Approved PPEL - simple majority vote required. • Local option sales tax - maximum of $0.01 additional local option sales tax for school infrastructure – replaced by Statewide Penny • Bonded Debt - requires 60% majority vote, then Debt Service levy used to repay debt

14. LEA Funding - Other Levies • Management Fund Levy • Used to pay unemployment benefits, property insurance and early retirement benefits. • Cash Reserve Levy • Used to generate cash for the General Fund of the school district (cash needs or SBRC granted authority) • Generated by property tax via school board action annually. • Used to fund spending authority but does not directly increase spending authority.

15. School Finance - Web Resources • IASB: http://www.ia-sb.org/Finance.aspx • Dept. of Education: http://www.iowa.gov/educate/ • IASBO: http://www.iowa-asbo.org/ • Dept. of Management: http://www.dom.state.ia.us/local/schools/ index.html

16. School Finance - Contacts • Iowa Association of School Boards (IASB) - Jackie Black, Education Finance Director 1-800-795-4272 jblack@ia-sb.org • Department of Education - Joyce Thomsen, Consultant515-242-5612joyce.thomsen@iowa.gov

17. Questions?

18. How AEA’s are Funded: • Per pupil funding based on LEA enrollments • Formula is separate for 3 service areas (Media, Ed Services, Special Education) • No direct taxing authority

19. Other AEA Revenues: • Federal funds – IDEA, Part C, etc. • Various other state, local grants • Sales of non-mandated services (such as professional development, computer services, VAST) • AEA’s also receive State funding for Juvenile Home/Shelter instructional programs (detention/prisons/shelters)

20. “Show-through” concept: • Each district includes the AEA per pupil funds in their budget to generate the dollars earmarked for AEA’s • Districts generate property taxes for the AEA’s through their levy rate • The funnel is on paper only – dollars actually are paid directly from the State to each AEA

21. Finance Formula: • AEA cost per pupil X enrollment (roughly $350 for GWAEA for FY 10) • Cost per pupil grows each year by the allowable growth amount (2% for FY 11) • Child-based: allowable spending is based on number of students counted

22. Finance Formula (cont’d): • Special Education Services • Funding is a mix of State aid & prop taxes • Enrollment includes weighting for children with IEP’s AEA cost per pupil X Weighted Enrollment = Budget for Special Education services * Still subject to a budget guarantee for AEA’s

23. Finance Formula (cont’d): • Media/Technology and Educational Services • Funded entirely from property taxes • Enrollment includes approved nonpublics AEA cost per pupil X Actual Enrollment (public & nonpublic) = Budgets for Media/Ed Services

24. AEA Finance Formula – FY 10: Special Education $19,084,854 Media Services $ 3,350,353 Educational Services $ 3,678,290 Teacher Salary Suppl $ 1,753,591 Prof Devel Suppl $ 204,136 State Reduction $ (3,044,973) “Formula Funding” $25,026,251

25. 2009-2010 Budgeted Revenues

26. Summarizing AEA/LEA Finance • What is common? • State funding based on number of students • Allowable growth • Weighted enrollment for special education • Other revenues from grants, misc sources

27. Summarizing AEA/LEA Finance • What is different? • Schools have taxing authority, AEA’s don’t • LEA finance formula is more complex (Aid & Levy worksheet) • Schools have separate funding sources for facilities & other costs • AEA’s generate revenues from sales of non-mandated services

28. GWAEA Budget Process

29. Allowable Growth Trend

30. Certified Enrollment Trend

31. What’s the effect? • Certified enrollment, non-public and SE weighting all decreased for 2009 count • Preliminary figures are a decline of less than 1% • Our ‘formula funding’ increase will be less than 2%

32. Projecting Other Revenues: • Look at trends of past revenues & known grant allocations • Federal funds – IDEA (Part B, Part C, PEC, IMS), ARRA, E2T2, IGISST, etc. • Various other state, local grants • Sales of non-mandated services (such as printing, PD, computer services, VAST)

33. Federal Funding Trend

34. Sale of Services Trend

35. Expenditures – assumptions: • Staffing costs are roughly 75% of budget • Salary/benefits settlements - a 1% increase equates to about $275,000 • Mandated increase in IPERS rate of 0.3%, expecting small increases in health, dental • Staffing levels likely to decrease • Limits on other non-salary costs • Address ongoing building maintenance needs

36. 2009-10 Expenditures – General Fund

37. Historical Financial Trends • Financial Solvency Ratio • Standard measure of financial health • Formula = Unreserved Fund Balance General Fund Revenues Target Range: Preferred 5.0 to 10.0% Acceptable 0 to 4.9%

38. Solvency Ratio Trend

39. Fund Balance Trend

40. Questions?