1	Dist. 202 Financial Review Committee Findings & Recommendations January 5, 2004
2	Outline Purpose Makeup Information Gathered Process Assumptions Conclusions & Recommendations
3	Purpose Examine Districts 202’s historical financial data, as well as projected income and expenditures Develop a financial outlook for District 202’s Operating Accounts based upon that information and under different funding scenarios Independently assess the need for an education fund referendum based upon a review of this information Recommend (if necessary) an amount to be sought through an education fund tax rate increase
4	Makeup Community members, parents, administrators, teachers, support staff, and board members Public: Bob Daly, Tim Drake, Paul Fay (Village), Carol Fox, Eric Gallt (Park Dist.), Mike Herbst, Kathy Meyers, Dave Obrzut APT: Karie Beck, Susan Peterman, Dave Jackson PASS: John Piechocinski, Debbie Reuther District Administration: Christine Robertson, Diane Cooper Board of Education: Linda Johnson, Victoria Eggerstedt
5	Information Gathered Historical Budget and Audit Information Income & Expense History & Outlook Property taxes Equalized Assessed Valuation (EAV) General State Aid Categorical grants (state and federal, entitlements & others) Other revenue & expenditures
6	Information Gathered (cont.) Growth trends and projections Housing developments (student ratios per household) Demographics Staffing patterns Student enrollment patterns Class sizes Growth vs. Planned building capacity (to 2008) Special populations and impact Information on neighboring districts (for comparison) Past referenda
7	Information Gathered (cont.) Articles, editorials, position papers, internet data, and other printed materials dealing with school funding and/or projections for the variables identified.
8	Process Brainstormed list of information and questions committee members wished to explore. Delved into principles of school funding. Gathered and distributed all previously-identified information. Interviewed key District personnel Dr. Harper, Ms. Theobald, Ms. Bonuchi, Ms. Cooper Insured all questions and data from original brainstorming sessions were addressed.
9	Process (cont.) In-depth review of information and realization of priority value. Began concentration on key factors and variables. Began revenue projections by sub-committee. Full committee reviewed revenue projections and validated assumptions used. Suspended committee work pending the loading of District 202 data into the PMA financial modeling and forecasting tool.
10	Process (cont.) Reconvened once PMA tool became available. Completed the development of our assumptions (the key to our projections and recommendations). Reviewed the impact of assumptions on the District’s finances. Came to consensus on assumptions and recommendations.
11	Who is P.M.A.? Public Fund & Finance Consultants serving the public sector since 1984. Specializes in fixed income cash management and investment, serving over 600 public entities, including school districts, municipalities and public pension funds. As of September, 2003, PMA firms administered client portfolios totaling over $5.5 billion. Developer of financial modeling tool for use by school district’s in mapping of historical data, and forecasting.
12	Assumptions / Revenue General State Aid (combination of Foundation Level Funding and Categorical Grants) $100 (net) increase every other year, beginning in ’06 Critical variable Victim of State budget crisis, creating instability Recent $250 per student increase to Foundation Level funding (to be received in fiscal yr. ’04) largely offset by reductions in categorical state funding levels. Net increase only approximately $25 per student. Range considered: $0 to $100 each year
13	Assumptions / Revenue (cont.) Consumer Price Index (C.P.I.) 2.2% annually Limited effect on District’s financial picture Potentially raises ceiling on tax-capped increases up to 5% Federal figure 2.5% Range considered: 2% to 3%
14	Assumptions / Revenue (cont.) New Growth in EAV (not subject to tax cap) $220MM in ’04. $250MM each subsequent yr. Comfortable with $220MM budgeted in ’04. Projection consistent with forecasts of growth in student population at a relatively stable rate. Projection reflects shrinking as a percentage of total EAV. Conservative, yet realistic figure Projected Range: 11.95% (’04) to 6.19% (in ’09) of total EAV
15	Assumptions / Expenditures Enrollment 2400 students per year Increases in GSA and property taxes (revenue) vs. increased staffing costs (expenses), results in a near “wash” in operating funds. Greatest impact is seen on construction fund. Subject to saturation point. Historically ~ 2200-2600 over past few years. Range considered: 2400-2700 per year.
16	Assumptions / Expenditures (cont.) Salary Increases 5% per year for both certified & non-certified staff. Sensitive & personal issue for group. Huge impact, due to labor-intensive cost structure. Intent made clear – Not to be construed as negotiating or binding for any parties Agreed-upon number has historical context Considered a fair number to use, if averaged over time and considering both the current economic environment and recent contract settlements. Range investigated: 3% to 7%
17	Assumptions / Expenditures (cont.) Benefit Costs Increases (in %): 20 – 20 – 17 – 17 - 17 By far, the Committees most controversial assumption. Represents a compromise – not a unanimous recommendation. Also heavy impact on District’s finances. Figure settled on higher than industry averages and predictions, but based largely on past District experience and sensitivity to market volatility. Some Committee members interested in further analysis of historical increases by year (in %). Range considered: 15% to 25%
18	Assumptions / Expenditures (cont.) Certified Staff to Student Ratio Elementary: 1:22 / Secondary 1:18 Includes certain certified staff (incl. special ed, accelerated, etc.) vs. total enrollment Large impact on District finances Applied against enrollment projections (specifically, increases in student population @ 2400 per year.) Not an accurate indicator of regular ed class sizes Validated 2 ways: 2003 State Report Card (Elem: 20.9 / Secondary: 16.7) & through total student enrollment divided by total certified staff F.T.E.’s
19	Assumptions / Expenditures (cont.) “Other” Expenditures related to the Education Fund, as well as those reflected in the O&M, Transportation, and Site funds include: supplies, equipment, purchased services, capital outlay, etc. 5% increase annually Assumption deemed reasonable, based upon current conditions and the rate of inflation. Limited impact on District finances. Range: None. 5% was our fixed assumption.
20	Conclusions & Observations The District’s expenditures continue to exceed revenues, although cost containment has helped to close the gap somewhat. Without increasing revenue, decreasing expenditures, or a combination of both, by sometime in 2005/2006 school year, the District will have depleted its cash reserves, and will be forced to rely on early tax receipts to meet expenses.
21	Conclusions & Observations (cont.) The average Illinois reliance on local property taxes and referenda has increased over time, as a result of the State’s contributions decreasing from 48% in 1975 to 38% in 2001. Dist. 202’s 2003 School Report Card lists the local burden at 58.4%, the State’s share at 39.6% and Federal sources at 2.0%. Double-digit growth places added, unique stresses on District finances, most notably: Lag in the collection of tax revenue to educate new students New school construction burden The District’s overall financial struggles are not at all uncommon and reflect the state of school funding in Illinois. Over 80% of school districts are deficit-spending due to spiraling costs and decreasing state funding levels.
22	Conclusions & Observations (cont.) Impact of the variables can’t be overestimated. Variables carrying the greatest impact: Salary Increases Benefits GSA (Foundation Level Funding / Categorical Funding) Student / Staff Ratios
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24	Conclusions & Observations (cont.) Red Herrings Enrollment (as it affects Operating Accounts) Existing EAV C.P.I. Grants (other than Categorical Entitlements) Impact Fees (as they would affect Operating Accounts) Tax Increment Financing
25	Conclusions & Observations (cont.) The P.M.A. forecasting tool provided invaluable assistance in fulfilling our objectives. It allowed us to concentrate our time and efforts on development of the assumptions and resultant conclusions and recommendations.
26	Conclusions & Observations (cont.) The Committee process was valuable to the work performed Different perspectives encouraged full discussion and awareness of the issues. Valuable expertise was brought to the table. The process was opened to public participation and scrutiny, thereby lending credibility.
27	RECOMMENDATIONS No Referendum in 2004 Although fund balances are declining, our projections indicate the District will carry an overall positive operating cash balance through the 2004/2005 school yr. There is interest in spending down fund balances further before placing a referendum on the ballot, while recognizing that, if all predictions come to pass, the District will be forced to begin utilizing FY 2006 (early tax) revenues to fund FY 2005 expenses. There is a recognition of the value in continuing to demonstrate effort and need to the taxpaying public in the interim.
28	RECOMMENDATIONS (cont.) No Referendum in 2004 (cont.) The Committee feels that an additional (perhaps volatile) year’s worth of actual data would be valuable. Within the next 9 months we hope to have actual figures available for: 2 additional years worth of teachers’ salaries (contract settled) Actual increases in benefits costs Foundation-level funding Updated fund balances New growth in EAV Student Enrollment C.P.I. 1 additional year’s budget for review
29	RECOMMENDATIONS (cont.) Revisit the District’s finances in Sept. ’04 (by the same group) To determine the accuracy of all projections To update all assumptions. To incorporate new budget figures To further review historical health insurance costs, due to their significant financial impact. To determine the need for a referendum and, if so, for what amount and the manner in which it would be introduced (phased in).
30	Financial Review Committee Final Report – Jan., 2004 Questions?