Basics of School Finance Indiana Association of School Business Officials 2015 Office Professionals Seminar Mr. Chad Blacklock, CFO Franklin Township Community School Corporation [email protected]

Agenda Purpose To provide a general overview of public school finance. Discussion Topics • Fund Accounting • Terms and Definitions • School Funds • Budgets • Revenue • Property Taxes • Property Tax Caps • Referendums • Factors to Consider • Questions

School Accounting Fund Accounting • Indiana Public School Corporations are required to use Cash Basis / Fund Accounting principles. • Used primarily by governmental entities • Revenue and Expenditures are segregated into categories or Funds. • Each Fund has a distinct purpose.

School Accounting Authorities Indiana State Board of Accounts • Governmental agency that oversees the accounting practices of State and Local Government. • Perform financial and compliance audits of public school corporations every two years. • Prescribe forms, publish manuals, newsletters, and technical bulletins. • Schools must follow State Board of Account rules and regulations. Department of Local Government Finance (DLGF) • Responsible for ensuring property tax assessment and local government budgeting are carried out in accordance with Indiana law. • Publish property tax assessment rules. • Annual reviewing and approving of tax rates and levies for every political subdivision in the state, including all counties, cities, towns, townships, school corporations, libraries, and other entities with tax levy authority

Terms and Definitions Appropriations – The authority to spend a dollar. This is NOT CASH! Cash Balance – The balance of actual cash in a Fund at any given period. Operating Balance – Cash used to operate and pay expenditures while waiting on revenue to be receipted. Encumbrance – An obligation to expend cash based on a recorded purchase order.

Terms and Definitions Average Daily Membership (ADM) - Student enrollment with Kindergarten students counted as ½. ADM drives State Funding for the General Fund. Count Day (September and February) - The two days all schools count ADM and submit it to the State. Tuition Support - Amount of money allocated to schools by the State for the General Fund. This figure is based on ADM. Funding Formula - The formula used to allocate Tuition Support. This formula is created by State Legislation and reviewed every other year.

Funds Debt Service Fund

Transportation Fund

Rainy Day Fund

Others

School Funds Main Operating Funds • General Fund • Debt Service Fund • Pension Bond Fund • Capital Projects Fund • Transportation Fund • School Bus Replacement Fund • Rainy Day Fund

Other Funds • School Lunch Fund • Construction Fund • Levy Excess Fund • Grant Funds • Others

General Fund Revenue • 90% State Funding • Miscellaneous Revenue

Expenditures • 85% - 95% Salaries & Benefits • Utilities • Supplies • Insurance

Tax Supported Funds Fund

Revenue

Expenditures

Notes

Debt Service

• Property Tax Levy • License Excise Tax • Commercial Vehicle Excise Tax • Financial Institution Tax

• Lease Rental Payments • Debt Payments • Textbook Reimbursement • Temporary Loan Interest • Litigation settlement

• State Statute says Schools MUST pay their Debt before all other obligations. • Specific Tax Rate.

Pension Bond

• Property Tax Levy • License Excise Tax • Commercial Vehicle Excise Tax • Financial Institution Tax

• Pension Bond Payment

• State Statute says Schools MUST pay their Debt before all other obligations. • Specific Tax Rate.

Capital Projects

• Property Tax Levy • License Excise Tax • Commercial Vehicle Excise Tax • Financial Institution Tax

• Technology Salaries/Benefits • Utilities • Insurance • Capital Improvements • Equipment Purchase • Equipment Repair

• Maximum Tax Rate. • Specific Tax Rate

Transportation

• Property Tax Levy • License Excise Tax • Commercial Vehicle Excise Tax • Financial Institution Tax

• Bus Driver Salaries & Benefits • Bus Insurance • Gas, Oil, Tires etc… • Bus Repairs and Maintenance • Contracted Bus Services • Utilities

• Maximum Tax Levy • Maximum Tax Levy Typically Increases Each Year 2% - 3%. • Specific Tax Rate.

School Bus Replacement

• Property Tax Levy • License Excise Tax • Commercial Vehicle Excise Tax • Financial Institution Tax

• Purchase of School Buses • Lease Payments on Buses • Contracted Bus Service

• Maximum Tax Levy • School Buses Must Pass Annual Inspections. • 12 Year Bus Replacement Plan. • Specific Tax Rate.

Rainy Day Fund • Establishment of a Rainy Day Fund is optional. Revenue • Transfers of unobligated dollars from other Funds excluding Debt. • Resolution • Transfers can not exceed more than 10% of the total adopted budget for that year. Expenditures • Established by the Local School Board and Resolution.

School Budgets • The majority of public school budgets operate on a calendar year, January 1 – December 31. • A select group of school’s follow a fiscal year budget, July 1 – June 30.

Formal vs. Actual School Budgets Formal Budget Process • Dictated by Indiana State Statute. • Must be completed for the main operating funds. • Legal Process – Publications, Public Hearings, Public Board Adoption. • Purpose - Establishes Appropriations, Tax Levies and Tax Rates. • Submitted to the DLGF for approval. • Timeline that must be followed. • Typically not a true reflection of actual Revenues and Expenditures. Actual/Cash Budget • Internal Budgeting • Reflects estimated/actual Revenues and Expenditures. • Purpose – Monitor cash flow • Each corporation may do this differently.

School Budget 1 2 3 4 5 6 7 8 9

• Review and Analyze Historical Information: Enrollment, Revenue, Expenditures, Tax Rates, Assessed Value • Gather Input: School Board, Administrators, Directors, Supervisors, Principals, HR, Payroll • Create Projections: Enrollment, Assessed Value, Expenditures, Revenue, Tax Rate • Complete Budget Forms in Gateway, Capital Projects Plan, School Bus Replacement Plan • Advertise Form 3, Capital Projects Plan, School Bus Replacement Plan • Hold Public Budget Hearing – The purpose of the Public Hearing is to give tax payers an opportunity to provide comments about the proposed budget. • School Board Adoption: Budget, Capital Projects Plan, School Bus Replacement Plan • Submit Adopted Budgets and plans to Department of Local Government Finance via Gateway. • Wait to Receive 1782 Notice

School Revenue Sources • Basic Grant • State Tuition Support • Vocational Ed. Grant • Special Ed. Grant • Honors Grant • Complexity Grant • FDK Grant

• Tax Revenue • Property Tax • FIT • CVET • LET • • • •

Grants Fees Donations Reimbursements

Basic Grant-State Funding • • • • •

State of Indiana Appropriates funds each year for K-12 Education. State Funding is allocated to all Public and Charter schools based on their Average Daily Membership (ADM). The amount of State funding a school receives is calculated using the Tuition Support Funding Formula. Basic Grant Funding must be receipted into the General Fund only. Schools receive their State funding via monthly payments.

Tuition Support Funding Formula • Developed and adjusted by Legislators during the General Assembly. • Reviewed and adjusted every two years on the odd numbered years. • Typically a part of the State Budget Bill. • State Funding is not equitable among all schools.

Tax Revenue Property Tax • Represents the largest local revenue source for public schools. • Tax is charged against real and personal property. • Tax is calculated on every $100 of assessed value. License Excise Tax • Applied locally to all automobiles, light trucks, boats and airplanes. • Tax is based on the age and original purchase price of the vehicle.

Tax Revenue Commercial Vehicle Excise Tax • Applied to all trucks and tractors with a GVW of 11,000 pounds, tractor-trailers and semi-trailers with a GVW greater than 3000 pounds. Financial Institution Tax • Applied to the personal property of financial institutions and is based on tax rate. Schools receive tax revenue on a semi-annual basis in June and December.

School Revenue Fund

Revenue

General Fund

State Basic Grant, Grants, Fees, Donations, Reimbursements, Interest

Debt Service Fund

Property Tax, LET, FIT, CVET

Pension Bond Fund

Property Tax, LET, FIT, CVET

Capital Projects Fund

Property Tax, LET, FIT, CVET, Reimbursements, Fees

Transportation Fund

Property Tax, LET, FIT, CVET, Reimbursements, Fees

School Bus Replacement Fund

Property Tax, LET, FIT, CVET

Rainy Day Fund

Transfers from the other Funds

School Lunch Fund

Federal, State Match, Food & Beverage Sales, Commissions, Rebates

Textbook Rental Fund

Textbook Rental Fees, Reimbursements

Grant Funds

Local, Federal

Title Funds

Federal

Property Tax Caps • Property Tax Caps limit a taxpayer’s total property tax liability to a fixed percentage of the properties Gross Assessed Value. • 2010 was the first year for full implementation of Property Tax Caps. • Communities with a large percentage of Residential AV are being affected the most by the Property Tax Caps. Property Classification

Cap Percentage

Residential Homestead

1%

Other Residential, Agricultural Land

2%

All Other

3%

Referendums • Establishes an additional Tax Rate / Tax Levy that is outside of the Property Tax Cap. • Operating and Capital Projects • Referendum Fund • Can be used to replace revenue lost to the Property Tax Caps.

Factors to Consider • • • • • • • • •

Enrollment Increases or Decreases Assessed Value Increases or Decreases Property Tax Caps Foreclosures Property Assessments: Trending Recession State Revenue – Sales Tax, Income Tax Miscellaneous Tax Revenue New Legislation – ex: Protected Levy

Questions Mr. Chad Blacklock, CFO Franklin Township Community School Corporation [email protected]