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Developing a Financial Condition Indicator System (FCIS) for New York State School Districts Condition Reports Public Forum June 6, 2003 William Duncombe,

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Presentation on theme: "Developing a Financial Condition Indicator System (FCIS) for New York State School Districts Condition Reports Public Forum June 6, 2003 William Duncombe,"— Presentation transcript:

1 Developing a Financial Condition Indicator System (FCIS) for New York State School Districts Condition Reports Public Forum June 6, 2003 William Duncombe, Bernard Jump, Syracuse University Salwa Ammar, Ronald Wright, Le Moyne College duncombe@maxwell.syr.edu Available at: http://www-cpr.maxwell.syr.edu/faculty/duncombe/

2 School Districts Are Facing Unprecedented Fiscal Stress  Many states are facing large budget deficits: $30 billion in FY 2003 $80 billion in FY 2004  At least 18 states have budget gap of 10% or more.  State education budgets will not be spared: Predicted that half of the states will cut state education budgets in FY2004  At same time that state and federal accountability standards are being imposed.

3 Need for Greater Visibility on School District Financial Condition  General public usually has little awareness of school financial condition until a crisis emerges.  By then the choices are often limited and can require painful expenditure cuts or tax increases.  The best prevention against financial emergencies is regular monitoring of district fiscal health, and appropriate budget adjustments.

4 Objectives of Project  To develop a FCIS that captured the multiple dimensions of financial condition.  To develop a modular system, where the different components of financial condition can be used separately.  To develop a system that can effectively use the judgment of financial experts.  To develop a system that is flexible, and can adapt to changing circumstances.

5 Outline of Presentation  Framework for Financial Condition Indicator System (FCIS)  Development process and methodology  FCIS example  Overall results  Potential uses of FCIS

6 Definition of Overall Financial Condition Used in building FCIS  Financial condition of school districts is defined as the ability to finance adequate student performance over the long-run with reasonable tax burdens and without temporary disruptions of service.  Adequate student performance implies students reaching the academic standards set by the New York State Board of Regents.

7 Financial Condition Framework Note: Composite measures (rule bases) are shaded.

8 Short-Run Financial Condition  Ability to pay bills over the course of the year, balance the budget, and maintain adequate fund balance without extraordinary measures. Categories of indicators include: Liquidity: Ability to pay bills. Fund balance: Does district have adequate reserves to cover financial emergencies? Tax capacity: Can district raise significant revenue without heavy tax burden or political opposition?

9 Long-Run Financial Condition  Ability to finance adequate services over the long-run without onerous tax burdens and debt burdens. Consider similar factors as credit rating agencies: Debt burdens/Capital spending: Can district support adequate capital spending without undue debt burdens? Fund balances: Can the district maintain adequate reserves to protect itself against financial emergencies? Revenue indicators: Does the district have a diversified and stable revenue base that can support adequate spending without high tax burdens?

10 Economic Condition  Ability of the local economy to support adequate expenditure levels without undue local tax burdens. Costs: How expensive will it be for the district to provide adequate services due to input costs and student needs? Fiscal capacity: Does the district have a strong tax base that continues to grow? Population: Is population growing, and is the demographic picture changing in ways that will affect school district? Enrollment: Is enrollment growing and has it been stable? Employment: Is the county economy growing, diversified, and does it provide high wage employment?

11 Student Performance Measure  Based on published data in school report cards, and measures used in System for Accountability for Student Success (SASS) developed by SED. 4 th and 8 th Math and ELA Exams: Percent of students reaching levels 2, 3, and 4. Regents Math and English: Percent of students (who entered high school 3-years before) that received a 55 to 64 (level 2), 65 to 84 (level 3), and 85 and above (level 4).

12 Outline of Presentation  Framework for Financial Condition Indicator System (FCIS)  Development process and methodology  FCIS example  Overall results  Potential uses of FCIS

13 Our Approach to Developing FCIS  SED appointed an advisory board to serve as panel of experts.  Developed a comprehensive framework for evaluating financial condition.  Advisory board played a key role in selecting and refining the measures used in the system.  Used state-of-the-art technology to capture the judgment of the advisory board on how to combine measures into an overall evaluation.

14 Advisory Board Steven Hancox, Assistant Deputy Comptroller for Municipal Affairs Jack Dougherty, Chief Examiner (Performance Services and Risk Assessment) John Clarkson, Assistant Comptroller Office of the State Comptroller George Perry, Executive Director Steven VanHoesen, Deputy Director NYS Association of School Business Officials Robert Loretan, Emeritus Director Tom Rogers, Executive Director Bob Lowry, Associate Director for Governmental Relations New York State Council of School Superintendents Tim Kremer, Executive Director David Little New York State School Boards Association

15 Advisory Board Martin D. Handler, District Superintendent Sullivan County BOCES Marianne VanDuyne R.S. Abrams and Company Terry Schruers, Assistant Superintendent for Business New Hartford Central School District Shane Higuera, Associate Superintendent of Management Services Eastern Suffolk BOCES Charles Szuberla, Coordinator, Office of School Operations and Management Services Deborah Cunningham, State Aid Work Group Coordination and Cost-Effectiveness Dan Tworek, Director, Audit Services Michael Abbott, Audit Manager, Office of Audit Services NYSED

16 Methodology Used for FCIS: Fuzzy Rule-Base System (FRBS)  FRBS is a method for organizing all the key factors affecting the financial condition in a way to capture the key tradeoffs that exist among factors.  FRBS is a method for converting all data into common measurement scale that can be combined, but still preserve all the information. All variables converted into membership levels in 3 sets (“fuzzy sets”). A district can have membership in more than one set.  FRBS is a systematic method for capturing the judgment of experts on how they evaluate data under different situations. We call this capturing the “contextual judgment” of experts using “rule bases”.

17 Outline of Presentation  Framework for Financial Condition Indicator System (FCIS)  Development process and methodology  FCIS example  Overall results  Potential uses of FCIS

18 District A Overall Poor Fair Good 0.63 0.37 0.25 Short Run Poor Fair Good 0.01 0.70 0.30 Performance Low Mod High 1.00 0.00 0.00 Economy Poor Fair Good 0.63 0.37 0.00 Long Run Poor Fair Good 0.01 0.75 0.25 114.3

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21 Debt Poor Fair Good 0.00 0.74 0.26 Debt Burden High Mod Low 0.00 0.06 0.94 Capital Spending Low Mod High 0.74 0.26 0.00 Debt Limit Low Mod High 1.00 0.00 0.00 Adj. Debt Vs FV Low Mod High 0.94 0.06 0.00 Debt Vs FV Low Mod High 0.89 0.11 0.00 Debt Service Low Mod High 0.66 0.34 0.00 Payoff Rate Low Mod High 0.00 0.00 1.00 11-year average Low Mod High 0.74 0.26 0.00 3-year average Low Mod High 0.82 0.18 0.00 3.5% 0.04% 0.2% 1.3% 23.2% $322 $246

22 Revenue Poor Fair Good 0.20 0.75 0.25 Property Tax Poor Fair Good 0.20 0.75 0.25 % of FV Low Mod High 0.00 0.80 0.20 % of income Low Mod High 0.25 0.75 0.00 FV/ Enrollment Low Mod High 0.54 0.46 0.00 Income/Enrollment Low Mod High 0.00 1.00 0.00 Tax Burden Poor Fair Good 0.20 0.75 0.25 Trend Neg. Low High 0.00 0.60 0.40 Defeats None One Two+ 1.00 0.00 0.00 AV/FV Low Mod High 0.72 0.28 0.00 Aid Dependence Low Mod High 0.00 0.31 0.69 Diversity High Mod Low 0.00 0.83 0.17 Stability High Mod Low 0.47 0.53 0.00 67.8% 2.8% 90% 1.9% 3.8% $196,178 3.5% 0 25.7% $97,771

23 District A Economy Poor Fair Good 0.63 0.37 0.10 Cost Poor Fair Good 1.00 0.00 0.00 Student Needs Poor Fair Good 1.00 0.00 0.00 Sparsity Poor Fair Good 0.00 0.00 1.00 Regional Cost Low Mod High 0.00 0.19 0.81 Free Lunch Low Mod High 0.00 0.00 1.00 LEP None Mod High 0.00 0.55 0.45 High Cost Low Mod High 0.00 0.00 1.00 Enrollment Low Mod High 0.00 0.20 0.80 Pupil Density Low Mod High 0.00 0.20 0.80 Employment Poor Fair Good 0.00 0.19 0.81 Growth Low Mod High 0.00 0.99 0.01 Enr. per Capita Low Mod High 0.41 0.59 0.00 Trend in Enr per Capita Neg. Stable Pos. 0.52 0.48 0.00 Pop/Enr Poor Fair Good 0.00 0.59 0.41 116.17 72% 4.0% 2.5% 3000-5000 700 0.35% 14.4% -1.3% FV/Enrollment Low Mod High 0.54 0.46 0.00 Income/Enrollment Low Mod High 0.00 1.00 0.00 FV Growth Low Mod High 1.00 0.00 0.00 Income Growth Low Mod High 0.63 0.37 0.00 $196,178 $97,771 -3.4% 3.7% Fiscal Poor Fair Good 0.63 0.37 0.00 Population Poor Fair Good 0.00 0.59 0.41 Enrollment Poor Fair Good 0.00 0.56 0.44 High Wage Low Mod High 0.03 0.97 0.00 Unemployment Low Mod High 0.84 0.16 0.00 Growth ’00-‘02 Neg. None Pos. 0.00 0.19 0.81 Growth ’96-‘00 Neg. None Pos. 0.00 0.29 0.71 3.5% 35% 0.9% Growth ’91-‘01 Low Mod High 0.00 0.57 0.43 Growth ’96-‘01 Low Mod High 0.00 0.39 0.61 Stability ’91-‘01 High Mod Low 0.00 0.44 0.56 Stability ’96-‘01 High Mod Low 0.21 0.89 0.00 1.7% 2.1% 5.6% 1.3%

24 FV/Enrollment Low Mod High 0.54 0.46 0.00 Income/Enrollment Low Mod High 0.00 1.00 0.00 FV Growth Low Mod High 1.00 0.00 0.00 Income Growth Low Mod High 0.63 0.37 0.00 $196,178 $97,771 -3.4% 3.7% Fiscal Capacity Poor Fair Good 0.63 0.37 0.00

25 Cost Poor Fair Good 1.00 0.00 0.00 Student Needs Poor Fair Good 1.00 0.00 0.00 Sparsity Poor Fair Good 0.00 0.00 1.00 Regional Cost Low Mod High 0.00 0.19 0.81 Free Lunch Low Mod High 0.00 0.00 1.00 LEP None Mod High 0.00 0.55 0.45 High Cost Low Mod High 0.00 0.00 1.00 Enrollment Low Mod High 0.00 0.20 0.80 Pupil Density Low Mod High 0.00 0.20 0.80 116.17 72% 4.0% 2.5% 3000-5000 700

26 District B Overall Poor Fair Good 0.00 1.00 0.00 Short Run Poor Fair Good 1.00 0.00 0.00 Performance Low Mod High 0.00 0.00 1.00 Economy Poor Fair Good 0.00 0.00 1.00 Long Run Poor Fair Good 0.36 0.64 0.00 189.2

27 Outline of Presentation  Framework for Financial Condition Indicator System (FCIS)  Development process and methodology  FCIS example  Overall results  Potential uses of FCIS

28 Relationship between Measures  SR condition and LR condition are highly related (0.76), but they are not correlated strongly with economic condition.  SR condition is not strongly related to property values or income.  Revenue, economic condition, and student performance are strongly related to property values and income.

29 Comparison of Overall Financial Condition by Need/Resource Capacity Categories 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 BIG 4HIGH-NEED URBAN/SUBURBAN HIGH NEED RURALAVERAGE NEEDLOW NEED Membership levels Good Fair Poor

30 Comparison of Short Run Financial Condition by Need/Resource Capacity Categories 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 BIG 4HIGH-NEED URBAN/SUBURBAN HIGH NEED RURALAVERAGE NEEDLOW NEED Membership levels (overall score) Good Fair Poor

31 Comparison of Long Run Financial Condition by Need/Resource Capacity Category 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 BIG 4HIGH-NEED URBAN/SUBURBAN HIGH NEED RURALAVERAGE NEEDLOW NEED Membership levels (overall score) Good Fair Poor

32 Comparison of Economic Condition by Need/Resource Capacity Categories 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 BIG 4HIGH-NEED URBAN/SUBURBAN HIGH NEED RURALAVERAGE NEEDLOW NEED Membership levels (overall score) Good Fair Poor

33 Share of Districts with Poor Financial Condition by Component and Need/ Resource Capacity Category 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 BIG 4HIGH-NEED URBAN/SUBURBAN HIGH NEED RURALAVERAGE NEEDLOW NEED Low score districts as share of total Total Short Run Long Run Economic Student Performance Note: Districts with membership levels in the poor set of at least 0.50.

34 Share of Districts with Good Financial Condition by Component and Need/ Resource Capacity Category 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 BIG 4HIGH-NEED URBAN/SUBURBAN HIGH NEED RURALAVERAGE NEEDLOW NEED High score districts as share of total Total Short Run Long Run Economic Student Performance Note: Districts with membership levels in the good set of at least 0.50.

35 Outline of Presentation  Framework for Financial Condition Indicator System (FCIS)  Development process and methodology  FCIS example  Overall results  Potential uses of FCIS

36 Potential Uses of FCIS Early warning system to help SED identify districts at risk of financial problems. Training tool for SED and other education organizations on key components of strong financial condition. Benchmarking tool for district administrators to compare their financial condition to similar districts. Can peel back layers of system to see where condition is good and where it needs improvement. Oversight tool for school boards to monitor district finances. Information system for the general public—could be used to develop interactive school district financial report card.


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