1. Public Schools of Petoskey Budget Update & Outlook September, 2004

2. Last Time We Met….  February 2003 – State had just sent Executive Order cuts to all districts.  Per Pupil Allowance at start of year had been set at $6,700.  Executive Order in Feb. 2003 reduced the per pupil allowance by 3.8%; approximately $60 per pupil.  Cost to PSP: $188,411

3. The Belt Tightening Begins  Between Feb. 2003 and June 2003 we: Reduced supply budgets 20% Reduced conferences and reimbursements Eliminated remaining major equipment purchases Restored full 18 mills on non-homestead property taxes  End Result Budgeted Loss for FY 02-03: $213,049 Actual Result: Gain of $188,471

4. Per Nov 2003 MSBO survey What Did Other Districts In Michigan Do?  In response to their budget issues in FY 2002-03 303 (58%) districts laid off employees. 366 (70%) did not fill open positions. 188 (36%) eliminated programs or services. 288 (55%) increased class size. 147 (28%) froze salaries and benefits for some employees. 277 (53%) reduced or eliminated field trips. 115 (22%) reduced transportation services. 246 (47%) deferred maintenance on existing facilities.

5. Refresher on State Aid: State Aid Formula (# Pupils Multiplied by Per Pupil Foundation Allowance) Less (18 mills X District Non-Homestead TV) Equals Amount State pays the district

6. State Aid Key Points  Pupil count is an uncontrollable variable.  Per Pupil Foundation Allowance is set by the State. ($6,700 for 02-03,03-04 & 04-05). This is the minimum any district receives.  Amount of $$ sent from Lansing to PSP is reduced as our property values increase.  INCREASED PROPERTY VALUES DO NOT EQUAL MORE MONEY FOR SCHOOLS!!!

7. How the Per Pupil Allowance is Split Between Taxes & State

8. From Standard & Poor’s Latest Report  The District’s state-source operating revenue per student is exceptionally below the state average, and lower than the peer group average.  Statewide, only 3.8% of Michigan’s school districts receive less per-student revenue from state sources than the district.

9. What Does All This Mean?  As the property values in the Petoskey area increase, the benefit of the increased property tax revenue does not accrue to Petoskey Schools.  The State of Michigan benefits, as the amount of money sent from Lansing decreases as the local property tax revenue increases.

10. Major Revenue Sources

11. Major Expenses

12. Instruction to Support Costs Comparison

13. Observations About PSP by Standard & Poor’s  On a per-student basis: the district’s instructional expenditures are comparable to the state average, but higher than the peer group average. the district’s operating expenditures are moderately below the state average, but comparable to the peer group average. Statewide, 18.1% of Michigan’s school districts spend less per student on administration than the district. Statewide, only 9.2% of Michigan’s school districts spend less per student on central administration.

14. More Data from Standard & Poor’s

15. How We Compare With Other Districts

16. The Budget Dance Continues – FY 2003-2004  State set per pupil foundation allowance at $6,700.  In November, State once again issued cuts to schools. This time cut was $74 per pupil.  Cost to PSP: $228,797

17. FY 2003-2004 Budget Changes: Revenue Losses  State Ordered Per Pupil Cuts  State Drivers Ed Funding Lost  Total Revenue Losses $ 228,797 26,415 $ 255,212

18. FY 2003-2004 Budget Changes: Cost Increases  Salary & Fringe Increases  Property / Casualty Insurance  Transportation Cost Increases  Total Cost Increases $ 1,080,066 16,791 37,792 $ 1,134,649

19. FY 2003-2004 Budget Changes: Revenue Increases  Increased Pupil Count  Increased Tuition & Fees  Misc. Other Sources  One Time Revenue Sources Sale of Property & Equipment Special Ed Reimbursement  Total Revenue Increases $ 60,000 96,486 51,853 81,970 290,323 $ 580,632

20. FY 2003-2004 Budget Changes: Cost Cuts Made  Program Cuts  Energy Conservation Measures  Supplies  Major Equipment  Hiring Delays / Reductions Total Cost Cuts Made $ 58,131 77,237 159,678 252,158 36,961 $ 584,165

21. End Result – FY 2003-2004  Had we not changed a thing on how the district spends its money, we would have lost $1.7 million.  Instead, we made cuts, looked for new revenue, scrimped on spending, saved our pennies and nickels for the entire year and…..  And instead of losing $1.7 Million, our loss came in at only $36,500.

22. Per K-16 Coalition for Michigan's Future survey And What Did Other Michigan School Districts Do?  273 (52%) laid off employees (approximately 5,900 laid off state-wide).  393 (75%) did not fill open positions.  277 (52%) increased class sizes.  434 (83%) reduced supply budgets.  273 (52%) deferred maintenance on existing facilities.  189 (32%) froze salaries and benefits for some employees.

23. And That Brings Us to FY 2004-2005  As of September 27, we are still waiting on a State Aid bill, which sets the per pupil allowance……  Which means our budget, required by law to be adopted by June 30, is using an assumption for its main source of revenue!

24. Per Pupil Allowance – FY 2004-2005  The State is indicating the per pupil allowance will be $6,700 for a third year in a row.  If we get the full $6,700 it will be the first time; we have been cut in each of the other two years.  State economy is lagging behind projections, so our assumptions for the budget set the per pupil allowance at only $6,650.

25. General Fund Budget FY 2004-2005  Total Revenues  Total Expenditures  Excess Expenditures  Est. Fav. Budget Variance  Est. Use of Fund Balance  Fund Balance: June 30, 2004 June 30, 2005 (Est.) $23,214,589 24,904,579 (1,689,990) 366,468 (1,323,522) $3,678,452 $2,354,930

26. So What’s The Big Deal?  We turned a possible $1.7 million loss in 2003-04 into an almost break-even actual result.  So why can’t we do that again in 2004-05?

27. The Budget Cutting Has Already Happened  We have already cut an additional $574,000 out of the budget for FY 2004-05, and created $153,000 in additional revenue. Three year total of cuts is approx. $1.7 million. Three year total of new revenue sources is approx. $1.2 million.  We have cut for three years in a row now.  The easy cuts are well behind us.  We have no more “rabbits to pull out of the hat”.

28. FY 2004-2005 Budget Changes: Revenue Decreases  Anticipated Reduction of State Aid  Grants & Misc. Reductions  Loss of One Time Revenue Sources Used in 03-04  Total Revenue Decreases $ 149,078 26,118 372,293 $ 547,489

29. FY 2004-2005 Budget Changes: Expense Increases  Salary & Fringe Increases  Add 1 Special Ed Teacher  Add.5 Developmental Kindergarten Teacher  Transportation Contract Increase  Transfer to Athletic Fund for Coaches Salaries  Property / Casualty Insurance Increase  Utilities & Services Increases  Total Expense Increases $ 1,454,836 56,244 32,546 20,959 25,688 15,675 61,017 $ 1,666,965

30. FY 2004-2005 Budget Changes: Revenue Increases  18 mills non-homestead property tax restoration  Tuition / Rent Increases  Total Revenue Increases $ 127,353 25,977 $153,330

31. FY 2004-2005 Budget Changes: Cost Cuts Made  Staffing Reductions Administration Aides Secretaries Custodial / Maintenance All Other  Savings from Retiring / New Staff Pay Differential  Shift Staffing Expenses into Grants  Supplies & Services Reductions  Total Cost Cuts Made $ 85,365 31,649 40,322 81,842 46,179 157,915 57,914 73,056 $ 574,242

32. Per K-16 Coalition for Michigan's Future Survey Any Idea What Other Districts Will Do?  215 (41%) will lay off approx. 2,400 employees. 77% of these districts expect teachers to be among those laid off.  330 (77%) will not fill open positions.  226 (52%) will increase class size.  90 (21%) will reduce the number of school days.  135 (26%) will increase student fees for extra- curricular activities.

33. Per K-16 Coalition for Michigan's Future Survey Any Idea What Other Districts Will Do?  256 (59%) will reduce budgets for professional development.  265 (61%) will attempt to freeze wages and fringes.  154 (36%) will reduce hours for some existing staff.  217 (50%) will delay the purchase of new textbooks.  340 (79%) will spend from their savings.

34. One Cost Cutting Suggestion We Have Not Implemented

35. General Fund Budget FY 2004-2005  Total Revenues  Total Expenditures  Excess Expenditures  Est. Fav. Budget Variance  Est. Use of Fund Balance  Fund Balance: June 30, 2004 June 30, 2005 (Est.) $23,214,589 24,904,579 (1,689,990) 366,468 (1,323,522) $3,678,452 $2,354,930

36. Taking a Moment to Celebrate Our Success  According to S&P: Well above average MEAP excelling rate. Well above average MEAP passing rate. Moderately above average ACT scores. Well above average AP scores.  “Relative to other school districts in Michigan, Petoskey Public Schools achieves well above- average student results with moderately below- average spending per student.”

37. Now a Look Into Our Crystal Ball

38. The Picture FY 2005-2006 and Beyond  Major Assumptions Used: Modest increases in per pupil allowance. Flat enrollment. Minimal increases in salaries. 15% - 18% increases in fringe benefit costs. Hiring freeze. No increase in supplies, major equipment purchases, or services.

39. The Picture FY 2005-2006 and Beyond FY 2005-06FY 2006-07 Total Revenue$23,090,184$23,885,462 Total Expenditures25,994,88827,340,339 Excess Expenditures(2,904,704)(3,454,877) Fav. Budget Variance 388,229 406,374 Use of Fund Balance(2,516,475)(3,048,503) Fund Balance Beginning of Year$2,354,930$ (161,545) End of Year$ (161,545)$(3,210,048)

40. So What Does This All Mean?  The District will be bankrupt at the end of FY 2005-06 unless: Significant revenue increases are granted by the State. Significant cuts in spending are enacted.

41. How Did We Get in this Situation?  Three years in a row of flat or declining revenue.  Decline in revenue is caused by a structural imbalance in the State’s budget.  The poor economy is only partly to blame for the State’s budget problem: Since 1994, the legislature has enacted tax cuts that directly impact the funding of our children’s education by $550 million a year.

42. Per Pupil Revenue and Expense History

43. Why Not Use Fund Balance?  We Are!! But we will still be bankrupt by the end of FY 2005-06.  Financially sound Districts maintain some amount of fund balance for many reasons: Cash Flow Emergencies Protect programs and services

44. So Where Do We Go From Here?  Continue to look for ways to save on costs. Your ideas are important. Please let us know!  Budget Planning Calendar – Plan in place by Spring 2005.  Talk to your Legislators! Tell them education is important, and should be funded as if it is important. Fix the structural deficit that exists in the current funding mechanism. Waiting to fix things until there is “blood in the streets” is not acceptable.

45. FY 2004-2005 Budget Reductions / Revenue Enhancements Cont. Increases / (Decreases) to Ending Fund Balance  Savings from Retiring / New Staff Pay Differential  Shift Staffing Expenses into Grants  Supplies & Services Reductions  Total Budget Reductions / Revenue Enhancements $ 157,915 57,914 73,056 $ 727,572

46. Questions and Answers