Octorara Area School District Tonight we will be asking you to pass a resolution that will allow us to put on public display the proposed final 2015-2016 budget. Passing this resolution tonight will not commit you to any final budget amounts. This budget can be changed between now and June 15th when you will be asked to vote on the Final version and the millage or tax rate. 2015-2016 Proposed Final General Fund Presentation April 20, 2015

Additional opportunities to discuss the budget May 11th School Board Work Session May 18th Finance Committee Meeting May 18th School Board Meeting June 8th School Board Work Session June 15th Finance Committee Meeting June 15th School Board Meeting What are our other opportunities to discuss the budget? Between now and June 15th we have another two Board work sessions, two Finance Committee meetings and two Board meeting scheduled where we can discuss and make adjustments to the budget.

2015-16 Budget Summary Total Revenues $48,264,980 Total Expenditures $50,721,802 Deficit $2,456,822 2.4% Act 1 Tax Increase $693,822 Revised Deficit $1,763,000 Fund Balance $0 Was does a summary for our 2015-2016 budget look like? The Proposed final budget total revenues without any increase in the tax rate is $48,264,980 Our total proposed expenditures are $50,721,802 Resulting in a deficit of $2,456,822 Our Act 1 index for 2015-2016 is 2.4% which will result in $693 thousand in tax revenue reducing our deficit to $1,763,000. This deficit can be funded with the use of Fund Balance in the amount of $1,763,000 to balance the 2015-2016 Budget.

2015-16 vs. 2014-15 Expense Summary 2015-16 Budget 2014-15 Budget Variance Salaries $19,066,458 $19,152,915 ($86,457) Retirements Benefits $10,557,957 $9,565,473 $992,484 Retirement Rate 25.84% vs. 21.40% $825K Medical Benefits 6.95% $167K Outside Services $4,841,483 $4,322,258 519,225 Special Education Repairs/Maint. Services $849,407 $797,375 $52,032 Trans/Ins/Tuit/Charter $6,420,107 $6,156,606 $263,501 Vocational/Technical ($101K), Tuition $85K, Trans $141K., Insur $25K Supplies $1,570,500 $1,540,379 $30,122 Books $47K, Gasoline ($15K) Capital $645,640 $640,684 $4,956 Dues/Fees/Interest $3,023,313 $3,109,608 ($86,295) Bond Interest ($125K) Fund Trans/Principle $3,746,938 $3,925,600 (178,662) Bond Principal $125K Transfers to other funds (273K) $50,721,802 $49,210,898 $1,510,904 The 2015-2016 budget expneditures are an increase of $1,510,904 or 3.07% increase over 2014-2015. Total salaries are lower by approximately $87,000. This budget has the same staffing level as the 2014-2015 budget, including $58,000 for four unfilled technology ades. The decrease in total salaries is due to resignations or employees in the 2014-2015 budget who have been or are being replaced by lower salaried employees in 2015-2016. Total benefits are increasing by $992,484. Of that increase $825 thousand is from PSERS or retirement increases. The PSERS rate is increasing from 21.4% to 25.84% in 2015-2016. Medical Benefits are increasing by 6.95% or $167 thousand. Outside Services are increasing by $519,225. Like many other school districts we are seeing increases in the costs for special education which accounts for the majority of this increase. Transportation/insurance/ tuition is increasing by $263,501. Tuition for occ ed is decreasing while other tuitions to charter and aps is increaseing however the majority of the increase in this area is in transportation. Our contract calls for a 1.85% annual increase however as we add additional runs for special education students our total costs increase. Both Supplies and Capital or Equipment are increasing slighlty. Supplies by less than 2% and Capital by less than 1% Dues fees and interest is decreasing mostly due to a decrease in Debt Service Interest however Debt Service Principal in the next line is increasing by the same amount. Overall the Fund transfer/Principle item is decreasing because the transfer to other funds line is decreasing by $273 thousand. The bottom line is a total budget increase of $1,510,904 or 3.07% over 2014-2015 budgeted expenditures.

PSERS Retirement Rate History & Projections Fiscal Year Rate 2008-09 4.76 – Actual 2009-10 4.78 – Actual 2010-11 5.64 – Actual – Original 8.22 2011-12 8.65 –Actual 2012-13 12.36 – Actual 2013-14 16.93 – Actual 2014-15 21.40 – Actual 2015-16 25.84 – Actual 2016-17 29.69 – Projected 2017-18 30.62 - Projected 2018-19 31.56 - Projected Of our $1.5 million expenditure increases the largest item is our PSERS increase. As you saw our total increase is $825 thousand in gross expenditures however we will receive half of that back in the form of a state subsidy, the net affect to our budget for PSERS will end up being $412,500. Netting this increase against the increase in the PSERS subsidy revneue results in an increase of only $1,098,404 or 2.2% overall increase over 2014-2015 as opposed to the 3.7% I mentioned earlier. As you can see the projected PSERS rate will continue to increase into the low 30%s and are projected to stay at those levels for many years. However the district has taken steps in the past to reduce the impact of PSERS on the budget by reducing the total number of employees and utilizing contracted services where possible.

Salary History As we saw earlier total salaries are budgeted lower now than they were in 2014-2015. even though we have seen some increases in total salaries since the most recent low in the 2012-2013 fiscal year, as you can see on this chart, total salaries are below the highest salaries from 2009-2010 fiscal year. This helps minimize the PSERS impact as well as maintain salary expenditures. Includes Athletics

Selected General Fund Expenditures % Growth Again you can see the PSERS impact on general fund expenditures represented by the green portion of the stacks on this chart. Other increases we saw in the budget are due to Health Insurance, the red portion and charter school tuitions the green area. In the past PDE used to reimburse school districts for charter school expenditures however that funding ended. Next year’s proposed governor’s budget proposes to cut our charter school expenditures by $300,000. Health care expenditures, the red portion of the stacks is projected to increase by 6.95% or $167 thousand in 2015-2016 under the current plan. As you can see on the chart, health care expenditures are the red portion, we experience wide variances from year to year. This is due to the fact that we use a self funded insurance model. At the end of the 2014-2015 fiscal year we will be setting up an internal service fund to help smooth out these variances in the General Fund. We will use the internal service fund to fund the differences between budget and actual expenditures. Debt Service, the yellow portion of the stacks, increased in 2009-2010 and has maintained the same level until this year. Last year the Board approved a refinancing of older debt at a lower rate and enjoyed a one time savings spread over two budget year’s.

Debt Service On this chart you can see that the 2014-2015 budgeted debt service was approximately 6.15 million however as you heard last week our actual debt service expenditures this year will be 5.79 million which is a $380 thousand savings The one time debt service savings taken over two years and will also reduce our 2015-2016 debt by approximately $380 however the next year, 2016-2017our debt service goes right back up the 6.15 million level. This is the reason for maintaining the original debt level in the budget. There are other opportunities in the future to refinance older debt with lower rate debt however the year that we will see savings has not been identified yet. Also to note about our debt service. According to our Financial Advisor and Bond Underwriter, our net debt service runs about 11% of our total budget which is in line with most other school they see in Pennsylvania ranging from the 10% to 15% of their budget.

2015-16 District Revenue and Fund Balance Breakdown As you saw in our summary our total revenues budgeted, including the 2.4% Act 1 increase of approximately $700 thousand totals $48,958,802. That total revenue plus the fund balance needed to balance the budget equals $50,721,802. Here you can see that of all or our sources of revenues 70% comes from current local revenues and 4% comes from fund balance. The state is providing approximately 24% and the federal government is providing approximately 2%. In early May we will be notified as to how much the total homestead/farmstead tax revenue will be. This amount will reduce the percentage of local revenue and increase the percentage of state revenue. This year the total was 1,124,919 Giving each homestead/farmstead tax bill a reduction of $267 % Before the property tax reduction has been added into the budget.

2015-16 Local Revenue Breakdown Our local revenues make 70% of total revenues. The largest portion or our local revenue comes from RE taxes, 88% which includes the act 1 index revenue. Again this number will decrease and the state number will increase when we are notified of the homestead/farmstead revenue. Our EIT, our second larges local revenue as you can see is approximately 5% of our local revenue. We are budgeting a 1.6% increase in our EIT revenue for 2015-2016. Currently we are trending just below budget for 2014-2015 which would not support an increase for 2015-2016 however this revenue has varied widely in the past three years with a high of 2.1 million and a low of 1.5 million so an average of the past three year actual do support a higher 2015-2016 budget amount. Our Interim and transfer taxes for 2014-2015 are both trending above budget this year. We are budgeting a 16% increase combined in these revenues. Investment income as we saw last week is projected to be higher than budget this year and we did budget 2015-2016 for a 6% increase Our IDEA budget is lower in 2015-2016 by a small % and our delinquent RE tax revenue all other local revenues are budget at 2014-2015 levels. Before property tax reduction allocation

Selected Local Revenue History On this slide you can see how the EIT revenue has varied widely the past three years and why we use an average to budget for 2015-2016.

Octorara Area School District The 2015-2016 Act 1 tax increase is about ½ of what it was in 2006-2007. Base Index 1.9%

Increase for Median Homestead Property 2014-2015 Median Homestead Property Assessment * $123,405 2014-2015 Tax Mills 36.66 2014-2015 Tax Face Value $4,524 2.4% Act 1 Index 2015-2016 Tax Mills 37.51 2015-2016 Tax Face Value $4,629 Increase $105 * Chester County Property Only What does a 2.4% tax increase look like for District Residents? Using the Chester County Median homestead property assessment you can see that the 2.4% act 1 index increase equals an increase of $105 on a tax bill of $4,524 for 2015-2016.

When were tax rates last increased? Millage Change   2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 07-08 to 14-15 Growth Avon Grove SD 23.82 24.72 26.18 26.75 27.50 3.68 15.4% Coatesville Area SD 25.70 26.50 28.49 29.49 30.11 31.19 32.00 6.30 24.5% Downingtown Area SD 24.05 24.85 25.47 26.21 26.73 27.18 3.13 13.0% Great Valley SD 17.44 17.92 18.22 18.50 19.03 19.59 20.00 2.56 14.7% Kennett Consolidated SD 21.95 23.14 23.95 24.78 25.73 27.45 28.14 6.19 28.2% Octorara Area SD 31.61 32.23 35.12 35.28 36.66 5.05 16.0% Owen J Roberts SD 23.96 24.89 25.50 26.17 26.82 27.27 27.74 28.28 4.32 18.0% Oxford Area SD 25.16 28.68 29.55 30.05 30.23 5.07 20.2% Phoenixville Area SD 24.44 25.89 26.39 27.06 27.78 28.24 28.64 28.89 4.45 18.2% Tredyffrin-Easttown SD 16.26 16.97 17.47 17.97 18.65 19.26 20.22 3.96 24.3% Unionville-Chadds Ford SD 21.57 22.53 23.58 24.26 24.53 25.18 26.79 5.22 24.2% West Chester Area SD 15.79 16.85 17.85 18.36 18.67 19.70 3.91 24.8% Percent Change Avg. Change 0.0% 3.8% 5.9% 2.2% 2.8% 1.8% 3.1% 3.6% 3.5% 2.1% 2.6% 3.9% 3.3% 2.5% 2.9% 2.0% 1.7% 1.5% 5.4% 2.7% 3.4% 11.4% 9.0% 0.5% 3.0% 1.9% 8.2% 14.0% 0.6% 5.7% 1.4% 0.9% 4.4% 3.2% 5.3% 4.5% 4.7% 1.1% 4.1% 4.2% 6.7% 5.5% When were tax rates last increased? Our current millage rate, for Chester County is 36.66 mills. As you can see here this hasn’t changed since the 2012-2013 fiscal year. Also, we are in the lower third of Chester County schools for tax rate growth over the past 8 years.

State Revenues Our total state revenues are 24% or our total revenues. This % will increase after the homestead/farmstead revenue has been calculated and we know the total. The last stack on this chart show our 2015-2016 budget compared to prior year’s amounts. As you can see we are keeping basic education level funded, special education level funded and transportation funding is increasing slightly. Social security remains constant however as you can see our PSERS subsidy increases due to the increase in the PSERS rate on the Expenditure side. In the Proposed Governor's budget would pass we would see an additional amount of subsidy revenue of approximately $300,000.

Federal Revenues Federal Revenues make up approximately 2% of all or our revenues. Title I is by far our highest federal revenue. Unfortunately the ACCESS revenue, our second largest federal revenue, reimbursement rates have been decline and we may not be able to reach our 2015-2016 budget. We will not reach our 2014-2015 budget.

Fund Balance Roll-forward Type of Reserve   2012-13 Assignments 2013-14 Assignments Total Assigned @ 6/30/14 Projected Fund Balance @ 6/30/15 Fringe Benefit $331,149 ($79,772) $766,368 PSERS $450,000 $0 $1,344,800 Extraordinary Building/Grounds Repairs $210,330 $312,890 Extraordinary Utility Costs i.e. Electric $20,000 Transportation - Fuel Improvements in Technology $40,000 Designated Reserve for Interest Expense Bond Issue $304,589 $812,589 Designated Reserve for H.S. Project $545,250 $1,415,500 Current Year Assignments $1,841,318 $4,732,147 ($862,048) Total Assigned Fund Balance $4,811,919 $3,870,099 Total Unassigned Fund Balance 3,568,060 3,524,150 Y/E Audited Fund Balance $8,379,978 $8,256,296 $7,438,149 Finally, the 2015-2016 budget calls for using fund balance to close the deficit. Our fund balance available to fund the 2015-2016 deficit is projected to be approximately $7.4 million. Last year’s fund balance was $8.256 million and last week we saw that we are projecting to use approximately $826 thousand of fund balance to balance the 2014-2015 leaving us with $7.4 million in fund balance available to fund 2015-2016.

Questions