1. WSSDA Annual Conference November 19, 2014 Barbara Posthumus, Director of Business Services Lake Washington School District bposthumus@lwsd.org

2. Have you downloaded WSSDA 2014? Search for the app in iTunes or Google Play Store and join the conversation. WELCOME. 1.Tap Agenda 2.Locate this session in the agenda 3.Tap Check In

3.  School Funding and Budgeting ◦ History ◦ Funding Sources and Model ◦ Budget Development ◦ Capital Funds and Debt  Multi-Year Projections/Impact  Collective Bargaining – Jay Rowell/Rick Doehle  Monitoring and Reporting 3

5.  Article IX “It is the paramount duty of the state to make ample provisions for the education of all children residing within its borders,...” 5

6. Doran Decisions 1977-1988 Tasks the Legislature with defining “basic education” ESHB 2261 Establishes prototypical school model & establishes QEC SHB 2776 Creates new school funding allocation model McCleary Decision 2010 Confirms state funding is not ample, it is not stable, it is not dependable 6

7.  Doran I - 1977 ◦ the level of funding provided by the state.... was not fully sufficient.. ◦ legislature had not defined basic ed or provided fully sufficient funding without reliance on special excess levies ◦ led to Basic Ed Act of 1977 which established revised funding formula, substantially increased state funding, and limited amount and purpose of special levies. 7

8.  Doran II - 1983 ◦ duty to fully fund includes not only basic ed act also: special education; transitional bilingual; remediation; transportation for some pupils.  Doran III - 1988 ◦ required establishment of some form of “safety net” in special education 8

9.  ESHB 2261 passed in 2009 ◦ Defines new programs of Basic Education, while mandating that no new requirements shall be implemented without associated funding. ◦ Adopts prototype schools funding model. ◦ Establishes that programs shall be fully funded by the 2018-19 school year. ◦ Establishes a new funding formula for Pupil Transportation, to begin during or before 2013. ◦ Created the Quality Education Council (QEC) to develop and implement workgroups on funding formulas, data governance, levy, compensation ◦ Creates a roadmap for work groups to define the details of the funding formulas. 9

10.  SHB2776 passed in 2010 ◦ Implements the new funding structure for education as proposed by the QEC and the Funding formula technical workgroup ◦ New funding structure to begin Sept 2011 ◦ New structure only - no new dollars ◦ Creates timeline for funding phase-in and 2018 deadline for full funding ◦ Funding shall be for allocation purposes only 10

11.  More funding must begin in 2012-13  Full Day Kindergarten fully funded statewide by 2017-18  K-3 Class Size Reduction fully funded by 2017-18  Materials, Supplies and Operating Costs fully funded by 2015-16  Transportation fully funded by 2014-15 11

12.  McCleary 2010 o The Washington State Supreme Court issued a ruling that the state is not complying with its constitutional duty to “make ample provision for the basic education of all children in Washington.” o Court recognized the Legislature had enacted “a promising reform package” in its 2009 education reform bill and indicated that legislation, if funded, “will remedy deficiencies in the K-12 funding system.” o Court deferred to the Legislature to determine how to meet its constitutional duty, but retained jurisdiction over the case to “facilitate progress in the state’s plan to fully implement the reforms by 2018.” 12

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14. 14 Source: Organization and Financing of Washington Public Schools May 2013

15. 15 Source: Organization and Financing of Washington Public Schools May 2013

16. 16 Source: Organization and Financing of Washington Public Schools May 2013

17.  Largest Revenue source for school districts  Basic Education  Categorical ◦ Special Education ◦ Highly Capable ◦ Learning Assistance Program ◦ Bilingual Instruction ◦ Transportation 17

18.  Enrollment is the largest driver of revenue  Key to positive or negative impacts to budget  Prototypical Model  Enrollment Staffing Funding  Staff Mix (levels of education and experience of your teachers) drive funding 18

19.  Fixed theoretical school size used for modeling purposes  Funding formula assumptions are based upon prototypical school  Class size assumptions are different based upon grade and subject  Planning time for teachers is factored in for determination of class size CategoryElem K-6Middle 7-8High 9-12 Base Enroll400432600 19

20.  Certificated Instructional Staffing (CIS)  Legislative class size allocations plus planning time equals teachers 20 Students per staff % Increase in Teachers to Cover Planning Elem Gr K-325.2315.5% Elem Gr 4-627.0015.5% Middle Gr 7-828.5320.0% High Gr 9-1228.7420.0% K-1 High Poverty 20.3020.0% Gr 2-3 High Poverty 24.1020.00

21.  Other cert staff based on prototypical school model. 21 Elem K-6Middle 7-8High 9-12 Per Prototypical School400432600 Librarian.663.519.523 Counselor.4931.2162.539 Nurse.076.060.096 Social Workers.042.006.015 Psychologists.017.002.007

22.  Classified Staff (CIS) 22 Elem K-6Middle 7-8High 9-12District Wide Per Prototypical School400432600 Per 1,000 students Teaching Assistance.936.700.652 Office Support2.0122.3253.269 Custodians1.6571.9422.965 Student & Staff Safety.079.092.141 Family Involvement Coord..0825 Technology.628 Facilities/Maint./Grounds1.813 Warehouse/Mechanics.332 Central classified administration 5.3% of staff units x 74.5%

23.  Certified Administration Staff (CAS) 23 Elem K-6Middle 7-8High 9-12 Per Prototypical School400432600 Principal1.2531.3531.880 District Wide Central Administration 5.3% of staff units x 25.5%

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25.  Certified staffing FTE and Staff Mix (levels of education and experience of your teachers) drive funding. Cert FTE multiplied by state salary allocation equals funding  Classified and Administration FTE multiplied by average state salary allocation equals funding  Some districts are grandfathered at higher amounts  Salaries drive mandatory benefits and medical benefits 25

26. 26 2014-15 Level Technology$89.13 Utilities and Insurance$242.17 Curriculum and Textbooks$95.69 Other Supplies and Library Materials$203.16 Instructional Professional Development$14.80 Facilities Maintenance$119.97 Security and Central Office$83.12 Total$848.04

27.  Substitutes  Career and Technical Education (Vocational Education)  Small Schools Districts – special allocations 27

28.  Special Education ◦ Funded based on a % of basic ed ◦ Birth to Pre-Kindergarten=115% ◦ Kindergarten to age 21 =93.09%  Learning Assistance Program (LAP), Transitional Bilingual (ELL) and Highly Capable ◦ Provides funding for additional hours of instruction ◦ Formula drives cert teachers  Transportation 28

29.  Local Levy ◦ Must be voted on by community at least every four years ◦ Amount that can be collected is capped by state formula ◦ Increased from 24% to 28% in 2011 ◦ Set to sunset after 2017 ◦ Some districts are grandfathered at higher percentage  Levy Equalization 29

30.  Special Education IDEA  Vocational Education  Title I (Remediation)  Title II (Professional Development)  Title III (Limited English Proficiency)  Free and Reduced Lunch Funding  Head Start  Other Grants 30

31.  Investment earnings  Fee programs – all day kindergarten, sports participation, food services, summer school  Grants and donations  Rentals and leases – facilities use  Revenue from other school districts  Fines and fees from students (workbooks, supply fees) 31

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33.  Policy development  Planning  Budget parameters and assumptions  Budget implementation and oversight 33

34.  Budget allocation available resources to the programs which have been established to achieve the district's overall policies  Policies should ◦ Address the management of financial resources ◦ Set financial goals ◦ Establish financial priorities ◦ Provide financial continuity between budget years ◦ Example: The district shall maintain an unreserved fund balance of 5% of expenditures 34

35.  Enrollment  Mid-Year Projections (Fund Balance)  Legislative Impact  Budget Preparation  Multi-year Budget Projection  Monitoring and Reporting Enrollment Mid-Year Projections Budget Preparation Multi-Year Projections Reporting 35

36.  Staffing drives 85% of budget  State defines format of budget ◦ Program – Activity - Object 36

37. 37 Source: Organization and Financing of Washington Public Schools May 2013

38. 38 Source: OSPI Financial Summary 2011-12

39. DateAction JanuaryNext year Enrollment Projections Complete Feb/MarPrepare Current Staffing Data Mar/AprilDepartmental Budget Preparation AprilStaffing Allocations for next year developed April/MayDistrict Budget Advisory Process AprilLegislative Session Ends May- early JuneBalance Budget MayBoard Work Session Presentation JunePrepare Budget Document an send draft to Board 39

40. DateAction June 25Board Meeting – Draft Budget Presentation July 10Final date to prepare budget and available to public July 10Final date to forward draft budget to ESD July 20Publish First Notice of Public Hearing July 20Final date to have copies of Budget available to public (1 st class districts) and due to ESD for review July 27Publish Second Notice of Public Hearing August 6Board Meeting – Public Hearing and Final Adoption August 31Final date to Adopt Budget (1 st class districts) Sept 3Final date to forward budget to ESD (1 st class districts) 40

41.  District staff will begin making assumptions regarding legislative changes and impact  How does board want to see the information  How do you share with community? 41

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43.  Educational program and district goals/mission  Enrollment projections  Staffing levels for classroom, support, and administrative staff  Class sizes  Compensation, leave costs, benefits, pensions  Operational allocations for maintenance, custodial, administrative offices, and categorical programs  Equipment replacement schedules and needs  Transportation 43

44.  Feedback ◦ What kind of public process will you have? ◦ Goals for next year ◦ Goals for long-term  Questions ◦ How are contingencies built into budget? ◦ Does your district regularly do budget extensions? 44

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47.  For levies passed in 2014, collection begins in 2015  Typically collect 53% in Spring and 47% in Fall  For newly passed levies, your 2014-15 budget will only include the spring collection.  The 2 nd year, 2015-16 will include 100% of annual levy 47

48. Example: $5.0 Million levy over 4 years = $20Million $5.0 x 53% = $2,650,000 = 2014-15 revenue $5.0 x 53% = $2,650,000 plus $5.0 x 47% = $2,350,000 Total = $5,000,000 = 2015-16 revenue 48

49.  Technology Levies have special rules  Beginning in 2008, OSPI required that expenditures on staff training and software related to technology systems must be spent in the General Fund  Capital Technology Levy revenue then must be transferred from the Capital Projects Fund to the General Fund to cover the costs  You will see this in the presented budget as a transfer out of capital and a revenue in GF 49

50.  100% of Revenue and Expenditures are in Capital Projects Fund 50

51.  Great news – you passed a bond!!  Determination of when to sell bonds  Must be able to spend 85% of proceeds within 3 years  Business Office will work with underwriter and advisor to sell bonds  Board will need to pass resolution  Superintendent/Business Office will conduct call with rating agencies to rate the bonds 51

52.  Bonds impact two funds:  Revenue from bond sale and construction expenses go in Capital Projects Fund  Principal and Interest Payments on Bonds are paid out of debt service fund.  The presented budget will reflect estimated amounts if prior to actual sale  Will need to levy an amount sufficient to pay principal and interest 52

53.  The total indebtedness of a district can not exceed 5% of the value of taxable property within a school district. This includes all non voted debt and all voted debt (bonds).  Voter approved bond capacity may exceed 5% of the district’s assessed valuation but the principal amount of the bond sale is limited to the available debt capacity.  Small school districts may have to structure bond issues and repayments differently than large districts due to the debt limitations. 53

54.  Griffin School District AV=$1,300,000,000  5% debt limitation = $65 million  Current outstanding voted debt $13 million  Current outstanding non voted debt $300K  Cost of a new high school $100 million ◦ To construct a high school – would likely need to qualify for state matching funds and would need to ensure funding availability before moving forward. Maximum bond issuance would be about $52 million. ◦ In this scenario, a district could issue ½ and then issue the other ½ in the subsequent year. This would increase the cost of issuance but would likely result in more available capacity (if AV increases and additional existing debt is paid down). 54

55.  LGOs, lines of credit, capital leases, LOCAL program obligations, conditional sales contracts, and qualified zone academy bonds are all examples of non-voted debt subject to different rules for use of funds.  All non voted debt above is limited to.00375 (3/8 th of 1 percent) of the value of taxable property within the school district 55

56.  Utilizing the State Treasurer’s LOCAL program, one local district was able to purchase school buses over a 13 year term. They are making payments utilizing state funds from the depreciation schedule.  This funding allowed them to fund buses without utilizing a transportation levy or cutting educational programs. 56

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58.  Can you spend dollars from voted levies or bonds prior to collection?  Maybe…….  Need to have other reserves  Need to clearly track new expenditures separately  Need a clear cash flow plan 58

59.  Why you may not want to ◦ If use other reserves to front-fund, then those reserves will not be available for emergencies ◦ May show negative fund balance line item on your budget – requires additional explanations  Depends on your level of reserves and need to use those reserves immediately for other things 59

60.  For best transparency, sources of funds should be clearly identified.  Bonds vs. levies  Multiple Levies crossing over years 60

61. Read and discuss Portland article

62.  Read and discuss Portland article 62

63.  School boards should develop long-range financial plans including timetables for implementation. Long-range plans should be for at least five years  Plans should include ◦ Budgets needed to finance planned educational programs ◦ Methods to finance buildings needs to accommodate projected enrollment growth ◦ Projected of assessed valuation to determine impacts of property tax levies ◦ Projection of other revenue sources 63

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65. 65  How do decisions today effect long-term budget outlook?

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67.  Used for facility planning  Program planning  How does economic and demographics affect enrollments 67

68.  McCleary ◦ Class size reductions ◦ All Day Kindergarten ◦ Increased MSOC ◦ Additional staffing means increased local costs ◦ Space needs/constraints  Initiative 1351 68

69.  Levy Impact ◦ Four percent increase in levy cap implemented in 2011 is set to expire after 2017 ◦ Levy “ghost” money is set to expire after 2017 ◦ Legislative proposals to reduce levies as state funding increases 69

70.  COLA/pension impacts ◦ State has not provided a COLA for 6 years ◦ Local impact of COLA ◦ Pension rates need to increase  Employer rates from 2-3%  Employee rates from 1-1.5% 70

71.  Transportation Vehicle Fund ◦ Long-term replacement plan  Capital Projects ◦ Future Facility impacts ◦ Cash Flow  Debt Service ◦ What is impact to future tax rates 71

73.  Once the budget has been adopted, the school board is responsible for oversight of district finances 73

74. “A monthly budget status report for each fund shall be prepared by the administration of each school district; and a copy of the most current budget status reports shall be provided to each member of the board of directors of the district at the board's regular monthly meeting. The report shall contain the most current approved budget amounts by summary level accounts and the fund balance at the beginning and end of the period being analyzed….Also, as a part of the budget status report, the administration shall provide each member of the board of directors with a brief written explanation of any significant deviations in revenue and/or expenditure projections that may affect the financial status of the district… “ 74

75.  Review district monthly board report  What questions would you ask?  What patterns would you look for in these documents? 75

76.  Capital Projects ◦ If conducting multi-year construction project, outstanding encumbrances in Capital Projects Fund may exceed budget ◦ District staff have reporting requirements to OSPI if receiving State Assistance on construction projects 76

77.  Includes policies and procedures to provide assurance that: ◦ Safeguarding district assets ◦ Promote efficiency ◦ Provides reliable financial information and records 77

78.  Purpose ◦ Accountability ◦ Financial Statements ◦ Federal Grant Compliance  School board members can participate in entrance and exit conference  Important to hear from the auditors 78

79.  Has your district engaged in short-tem borrowing?  Has your district experienced recent levy losses?  In your district at its legal debt limit?  Has there been a decrease in year end fund balance levels over the past few years?  Have expenditures exceeded revenues over the past few years? 79

80.  Has the district been delinquent in paying: debt?, salaries, payroll taxes, vendor payments?  Is the district involved in pending litigation the could adversely affect its financial condition?  Is enrollment declining?  Are the unexplained differences between budgeted and actual revenues and/or spending?  Bargained contracts without a plan to pay for them? 80

81.  As a result of SHB 1431, passed in 2011, OSPI was required to work with ESDs to develop a tool that provides information about the financial health of school districts 81

82.  Indicators used in the tool are: ◦ Fund Balance to Revenue Ratio - This measure what percentage of a district’s revenues it current has “in reserve” ◦ Expenditures to Revenue – This ratio measures whether expenditures were greater or less than the amount of revenue the district brought in ◦ Days Cash on Hand – Measures the number of days a district could operate if all funding were to dry up suddenly 82

83. Financial Health Indicators/Weighted Value Fund Balance to Revenue45% Expenditures to Revenue40% Days Cash on Hand15% 83 A value is calculated for each indicator and then given a score (0-4) which is then weighted. The values are then added together to arrive at the district’s financial indicator school for the school year.

84. Lake Washington17414 (Select district above from drop-down list) District Enrollment, From August 2013 Apportionment 24,145 Financial Indicators:2009-102010-112011-122012-13 Fund Balance to Revenue Ratio: "Unrestricted" Fund Balance divided by 17,308,030.18 16,906,517.43 18,311,464.72 17,842,416.89 Total Revenues and Other Financing Sources 217,346,759.35 218,279,207.70 224,149,155.08 233,110,479.49 Ratio7.96%7.75%8.17%7.65% Score3333 Expenditure to Revenue Ratio: Total Expenditures divided by 212,191,057.19 218,728,210.45 223,201,133.79 233,561,591.32 Total Revenues and Other Financing Sources 217,346,759.35 218,279,207.70 224,149,155.08 233,110,479.49 Ratio97.63%100.21%99.58%100.19% Score4343 Days Cash on Hand Average Monthly Cash on Hand divided by 30,516,861.68 32,342,829.03 34,619,650.16 35,176,317.90 Expenditures per day 589,419.60 607,578.36 620,003.15 648,782.20 Days Cash on Hand51.7753.2355.8454.22 Score2222 Weighted Scores2009-102010-112011-122012-13 Fund Balance to Revenue Ratio1.35 Expenditure to Revenue Ratio1.601.201.601.20 Days Cash on Hand0.30 Total Profile Score3.252.853.252.85 84

85.  Assigns a financial health score based on data as of the end of the school fiscal year;  Identify districts that are facing potential financial difficulties; and  Allow users to compare a district’s financial indicator score over time.  A school district is financially insolvent or needs to dissolve;  A district should be compared to another district due to the nature of a point- in-time score, without understanding the circumstances that contributed to that score; or  A performance score is implied or assigned to the administration of a district. This data… It doesn’t mean… 85

86.  Organization and Financing of Washington Public Schools http://www.k12.wa.us/safs/PUB/ORG/13/Final%20Edi tion%202013.pdf  A Citizen’s Guide to WA State K-12 Finance http://www.leg.wa.gov/Senate/Committees/WM/Docu ments/2014%20K12%20Citizens%20Guide.pdf  “A Brief History of Education Funding in WA State” This is a one-page pictorial timeline of funding http://www.k12.wa.us/Communications/PressRelease s2014/EducationFundingChart.pdf  Quality Education Council (QEC) reports http://www.k12.wa.us/QEC/default.aspx 86

87.  Funding Resources for School Facilities http://www.k12.wa.us/SchFacilities/default.aspx  Washington School Bond Manual http://www.wssda.org/Resources/Publications.aspx 87

88.  What are your take-aways from today?  What questions do you have for your district? 88

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90. We’d love to have your feedback. Take a moment to participate in a quick survey about this session in WSSDA 2014. THANK YOU FOR ATTENDING. 1.Tap Agenda 2.Locate this session in the agenda 3.Tap Check In (if you haven’t already) 4.Tap Take Survey