Public Schools of the City of Ann Arbor

FY17 Financial Audit Presented by Laura Claeys November 15, 2017

Audit Summary

•  All school districts in Michigan are required by state law to have an audit

•  As a result of our audit, we rendered an unmodified or ‘clean’ opinion

•  Our audit of your federal programs had no findings or quesJoned costs

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Highlights and Challenges

Highlights:

•  Enrollment conJnues to grow significantly year-over-year

•  The District conJnued its investment in the classroom and achieved the goal of reducing class sizes and reducing the number of combined grade classes

•  $4.6 million in current year capital investments from the Technology Bond and 2015 Bond funds

•  Sinking Fund millage renewal supported by taxpayers, with $8.2 million in current year capital investments from this fund

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Highlights and Challenges

Challenges:

•  ConJnual balancing between offering addiJonal programming and gauging the demand for new programs

•  ConsideraJon of investments in addiJonal staff and services with ongoing funding challenges

•  Despite sizeable capital investment this year, infrastructure investment needs conJnue – which creates decisions to be made between those that can be provided currently uJlizing available bond funds and those that need to be deferred

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General Fund – Budget to Actual

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$215.0 $214.8

$235.3 $235.1 $233.0

$235.2

$200

$205

$210

$215

$220

$225

$230

$235

$240

Revenues Expenditures

Mill

ions

Approved Budget (May 2016) Amended Budget (May 2017) Actual (Audited 6/30/17)

$218.7 $220.9

$14.3* $14.3*

$14.3

$14.3

*Both revenue and expenditures include $14.3 million in Michigan Public Schools Employee ReQrement System (MPSERS) reQrement contribuQons passed-through from State of Michigan

$14.3

$220.8

$200.5

$221.0

$200.7

$14.3

General Fund Budget to Actual Year Ended June 30, 2017

AmendedBudget Actual Variance %FundBalance-June30,2016 21,508,022$ 21,508,022$ -$

Revenue 235,343,070 233,001,238 (2,341,832) -1.00%

Expenditures 235,062,128 235,158,896 96,768 0.04%

ExcessofRevenueOverExpenditures 280,942 (2,157,658) (2,438,600)

Plus:OtherFinancingSources/(Uses) - 530,388 530,388

ChangeinFundBalance 280,942 (1,627,270) (1,908,212)

FundBalance-June30,2017 21,788,964$ 19,880,752$

FundBalanceas%ofExpenditures 8.5%

FundBalanceas%ofRevenue 8.5%

Daysofoperation(365dayyear) 31

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ComparaQve General Fund Fund Balance History Year Ended June 30

7

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

$31,920,876

$27,914,369

$20,500,576

$17,331,456 $16,634,969

$9,426,763 $8,818,884

$16,762,959

$21,508,022

$19,880,752

15% Fund Balance Target ** (15% of 2017 expenditures)*

EsFmated Early Warning

Line (5% of 2017

revenue)*

Percentage of Expenditures 16.3% 13.9% 8.2% 10.5% 8.5% 4.7% 4.6% 8.3% 10.2% 8.5%

*Es$mated Early Warning Line and Fund Balance target percentages based on 2017 general fund revenues and expenditures. Board policy is range of 6-15% of expenditures

** Michigan School Business Officials (MSBO) recommended target

Net Change in Fund Balance – General Fund Year Ended June 30

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-$10,000,000

-$8,000,000

-$6,000,000

-$4,000,000

-$2,000,000

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

2013 2014 2015 2016 2017

$7,944,075 (A)

($1,627,270) (C)

($7,208,206)

($607,879)

(A)  Includes one-Qme funds for Special EducaQon from WISD ($4.6 million) and Medicaid funds ($400,000) (B)  Includes one-Qme funds related to sale of Roberto Clemente ($1 million) and Ann Arbor District Library interest ($3 million) (C)  Includes certain one-Qme direct expenses related to the Allen Elementary flood during the 2016/2017 school year ($1.3 million)

$4,745,063 (B)

$159.7m69%

$26.1m11%

$14.3m6%

$33.4m14%

Founda'onAllowance

CountySpecialEduca'onMillage

Re'rementFundingPass-through(Requiredtobesentdirectlytopensionsystem)

Other(StateCategoricals,FederalGrants,SpecialEdStateFunding,Local)

General Fund Revenue Year Ended June 30, 2017

Total Revenue = $233,531,626

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FoundaQon Allowance historical lookback at funding

$9,001

$9,434 $9,490

$9,336 $9,320

$9,020 $9,020 $9,050

$9,100 $9,170 $9,180

$233

$233 $233

$8,600

$8,800

$9,000

$9,200

$9,400

$9,600

$9,800

02/03 07/08 08/09 09/10 * 10/11 ** 11/12 ***

12/13 13/14 14/15 15/16 16/17

Fu

nd

ing

Pe

r P

up

il

Base FoundaQon 20j Hold Harmless

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* 09/10 reflects SecQon 11d funding reducQon of $154 per pupil ** 10/11 reflects SecQon 11d funding reducQon of $170 per pupil *** 11/12 $170 reducQon noted for 10/11 was statutory enacted in 11/12, along with an addiQonal $300 per pupil rollback of foundaQon allowance

$9,234

$9,667 $9,723

12,000

14,000

16,000

18,000

2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018*

16,47116,597 16,669 16,700 16,493 16,844

17,15417,500

17,730*

Num

bero

fstude

nts

Student Enrollment Comparison Fall Count and Percentage Change from the Previous Years Ended June 30

.17% .76% .44% .18% (1.24%) 2.13%

*Es$mated Fall 2017 count (FTE)

1.31%

1.84%

2.02%

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General Fund Expenditures Year Ended June 30, 2017

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$177.0m75.3%

$14.3m[VALUE]

$33.4m14.2%

$7.6m3.2%

$2.8m1.2%

SalariesandBenefitsRe'rementFundingPass-ThroughPurchasedServices(Custodial/Maintenance,Transporta'on,Technology)SuppliesandMaterialsOther(EquipmentandOthercosts)

6.1%

Total Expenditures = $235,158,896

General Fund Salaries and Benefits Year Ended June 30, 2017

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$116.0m61%

$42.9m22%

$22.2m12%

$8.4m4%

$1.8m1%

Salaries&WagesRe'rementContribu'onsHealthInsuranceFICAOther(SpecialLeavePayments,Worker'sCompensa'on,CashInLieuofInsurance)

Total Salaries and Benefits = $191,326,753

$14.3m

ReFrement Funding Pass-Through

General Fund Breakdown of Salaries and Benefits Year Ended June 30, 2017

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$167.6m88%

$13.6m7%

$2.9m1%

$1.4m1%

$5.8m3%

Instruc'onandInstruc'onalSupportSchoolBuildingAdministra'onCentralAdministra'onOpera'ons:Facili'esOther(ex:HumanResourceServices,Athle'cs,CommunitySvcs)

Categories according to State

repor$ng requirements

Total Salaries and Benefits = $191,326,753 (95% = School-based Salaries & Benefits)

ReQrement Funding – Total Michigan Public Schools Employee ReQrement System (MPSERS) Expense Year Ended June 30

MPSERS Unfunded Actuarial Accrued Liability (UAAL) expense from State Aid. This is a direct pass-through from State:

- 2013 includes $2.2 million - 2016 includes $12.2 million - 2014 includes $5.8 million - 2017 includes $14.3 million - 2015 includes $9.4 million

$-

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

$22.4

$27.5 $28.1

$32.7

$35.3

$40.4$43.8

Dollars(inMillions)

$5.8

$9.4

$12.2

15

$14.3

$2.2

Total Health Related Insurance Costs Year Ended June 30

$-

$5.0

$10.0

$15.0

$20.0

$25.0

2011 2012 2013 2014 2015 2016 2017

$17.7 $18.0$19.4

$19.5 $19.7 $20.2

[VALUE]*

Dollars(inMillions)

$22.5*

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*Increase in FY2017 was primarily the result of increasing the hard cap. The District currently pays a maximum of $12,960 per employee for insurance (an increase of $378 per person from FY 2016)

ComparaQve General Fund Fund Balance History Year Ended June 30

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EsFmated Early Warning Line (5% of 2017

revenue)*

15% Fund Balance Target ** (15% of 2017 expenditures)*

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

$31,920,876

$27,914,369

$20,500,576

$17,331,456 $16,634,969

$9,426,763 $8,818,884

$16,762,959

$21,508,022

$19,880,752

*Es$mated Early Warning Line and Fund Balance target percentages based on 2017 general fund revenues and expenditures. Board policy is range of 6-15% of expenditures

** Michigan School Business Officials (MSBO) recommended target

Percentage of Expenditures 16.3% 13.9% 8.2% 10.5% 8.5% 4.7% 4.6% 8.3% 10.2% 8.5%

Ann Arbor Public Schools Year Ended June 30, 2017 Key Takeaways

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•  Your conJnued success is a community and district collaboraJon

•  For the 4th year in a row, enrollment has increased by the largest percentage in the last decade, resulJng in a current year increase to revenue of approximately $3.2 million

•  Students are entering and returning to the district from the Ann Arbor footprint due to your robust program offerings (STEAM, world languages, Young Fives, Project Lead the Way, InternaJonal Baccalaureate)

•  Cost containment and improved efficiencies will need to conJnue to be a focal point for the organizaJon in order to yield posiJve financial results

Future Developments in the School Environment

•  Cash Flow Needs •  Fund Balance Levels •  Delayed State Aid Payments •  Health Care Costs •  Capital Repairs •  Cost of UJliJes •  State economy and poliJcs •  Charter and Private School opJons

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•  Employee Group NegoJaJons •  Federal Funding Changes •  Future ReJrement ContribuJon

Rates •  Future changes in foundaJon

allowance funding

Areas to monitor as it relates to school operaQons:

Keep an eye on local opQons that are within your control to provide funding for the student populaQon (examples include: Special educaQon millage; countywide enhancement millage;

sinking fund millage; and bond issues)

Next Steps in our AAPS School Environment ConJnue to: •  Advocate at the state level

•  Build fund equity to ensure sustainability of the organizaJon

•  Monitor monthly budget reports

•  Control expenditures and understand market rates for compensaJon across the district

•  Balance long-term investments with funding volaJlity •  Recognize a large porJon of the current fund balance was created

by one-Jme transacJons – use cauJon when spending it

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Thank you! We appreciate: AAPS employees

- the hard work to extend our district quality and ensure we conJnue to deliver the ‘Ann Arbor Public Schools’ difference Board of EducaJon

- support, advocacy, & courageous decision-making Community

- ongoing support of the Ann Arbor Public Schools

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Thank you.

Public Schools of the City of Ann Arbor FY17 Financial Audit Presented by Laura Claeys

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