The new state funding formula and your forecast · 4/16/2015 · Ryan holds a Bachelors of...

State Funding and Your Financial Forecast

OASBO Annual WorkshopPublic Finance Resources, Inc.April 16, 2015

PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS 1

Overview

• Outcomes of the current school funding formula

• Issues with the Governor’s proposal

• What’s in the House Substitute school funding formula

• Implications for your forecasts

• “Financial Information”—WWW.PFRCFO.COM


The Current Formula


The Governor’s Proposal

• Uses the same base formula as the current model, but some significant changes• Changes how the median income factor is used• Increases the base per pupil amount by $100 per year• Introduces a percentage of total resources phase-out of

the guarantee• Switches to using prior year ADM to calculate State

Share Index and recalculates SSI every year• Sets the Cap growth at 10 percent each year


The Governor’s ProposalMedian Income in Lower Wealth Districts

Districts with Valuation per Pupil at Least 20% Below the Statewide Average

State Share Index Change Relative to FY 2015


The Governor’s ProposalMedian Income in Lower Wealth Districts


The Governor’s ProposalMedian Income in Higher Wealth Districts

The Incorporation of the Income Index is Phased-in over 5 Years

Administration Printouts Show Only the First Two Years


The Governor’s ProposalMedian Income in Higher Wealth Districts

• Primarily impacts districts with median Ohio Adjusted Gross Income above $40,000

• Some of the impacts are masked in the administration printouts because they only show the first two years of a proposed five-year phase-in

• In many cases, state shares are reduced significantly below historical percentages


Valuation Issues

• Part of the reason the administration printouts showed so many districts losing state aid from 2015 was because of valuation forecasts

• FY 2014 and FY 2015 valuation per pupil was based on tax years 2010-2012. They did not include the massive CAUV increases in 2013 and 2014

• The administration printouts included the CAUV increases because it uses newer data


Valuation Issues

• THIS IS NOT GOING TO BE A UNIQUE PROBLEM WITH THE GOVERNOR’S PROPOSAL

• IT WOULD BE AN ISSUE IF THE CURRENT FUNDING FORMULA IS KEPT IN PLACE AND WOULD HAVE BEEN AN ISSUE IF THE OLD CHARGE-OFF SYSTEM WERE STILL IN PLACE


Valuation Issues

• The FY 2016 funding formula will likely use TY 2012, 2013, and 2014

• Statewide, the three-year average valuation change will be a decline of about 1.4 percent

• In 120 districts the three-year average will increase by seven percent or more

• These 120 districts are getting substantially wealthier than the state as a whole, which will be compounded if they are also losing ADM at a faster rate than the state as a whole (about 0.5 percent per year)


Valuation Issues120 Districts with Minimum 7% Growth


The House Substitute Proposal• Local share is once again based on a charge-off for the

calculation of core aid• The charge-off is variable based on relative median income

and ranges from about 10.5 mills to 23.15 mills in 2016 and 23.78 mills in 2017

• The state share percentage will be calculated based on core aid, rather than before core aid as is done now

• The guarantee for the biennium is at the 2015 funding level for both FY16 and FY 17; the cap growth is 7.5 percent per year

• The TPP phase-out is the same as in the Governor’s proposal


The House Substitute Proposal• Per pupil funding amounts are the same as in the Governor’s proposal

• There are also no structural changes to the calculations of other component funding:

• Targeted assistance• Special education• Economic disadvantaged aid• K-3 Literacy• ELL• Career Tech


The House Substitute Proposal• One component has been added• Capacity aid, which would go to districts with yield per mill of

tax that is below the statewide median yield

• Transportation aid is the same as in the Governor’s proposal, but the calculation is different than in the current funding formula

• The is an additional component outside the formula for districts that receive a core aid amount that is less than 20 percent of the base per pupil funding amount ($1,180 in FY 2016)


Calculation of Core Aid


If 2014 agricultural value is more than 20% of total value, use a 6 year average valuation

Middle Income District Lower Income District Higher Income DistrictADM 14,710 27,158 5,921

3Yr Avg Valuation $2,308,202,187 $2,364,376,037 $915,681,437District Median Income $42,698 $24,772 $68,043State Median Income $33,073 $33,073 $33,073

Median Income Index (Ratio) 1.29 0.75 2.06Median Income Factor for Chargeoff 1.09 0.75 2.16

$5,900 $5,900 $5,900Charge‐off Millage 21.83 14.98 23.15Charge‐off Amount 50,396,004 35,418,815 21,198,025

Calculation of Core Aid


Middle Income District Lower Income District Higher Income DistrictTotal Funding $86,789,000 $160,232,200 $34,933,900

Charge‐off Dollars (50,396,004) (35,418,815) (21,198,025)State Core Funding $36,392,996 $124,813,385 $13,735,875

State Share % 41.93% 77.90% 39.32%

Impact of the House Proposal

• In FY 2016, 498 districts would see additional resources through the funding formula

• That number drops to about 430 districts when the TPP phase-out is taken into account


Challenges with the House Proposal

• The proposal is a short-term solution; it solves current issues with both the Governor’s proposal and the existing formula but will probably need to be revisited in two years

• Having five funding formulas in 10 years is making forecasting more of a challenge


Challenges with the House Proposal

• Districts on the guarantee will have more difficulty forecasting because of uncertainty of the phase-in of the income factor and the guarantee

• By going back to a charge-off the formula re-introduces traditional phantom revenue back into the school funding equation


Wrap Up

• We will have updates available on our website (PFRCFO.com) as the bill continues to move through the Legislature

• Besides funding updates, you can find on the website district specific Financial Benchmarking data and other information

• For current updates, follow us on Twitter and Linkedin@pfrcfoPublic Finance Resources, Inc.


The Public Finance Resources Team


Matt Bunting, Consultant, has over 25 years of experience in the public finance sector. This includes 15 plus years as a school district treasurer, and 11 years with the Auditor of State where he led financial, legal compliance, and Federal single audits of government entities. Matt has served as interim school treasurer several times, as well as worked with Ernie and Stacy to test their forecasting software and instruct at their yearly seminars. He holds an Associates Degree in Accounting from Hocking College, and is a Certified Government Financial Manager.

Ryan Ghizzoni, Consultant, began his career with the Auditor of State’s Office and has served as a school district treasurer for the past 10 years. During his career, he has been the recipient of six Association of School Business Officials International Meritorious Budget Awards and was the recipient of the Ohio Association of School Business Officials 2011 Outstanding Treasurer of the Year Award. Ryan holds a Bachelors of Business Administration from the Youngstown State University, and is a Certified Administrator of School Finance and Operations.

Debra Hoelzle, Chief Operations Officer, provides direct services to clients, and oversees the day-to-day operations of PFR. She brings with her operational experience from both the public and private sectors, including a school district and multiplecorporations in the financial services industry. Debra holds her Masters of Business Administration from Ohio University, and her Bachelors of Science in Business Administration from The Ohio State University.

Stacy Overly, Consultant, provides direct financial services to clients. He has over 20 years of experience serving as school district treasurer, including 15 plus years of developing financial forecasting tools, and providing instruction and trainingopportunities attended and used by over two hundred of Ohio’s public school treasurers. Stacy works with clients to analyze trends and review local economic data to help determine a long-term operating strategy for the organization. He holds his Masters of Business Administration and his Bachelors of Business Administration in Finance from Ohio University.

Mike Sobul, Consultant, brings 30 years of experience in public finance and tax analysis. Currently a school district treasurer, Mike spent nearly 25 years with the Ohio Department of Taxation where he led revenue forecasting efforts and provided analysis , training, and fiscal services to schools and local governments. Mike holds a Masters Degree in Public Policy from the University of Michigan and a Bachelors Degree in Economics and Political Science from Wittenberg University.

Ernie Strawser, Consultant, provides direct services to our public finance clients. He has over 30 years of public finance experience as a CFO, consultant, and developer and instructor of financial forecasting techniques and tools which have been used by over two hundred Ohio school district CFOs. Ernie works with clients to facilitate their understanding of local financial results , trends, and strategies. He holds both a Masters of Science in Administration from Central Michigan University and a Bachelor of Science in Finance from Ohio University.

Services• Five Year Forecast Software More than a compliance document

• Cash flow monitoring• Modeling scenarios• Graphics and dashboards• Planning tool

• Consulting Maximize your effectiveness• Financial consulting and cash flow monitoring• Forecast review and analysis, “what if” planning• Presentations to key stakeholders• Special Projects

• Data Interpretation Data driven decision making• Multi-year data sets to identify trends• Benchmark analysis reports to see how you compare• Graphics that are easy to read, understand and explain• Data driven decision making



PFR Contact Information

Ernie StrawserConsultant

Public Finance Resources, Inc.PO Box 1822

Columbus, OH [email protected]

Phone: 614-732-5948

Debra HoelzleChief Operating Officer

Public Finance Resources, Inc.PO Box 1822

Columbus, OH [email protected]

Phone: 614-732-5948

www.PFRCFO.com

The new state funding formula and your forecast · 4/16/2015 · Ryan holds a Bachelors of...

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