UpClose Meeting Presentation Budget and Finance Overview

AUSTINIndependent School District

UpClose Meeting Presentation

Budget and Finance Overview

Nicole Conley-Abram, CFO

November 8, 2012

AUSTIN Independent School District

AISD Has Strong Financial Accountability & Management

2

• The second lowest overall property tax rates in Central Texas for school districts.

• Aaa debt rating from Moody’s Investors Service; AA+ from Standard & Poor’s; and AA from Fitch Ratings, all among the highest ratings available by these agencies to Texas public schools, resulting in millions of dollars of savings for the District’s bond program and Austin taxpayers.

• School FIRST (Financial Integrity Rating System of Texas) rating of Superior Achievement for nine consecutive years.

• The Texas Comptroller of Public Accounts awarded AISD with a Leadership Circle Award for budget transparency, for the last three years.

• The Government Finance Officers Association (GFOA) Distinguished Budget Presentation Award for nine years in a row. Also received GFOA Certificate of Achievement for Excellence in Financial Reporting for last two years.

• The Association of School Business Officials International (ASBO) Meritorious Budget Award for excellence in the preparation and issuance of its school system budget for three years in a row. Also received ASBO Certificate of Excellence in Financial Reporting for last two years.

2


Strong Financial Accountability & Management Cont.

A strong fund balance of approximately $177M which exceeds Board policy that requires at least 14% of the General Fund budget.

Only school district with a Commercial Paper Program that has allowed the district to take advantage of the economic environment and save in borrowing costs.

Good ROI as AISD outperforms national counterparts according to results from the National Assessment of Educational Progress (NAEP), also known as the Nation’s Report Card, despite having one of the lowest per pupil spend rates.

Saved over $13M in health care costs of the last two years with plan changes that provided more coverage and transitioning from being fully-insured to becoming self insured.

3

44The State Budget & School Finance


When looking at just the funding level for the FSP (Operations and Facilities), the 2012-13 amount totals $35.4 billion, a $1.8 billion decrease compared to 2010-11biennium

However, this amount is $4 billion below what is required to fund Current Law formulas

*Takes into account the $800 million FSP adjustment in Article IX and the August payment delay

Foundation School Program Funding (All Funds)*

5


The Truth of the Matter on School Funding for the 2012-13 Biennium

For the first time in 60 years, the Legislature failed to finance current law

Foundation Program current services state aid was decreased by $4 billion

Special Program financing was decreased by $1.3 billion The total decrease was $5.3 billion when the cost of

enrollment growth, property value decline, and other factors are taken into account

6


Impact of State Cuts and Federal Revenue Losses on AISD

State revenue loss of $35.6 million in FY2011-12 Additional loss of $25.1 million in FY2012-13 for a

total of $60.7 million loss in State funding Loss of over $60 million in Federal ARRA funding Outyear challenges will get worse with legislative

actions taken under SB 1 which eliminates Additional State Aid For Tax Relief (ASATR) by 2018, which translates into a revenue losses of $150 million for AISD

7


AISD-Three Years of Austerity Planning and Cutting-$77 M

$14,564,721

$30,824,483

$32,239,105

Savings from Cuts, Cost Avoidance and Revenue Measures

FY2010FY2011FY2012

8


AISD Austerity Planning: FY2010 thru FY2012

FY2010 eliminated 18 central office positions which saved just over $700k.

FY2010 central office hiring freeze saved district over

$1.5M.FY2011 reductions included the elimination of 117 central

office positions that saved the district an estimated $5M.FY2012 implemented a Reduction in Force which

eliminated 1,153 positions in addition to increasing employee health contributions, obtaining fixed pricing for fuel, implementing a 4 day/10 hour work week, restructuring transportation, and various other programmatic reductions to programs like athletics, summer school and Turnaround initiatives.

9

AUSTIN Independent School District 10

FY2013-14 Budget Development: Situational Analysis

Staff compensation was frozen for the last two years, exacerbating already low teaching salaries (when FICA is excluded, teacher salaries are 11.3% behind Texas Urban peers and 3.6% behind Local peers.

AISD used reserves to fund a one-time 3% salary adjustment for all employees but will need a permanent revenue source to sustain it so AISD is currently operating with a $20+ million deficit

Commitment to stabilize staffing for the next few years and keep pace with surrounding peers

Need to consider funding for inflation, Strategic Priorities and M&O impact of future bond costs

AISD has implemented and exhausted several budget balancing solutions and savings options to address previous budget shortfalls

1111

The Basics: Budget Structure and Education Finance


Education Finance Characteristics

School finances are highly categorical in nature Taxes are a primary source of revenue Often times include complex formulas to allocate

resources in efforts to maintain “equity” (state or local)

School districts are highly regulated Finances are administered publicly Political issues have high relevance in financial

and operational management

12


AISD Enrollment Growth

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

78,155 78,172

79,707

81,003

81,917 82,181

83,033

84,245

85,273

86,124

Source: AEIS/PEIMS (2012) 13


AISD Student Body Composition

2003 2004 2005 2006 2007 2008 2009 2010 2011 20120%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

14.40% 13.60% 13.40% 13.50% 12.70% 12.10% 11.70% 11.30% 9.50% 9.10%

51

.50

%

53

.10

%

54

.70

%

55

.40

%

57

.10

%

58

.00

%

58

.80

%

58

.90

%

60

.30

%

60

.50

%

31.20% 30.30% 29.00% 27.90% 26.80% 26.40% 25.80% 25.80% 24.30% 24.50%

2.70% 2.80% 2.80% 2.90% 3.10% 3.30% 3.40% 3.70% 3.40% 3.40%

African American Hispanic WhiteAsian/Pacific Islander Other

14Source: AEIS/PEIMS (2012)


Economically Disadvantaged Students

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

41,39743,463

46,78648,822 49,980 50,007

52,059 53,496 54,550 55,318



Limited English Proficient Students

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

16,19117,040

18,16519,353

20,771

23,25424,214 24,512 24,435 24,000



Homeless Population

2007 2008 2009 2010 2011 2012

1795

1744

1705

1787

1709

1975

AISD Homeless Coordinator Records 17


Mobility

Over 30% of AISD students are mobile- 18.6% are residentially mobile *- 17.2% are campus mobile**- 6% are both campus and residentially mobile)

65% of student campus mobility is attributable to student who are enrolled less than 145 days at AISD

39% of AISD PreK and Kinder students moved 2 or more times before starting school at AISD

* Residential mobility is a change of residence during the school year measured via address tracking in the student information system, parent self-report

** Campus mobility is means a student is enrolled on more than one campus during school year, or is enrolled fewer than 145 days of school year (83%) at the same campus

18


Challenges Mobility Presents

Students who are residentially mobile are TWICE as likely as non-mobile students to be absent from school more than 10% of the days that they are enrolled

Students who are campus mobile are THREE times as likely as non-mobile students to be absent from school more than 10% of the days they are enrolled

19


FY2013 Budgeted Expenditures by Type (Including Chapter 41)

Payroll Costs75.04%

Purchase & Con-tracted Services

7.8%

Supplies3.28%

Other Operating Costs0.93%

Recapture13.37%

Source: AISD FY2013 Adopted Budget

20


FY2013 Budgeted Expenditures by Type (Excluding Chapter 41)

Payroll Costs86.61%

Purchase & Contracted Services

7.8%

Supplies3.79%

Other Operat-ing Costs

1.07%

Source: AISD FY2013 Adopted Budget21


General Fund Per Pupil Expense by Year

FY2002FY2003FY2004FY2005FY2006FY2007FY2008FY2009FY2010FY2011$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$6,287 $6,189 $6,049 $6,023 $6,012 $6,056$6,455 $6,737 $6,574 $6,387

Operating Cost per PupilInflation Adjusted Operating Cost per Pupil

22Source: AEIS/PEIMS 2012 Operating Costs per Pupil


Revenue per WADA - History

FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

4,978 4,152 4,141

4,958 4,604 4,794 4,657

981 1,809 1,818

1,145 1,497 1,307 977

How our target has been funded over the years

M&O After Recapture State Aid

*FY2012 revenue per WADA remained the same, but WADA itself was reduced by 4.28%

23Source: TEA Summary of Finance


Comparison Total Staff to Average Enrollment

2003 2004 2005 2006 2007 2008 2009 2010 2011 20129,000

9,500

10,000

10,500

11,000

11,500

12,000

74,000

76,000

78,000

80,000

82,000

84,000

86,000

88,000

10,347

10,066

10,44910,610

10,831

11,10011,322

11,57011,736

11,169

Total Staff Average Enrollment

Per AISD Annual Financial Reports/AEIS Reports24


The Importance of Maintaining Adequate Reserves

AISD is one of a handful (7) of Districts with the highest rating in Texas.

Affects our overall credit worthiness which determines borrowing costs.

- It is estimated we saved approx. $10.5M in our most recent bond issue as a result of our increase in rating

If the district experiences a “Ratings Downgrade” it would erode investor confidence and the district would incur higher interest costs.

Other Internal Benefits:

- Reserves can provide for cash flow needs until major revenues are received, reducing or eliminating the need for short term borrowing which has excessive costs; property tax collections lag until due date making it tougher to float payroll thru December

- cover unforeseen expenditure needs, revenue shortfalls and emergencies;

- provide funds to leverage state or federal grants (float); and,

- meet new TEA Financial Accountability requirements and local School Board policies.

Other External Benefits:

- Reserves tend to be viewed favorably by investors, rating agencies, and local banks impacting ratings, investor confidence and ability to access to potential lines of credit; and,

- Demonstrates financial stability.

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25


FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

FY2012

FY2013

40

50,000,040

100,000,040

150,000,040

200,000,040

250,000,040

300,000,040

$92

,099

,545

$81

,251

,847

$81

,743

,166

$14

5,35

0,92

1

$15

1,73

9,48

3

$14

6,23

5,29

7

$17

2,13

5,09

6 $21

8,66

5,74

2

$24

1,72

7,86

0

$21

2,18

1,12

0

$66,474,314.0 $60,660,165.0 $57,882,193.0

$120,566,172.0 $129,902,789.0

$120,955,478.0

$148,326,523.0

$179,627,495.0 $198,519,720.0

$176,650,846.0

Total General Fund Fund Balance Unobligated General Fund Fund Balance

14.0% Requirement Optimal Cash Flow for 2.5 Months

Mill

ions

10 Year Fund Balance Activity

Optimal Cash requirements for 2.5 months

26Source: AISD Financial Reports


Cash Flow by Month

-$100,000,000.0

-$50,000,000.0

$0.0

$50,000,000.0

$100,000,000.0

$150,000,000.0

$200,000,000.0

$250,000,000.0

$300,000,000.0

Source: AISD Monthly Cash Statements

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The Impact of Recapture In FY2012, AISD will submit $135.2 million to the State

under the recapture system. Nearly 45% of the M&O revenue generated beyond the

1.06 tax rate is sent to the State under the recapture system.

Recapture represents nearly 20% of all M&O revenue collected.

AISD is the single largest payer of recapture representing nearly 12% of the recapture revenue that the State collects.

Of those collections, nearly 20% of the recapture revenue that the State collects comes from the Austin regional area.

28


AISD Has Paid $1.4 Billion to State in Chapter 41 Payments Since 2003

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

FY2012

Ado

pted

FY2013

Pro

ject

ed -

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

13

9,4

93

,15

5

15

3,2

21

,38

3

13

1,0

25

,21

3

13

0,7

35

,63

4

13

1,8

70

,42

2

11

7,4

25

,73

8

17

7,6

64

,51

3

11

1,9

37

,67

9

12

3,7

74

,67

5

13

5,1

76

,52

4

11

1,7

39

,85

9

Source: AISD Financial Reports

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The Impact of Social Security

Of 1000+ Districts in Texas, Austin is one of less than

20 Districts participating in social security.

$33 million in total cost to AISD.

No cost to most other Districts.

Provides additional support to teachers; viewed

favorably by teachers with more experience.

Also comes out of teacher paychecks; viewed as a

negative by teachers with less experience.

30


Simple View of State’s Funding Formula

The majority of money each school district is entitled to every year is determined by two “layered” systems:

1. Formulas in the Foundation School Program

2. “Target Revenue” system implemented in 2006 when school district M&O rates were compressed

Increased costs are borne by the district (unless the formulas increase)

The benefit of increased values goes to the state budget (less GR needed to fund the existing formulas)

Formula based on outdated weights and indexes that haven’t been updated in over 20 years


Student ProgramWeight or Allotment

(multiply by AA)Last Updated

Regular Program Allotment (Block Grant) 1.0 n/a

Career and Technology Allotment 1.35 2003 (reduced)

Gifted and Talented Program Allotment 0.12 1991

Bilingual Program Allotment 0.1 1984

Special Education Allotment (examples) 1995

Resource Room 3.0

Mainstream 1.1

Self Contained 3.0

Speech 5.0

Residential Care & Treatment 4.0

Compensatory Education 1984

State Compensatory Allotment 0.2

Pregnancy Related 2.41

Transportation Several formulas 1984

High School Allotment$275/high school

ADA2006

New Instructional Facilities Allotment (NIFA) $250/NEW ADA 1999


How We Got Here: Target Revenue

The last Supreme Court ruling (West Orange Cove II, 2005) found that the school finance system violated the Texas Constitution because it established a de facto statewide property tax.

As a result, the legislature was forced to make changes to the system. Instead of addressing any or all of the historic problems with the structure of the system, the legislature instead (via HB 1 2006) enacted a “hold harmless” of district funding levels, at the same time it compressed property tax rates (from $1.50 to $1.00).

Freezing all districts at their 2005-06 funding levels also froze all of the inequities that already existed in the system and made them more apparent.


State Revenue: Target Revenue

Target Revenue provides funding to school districts for tax revenue lost to rate compression (2006)

Maintains a revenue per WADA (Weighted Average Daily Attendance) equivalent to FY2006/2007 levels which means no revenue growth

Target revenue causes inverse relationship between tax collections and state aid

- Increase in tax collections creates a decrease in state aid and an increase in recapture

- Decrease in tax collections creates more state aid and a decrease in recapture

Overall state aid/tax collections increase only if student enrollment grows

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State Revenue: Terminology

ADA = Average Daily Attendance (the number of students that attend a school district)

WADA = Weighted Average Daily Attendance (the number of students the district is funded for, after considerations are made for more costly students)

Statewide Average ADA:WADA Ratio is 1:1.34


AISD Historical Enrollment, ADA and Growth

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36

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 Est. 70,000

75,000

80,000

85,000

90,000

95,000

100,000

105,000

98,517 98,596 99,654

101,464 103,305

97,639

104,895

82,063 82,739 83,033 84,245

85,273 86,724

87,678

74,212 74,622 75,606

76,727 77,982 78,189

80,180

WADA Enrollment ADA

3737

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DRAFT—For discussion purposes only.Tax Rate & Debt Overview


Property Taxes

Every school district in Texas has the authority to levy two local property taxes:

Maintenance and Operations (M&O): pays for the day-to-day operations of the districts. The maximum M&O tax rate is $1.17 for each $100 in property value. A district must hold a Tax Ratification Election (TRE) to raise the rate above $1.04.

Interest and Sinking (I&S): pays the money due on bonds issued by the districts to construct facilities. The maximum I&S rate is $.50 for each $100 in property value (note: no recapture on I&S revenue).


Property Taxable Valueson the Rise Again (in Billions)

$35

$40

$45

$50

$55

$60

$65

$70

$75

$39.89 $42.07

$48.47

$54.19

$60.66 $63.91

$61.60 $61.90 $64.80 $65.90

$67.20

Even though property taxes are rising, the District receives nominal benefit due to the State’s Target Revenue system which essentially caps the District’s revenue at 2005-06 levels.

39Source: Travis Central Appraisal District


Change in AISD Market Values

40

40

2007 2008 2009 2010 2011

-6,000,000,000

-4,000,000,000

-2,000,000,000

0

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

1,214,048,3621,644,473,690

1,745,172,6951,678,236,943

1,099,391,048

962,082,701

6,74

8,31

5,26

9

5,07

4,71

0,37

1

5,56

6,16

6,11

5

1,63

0,80

3,59

3

-4,0

33,2

44,4

14

752,

736,

289

New Construction Appreciation Value

2012


Austin Taxpayers Authorized $1.50 M&O Tax Rate Before State Law Change

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

M&O

1.5000 1.5000 1.5000 1.5000 1.3700 1.0400 1.0790 1.0790 1.0790 1.0790

I&S 0.0964 0.1137 0.123 0.123 0.123 0.123 0.123 0.123 0.148 0.163

0.1000

0.3000

0.5000

0.7000

0.9000

1.1000

1.3000

1.5000

1.7000 1.5964 1.6137 1.6230 1.62301.4930

1.1630 1.2020 1.2020 1.2270 1.2420

Co

mb

ined

Rate

…a 28% reduction in the M&O Tax Rate since 2002-03

41Source: Travis County Tax Assessors Office


Tax Rate Comparison to Surrounding ISDs(FY 2011)

Eanes ISD

Austin ISD

Lake Travis

Round Rock

Leander ISD

Pflugerville ISD

Hays CISD

Bastrop ISD

Manor ISD

Del Valle ISD

M&O 1.04 1.079 1.04 1.04 1.04 1.04 1.04 1.04 1.04 1.04

I&S $0.1625 $0.1480 $0.2759 $0.3400 $0.4148 $0.4200 $0.4213 $0.4410 $0.4750 $0.4900

$0.1000 $0.3000 $0.5000 $0.7000 $0.9000 $1.1000 $1.3000 $1.5000 $1.7000

$1.203 $1.227 $1.316 $1.380

$ 1.455 $1.460 $1.461 $1.481 $1.515 $1.530


Tax Rate Limitations Under tax code, school district M&O tax rates may not exceed

the rate equal to the sum of $0.17 and the product of the state compression multiplied by $1.50.- The state compression percentage is currently 66.67

percent, so the M&O rate limit for most school districts is $1.17.

A school district also may adopt a rate up to $0.50 for “new” debt plus a rate for “old” debt. - “New” debt is debt authorized after April 1, 1991, and issued

after September 1, 1992; “old” debt is debt authorized prior to those dates.


Maintenance & Operations Tax Rate

$1.00 = Compressed rate 0.04 = Golden pennies

no voter approval required not subject to recapture

0.02 = Silver Pennies voter approval required not subject to recapture

0.11 = Copper pennies voter approval required subject to recapture

$1.17 Max. Rate Allowed

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M&O: Tax Ratification Elections (TRE) For 25 years, school districts were only required to hold rollback elections if the

Board-adopted tax rate exceeded the calculated rollback tax rate. The district’s calculated rollback rate typically represented a small increase as it is intended to maintain existing revenue levels.

May 2006, the Texas Legislature passed House Bill 1 (HB 1), creating a target revenue system for funding school districts and adjusting the tax rate calculation process, as well. The state requires districts to compress maintenance tax rates at 1.00 and gives them the option of approving up to four cents of additional tax.

To increase local property tax rates further, school boards need to adopt a higher rate and then submit the rate for voter approval at a tax ratification election (TRE).

Failure to pass a TRE leaves school districts with the same tax rate as the prior year, not a slightly higher rate as was the case with the former rollback process.

AISD successfully passed a TRE in 2008 to increase its tax rate by 3.9 cents.


Historical Tax Burden of AISD Tax Rate

2007-08 2008-09 2009-10 2010-11 2011-12Average Market Value of Residence $240,397 $266,823 $277,663 $265,573 $262,886

Average Taxable Value 211,720 232,925 248,405 245,593 244,799

Tax Rate per $100 Value 1.163 1.202 1.202 1.227 1.242 Taxes Levy on Average Residence 2,462 2,800 2,986 3,013 3,040

Net Increase In Tax Levy - 337 186 27 27


Recent Election HistoryYear Purpose Authority

1996 School facility renovations, new schools & technology

$369,475,000

2002 Health & Safety needs $49,294,368

2004 School facilities for new schools, performing arts ctr., safety, buses

$519,526,616

2008 Tax ratification election Increased tax rate 3.9 cents

2008 School facilities needs to relieve overcrowding, critical renovations expansion and technology

$343,717,819

Future Considerations:

2012 Tax Ratification Election to support compensation and offset State revenue losses (FY2012-13)

Nine cent increase generates $50M in revenue, after State formulas, AISD only keeps $35M

2013 Bond Election for public school facilities needs and expansion

$TBD


Election PlanningBond Election Citizens’ Bond Advisory Committee is comprised of various

community members who make the recommendation to the Board on the Scope of Work for the potential bond

Board of Trustees must approve the order calling the election, the legal document that formalizes the scope of work for the bond program at least 60 days prior to the election

Groundwork for a May 2013 election is expected to commence in January 2012

Tax Ratification Election (TRE) Intrinsically tied to the budget development process (Sept.- Aug) Board adopts tax rate at proposed higher rate and then takes

action to call for the election (June/Aug.)


Additional Revenue from Increased M&O Tax Rate

ScenarioTax Rate

Local Revenue

Generated(Above Status quo)

Net Revenue Retained

(Above Status quo)

Estimated Average Taxpayer Impact

(Annual Increase)

Estimated Median

Taxpayer Impact

(Annual Increase

1 Status quo 1.0790 n/a n/a $7 -$20

2 Four-cent increase 1.1190 $24.1M $13.7M $106 $56

3 Five-cent increase 1.1290 $30.1M $17.1M $130 $76

4 Six-cent increase 1.1390 $36.2M $20.5M $154 $95

5 Seven-cent increase 1.1490 $42.2M $23.9M $178 $114

6 Eight-cent increase 1.1590 $48.2M $27.3M $203 $133

7Nine-cent increase (maximum) 1.1700 $54.8M $31.0M $230 $154

*Based on certified values from TCAD. These numbers are subject to change when TCAD releases the preliminary values in May 2013.

DRAFT—For discussion purposes only.


QUESTIONS50

UpClose Meeting Presentation Budget and Finance Overview

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