Brecksville-Broadview Heights City School District

1. Brecksville-Broadview Heights City School District “where fine education is a heritage” Board Review of Five-Year Financial Forecast June 20, 2011

2. Introduction • The May Five-Year Forecast • is the State required semi-annual update • is a public document intended to represent the District’s financial condition to support both the near term and long term decision making. • provides supporting information to certify the District’s ability to meet its current and potential future contractual obligations. • A Forecast, by its nature, must deal with estimates related to future events which is accomplished by making sound Assumptions. • These Assumptions should be neither overly optimistic nor pessimistic to maintain the logical estimate of the future and are subject to change over time. • It is essential to note that Assumptions do not reflect the Board’s future negotiating activities. • The resulting certainty of a Forecast therefore decreases with an increasing time horizon and should be interpreted in light of what may change rather than an absolute of future events. • Note: The convention used throughout this presentation is that numerical values are shown In thousands of dollars ($K) and values that are negative or represent a variance that negatively impacts the Cash Balance or creates a Deficit Spend are shown in red brackets: ($123).Prior year values are often shown for reference.

3. Cash Balance and Surplus/Deficit • Cash Balance is the ultimate measure of the District’s solvency and is normally noted at June 30, the end of each fiscal year (FY). • Another important metric that is closely monitored is the difference between Revenue and Expenditures in a FY. • A Surplus occurs when Revenue exceeds Expenditures. • A Deficit occurs when Expenditures exceed Revenue. • The Deficit or Surplus shows how quickly the Cash Balance is being decreased or increased. • The sum of the annual Deficits is reflected in the estimated Cash Balances. • Taken in tandem, the Cash Balance and Deficit Spend figures provide an indication as to the net Revenue increases and Expenditure reductions needed by the District. • The format of this Forecast is that the conclusions (resulting Cash Balance and Deficit Spend) are shown first followed by a discussion of the underlying Assumptions and their respective impacts. • A discussion of alternate outcomes is also included.

4. Forecast Cash Balances – June 30 • Compared to November’s Forecast, May Forecast is $612K favorable due to lower Expenditures more than offsetting lower Revenue. • Increased favorability vs. November in out years is due to restructuring actions more than offsetting Revenue shortfalls. • Despite this favorability, and as in November, May Forecast has the District reaching a zero Cash Balance during FY13 due to the annual Deficits incurred.

5. May Forecast Deficit Spending

6. FY11 Revenue Comparison • May Forecast Revenue unfavorability in FY11 vs. November is due primarily to a downward revision in Real Estate tax collections.

7. Revenue Changes FY11-FY12 • Note the shift in revenue from FY11 to FY12. State revenue is projected to drop $2.8M due to the anticipated State budget reductions. This increases our dependency on local sources of revenue in FY12.

8. Revenue Source Comparison

9. Assumptions - Real Estate Taxes • Local residential and business real estate taxes account for 66% of FY 11 Revenue and remain essentially flat from year to year due to the impact of House Bill 920 on “Outside” or Voted millage. • A slight change to “Inside” millage is assumed following the 2012 reappraisal. • May Forecast reflects lower actual tax collections which continue in future years and total ($1.9M) during the term of the Forecast.

10. Assumptions – State Foundation (Unrestricted Grants-in-Aid) • State funding accounts for 11% of FY11 Revenue. • The Executive (Governor’s) Budget includes reductions of ($1.2M) vs. November Forecast in FY12. • FY13 – FY15 funding is assumed flat to FY12. This is highly dependent upon Executive/Legislative action in the next State budgets.

11. Assumptions – Property Tax Allocation • This State source of Revenue accounts for 18% of FY11 Revenue and includes the rollback reimbursement of 12.5% on all owner-occupied real property, homestead exemption for eligible senior citizens or disabled citizens, reimbursements for public utility and tangible personal property tax code changes. • Compared with November Forecast, FY12 is ($809K) unfavorable due to an accelerated phase out of Tangible Personal Property Reimbursement which grows in future years to ($1.9M) in FY15. The total impact is ($5.5M) over the term of the Forecast. • Note the November Forecast already assumed reductions to TPP. • In absolute terms, compared to FY11, State funding reimbursements are reduced ($1.5M) in FY12 and ($4M) in FY15.

12. FY11Expenditure Comparison • FY11 Expenditure reductions are due to restructuring actions (staff and budgetary reductions.)

13. Assumptions – Wage and Salary • Wages and Salaries are reflected for administrative, teaching and support personnel and reflect continued staff reductions in FY12. • Wages and Salaries account for 65% of FY11 Expenditures. • No base salary changes are reflected during the Forecast period. • Step increases are deferred from FY12 to FY13 and continue consistent with current contractual agreements in out years. • Reduced Wage and Salary values are the result of staff reductions partially offset by step increases.

14. Assumptions - Benefits • Benefits include retirement contributions, insurances, Medicare, unemployment and other costs and account for 21% of FY11 Expenditures and are 33% of FY11 Wages and Salaries. • Insurance costs reflect a 10% employee contribution and are assumed to increase at 8% per year for the term of the Forecast. • Favorability vs. November Forecast is due to staff reductions.

15. Assumptions – Purchased Services • Purchased services primarily include utilities and special education tuition and account for 8% of FY11 Expenditures. • Favorability vs. November Forecast reflect the impact of energy conservation projects and restructuring actions. • FY13 – FY15 includes 1% per year escalations.

16. Assumptions - Supplies • Supplies include instructional materials, maintenance supplies, bus parts and fuel which account for 2% of FY11 Expenditures. • Reductions reflect restructuring actions and 1% per year escalations.

17. Assumption – Capital Outlay • Capital Outlay represents less than 1% of FY11 Expenditures and covers longer life items including computers and classroom remodeling costs. • Restructure actions reduced spending in FY11 with 1% per year escalations in out years. • FY12 also reflects the avoidance of All-Day Kindergarten related classroom remodeling as that program will now continue as is.

18. Upside/Downside Discussion • Given that Assumptions cannot be 100% certain, alternate outcomes are possible and even probable. • The potential of changes to the Forecast, both magnitude and probability, must be considered hand in hand with the Forecast. • While not included in the Forecast, an “Upside” is an event that could occur making the financial outcome more favorable than what is reflected in the Forecast. • An example of an “Upside” could be an unexpected federal stimulus grant that is currently not anticipated. • Conversely, an event resulting in a financially unfavorable outcome is referred to as a “Downside” to the Forecast.

19. Upside/Downside to May Forecast • “Upside” events represent an outcome favorable to what is in the Forecast . • “Downside” events would cause a worse financial outcome in the Forecast. • Probabilities reflect the likelihood of an event occurring.