Fundamentals of School Finance

1. Fundamentals of School Finance WSSDA Webinar May 14, 2014 Barbara Posthumus, Director of Business Services Lake Washington School District bposthumus@lwsd.org

2. Agenda • Budgeting for Capital Levies • Budgeting for Bonds • Debt Service Limitations • Front-Funding • Monitoring and Reporting

3. Capital Levies • 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 2nd year, 2015-16 will include 100% of annual levy

4. Capital Levies 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

5. Technology Levies • 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

6. Facility Levies • 100% of Revenue and Expenditures are in Capital Projects Fund

7. Budgeting for Bonds • 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

8. Budgeting for Bonds • 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

9. Voted Debt Limitation • 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.

10. Debt Limit Example • 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).

11. Debt Limitations • 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 (3/8th of 1 percent) of the value of taxable property within the school district

12. Example of a use of non-voted debt • 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.

13. Property Tax Levy RateRegular and Excess Levy Rates(Rate Per $1,000 of Assessed Value)

14. Front-funding • 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

15. Front-funding • 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

16. Budgeting Capital Projects • For best transparency, sources of funds should be clearly identified. • Bonds vs. levies • Multiple Levies crossing over years

17. Monitoring and Reporting • Monthly board financial reports provided by district • 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

18. Additional Resources • Organization and Financing of Washington Public Schools http://www.k12.wa.us/safs/PUB/ORG/13/Final%20Edition%202013.pdf • Funding Resources for School Facilities http://www.k12.wa.us/SchFacilities/default.aspx

19. Questions