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Understanding Revenue Limits

Understanding Revenue Limits

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Understanding Revenue Limits

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  1. Erin Fath, Assistant Director, School Financial Services Team, DPI Bob Avery, Director of Business Services, Beaver Dam Unified School District Understanding Revenue Limits

  2. Welcome! Today’s Agenda In this presentation we will: • Start with review of basic concept of Revenue Limit then delve deeper into the calculation • Talk about the impact of the Revenue Limit calculation on districts with growing, flat or declining enrollment • Answer your questions about Revenue Limits

  3. What are Revenue Limits? The “Revenue Limit” is the limitation imposed by State Law on the revenues that public school districts in Wisconsin can raise from local Property Taxes* & State General Aid. • Not all of a school district’s revenues are limited by State Law • The revenue limit is not a limitation on school district total expenditures *The “Controlled Property Tax Levy” (excludes levy for referendum approved debt, the Community Service Fund and the chargeback levy)

  4. What are Revenue Limits? Total School District Revenues – Statewide (2011-12) NOT SUBJECT TO REVENUE LIMIT • LIMITED REVENUES: • State General Aid • Property Taxes • [82% of total Revenues]

  5. Importance of Revenue Limits The mix of school district revenues from State Aid and Local Tax Levy varies across the state, HOWEVER … A district’s Revenue Limit will determine approximately 85-95% of a school district’s General Fund Revenue Budget.

  6. Importance of Revenue Limits By now, you should be familiar with this concept:

  7. Importance of Revenue Limits Another way to think of Revenue Limits – as a Pie • The Limit itself is the outer crust – defines the size of the pie. • There are two fillings • State Aids • Local Property Taxes

  8. Importance of Revenue Limits Another way to think of Revenue Limits – as a Pie • The Limit itself is the outer crust – defines the size of the pie. • There are two fillings • State Aids • Local Property Taxes As one increases, the other decreases.

  9. Importance of Revenue Limits The proportion of controlled revenues from State Aid and Property Tax Levy will vary from district to district.

  10. Why Revenue Limits? Historical Context: • Early 1990’s – concerns of growing tax levies getting “out of control” • Proposal for “Two-Thirds” funding for public schools – to provide tax relief [no longer law] • State cannot afford to continually increase General Aid to districts with no limit, so …

  11. Why Revenue Limits? Historical Context: • Beginning in 1993-94, Revenue Limits were imposed on all school districts • Initially implemented for a 5-year period (1993-94 through 1997-98) [1993 WI Act 16] • Made permanent with legislation, 1995 WI Act 27 • Basic computation has remained the same, but a few changes along the way.

  12. Revenue Limit – miscellaneous First Year – 1993-94: • Districts were “locked-in” to relative level of revenue authority (base revenue / base members): • The per pupil adjustment is the same $ amount for each district (exception: 2011-12 year, -5.5%) • Generally, the variance among districts in per-member revenue authority begins to decrease over time, however … • Utilization of referendum and other exemptions to exceed the revenue limit varies among district and affects the variance in per member revenue authority.

  13. Revenue Limit Calculation Walk through the calculation • Review the basic concept • Examine factors (base revenue, membership) • Demonstrate how exemptions are calculated and impact a district’s revenue limit • Questions …

  14. Revenue Limit – Basic Concept Basic Computation BASE MEMBERS (3-YEAR AVEARAGE) BASE REVENUE PER MEMBER (STARTING POINT) BASE REVENUE (PROPERTY TAX + GENERAL AID) BASE REVENUE PER MEMBER (STARTING POINT) PER PUPIL ADJUSTMENT (INCREMENT) NEW REVENUE PER MEMBER CURRENT MEMBERS (3-YEAR AVERAGE) NEW REVENUE PER MEMBER NEW REVENUE LIMIT* *Prior to any exemptions.

  15. Revenue Limit Calculation Of course, it is more complex … • Membership = 3 year rolling average • Exemptions to the limit (including referenda): • Recurring (base-building) or non-recurring • Some exemptions auto-calculate, most must be “claimed” and follow specific process • Districts choose to fully utilize maximum revenue limit authority or to “under-levy” – impacts the following year’s calculation

  16. Base Revenue Start with Prior Year Revenues from: • State General (Equalization) Aid • State High Poverty Aid (beginning in 2007-08) • State Computer Aid* • Controlled Property Tax Levy: • Fund 10 (General Fund) • Fund 38 (Debt w/in the Revenue Limit) • Fund 41 (Capital Expansion Fund) *Aid from the Dept. of Revenue – replaced property taxes forgone when computer equipment was exempted from tax rolls [1997 WI Act 237].

  17. Base Revenue Then Reduce to Account for Prior Year*: • Non-Recurring Exemptions (authority was granted for one year) • Revenue Limit “over-levy” (district levies above the calculated limit) • Energy Efficiency Exemption – unspent amounts (district levied for, but did not fully expend levied funds on, the project) *Would not have applied in the first year of Revenue Limits, as the 1993-94 calculation, as base revenues were from the 1992-93 school year, before limits were in place.

  18. Building the Base Revenue PRIOR YEAR State Aid + Tax Levy = Starting point for following year’s base: It already includes the $ amount of all exemptions for which the district actually levied in the prior year: Prior Year Current Year Non-Recurring Exemptions, Penalties REMOVED Oct 15thCertified Gen Aid + High Pov Aid + Computer Aid Base (including levied exemptions)* Property Taxes (Levy) from Controlled Sources (Funds 10/38/41) Non-Recurring Exemptions Recurring Exemptions Recurring Exempts

  19. Base Membership Revenue Limit Membership : • Based on 3rd Friday in September Pupil Count (as converted to FTE) + 40% of Summer School FTE * • Includes pupils who are RESIDENTS of the district: • INCLUDES resident pupils who are open-enrolled out • EXCLUDES resident pupils who are open-enrolled in *The inclusion of summer school FTE for Revenue Limit purposes was phased in, beginning in 1998-99, until all years of the count included 40% of a district’s summer school FTE count.

  20. Base Membership Revenue Limit Membership : • Calculated on a three year average. • Used to minimize the financial impact of a sharp incline or decline in membership. Thus … 2013-14 Revenue Limit Membership = (Sept 2011 + Sept 2012 + Sept 2013) / 3

  21. Base Membership Notice how an on-going membership change must be in place for 3 years before the full impact is realized in the revenue limit membership calculation.

  22. Base Membership Notice how an on-going membership change must be in place for 3 years before the full impact is realized in the revenue limit membership calculation.

  23. Revenue Limit – Basic Concept Basic Computation BASE MEMBERS (3-YEAR AVEARAGE) BASE REVENUE PER MEMBER (STARTING POINT) BASE REVENUE (PROPERTY TAX + GENERAL AID)

  24. Per Pupil Adjustment Per Pupil (Member) Adjustment: • An amount added to the Base Revenue per Member to determine the current year’s Revenue Limit • In the past, increment was indexed to inflation, but… • Beginning in 2009-10, set amount prescribed by law (per State Biennial Budget) • Same dollar amount for every district (exception in 2011-12)

  25. Per Pupil Adjustment Per Pupil (Membership) Adjustment: • The adjustment (increment) was a positive value until 2011-12: • Legislature approved a decrease of 5.5% on every districts’ base revenue per member amount –not just the increment (year in which funding for General Aid was reduced by 8%) • Resulted in different per pupil adjustment dollar amount for each district (all negative)

  26. Per Pupil Adjustment • Per Pupil Adjustment since 1993 • *For 1993-94 and 1994-95, districts had the choice of increasing their revenues by either the rate of inflation (3.2% & 2.3%, respectively) or by the per pupil dollar adjustment shown in the table. • **For 2011-12, decrease of 5.5% to every districts’ total base revenue per member; statewide average was equal to $562.00, but ranged from -$482 to -$1,094.

  27. Per Pupil Adj. – Low Revenue Low Revenue Ceiling: • Beginning in the 1995-96 school year, the calculation provides for an additional adjustment for districts that have relatively low revenue per member (after the Per Pupil Adjustment is applied) • Set amount prescribed by law (per State Biennial Budget) • Never was linked to inflation, but determined in the context of the Per Pupil Adjustment amount provided under law • Same threshold applies to all districts

  28. Per Pupil Adj. – Low Revenue • Low Revenue Ceiling Threshold since 1995 • Under current law, the low revenue ceiling will increase to $9,100 beginning in 2013-14 (no changes specified after that year).

  29. Per Pupil Adj. – Low Revenue Example of Low Revenue Ceiling (Example #1) • Base Revenue = $4,203,000 • Divide by Base Membership = 467 FTE (3-yr average) • Equals Base Revenue per Member = $9,000 • Add the Per Pupil Adjustment: $75 • Equals an Adjusted Revenue per Member = $9,075 • LOW REVENUE CEILING THRESHOLD = $9,100 • Apply the Low Revenue Adjustment: $9,100 - $9,075 = $25 • New Revenue per Member: $9,075 + $25 = $9,100 (no exemptions yet)

  30. Revenue Limit – Basic Concept Basic Computation BASE MEMBERS (3-YEAR AVEARAGE) BASE REVENUE PER MEMBER (STARTING POINT) BASE REVENUE (PROPERTY TAX + GENERAL AID) BASE REVENUE PER MEMBER (STARTING POINT) PER PUPIL ADJUSTMENT (INCREMENT*) NEW REVENUE PER MEMBER *Low-Revenue Ceiling adjustment as applicable.

  31. New Revenue Limit (no exemptions) New Revenue per Member (as adjusted) multiplied by the current year membership = New Revenue Limit (no exemptions) Previous Example #1: • $9,100 per Member after Per Pupil & Low Revenue Adjustments • Multiply by current membership of 455 FTE (3 year average) • Equals New Revenue: $9,100 x 455 = $4,140,500

  32. Revenue Limit – Basic Concept Basic Computation BASE MEMBERS (3-YEAR AVEARAGE) BASE REVENUE PER MEMBER (STARTING POINT) BASE REVENUE (PROPERTY TAX + GENERAL AID) BASE REVENUE PER MEMBER (STARTING POINT) PER PUPIL ADJUSTMENT (INCREMENT*) NEW REVENUE PER MEMBER CURRENT MEMBERS (3-YEAR AVERAGE) NEW REVENUE PER MEMBER NEW REVENUE LIMIT** *Low-Revenue Ceiling adjustment as applicable **Prior to any exemptions.

  33. Revenue Limit Exemptions We’ve covered the basic Revenue Limit Calculation, but most districts will make use of at least one Revenue Limit Exemption from time to time …

  34. Revenue Limit Exemptions Remember the “pie” analogy? You can think of an exemption as a way to expand the pie crust … • Non-Recurring Exemptions (temporary) – make this year’s pie crust larger • Recurring Exemptions (permanent) – makes this and future years’ pie crust larger

  35. Revenue Limit Exemptions • Understand the difference between • Recurring & Non-Recurring Exemptions Non-Recurring Exemptions – One Year Only Recurring Exemptions – Permanently in the Base Current Year Following Year Current Year Following Year Recurring Base Non-Recurring Base Base Base

  36. Non-Recurring Exemptions Non-Recurring Exemptions (temporary) – makes this year’s pie crust larger: • Determined automatically in Revenue Limit Calculation: • Revenue Base “Hold Harmless” • Declining Enrollment • Requires approval by Electors or Board: • Non-Recurring Referendum • Energy Efficiency Project • Other (DPI works with district to determine) • Prior Year uncounted Open Enrollment Pupils • Refunded/Rescinded Taxes

  37. Base Revenue Hold Harmless Base Revenue Hold-Harmless Additional revenue authority to bring a district back up to its Base Revenue after the Per Pupil & Low Revenue Ceiling adjustments are applied: Previous Example #1: • New Revenue ($9,100 x 455) = $4,140,500 • Base Revenue = $4,203,000 • New Revenue < Base Revenue • Base Revenue Hold-Harmless Exemption = $62,500 • Raises the district’s Revenue Limit to the base, $4,203,000

  38. Base Revenue Hold Harmless Why would a district be in this position? • The effect of the decline in the district’s membership is greater than the positive effect of the per pupil adjustment Previous Example #1: • Base Members = 467 FTE [Base Revenue = $4,203,000] • Current Members = 455 FTE[New Revenue: 455 x $9,100 = $4,140,500] • Decline in Members: 12 FTE x $9,000 = loss of $108,000 • Additional authority: $75 Per Pupil & $25 Low Revenue Ceiling adjustments: $100 x 455 = $45,500 • Difference: -$108,000 + $45,500 = $-62,500 [e.g., the Base Hold-Harmless Exemption amount]

  39. Base Revenue Hold Harmless Do all “Declining Enrollment” districts get the Base Revenue Hold Harmless exemption? • No … it depends on the numbers. Example #2 • Base Members = 467 FTE [Base Revenue = $4,203,000] • Current Members = 465 FTE [New Revenue: 465 x $9,100 = $4,231,500] • Decline in Members: 2 FTE x $9,000 = loss of $18,000 • Additional authority: $75 Per Pupil & $25 Low Revenue Ceiling adjustments: $100 x 465 = $46,500 • Difference: -$18,000 + $46,500 = $28,500 [e.g., not eligible for the Base Hold-Harmless Exemption because New Revenue > Base Revenue by $28,500]

  40. Declining Enrollment Declining Enrollment This exemption provides districts with additional revenue authority to make up for the loss in revenue authority due to declining enrollment: • Determine decrease in FTE between base and current year membership • Multiply that difference by the district’s current year revenue per member (as adjusted by Per Pupil and Low Revenue Ceiling)

  41. Declining Enrollment Do all “Declining Enrollment” districts get this exemption? • YES! (provided the “decline” appears in the 3-year ave membership) Example #1 • Base Members = 467 FTE • Current Members = 455 FTE • Decline in Members: 12 FTE • Declining Enrollment Exemption = 12 FTE x $9,100 = $109,200 Example #2 • Base Members = 467 FTE • Current Members = 465 FTE • Decline in Members: 2 FTE • Declining Enrollment Exemption = 2 FTE x $9,100 = $18,200

  42. Non-Recurring Referendum Non-Recurring Referendum A district may get additional revenue limit authority by obtaining approval from the electors via the referendum process. • No dollar limit on referendum imposed by State Law; rather, needs of district balance with comfort level of the community electors. • Non-Recurring Referendum can be: • Single Year – e.g., “$500,000 in 2013-14” • Multiple Year – e.g., “$500,00 for each year of 2013-14 to 2017-18” (e.g., 5 years of additional revenue authority, but DOES NOT add to the district’s base) • May be “over-lapping” (e.g., with a Recurring Referendum)

  43. Non-Recurring Referendum Non-Recurring Referendum • REMEMBER: If an Exemption is NON-RECURRING (temporary), the district will need a plan to either fund the future expenditures with a different source or eliminate the expenditures. • For this reason, Non-Recurring Referendum are often used for expenditures that are short term in nature, e.g., deferred maintenance, purchase equipment, etc. • NOTE: Districts may use the referendum process to get approval to issue debt for building projects – this type of referendum is completely OUTSIDE the revenue limit (not an exemption).

  44. Energy Efficiency Exemption Energy Efficiency Project Exemption A district may get additional revenue limit authority to pay the costs of a project that results in the avoidance of, or reduction in, energy costs or operational costs: • The use of this exemption to cover EE Project costs MUST be approved in a resolution of the District Board (not a vote put to the electorate). • Eligibility for this exemption requires the district to meet several specific statutory requirements, summarized on the following slides, but link to information here: http://sfs.dpi.wi.gov/sfs_enrgyrevlim

  45. Energy Efficiency Exemption • Districts may claim the exemption to pay for one-time costs or to pay debt service if the district borrows for project. • Project costs, anticipated savings and cost-recovery timeline must be specified in the resolution; energy savings (performance results) must be reported at year end to the community and to SFS Team. • All districts using the EE Exemption MUST enter into a Performance Contract with the vendor, whether using the exemption on a one-time bases or to pay debt service on borrowed funds for a project. • A district may obtain a State Trust Fund Loan in addition to issuing bonds or notes as a vehicle to borrow funds for an EE Project.

  46. Energy Efficiency Exemption If borrowing for a longer term EE Project, several points: • The Board must approve a resolution between July 1st & Nov. 1stin each year in which it claims the exemption (e.g., borrowing for 20 years = pass a resolution to use exemption for 20 years). • Borrowed funds do count against the district’s $1 million limit on borrowing without automatically going to referendum. • Per 2013 WI Act 20, districts that use the exemption to pay for debt service costs must determine if any measurable utility savings have occurred; if so, use that savings to retire the debt. • The exemption amount = CY debt service payments.

  47. Energy Efficiency Exemption Potential Penalty: • A district must expend the full amount that it claimed as the EE Exemption on valid project costs by June 30th of the year in which the exemption is claimed, as determined by the School District’s Auditor. • If full exemption amount was NOT expended on valid project costs within the required time frame, then a penalty will be assessed against the district the following year: • Penalty = $ amount not expended • Reduction to the district’s Base Revenue for following year

  48. Non-Recurring Exemptions Referendum & Energy Efficiency Exemptions The DPI – SFS Team always advises School Districts to seek advice from the District’s own Legal Counsel when crafting language for a Referendum (non-recurring or recurring), as well as a resolution to utilize the Energy Efficiency Revenue Limit exemption.

  49. Other Non-Recurring Exemptions Exemption for Uncounted Prior Year Open-Enrollment Pupils: • Districts are supposed to count resident pupils that are Open Enrolled-Out of the district, because at year-end, the resident district pays the non-resident district for those pupils. • If an Open Enrolled-Out pupil was not counted by the resident district, that district has lost out on revenue authority for that pupil – but still has to pay the other district. • Sometimes resident pupils who are Open Enrolled-Out are “missed” in the resident district’s September count. • When this happens, the district works with DPI to determine the Open Enrollment payment for those “missed pupils” and that amount can be claimed by the district the following year.

  50. Other Non-Recurring Exemptions Exemption Refunded or Rescinded Taxes: • Allows a district to re-capture revenue authority that was lost as a result of a determination that certain property tax revenues must returned • Districts would be notified by the local taxing authority (municipality) if this occurs then must notify the SFS Team about the refunded/rescinded tax. • NOTE: this is somewhat different than a “Chargeback”: • Occurs when the municipality must collect revenue “back” from a district in the case of uncollected taxes; • Districts may recapture this lost tax revenue via the “Chargeback Levy” which is completely OUTSIDE the revenue limit calculation