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Fiscal Health Analysis of Colorado School Districts. Financial Policies & Procedures Committee October 12, 2012 Crystal Dorsey Office of the State Auditor. Fiscal Health Analysis. Roles of the OSA and CDE Trends and evaluation of ratios

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fiscal health analysis of colorado school districts

Fiscal Health Analysis of Colorado School Districts

Financial Policies & Procedures Committee

October 12, 2012

Crystal Dorsey

Office of the State Auditor

fiscal health analysis
Fiscal Health Analysis
  • Roles of the OSA and CDE
  • Trends and evaluation of ratios
  • Factors that impacted 6 school districts for Fiscal Year 2011
fiscal health analysis1
Fiscal Health Analysis

Auditor: District’s reserves dwindling

By Steve Block, Staff writer, TTi

June15, 2012

background
Background
  • 178 school districts in Colorado
  • Funding sources
    • Local - property taxes
    • State share - $3.2 billion
  • Charter School Institute
roles of osa cde
Roles of OSA & CDE
  • Colorado Department of Education (CDE)
    • Oversight & monitoring of accreditation
    • Public School Financial Transparency Act
  • Office of the State Auditor
    • Compliance with Local Government Audit Law
    • Authority to hold property taxes
    • Review of audit report
development
Development
  • Development of Fiscal Health Analysis
    • Three year period to review
    • Trends that provide warning indicators
focus on highest risk
Focus on highest risk
  • General Fund
  • Debt
  • Changes in fund balance
  • Excludes Proprietary Funds
ratio 1 asset sufficiency ratio
Ratio 1: Asset Sufficiency Ratio
  • Are assets larger than liabilities?
  • Formula: General fund total assets General fund total liabilities
  • Warning trend: A consistent deficit in assets’ adequacy to meet obligations over the 3-year period.
ratio 2 debt burden ratio
Ratio 2: Debt Burden Ratio
  • Do annual revenues cover debt service payments?
  • Formula: Total governmental revenue of fund(s) paying debt

Total governmental debt payments

  • Warning trend: Annual revenues consistently below the annual debt payment for each of the three years.
ratio 3 operating reserve ratio
Ratio 3: Operating Reserve Ratio
  • How long will reserves last for future expenditures?
  • Formula:

Fund balance of the general fund

Total general fund expenditures (net transfers)

  • Warning trend: A reserve that covers less than 1 week of future expenditures, which is the equivalent of .0192, or 1/52, for each of the 3 years.
ratio 4 operating margin ratio
Ratio 4: Operating Margin Ratio
  • How much is added to reserves for every dollar generated in revenues?
  • Formula:

General fund total revenue –

(general fund total expenditures (net)

General fund total revenues

  • Warning trend: A loss in reserves for each of the 3 years.
ratio 5 change in fund balance ratio
Ratio 5: Change in Fund Balance Ratio
  • Are reserves increasing or decreasing?
  • Formula:

Current year fund balance of the general fund – prior year fund balance

Prior year fund balance of the general fund

Warning trend: Consistent decreases in reserves.

trend analysis
Trend analysis
  • Purpose
    • Warning trends over three year period
    • 2009, 2010, 2011
  • Limitations
    • Warning indicator in one year
    • Current budgetary actions
warning indicators 2012
Warning Indicators - 2012
  • 19 school districts with one or more warning indicators
    • 13 districts with one
    • 6 districts with two
warning indicators
Warning Indicators
  • Warning indicators do not always mean there is a problem
    • Planned capital expenditures
    • Deliberate spending of reserves
  • However: the more warning indicators, the greater the risk
    • Identify potential problems early
appendices
Appendices
  • Appendix A
    • Ratio descriptions, calculations, benchmarks, warning indicators
  • Appendix B
    • Districts with two or more warning indicators
    • Comparison with prior year
    • District responses
  • Appendix C
    • Map
  • Appendix D
    • Data for all school districts
districts with two warning indicators
Districts with Two Warning Indicators
  • North Park R-1 (Jackson County)
  • Mountain Valley(Saguache County)
  • Trinidad 1 (Las Animas County)
  • Jefferson County R1 (Jefferson/Broomfield)
  • La Veta RE-2 (Huerfano County)
  • Hoehne(Las Animas County)
two warning indicators
Two Warning Indicators
  • Not necessarily a problem
  • Reasons centered around two themes
    • Various planned expenditures
    • Reductions in state school finance funding
two warning indicators1
Two Warning Indicators
  • Plans to correct the situation
    • Budget cuts – eliminate jobs
    • Cuts to education programs
    • Further spend down of fund balance
  • CDE Actions
prior year
Prior Year
  • 6 districts identified with two in 2011 analysis
    • Fiscal Year 2010
    • 4 districts showed improvement
      • 3 districts had two last year – none this year
      • 1 district had three last year – two this year
    • 2 districts no change
prior year1
Prior Year
  • Four districts with warning indicators in last three Fiscal Health Analysis reports
    • Hoehne
    • Jefferson County
    • La Veta
    • Pritchett RE-3
prior year2
Prior Year
  • Overall number of districts with warning indicators has declined
    • 2012 – 6 districts
    • 2011 – 6 districts
    • 2010 – 19 districts
school district fiscal health
School District Fiscal Health
  • Important analytical tool
  • Early warning system
  • Allows school districts to take prompt action