School District Fiscal Health October 31, 2014 Crystal Dorsey, CPA Local Government Audit Manager Office of the State Auditor

School District Fiscal Health 6th Year! 76 out of 178 school districts with one or more missed benchmarks 48 in the prior year One district missed three benchmarks None in the prior year 19 districts missed two benchmarks 9 in the prior year 56 districts missed one benchmark 39 in the prior year

School District Fiscal Health State of Colorado Fiscal Health Analysis State Funding for School District Programs For the Fiscal Year Ending June 30, 2011   $3,763,293,850 2012 $3,562,775,745 2013 $3,309,457,170 SOURCE: State of Colorado General Assembly Bill Digest per annual legislative session.

School District Fiscal Health Areas of highest risk General Fund Debt Changes in Fund Balance Excludes enterprise funds Five Ratios Three year period to review

School District Fiscal Health What will this ratio tell me? What will a trend in this ratio tell me? Where do I find the information? How do I calculate the ratio? What is the benchmark? What questions should I consider if my school district if below the benchmark?

School District Fiscal Health Ratio 1 – Asset Sufficiency Ratio (ASR) ASR Formula GENERAL FUND TOTAL ASSETS + DEFERRED OUTFLOWS GENERAL FUND TOTAL LIABILITIES + DEFERRED INFLOWS

School District Fiscal Health Ratio 1 – Asset Sufficiency Ratio (ASR) Financial Indicator Criteria: CONTINUOUS DECLINE IN ASR FROM YEAR ONE TO YEAR THREE, WITH YEAR THREE LESS THAN 1.0 —OR— ASR LESS THAN 1.0 ALL 3 YEARS

School District Fiscal Health Ratio 1 – Asset Sufficiency Ratio (ASR) Questions to Consider: Does the school district have consistent decreases in the ratio over time? Does the school district have trouble paying debts as they become due? Is the school district incurring more liabilities? Are more liabilities coming due faster than cash is coming in to pay them? Is the school district below the benchmark due to timing issues? Is the school district’s cash flow structure sufficient to continue paying liabilities as they become due?

School District Fiscal Health Ratio 2 – Debt Burden Ratio (DBR) DBR Formula TOTAL GOVERNMENTAL REVENUE OF FUND(S) PAYING DEBT TOTAL GOVERNMENTAL DEBT PAYMENTS

School District Fiscal Health Ratio 2 – Debt Burden Ratio (DBR) Financial Indicator Criteria: CONTINUOUS DECLINE IN DBR FROM YEAR ONE TO YEAR THREE, WITH YEAR THREE LESS THAN 1.0 —OR— DBR LESS THAN 1.0 ALL 3 YEARS

School District Fiscal Health Ratio 2 – Debt Burden Ratio (DBR) Questions to Consider: Does this ratio indicate that the school district does not have the ability to pay its future debt service expenditures? Is the ratio consistently decreasing because the school district has decreasing revenue available to make consistent debt service payments? Does the school district have plans to change the situation that is causing the consistently decreasing DBR ratio?

School District Fiscal Health Ratio 3– Operating Reserve Ratio (ORR) ORR Formula FUND BALANCE OF THE GENERAL FUND GENERAL FUND TOTAL EXPENDITURES (NET OF TRANSFERS)

School District Fiscal Health Ratio 3– Operating Reserve Ratio (ORR) Financial Indicator Criteria: CONTINUOUS DECLINE IN ORR FROM YEAR ONE TO YEAR THREE, WITH YEAR THREE LESS THAN 0.0192 —OR— ORR LESS THAN 0.0192 ALL 3 YEARS

School District Fiscal Health Ratio 3– Operating Reserve Ratio (ORR) Questions to Consider: Will the school district have a problem paying its future expenditures? Does the school district understand the circumstances that resulted in a consistently decreasing ORR and was it planned? Do consistent decreases in the ratio mean that expenditures are increasing or fund balance is decreasing, or both?

School District Fiscal Health Ratio 4 – Operating Margin Ratio (OMR) OMR Formula GENERAL FUND TOTAL REVENUE – (GENERAL FUND TOTAL EXPENDITURES, NET OF TRANSFERS) GENERAL FUND TOTAL REVENUE

School District Fiscal Health Ratio 4 – Operating Margin Ratio (OMR) Financial Indicator Criteria: DECREASE IN OMR FROM YEAR ONE TO YEAR THREE, WITH YEAR THREE LESS THAN ZERO —OR— OMR LESS THAN ZERO IN ALL 3 YEARS

School District Fiscal Health Ratio 4 – Operating Margin Ratio (OMR) Questions to Consider: Is the school district aware that it has a consistently negative OMR? Does this ratio indicate that the school district is spending too much money? Does the decrease in OMR indicate planned reductions in fund balance? Are there one-time capital expenditures that led to the decrease? What is causing the OMR to be consistently less than zero and can the school district fix this issue? Is the consistent decrease due to a timing issue?

School District Fiscal Health Ratio 5 – Change in Fund Balance Ratio (CFBR) CFBR Formula CURRENT YEAR FUND BALANCE OF THE GENERAL FUND – PRIOR YEAR FUND BALANCE PRIOR YEAR GENERAL FUND BALANCE

School District Fiscal Health Ratio 5 – Change in Fund Balance Ratio (CFBR) Financial Indicator Criteria: DECREASE IN CFBR FROM YEAR ONE TO THREE, WITH YEAR THREE FUND BALANCE LESS THAN YEAR ONE BEGINNING FUND BALANCE —OR— CFBR LESS THAN ZERO FOR ALL 3 YEARS

School District Fiscal Health Ratio 5 – Change in Fund Balance Ratio (CFBR) Questions to Consider: Do changes in this ratio indicate that the school district is spending too much? What does the school district plan to do to reverse this trend? Should the school district maintain more or less reserves?

School District Fiscal Health State of Colorado Fiscal Health Analysis Number of School Districts Missing Benchmarks1 For the Three-Year Period Ending June 30, Fiscal Health Ratio 2013 2012 2011 Ratio 1: Asset Sufficiency Ratio Ratio 2: Debt Burden Ratio 14 13 10 Ratio 3: Operating Reserve Ratio Ratio 4: Operating Margin Ratio 64 34 Ratio 5: Change in Fund Balance Ratio 19 5 Total Indicators 97 57 25 Total Districts With One or More Indicators 76 48 SOURCE: Analysis performed by the Office of the State Auditor, Local Government Division using data from audited financial statements submitted by school districts. 1Some districts had indicators in more than one category.

FISCAL HEALTH ANALYSIS OF SCHOOL DISTRICTS STATE OF COLORADO FISCAL HEALTH ANALYSIS OF SCHOOL DISTRICTS SCHOOL DISTRICTS MISSING TWO OR MORE FINANCIAL BENCHMARKS FOR THE THREE-YEAR PERIOD ENDING JUNE 30, 2013 County District Adams/ Arapahoe Strasburg 31J Phillips Holyoke RE-1J Baca Campo RE-6 Prowers Lamar RE-2 Elbert Agate 300 Pueblo Pueblo Rural 70 Big Sandy 100J Rio Grande Monte Vista C-8 Elizabeth C-1 San Juan Silverton 1* Kit Carson Arriba-Flagler C-20 Washington Akron R-1 Bethune R-5 Arickaree R-2 Lincoln Karval RE-23 Lone Star 101 Logan Valley RE-1 Yuma/Kit Carson Liberty J-4 Morgan Weldon Valley RE-20 Yuma Wray RD-2 SOURCE: Office of the State Auditor, Local Government Division Fiscal Health of Colorado School District reports 2012-2014. * Silverton 1 School District identified with three missed financial benchmarks.

School District Fiscal Health Two distinct themes: Districts have offset reductions in state school finance funding with the use of fund balance reserves rather than decreasing expenditures AND Districts have been spending down their fund balance for various maintenance and capital expenditures

School District Fiscal Health Plans to correct the situation Budget cuts – eliminate jobs Cuts to education programs Further spend down of fund balance CDE Actions

School District Fiscal Health Important analytical tool Early warning system The more missed benchmarks, the greater the risk Allows school districts to take prompt action

How to contact us NEW phone numbers! Questions, examples, discussions Justin/Main Local Government Phone Number My direct line is: 303-869-3002 crystal.dorsey@state.co.us