Octorara Area School District 2016-2017 Budget Presentation December 14, 2015

Octorara Area School District 2014-15 Review 2015-16 Update 2016-17 Draft Budget First we will review the 2014-2015 Budget Results, then we will discuss what significant items we know about now that will impact the 2015-2016 Budget and finally we will take a look at the first draft of the 2016-2017 budget.

Octorara Area School District 2014-15 Review

2014-15 Budget vs. Actual Budget Actual Variance % Revenue 47,704,757 47,146,646 (558,111) 98.83 Expense 49,210,898 47,388,620 (1,822,278) 96.30 Net (1,506,141) (241,974) 1,264,167 Total Local 32,885,656 33,262,674 377,018 Earned Income 1,870,000 2,093,723 223,723 All Other Local Revenue 31,015,656 31,168,951 153,295 Total State 13,150,829 12,922,293 (228,536) Ready to Learn Grant 426,021 248,700 (177,321) All Other State Revenue 724,000 685,804 (51,215) Total Federal 1,168,272 961,679 (206,593) Med Assist – ACCESS Reimb. 275,000 57,074 (217,926) Title I, II & III 893,272 904,605 11,333 Other Financial Sources 500,000 (500,000) We ended 2014-2015 fiscal year General Fund with a ($241,974) deficit as seen on Line three under tha Actual column for the General Fund. The 2014-2015 Revenue budget had a $558,000 variance, however $500,000 of that variance was from “other financial sources” a line item added to the budget that would allow the district to transfer funds into a new healthcare fund to account for medical benefit costs. This revenue item was a plug number only to balance the budget against a $500,000. As for what we actually expected to receive we are $58,000 (.12 of 1%) Local revenue had a positive $377,018 variance mostly due to EIT revenue, at $223,723 above budget. All other local revenues combined for a total positive variance of $153,295. State Revenues were below budget. The final ready to learn grant was $177,321 less than budgeted. The rest of the other state revenues were slightly under budget by $51 thousand. Federal Revenues were below budget due to ACCESS. Without the $500,000 unexpected revenue our variance was only $58,111. We will consider these variance in the 2016-2017 Revenue Budget.

2014-15 District Revenue Breakdown This is a visual of where our revenues come from. As you can see 71%, the majority of our revenue was from local sources, 27% from State Revenues and 2% from Federal sources.

2014-15 Local Revenue Breakdown Of our local sources as you can see 87.12% came from Real Estate Taxes, 6.29% from Earned Income Taxes and a combined 6.5% from all other local taxes

Selected Local Revenue History Here we can see that our EIT tax revenu, the yellow bar,e has grown since it’s recent low of $1.4 Million in 2010-2011 to just over $2 Million for 2014-2015. (we are budgeting 16-17 at this higher rate) Delinquent tax revenue, shown in red, has remained fairly consistent. (We will be using the same budget number in 2016-2017) Transfer tax, in blue has varied over the years so our 2016-2017 budget amount will stay the same. Investment income, the green line, has not grown much since the 2007-2008 year. We do anticipate a higher earning rate in 2016-2017 than we experience now, however our cash balance will be lower than last year so we will budget the same amount in 16-17 as we did in 15-16. Also Interim Real Estate revenue has grown over last year. All of this information is being considered in the 2016-2017 revenue budget.

State Revenues The only substantial growth we have seen over the past several years in the State funding was for the Retirement Subsidy Revenue, however that came with twice as much growth in the Retirement Expenditures side of the budget. This nets out to an increase in overall spending. The rest of this chart shows that state funding has remained relatively flat over the past several years. 2016-2017 budget will be same as 15-16 except for the Retirement and Social Security subsidies.

2014-15 Expense Summary Budget Actual Variance Fav/(Unfav) Salaries $19,152,915 $18,649,783 503,132 Admin. $50K/Professional $250K/Aides 140K/All Other $60K Benefits $9,565,473 $8,782,412 783,061 Med. Pres. Dental & Vis. $560K Ret. & SS. $220K Outside Services $4,322,258 $4,750,863 (428,605) Special Education (IU Services) Repairs/Maint. Services $797,375 $793,160 4,215 Trans/Ins/Tuit/Charter $6,156,606 $6,376,445 (219,839) Transportation ($213K) Supplies $1,540,379 $1,384,067 156,312 Capital $640,684 $722,054 (81,370) Budgeted as Supplies coded as Capital Dues/Fees/Interest $3,109,608 $2,799,836 309,772 Contingency $250K/Debt Service Int. $95K Fund Trans/Principal $3,925,600 $3,130,000 795,600 Debt Service Principal $290K Transfer $500K $49,210,898 $47,388,620 1,822,278 In total we under spent our expenditure budget by $1,822,278. In Salaries we had a positive variance of $503,132 we had two new administrators hired during the year both for lower salaries that what was budgeted for their predecessors. Security Salary of approximately $90K was budgeted as salary but was spent in Outside Services. Also, retirements and temporarily unfilled positions of Professional Employees and Aides accounted for the majority of the rest of the positive variance. In the benefits area, we experience a good year in the Medical claims. Total claims were about $600K less than in the previous year. To a lesser degree we had a positive variance in both retirement and social security expenditures from the under spent salary items. Total benefit positive variance was $783K Outside services were overspent by $428K. This was a combination of the 1. security personnel service $90K 2. Special Ed. Srvs. $300K 3. Tax Collection (as the EIT and Delinquent taxes are higher than the budget the cost to collect is also higher) Transportation/Insurance/Tuition was mostly due to Transportation. We had more special educaiton van runs than budgeted for Supplies and capital combined had a positive variance of $75K. Many items are budgeted as a supply and purchased as a capital item when the purchase order is reviewed. We also had positive variances in the contingency area, we budgeted $250K in contingence however we didn’t use it, also our refinancing of older debt saved debt service interest. Finally in the debt principle area we had savings on the Principal of $290K and we had that $500K transfer not used that was a wash with the $500K revenue item we discussed earlier. All of this nets to a $1,822,278 positive variance in the expenditure budget.

Salary History This chart shows the 2014-2015 total salaries in comparison to the past 7 years of salaries, 2009 – 2010 still being the high point. The 2016 – 2017 salaries, as you will see are also below the high in 2009-2010.

Required Health Care Premium History July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June Total Claims 2007-08 125,662 155,158 136,697 72,382 314,496 142,374 154,855 156,865 191,785 153,187 105,242 100,415 1,809,118 2008-09 138,017 154,536 179,266 197,349 112,362 171,333 163,946 127,176 130,016 157,056 149,241 249,891 1,930,189 2009-10 210,312 199,979 387,660 269,845 233,779 327,650 173,159 166,326 177,709 173,201 183,685 214,261 2,717,566 2010-11 295,022 207,814 172,910 172,384 177,774 212,662 156,411 240,869 233,482 167,544 216,282 405,977 2,659,130 2011-12 159,715 353,869 173,042 181,337 188,531 185,511 179,597 190,868 202,832 171,487 132,966 240,458 2,360,212 2012-13 163,938 144,581 187,274 129,059 178,849 181,508 267,891 144,066 171,179 207,599 257,640 178,721 2,212,305 2013-14 205,665 179,340 154,368 505,937 174,481 332,976 296,403 280,773 222,406 211,312 177,848 106,350 2,848,040 2014-15 93,162 294,940 200,054 215,333 185,131 205,851 179,237 245,440 111,756 205,497 181,343 133,306 2,251,050 Healthcare claims were a positive variance to budget in 2014-2015. Here you can see that total claims for 2014-2015, the bottom row, were almost $600K lower than in the previous year. Does not include Stop Loss Premiums, Admin Fees & IBNR

Claims History As you can see here the lower claims in 2014-2015 was a combination of low claim in July of 2014, no spikes during the year like we saw in October of 2013. Currently we are trending about 10% lower than last year ($803K vs $721K through October)

Selected General Fund Expenditures % Growth As for our major expenditure areas here you can see that in 2014-2015 debt service, the yellow bar was slightly lower than it was in the past three years, due to the one time savings from refinancing. 2015-2016 will be much lower, 2016-2017 we be slightly lower than 13-14 but the level will go back up in the 17-18 year. The red bar, healthcare expenditures is lower than last year and fairly low compared to the last 5 years. The Blue bar, charter school tuitions, has been fairly consistent over the past 5 years. 2014-2015 was actually lower than in 2013-2014. We are budgeting at this lower level for 2016-2017. The Green Bar represents PSERS Retirement. As you can see it has been growing significantly over the past few years. As much as 27% increase in 2014-2015. In 2016-2017 we are looking at about a 13% increase.

Octorara Area School District 2015-16 Outlook

Projected Variances from Approved Budget Revenue Budget Estimate Variance Local - EIT $1,900,000 $2,100,000 $200,000 State - Basic Ed & Special Ed $7,016,381 ? Federal - ACCESS $50,000 $(150,000) Expense Debt Service Bond Refinancing–Total Savings $763K $6,154,058 $5,391,121 $762,937 Contingency $250,000 For the 2015 -2016 budget we approved a use of $1.76 Million to balance the budget. However we do have some significant positive variances that will lower that use of fund balance. In our local revenues we are projecting to be about $200,000 over budget netted against ACCESS where we expect to be below budget. Our debt service will be $763K less than budget. If we don’t need to use the contingency of $250K that will reduce the need for fund balance. These items combined may reduce our needed use of fund balance by over $1Milliion, we may only need $760,000K of fund balance We also do not know how much the final state subsidy may be. Any amount over the 2014-2015 subsidy will reduce the need for fund balance to close out 2015-2016. (The most current proposal of Basic Ed funding and Special Ed funding is an increase of approximately $485K for Octorara)

Octorara Area School District 2016-17 Preliminary Budget

Octorara Area School District Items to Consider: Act 1 Index Opt-out Resolution Act 1 Time-line – Apply for Exceptions State Funding – 2015-2016 & 2016-2017 Retirement Rates For the 2016-2017 budget we have some major items to consider when working on the budget. First is the Act 1 Index. For Octorara Area School district the index is 3.0%. This raises approximately $960,000 in new revenue. Act 1 Exceptions. We have estimated that we are eligible for both the retirement exception and to a much lesser degree the special education exception. Combined both of these exceptions would raise approximately $242,000 or .99 of 1% index. (combined the rate increase would be approximately 3.99%) Also, for now we still do not know what our state subsidy total is. BEF, SEF and all other state grants are unknown (last estimate showed that would could expect an additional $485K) The largest one budget line item increase this year is the PSERS Expenditure. The Employer contribution rate is increasing from 25.84% to 29.2% which is an approximately 13% increase in the Retirement Rate.

Octorara Area School District This chart shows the Octorara Area School District adjusted Act 1 index since 2006. As you can see the index is slightly high this year than last year. (3% index raises approximately $960,000 in new revenue) Base Index 2.4%

This chart shows the rebalancing of the tax rate for 2016-2017 This chart shows the rebalancing of the tax rate for 2016-2017. The Lancaster rate rises and the Chester County rate remains the same.

This chart shows the millage rate for both Chester and Lancaster County at the 3.0% index.

Millage Change 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15   2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 08-09 to 14-15 Growth Avon Grove SD 23.82 24.72 26.18 26.75 27.50 28.16 3.68 15.4% Coatesville Area SD 26.50 28.49 29.49 30.11 31.19 32.00 33.64 6.30 24.5% Downingtown Area SD 24.85 25.47 26.21 26.73 27.18 3.13 13.0% Great Valley SD 17.92 18.22 18.50 19.03 19.59 20.00 20.32 2.56 14.7% Kennett Consolidated SD 23.14 23.95 24.78 25.73 27.45 28.14 28.60 6.19 28.2% Octorara Area SD 31.61 32.23 35.12 35.28 36.66 37.51 5.05 16.0% Owen J Roberts SD 24.89 25.50 26.17 26.82 27.27 27.74 28.28 28.83 4.32 18.0% Oxford Area SD 28.68 29.55 30.05 30.23 30.54 5.07 20.2% Phoenixville Area SD 25.89 26.39 27.06 27.78 28.24 28.64 28.89 4.45 18.2% Tredyffrin-Easttown SD 16.97 17.47 17.97 18.65 19.26 20.22 20.96 3.96 24.3% Unionville-Chadds Ford SD 22.53 23.58 24.26 24.53 25.18 26.79 26.92 5.22 24.2% West Chester Area SD 16.85 17.85 18.36 18.67 19.70 19.79 3.91 24.8% Percent Change Avg. Change 0.0% 3.8% 5.9% 2.2% 2.8% 2.4% 2.1% 3.1% 3.6% 3.5% 2.6% 5.1% 3.4% 3.3% 2.5% 2.9% 2.0% 1.7% 1.6% 1.5% 1.9% 5.4% 3.9% 2.7% 9.0% 0.5% 2.3% 14.0% 3.0% 0.6% 1.0% 1.4% 0.9% 4.4% 3.2% 3.7% 4.5% 4.7% 1.1% 4.1% 6.7% 5.5% Here we see an 8 year Growth rate in the millage and the average annual change in the millage rate.

Revenue & Expense History 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Revenue $ 42,785,748 $ 43,362,931 $ 45,532,886 $ 44,607,883 $ 46,117,967 $ 46,800,938 $ 47,146,646 Expense $ 40,737,098 $ 43,362,816 $ 44,456,385 $ 44,300,642 $ 44,276,649 $ 46,880,710 $ 47,388,620 Surplus / (Deficit) $ 2,048,650 $ 115 $ 1,076,501 $ 307,241 $ 1,841,318 $ (79,772) $ (241,974) Mills 31.61 / 27.37 32.23 / 27.68 35.12 / 28.13 35.28 / 28.37 36.66 / 27.49 36.66 / 27.71 36.66 / 26.43 Here we see the results of the General Fund over the years since 2008-2009. Here you can see that we experience surpluses from 08-09 through 2012-2013. In both 13-14 and 14-15 we have deficits while the millage rates stay the same. For 15-16 we are expecting another deficit, much lower than budgeted but most likely higher than in 2014-2015. ($1,760,000 use of fund balance $760,000 debt service savings, $250,000 contingency $50,000 in revenue = $700,000)(Fund balance as of June 30th 2015 is $8,014,324

PSERS Retirement Rate History & Projections Fiscal Year Rate 2008-09 4.76 – Actual 2009-10 4.78 – Actual 2010-11 5.64 – Actual 2011-12 8.65 –Actual 2012-13 12.36 – Actual 2013-14 16.93 – Actual 2014-15 21.40 – Actual 2015-16 25.84 – Actual 2016-17 29.20 – Projected 2017-18 30.62 – Projected The largest line item increase in the 2016-2017 budget is the increase in PSERS. As you can see here the employer contribution rate is increasing from 25.84% to 29.20%. This is a 13% increase in total PSERS Retirement expenditure dollars.

2016-17 vs. 2015-16 Expense Summary 2016-17 Budget 2015-16 Budget Variance Salaries $19,728,841 $19,066,458 $662,383 3.47% Inc Over 2 Years (Avg. 1.74 per year) Benefits $11,363,777 $10,557,957 $805,820 Retirement Rate 25.84 % vs. 29.2% $921K Increase Outside Services $5,018,796 $4,841,483 $177,313 Special Education Repairs/Rentals/Maint. Srvs. $881,207 $849,407 $31,800 Career Training Rentals $19,500 Electricity $13,400 Trans/Ins/Tuit/Charter $6,541,792 $6,420,107 $121,685 Transportation increase 1.85%, $50K CCIU Vo-Tech $63K Supplies $1,593,223 $1,570,500 22,723 Classroom supplies $22K/Career Tech Supplies $25K/Gas and Fuel ($27K) Capital $638,430 $645,640 ($7,210) Dues/Fees/Interest $2,917,036 $3,023,313 ($106,277) Bond Interest ($200K) Contingency $100K Fund Trans/Principal $3,722,500 $3,746,939 ($24,439) Other Fnds. Tran. ($230K) Bond Princ. $205K Totals $52,405,602 $50,721,804 $1,683,798 Total Expenditures are $52,405,602 for 2016-2017. Total Salary increases are $662,383 which is a 3.47% increase. If you recall the 2015-2106 salaries were budgeted at the 2014-2015 level. This budgeted amount in 16-17 represents a two year increase. Benefits in total have a $805K increase over 2015-2106. Medical benefits are budgeted with a 6% increase over 2015-2016. 2015-2016 benefits were budget for the entire year with a more costly plan however the plan design changes in January and should result in lower total costs. So even though we are using an overall 6% increase for 16-17 the total budget amount is staying at the 2015-2016 budget amount. Prescription budget is decreasing by approximately 16% due to plan changes. Total Retirement Expenditure is increasing by $921K. This is a net of $461K after we take into consideration the increase on the PSERS Subsidy revenue side. Outside services increases of $177K are mostly CCIU Special Education Services but also includes an increase for the tax collection expenditure that corresponds to the increase in the EIT Revenue. Repairs rentals maintenance services is increasing by approximately $32K. We are adding $19,500 for the rental of the County Career Training Center and we have an increase of 2.9% for electricity. Transportation we have a built-in escalator of 1.85% each year which is approximately $50,000, additional transportation for the career training center at the county $19,500 and our CCIU three year average for vo-tech is up over last year. Supplies and equipment combined is increasing by $15,513 or .7 of 1% Dues and Fees is decreasing, $200K of debt service interest goes away however we are increasing the contingency by $100K. Below that you can see that the principal increases by $205K however we are removing the $230K transfer to other funds we had in 15-16 to set up the healthcare fund. All of these increases = 1.68million or 3.32% increase.

2016-17 vs. 2015-16 Revenue 2016-17 Budget 2015-16 Budget Variance Local Revenue $35,164,696 $33,784,692 $1,380,004 Act 1 index $964,727 .5% Assessment Growth $144,000 EIT $200,000 Rental $30,000 All other $41,277 State Revenue $14,090,910 $13,530,110 $560,800 Retirement Subsidy $512,182 Social Security Subsidy $48,618 Federal Revenue $1,144,000 $0 Revenue From Other Sources $500,000 ($500,000) Prior year to set up benefits fund Totals $50,399,606 $48,958,802 $1,440,804 Fund Balance Appropriation Needed to balance revenues and expenditures $2,005,997 $1,763,000 $242,997 $52,405,603 $50,721,802 2016-2017 Total local revenue is $1,380,004 higher than the 2015-2016 budget. The Act 1 index produces $960K. We average about ½ of a percent of assessment growth per year, which produces approximately $144K. As we saw earlier tonight our EIT actual revenue has been much higher than budgeted. We are increasing the budget amount by $200,000. We also are increasing rental revenue by $30,000 to account for new rentals. All other local revenues are increasing by approximately $40K. In total local revenues are increasing by $1,380,004. For now the only state revenue we are changing are the Retirement and Social Security Revenues. The retirement subsidy budget amount is increasing by $500K and social security is increasing by $48K. The Basic Education Subsidy, Special Education subsidy, and the Ready To Learn Block Grant are all budgeted at the 2014-2015 level. (The latest omnibus school code bill being debated indicates that our increase in these subsidies would be approximately $485K. No mention of Charter School funding changes as earlier discussed) No Change in budgeted Federal Funds at this time however ACCESS revenue is still being disputed and may decrease some time in the future. (Use of fund balance = $2,005,997 however that includes $380K debt service we will not have to pay this year, $350K in contingency we hope to not need and approximately $485K in state subsidy assuming the latest numbers work out. That brings us down to a use of fund balance of $800K

Questions That brings us to what we have to do tonight. We do have the options of 1. Passing a resolution to stay at or below the Act 1 index, 3% max increase. 2. Pass a resolution to authorize the Administration to display a proposed preliminary budget and then vote on that budget at a January Board meeting. Or 3. do nothing tonight, have a special meeting on January 4th and if you authorize us to display a proposed preliminary budget you will need to vote on that budget by January 27th, the deadline School Boards must adopt their 2015-2016 preliminary budgets which means that you will have to have another special meeting before on the 25th. (because of the 20 day display requirement)