Erin Fath, Assistant Director, School Financial Services Team, DPI Bob Avery, Director of Business Services, Beaver Dam Unified School District

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 2

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) 3

Total School District Revenues – Statewide ( ) 4 LIMITED REVENUES: - State General Aid - Property Taxes [82% of total Revenues] NOT SUBJECT TO REVENUE LIMIT

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. 5

6 Property Tax Levy State Aid Revenue Limit $1.5 M$3.5 M$5 M By now, you should be familiar with this concept:

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 7

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. 8

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

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 … 10

Historical Context:  Beginning in , Revenue Limits were imposed on all school districts  Initially implemented for a 5-year period ( through ) [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. 11

First Year – :  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: 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. 12

Walk through the calculation 1. Review the basic concept 2. Examine factors (base revenue, membership) 3. Demonstrate how exemptions are calculated and impact a district’s revenue limit 4. Questions … 13

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

Of course, it is more complex … 1. Membership = 3 year rolling average 2. Exemptions to the limit (including referenda):  Recurring (base-building) or non-recurring  Some exemptions auto-calculate, most must be “claimed” and follow specific process 3. Districts choose to fully utilize maximum revenue limit authority or to “under-levy” – impacts the following year’s calculation 15

Start with Prior Year Revenues from:  State General (Equalization) Aid  State High Poverty Aid (beginning in )  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 ]. 16

Then Reduce to Account for Prior Year*: 1. Non-Recurring Exemptions (authority was granted for one year) 2. Revenue Limit “over-levy” (district levies above the calculated limit) 3. 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 calculation, as base revenues were from the school year, before limits were in place. 17

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: Recurring Exempts Non-Recurring Exemptions 18 Property Taxes (Levy) from Controlled Sources (Funds 10/38/41) Prior Year Oct 15 th Certified Gen Aid + High Pov Aid + Computer Aid Current Year Base (including levied exemptions)* Non-Recurring Exemptions, Penalties REMOVED Recurring Exemptions

19 Revenue Limit Membership :  Based on 3 rd 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 , until all years of the count included 40% of a district’s summer school FTE count.

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

Membership Sept 2009 Sept 2010 Sept 2011 Sept 2012 Sept 2013 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 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. Sept FTE + 40% Summer School FTE Increasing Steady Declining Membership = Three-Year Rolling Average Increasing Steady Declining

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

24 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 , set amount prescribed by law (per State Biennial Budget)  Same dollar amount for every district (exception in )

25 Per Pupil (Membership) Adjustment:  The adjustment (increment) was a positive value until :  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)

Per Pupil Adjustment since 1993 Year$Adjustment % Change from Prior Year’s Adj *$ *$ % $ % $ % $ % $ % $ % $ % $ % $ % $ % Year$ Adjustment% Change $ % $ % $ % $ % $ % $ % $ % **-$ $ $ % $ % 26 *For and , 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 , 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 Low Revenue Ceiling:  Beginning in the 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 YearCeiling % Change # of Districts Eligible n/a $5, $5,6005.7% $5,9005.4% $6,1003.4% $6,3003.3% $6,5003.2% $6,7003.1% $6,9003.0% $7,4007.2%52 YearCeiling% Change # of Districts Eligible $7,8005.4% $8,1003.8% $8,4003.7% $8,7003.6% $9,0003.4% $9,0000.0% $9,0000.0% $9,0000.0% $9,0000.0% $9,1001.1% $9,1000.0%n/a Under current law, the low revenue ceiling will increase to $9,100 beginning in (no changes specified after that year). Low Revenue Ceiling Threshold since 1995

29 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)

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

31 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

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

33 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 …

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 34

35 Base Non-Recurring Exemptions – One Year Only Recurring Current YearFollowing Year Base Non-Recurring Base Recurring Exemptions – Permanently in the Base Current YearFollowing Year Understand the difference between Recurring & Non-Recurring Exemptions

36 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 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 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 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 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 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 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 ”  Multiple Year – e.g., “$500,00 for each year of to ” (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  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 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:

45  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 If borrowing for a longer term EE Project, several points:  The Board must approve a resolution between July 1 st & Nov. 1 st in 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 Potential Penalty:  A district must expend the full amount that it claimed as the EE Exemption on valid project costs by June 30 th 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 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 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 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

51 Key thing to know about Non-Recurring Exemptions – they are temporary! Questions? Now onto Recurring Exemptions … (don’t worry – fewer and less complicated!)

52 Recurring Exemptions (permanent) – makes this and future years’ pie crust larger:  Determined automatically in Revenue Limit Calculation:  Eligible Carryover (of prior year unused authority)  Requires approval by Electors:  Recurring Referendum  Other Recurring Exemptions (DPI works with district to determine amount)  Transfer of Service  Transfer of Territory  Loss of Federal Impact Aid

53 Eligible Carryover from Prior Year Under-Levy If a district under-levies in a given year, can they ever get that revenue authority back?  It depends … Unused levy authority in one year will become “carry-over” authority into the following year, but only the amount that exceeds the non-recurring exemptions claimed by the district.

54 Eligible Carryover from Prior Year Under-Levy 1. District has under-levied and had NR exemptions : a. If under-levy > NR exemptions, then Carryover = under-levy less the NR exemptions ex: $100,000 under-levy - $75,000 NR exempts = $25,000 carryover b. If under-levy = NR exemptions or under-levy < NR exemptions, then Carryover = zero 2. District has under-levied and had ZERO NR exemptions: ALL of the district’s under-levy becomes eligible as carryover

55 NOTE: the converse applies Under-levy reduces the amount of NRE removed from the base: 1. District had NRE and also under-levied : a. If NRE < under-levy or NRE = under-levy, then NRE Removed from Base = zero b. If NRE > under-levy then NRE Removed from Base = NRE less under-levy ex: $100,000 NRE - $75,000 under-levy = $25,000 removed from base 2. District has NRE and did NOT under-levy: ALL of the district’s NRE are removed from the base

56 Recurring Referendum A district may get additional, ongoing revenue limit authority by obtaining approval from the electors via the referendum process (e.g., for operating costs).  No dollar limit on referendum imposed by State Law; rather, needs of district balance with comfort level of the community electors.  Recurring Referendum can be:  Single Year – e.g., “$500,000 in ” (adds $500,000 to base)  Multiple Year – e.g., “$500,00 for each year of to ” (after 3 years adds $1,500,000 to the base)  May be “over-lapping” (e.g., with an NR referendum)

57  Transfer of Service: an adjustment to reflect the additional costs of programs/services for which the district assumed responsibility from another unit of government:  Very often for costs of Special Education service assumed by a district;  Can be a negative adjustment for the district from which the transfer occurred.  District must report specific information to the SFS Team in order to claim this exemption

58  Transfer of Territory: an adjustment to account for territory (and pupils) becoming part of, or detaching from, a district.  Federal Impact Aid Loss: to adjust for loss in Federal Aid from one year to the next, for districts that receive Federal Impact Aid (for non-taxable, federal properties).

59 Key thing to know about Non-Recurring Exemptions – they stay in the revenue base! Questions? Now, let’s put it all together …

After all exemptions are applied – New Revenue Limit (“Line 11”) for the current year: This amount represents the total controlled revenue authority available to the district between General Aid & Property Tax Levy  Remember: Limit – General Aid = [Controlled] Levy  District must allocate its allowable “Controlled” Levy:  General Fund (Fund 10)  Non-referendum Debt Service Fund (Fund 38)  Capital Expansion Fund (a.k.a., “Sinking Fund”, Fund 41)  District may “levy to the max” or under-levy; an over-levy will result in a penalty the following year. 60

NOTE: District should review the Revenue Limit worksheet “Line 11” across years to see the trend in allowable revenues, which will be affected by:  Membership (residents) – increasing/steady/declining  Per Pupil Adjustment (state law)  Use of exemptions by the district (local decision) Where can I see this for my district? SFS Team’s web page “Longitudinal Data – Revenue Limits” 61

62 WISCONSIN DEPARTMENT OF PUBLIC INSTRUCTION SURVEY OF REVENUE LIMIT FORMULA COMPONENTS: TO Finalized in May, Estimate 1.) Base Revenue$5,882,487$6,148,691$6,422,991$6,163,349$6,367,931 2.) Base 3-Year Membership ) Base Revenue Per Member (Line 1 ÷ Line 2)$9,191.39$9,488.72$9,761.38$9,310.19$9, ) Per-Member Increase$200 -$537$50$75 5.) Maximum Revenue Per Member (Ln 3+Ln 4)$9,391.39$9,688.72$9,224.58$9,360.19$9, ) Current 3-Year Membership ) Total Max Revenue Limit (no exemptions)$6,085,621$6,375,178$6,106,672$6,308,768$6,475,620 a. Max Rev/Memb x Cur Memb Avg$6,085,621$6,375,178$6,106,672$6,308,768$6,475,620 b. Line 7 Hold Harmless Non-Recur Exemption$0 8.) Recurring Exemptions$63,070$47,813$56,730$59,163$22, ) Non-Recurring Exemptions$0 11.) Maximum Revenue Limit w/ Exemptions$6,148,691$6,422,991$6,163,349$6,367,931$6,524, ) October 15 General Aid Certification$5,131,830$5,000,286$4,885,865$4,864,065$5,348, ) Allowable Limited Revenue$1,016,861$1,422,705$1,277,484$1,503,866$1,175,345 (Ln 11 - Ln 12) 14.) Limited Revenue Used$1,016,861$1,422,705$1,277,484$1,503,866$1,175,345 (includes levies 10, 38, & 41 + computer aid) 15.) Total Revenue from Other Levies$579,002$197,851$398,316$300,000$633, ) Low Revenue Ceiling Aid (only in )n/a $0n/a 16.) / 17.) Total Levy+Src 691$1,595,863$1,620,556$1,675,800$1,803,866$1,808, ) / 18.) Computer Aid$5,463$6,437$7,142$13,740$11, ) / 19.) Total All-Fund Tax Levy$1,590,400$1,614,119$1,668,658$1,790,126$1,796,537

What explains changes in the LEVY from year to year?  Changes in the district’s allowable controlled revenue authority (Line 11)  Changes in State General Aid  Board’s decision to under-levy or levy to the max  Other “non-controlled” levies:  Referendum Debt  Community Programs and Services (Fund 80)*  Chargeback levy *Fund 80 was previously subject to the Revenue Limit, until ; recent interest in Fund 80 levies has spurred reporting requirements of districts. 63

What explains changes in the LEVY RATE from year to year?  Total district levy – controlled & non-controlled  Changes in the district’s equalized property value – determination that is completely outside the control of the district (values are calculated by the Dept. of Revenue)  Also, remember that the levy that is approved and certified by the Board is a “gross” school levy – it does not reflect the impact of the School Levy Tax Credit 64

What explains changes in the LEVY RATE from year to year?  Total district levy – controlled & non-controlled  Changes in the district’s equalized property value – determination that is completely outside the control of the district (values are calculated by the Dept. of Revenue)  Also, remember that the levy that is approved and certified by the Board is a “gross” school levy – it does not reflect the impact of the School Levy Tax Credit 65

The Revenue Limit Calculation is quite complex … where can you go in the future for more information?  Talk to your district Business Manager & Administrator  Talk with your peers  Talk to the SFS Team at DPI – contact information at: 66

Please feel free to stop by the DPI booth if you’d like to chat more about your specific district data! We’ll have the Equalization Aid and Revenue Limit data available so you can continue the conversation with us…….. See you later! 67