Public Schools of Petoskey Budget Update & Outlook September, 2004

Last Time We Met….  February 2003 – State had just sent Executive Order cuts to all districts.  Per Pupil Allowance at start of year had been set at $6,700.  Executive Order in Feb reduced the per pupil allowance by 3.8%; approximately $60 per pupil.  Cost to PSP: $188,411

The Belt Tightening Begins  Between Feb and June 2003 we: Reduced supply budgets 20% Reduced conferences and reimbursements Eliminated remaining major equipment purchases Restored full 18 mills on non-homestead property taxes  End Result Budgeted Loss for FY 02-03: $213,049 Actual Result: Gain of $188,471

Per Nov 2003 MSBO survey What Did Other Districts In Michigan Do?  In response to their budget issues in FY (58%) districts laid off employees. 366 (70%) did not fill open positions. 188 (36%) eliminated programs or services. 288 (55%) increased class size. 147 (28%) froze salaries and benefits for some employees. 277 (53%) reduced or eliminated field trips. 115 (22%) reduced transportation services. 246 (47%) deferred maintenance on existing facilities.

Refresher on State Aid: State Aid Formula (# Pupils Multiplied by Per Pupil Foundation Allowance) Less (18 mills X District Non-Homestead TV) Equals Amount State pays the district

State Aid Key Points  Pupil count is an uncontrollable variable.  Per Pupil Foundation Allowance is set by the State. ($6,700 for 02-03,03-04 & 04-05). This is the minimum any district receives.  Amount of $$ sent from Lansing to PSP is reduced as our property values increase.  INCREASED PROPERTY VALUES DO NOT EQUAL MORE MONEY FOR SCHOOLS!!!

How the Per Pupil Allowance is Split Between Taxes & State

From Standard & Poor’s Latest Report  The District’s state-source operating revenue per student is exceptionally below the state average, and lower than the peer group average.  Statewide, only 3.8% of Michigan’s school districts receive less per-student revenue from state sources than the district.

What Does All This Mean?  As the property values in the Petoskey area increase, the benefit of the increased property tax revenue does not accrue to Petoskey Schools.  The State of Michigan benefits, as the amount of money sent from Lansing decreases as the local property tax revenue increases.

Major Revenue Sources

Major Expenses

Instruction to Support Costs Comparison

Observations About PSP by Standard & Poor’s  On a per-student basis: the district’s instructional expenditures are comparable to the state average, but higher than the peer group average. the district’s operating expenditures are moderately below the state average, but comparable to the peer group average. Statewide, 18.1% of Michigan’s school districts spend less per student on administration than the district. Statewide, only 9.2% of Michigan’s school districts spend less per student on central administration.

More Data from Standard & Poor’s

How We Compare With Other Districts

The Budget Dance Continues – FY  State set per pupil foundation allowance at $6,700.  In November, State once again issued cuts to schools. This time cut was $74 per pupil.  Cost to PSP: $228,797

FY Budget Changes: Revenue Losses  State Ordered Per Pupil Cuts  State Drivers Ed Funding Lost  Total Revenue Losses $ 228,797 26,415 $ 255,212

FY Budget Changes: Cost Increases  Salary & Fringe Increases  Property / Casualty Insurance  Transportation Cost Increases  Total Cost Increases $ 1,080,066 16,791 37,792 $ 1,134,649

FY Budget Changes: Revenue Increases  Increased Pupil Count  Increased Tuition & Fees  Misc. Other Sources  One Time Revenue Sources Sale of Property & Equipment Special Ed Reimbursement  Total Revenue Increases $ 60,000 96,486 51,853 81, ,323 $ 580,632

FY Budget Changes: Cost Cuts Made  Program Cuts  Energy Conservation Measures  Supplies  Major Equipment  Hiring Delays / Reductions Total Cost Cuts Made $ 58,131 77, , ,158 36,961 $ 584,165

End Result – FY  Had we not changed a thing on how the district spends its money, we would have lost $1.7 million.  Instead, we made cuts, looked for new revenue, scrimped on spending, saved our pennies and nickels for the entire year and…..  And instead of losing $1.7 Million, our loss came in at only $36,500.

Per K-16 Coalition for Michigan's Future survey And What Did Other Michigan School Districts Do?  273 (52%) laid off employees (approximately 5,900 laid off state-wide).  393 (75%) did not fill open positions.  277 (52%) increased class sizes.  434 (83%) reduced supply budgets.  273 (52%) deferred maintenance on existing facilities.  189 (32%) froze salaries and benefits for some employees.

And That Brings Us to FY  As of September 27, we are still waiting on a State Aid bill, which sets the per pupil allowance……  Which means our budget, required by law to be adopted by June 30, is using an assumption for its main source of revenue!

Per Pupil Allowance – FY  The State is indicating the per pupil allowance will be $6,700 for a third year in a row.  If we get the full $6,700 it will be the first time; we have been cut in each of the other two years.  State economy is lagging behind projections, so our assumptions for the budget set the per pupil allowance at only $6,650.

General Fund Budget FY  Total Revenues  Total Expenditures  Excess Expenditures  Est. Fav. Budget Variance  Est. Use of Fund Balance  Fund Balance: June 30, 2004 June 30, 2005 (Est.) $23,214,589 24,904,579 (1,689,990) 366,468 (1,323,522) $3,678,452 $2,354,930

So What’s The Big Deal?  We turned a possible $1.7 million loss in into an almost break-even actual result.  So why can’t we do that again in ?

The Budget Cutting Has Already Happened  We have already cut an additional $574,000 out of the budget for FY , and created $153,000 in additional revenue. Three year total of cuts is approx. $1.7 million. Three year total of new revenue sources is approx. $1.2 million.  We have cut for three years in a row now.  The easy cuts are well behind us.  We have no more “rabbits to pull out of the hat”.

FY Budget Changes: Revenue Decreases  Anticipated Reduction of State Aid  Grants & Misc. Reductions  Loss of One Time Revenue Sources Used in  Total Revenue Decreases $ 149,078 26, ,293 $ 547,489

FY Budget Changes: Expense Increases  Salary & Fringe Increases  Add 1 Special Ed Teacher  Add.5 Developmental Kindergarten Teacher  Transportation Contract Increase  Transfer to Athletic Fund for Coaches Salaries  Property / Casualty Insurance Increase  Utilities & Services Increases  Total Expense Increases $ 1,454,836 56,244 32,546 20,959 25,688 15,675 61,017 $ 1,666,965

FY Budget Changes: Revenue Increases  18 mills non-homestead property tax restoration  Tuition / Rent Increases  Total Revenue Increases $ 127,353 25,977 $153,330

FY Budget Changes: Cost Cuts Made  Staffing Reductions Administration Aides Secretaries Custodial / Maintenance All Other  Savings from Retiring / New Staff Pay Differential  Shift Staffing Expenses into Grants  Supplies & Services Reductions  Total Cost Cuts Made $ 85,365 31,649 40,322 81,842 46, ,915 57,914 73,056 $ 574,242

Per K-16 Coalition for Michigan's Future Survey Any Idea What Other Districts Will Do?  215 (41%) will lay off approx. 2,400 employees. 77% of these districts expect teachers to be among those laid off.  330 (77%) will not fill open positions.  226 (52%) will increase class size.  90 (21%) will reduce the number of school days.  135 (26%) will increase student fees for extra- curricular activities.

Per K-16 Coalition for Michigan's Future Survey Any Idea What Other Districts Will Do?  256 (59%) will reduce budgets for professional development.  265 (61%) will attempt to freeze wages and fringes.  154 (36%) will reduce hours for some existing staff.  217 (50%) will delay the purchase of new textbooks.  340 (79%) will spend from their savings.

One Cost Cutting Suggestion We Have Not Implemented

General Fund Budget FY  Total Revenues  Total Expenditures  Excess Expenditures  Est. Fav. Budget Variance  Est. Use of Fund Balance  Fund Balance: June 30, 2004 June 30, 2005 (Est.) $23,214,589 24,904,579 (1,689,990) 366,468 (1,323,522) $3,678,452 $2,354,930

Taking a Moment to Celebrate Our Success  According to S&P: Well above average MEAP excelling rate. Well above average MEAP passing rate. Moderately above average ACT scores. Well above average AP scores.  “Relative to other school districts in Michigan, Petoskey Public Schools achieves well above- average student results with moderately below- average spending per student.”

Now a Look Into Our Crystal Ball

The Picture FY and Beyond  Major Assumptions Used: Modest increases in per pupil allowance. Flat enrollment. Minimal increases in salaries. 15% - 18% increases in fringe benefit costs. Hiring freeze. No increase in supplies, major equipment purchases, or services.

The Picture FY and Beyond FY FY Total Revenue$23,090,184$23,885,462 Total Expenditures25,994,88827,340,339 Excess Expenditures(2,904,704)(3,454,877) Fav. Budget Variance 388, ,374 Use of Fund Balance(2,516,475)(3,048,503) Fund Balance Beginning of Year$2,354,930$ (161,545) End of Year$ (161,545)$(3,210,048)

So What Does This All Mean?  The District will be bankrupt at the end of FY unless: Significant revenue increases are granted by the State. Significant cuts in spending are enacted.

How Did We Get in this Situation?  Three years in a row of flat or declining revenue.  Decline in revenue is caused by a structural imbalance in the State’s budget.  The poor economy is only partly to blame for the State’s budget problem: Since 1994, the legislature has enacted tax cuts that directly impact the funding of our children’s education by $550 million a year.

Per Pupil Revenue and Expense History

Why Not Use Fund Balance?  We Are!! But we will still be bankrupt by the end of FY  Financially sound Districts maintain some amount of fund balance for many reasons: Cash Flow Emergencies Protect programs and services

So Where Do We Go From Here?  Continue to look for ways to save on costs. Your ideas are important. Please let us know!  Budget Planning Calendar – Plan in place by Spring  Talk to your Legislators! Tell them education is important, and should be funded as if it is important. Fix the structural deficit that exists in the current funding mechanism. Waiting to fix things until there is “blood in the streets” is not acceptable.

FY Budget Reductions / Revenue Enhancements Cont. Increases / (Decreases) to Ending Fund Balance  Savings from Retiring / New Staff Pay Differential  Shift Staffing Expenses into Grants  Supplies & Services Reductions  Total Budget Reductions / Revenue Enhancements $ 157,915 57,914 73,056 $ 727,572

Questions and Answers