1. Explaining State and School District Budget Issues KASB Webinar August 24, 2012

2. State general fund Receives most general state tax revenues (sales and income). This year (FY 2013): Legislature approved spending $6.17 billion, 43% of total state “all funds” budget ($14.34 billion). Provides virtually all state aid for K-12 education, about $3.3 billion. (Not including statewide 20 mill levy.) Provides nearly 60% of total school district funding; 75% of current operating budgets (excluding federal programs, capital costs, debt and KPERS). Fiscal Year runs July 1 to June 30 – current school year is FY 2013; next year 2014.

3. State Budget Calendar July 1: Fiscal year begins, budgeted income and expenditures. July-August: State agencies prepare budget requests. Early November: Consensus Revenue Estimate (CRE) revises current year, first estimate for next year. December-January: Governor prepares budget, based on CRE, no deficit, no tax increase; can propose alternatives. February-April: Legislature develops appropriations bills. Mid-April: New CRE revises estimates for current, next year. May: Legislature finalizes budget, tax policies. June 30: fiscal year ends – income, expenditures and ending balance become actual, deficit spending prohibited.

4. SGF Tax Changes FY 11: SGF tax revenue $5.69 billion, down 8.4% from FY 10, due to Great Recession. FY 12: Tax revenue $6.15 billion, up 8.1%. FY 13: April forecast $6.45 billion, up 4.9%. Income tax cut (HB 2117) reduced FY 13 estimate to $6.19 billion. FY 14: Income tax cut reduces revenue additional $802 million, plus $413 million loss as 0.6% sales tax expires and 0.4% goes to state highway fund (Kansas Legislative Research Department projection).

5. Models Projecting Future SGF Kansas Legislative Research Department (KLRD): Assume 4% revenue growth per year, adjusted for tax rate changes in FY 14; zero ending balance after current year. Governor’s Budget Division: 4.9% revenue growth in FY 14 (same as FY 13) and 4% beyond, adjusted for rate changes in FY 14; $75 million ending balance. Kansas Policy Institute (KPI) commissioned study: “Standard model” dynamic impact of tax cuts; 7.5% ending balance. (Best case model for additional revenue growth due to tax cuts.)

6. Projections for FY 2014 KLRD, Budget: Assume $470.2 million beginning balance; KPI assumes $517 million due to tax cut effect in FY 13. KLRD: Assume 4% growth (historic average) in FY 14; Budget and KPI assume approximately 5% growth. KLRD, Budget: Assume spending down most of the ending balance, requires cutting approximately $250 million from current year budget, around 4%. KPI: Assumes about 1% higher revenue growth than KLRD, keeps 7.5% ending balance; requires cutting $540 million (8.7%).

7. Projections for FY 2015 All three models show revenues will increase 4%, but from different base levels in FY 2014. KLRD and budget assumed spending down balances in FY 2014, requires further cuts (between $172 and $256 million) in FY 2015. KPI model allows $123 million spending increase (2%). All three models require FY 2015 spending to be between $400 and $530 million less than current year, even with “dynamic” impact of tax cut.

8. SGF History and Projections (Billions of Dollars)

9. Governor’s Goals? No cuts in FY 2014 for: – K-12 aid - $3.1 billion, 50% of SGF – Higher Education - $760 million, 12% – Human Services Caseloads - $1.1 billion, 18% – KPERS State/School Employer - $408 billion, 7% $220 million cut in all other ($867 million, 14%) - 25% reduction. – Almost all other spending is for prisons, juvenile justice, public safety; non-mandatory human services. – Possible transfers from highway fund, other? $550 million cut requires 63% reduction in “all other.”

10. Alternative Cuts? To spread cuts, and protect mandatory caseloads ($1.1 billion), KPERS ($408 million), public safety ($370 million); apportion cuts over remaining general fund ($4.3 billion) $220 million reduction requires 5% reduction; $550 million reduction required 13% reduction. 5% cut in K-12 aid ($3.1 billion) equals $155 million, equals $229 base budget reduction or other cuts. 13% cut in K-12 aid equals $401 million, equals $596 base reduction. Does not include historical growth in caseloads $50 million per year; growth in KPERS $40 million per year.

11. Alternative Revenue? Extending 0.6% sales tax for state general fund would raise estimated $250 million per year, increasing with economy. Would likely avoid need for cuts in FY 2014 using ending balances; require $290 million in cuts for 7.5%. Using balances could still require between 2.6% and 4% in cuts in FY 2015, but reduces the two-year spending cuts required by about half. Return to “regular” growth by FY 2016.

12. Key Points By using balances, cuts to K-12 education might be avoided next year, but extremely difficult to avoid the following year without higher revenue. Protecting K-12 (and higher education) would require extremely deep cuts in all other state programs. “Proportional” cuts to K-12 with other parts of the budget could be significant over two years. Using “dynamic scoring” on the positive impact of tax cuts does not make a very big difference. Extending the state sales tax rate would make a significant difference, but likely still require major cuts.

13. Explaining District Budgets Understanding the entire budget – all parts of the budget are not the same! – General Fund (base plus weighting) – what the state provides for general operations (determined by state). 52% – Local Option Budget – what boards add for general operations (determined locally, capped by state). 17% – Federal Aid – Title I for disadvantaged, special ed, vocational education, food service (set by federal government). 8% – KPERS (Share of employees retirement contributions) – paid by state, passes through district, no discretion. 6% – Other Local – Mostly capital costs (bond payments and capital outlay, if any), plus food service, student fees. 17%

14. Major Budget Categories

15. Use of District Budgets Portion of budget available for “regular” education: – General fund (without restricted weightings); LOB. 53% Budget restricted to special services and functions: – Special education and restricted weightings (at-risk, bilingual, vocational, transportation). 17% – Federal funds. 8% – KPERS. 6% – Other local: bond payments, capital outlay, food service, other fees. 17%

16. Change in District Budgets 2001-2012

17. Areas of Budget Growth (Millions of Dollars) 20012012IncreasePercent Restricted weights and special education$394$949$555141% Federal aid (including food service)$261$444$18670% KPERS Employer Contribution$82$341$259316% Other Local: Bonds, capital outlay, fees$511$937$42683% Total Restricted Funds$1,248$2,671$1,42383% Total Budgets$3,669$5,672$2,00355% Restricted as % of Total34%47%71%

18. Budget Functions Per Pupil, 2011 Function DescriptionAmount% of Current Instruction – Teachers, classroom supplies, teacher aides/paras$6,19261.6% Student Support – Counselors, health, special services$4704.7% Teacher Support – Professional development, libraries, technology$4014.0% General Administration – Central office, superintendent, board$2572.6% School Administration – Building office, principals$5895.9% Operations & Maintenance – Utilities, insurance, safety, security$9789.7% Transportation – Busing students to school, activities$4024.0% Other Support – Business office, human resources$2832.8% Food Services – Breakfast, Lunch, other nutrition activities$4754.7% Total Current Expenditures – Annual operating costs$10,061 Debt Service, Construction, Equipment – Long-term capital costs$2,222 Total Expenditures Per Pupil$12,283

19. Changes in Per Pupil Spending 20092012 Percent Change 2013 Percent Change General Fund (Base + Weightings)$7,207$6,550-9.1%$6,5720.3% General Fund + Local Option$9,222$8,642-6.3%$8,7010.7% Federal Aid (excl. stimulus funds)$924$976+5.6%NA KPERS Contributions$477$748+56.8%$650-13.1% Capital, Debt, Other Local$2,037$2,106+3.4%NA Total Per Pupil$12,660$12,454-1.6%NA For your district: divide appropriate budget amounts by FTE enrollment.

20. Budget Functions: Key Points Current expenditures = 82% of total expenditures – Largest function is instruction (teaching): 62% – Helping students and teachers improve: 8%. – Operating buildings (heat, light, cleaning, upkeep, safety, security): 10%. – Getting students to schools (required by law or for safety) and feeding students (federal aid and fees): 10%. – Total administrative costs (school, district, other): 10%. Non-current capital costs = 18% of total – Building construction, repairs, equipment, etc.

21. July 1 Balances (Reserves) Current year not available for state. July 1, 2011: $1.7 billion (less state aid credited but not paid). 60% constitutionally restricted from special tax levies, mostly for scheduled bond and interest payments, capital outlay. 20% to cover summer programs and operations until scheduled aid or payments arrive: special education, food service. 20% is available “cash on hand” = 8.4% of general operating budgets, or one month’s bill. CPA’s often advice two months. Helps cover late state aid payments, which are likely if state ending balances drop.

22. What are we getting for the $? For past decade, school operating budgets rose just 1% more than inflation per year, and total budgets about 2% more than inflation – equal to total personal income in Kansas. State assessment scores increased from 60% proficient to 85% proficient. High school completion increased from 75.8% to 81.6%. ACT scores, participation and college readiness increased. Kansas ranks 6 th nationally on outcomes, spending 25 th. Minority students increased from 26.3% to 31.2%, and low income students from 33.4% to 45.7%.