1. August 2011 Office of the State Auditor 1

2.  Analysis and ratios  Roles of the OSA and CDE  Trends and evaluation of ratios  Factors that impacted 6 school districts 2

3.  178 school districts in Colorado  Funding sources  Colorado Department of Education (CDE) ◦ Oversight & monitoring of accreditation  Office of the State Auditor ◦ Compliance with Local Government Audit Law ◦ Authority to hold property taxes ◦ Review of audit report 3

4.  Public School Transparency Act ◦ CDE monitors through financial accreditation process  Development of Fiscal Health Analysis ◦ Three year period to review ◦ Focus on areas of highest risk – General Fund ◦ Debt and changes in fund balance 4

5.  Are assets larger than liabilities?  Formula: General fund total assets General fund total liabilities  Warning trend: A consistent deficit in assets’ adequacy to meet obligations over the 3-year period. 5

6.  Do annual revenues cover debt service payments?  Formula: Total governmental revenue of fund(s) paying debt Total governmental debt payments  Warning trend: Annual revenues consistently below the annual debt payment for each of the three years. 6

7.  How long will reserves last for future expenditures?  Formula: Fund balance of the general fund Total general fund expenditures (net transfers)  Warning trend: A reserve that covers less than 1 week of future expenditures, which is the equivalent of.0192, or 1/52, for each of the 3 years. 7

8.  How much is added to reserves for every dollar generated in revenues?  Formula: General fund total revenue – (general fund total expenditures (net) General fund total revenues  Warning trend: A loss in reserves for each of the 3 years. 8

9.  How much revenue does it take to cover a deficit fund balance?  Formula: Total (absolute value) deficit fund balance – positive fund balance of the general fund Total revenue in deficit fund balance(s)  Warning trend: The portion of annual revenue needed to cover the deficit fund balance is increasing over the 3-year period. 9

10.  Are reserves increasing or decreasing?  Formula: Current year fund balance of the general fund – prior year fund balance Prior year fund balance of the general fund  Warning trend: Consistent decreases in reserves. 10

11.  Purpose ◦ Warning trends over three year period ◦ 2008, 2009, 2010  Limitations ◦ Warning indicator in one year ◦ Current budgetary actions 11

12.  26 school districts with one or more ◦ 20 districts with one ◦ 5 districts with two ◦ 1 district with three 12

13. State of Colorado Fiscal Health Analysis School Districts With Warning Indicators For the Three-Year Period Ending June 30, 2010 Fiscal Health Ratio Number of Districts with Warning Indicator 1 As of June 30, 2009 2 As of June 30, 2008 3 Ratio 1:Asset Sufficiency Ratio 0 0 2 Ratio 2:Debt Burden Ratio13 7 7 Ratio 3:Operating Reserve Ratio 0 0 2 Ratio 4:Operating Margin Ratio 164033 Ratio 5:Deficit Fund Balance Ratio 0 0 0 Ratio 6:Change in Fund Balance Ratio 62117 Total Indicators356861 Total Districts With One or More Indicators264943 Source: Analysis performed by the Office of the State Auditor, Local Government Audit Division using data from audited financial statements submitted by school districts. 1 Some districts had indicators in more than one category. 2 Number of districts with indicators in prior analysis, which covered the three-year period ending June 30, 2009. 3 Number of districts with indicators in prior analysis, which covered the three-year period ending June 30, 2008. 13

14.  Warning indicators do not always mean there is a problem ◦ Planned capital expenditures ◦ Deliberate spending of reserves  However – the more warning indicators, the greater the risk ◦ Identify potential problems early 14

15.  Appendix A ◦ Ratio descriptions, calculations, benchmarks, warning indicators  Appendix B ◦ Districts with two or more warning indicators ◦ Comparison with prior year ◦ District responses  Appendix C ◦ Map  Appendix D ◦ Data for all school districts 15

16.  Otis R-3 (Washington County)  Ouray R-1 (Ouray County)  Jefferson County (Jefferson, Broomfield)  Buena Vista R-31 (Chaffee County)  La Veta RE-2 (Heurfano County) 16

17.  Not necessarily a problem  Reasons centered around three themes ◦ Various planned expenditures ◦ Reductions in state school finance funding ◦ Capital improvements  Plans to correct the situation ◦ Budget cuts ◦ Further spend down of fund balance ◦ Apply for grants 17

18.  19 districts identified with two in 2010 ◦ Majority showed improvement ◦ 13 districts had one last year – none this year ◦ 3 districts decreased from two to one  Four districts with warning indicators in all three Fiscal Health Analysis reports ◦ Hoehne ◦ Platte Valley RE-3 ◦ Pritchett RE-3 ◦ Widefield 3 18

19.  Overall number of districts with warning indicators has declined ◦ 2011 – 6 districts ◦ 2010 – 19 districts ◦ 2009 – 15 districts 19

20.  Hoehne Reorganized 3 (Las Animas County) ◦ Debt Burden ◦ Operating Margin ◦ Change in Fund Balance 20

21.  Debt burden ratio ◦ Decline in the ratios over the three year period ◦ 2010 ratio less than one  Operating margin ratio ◦ Decrease over the three year period ◦ All three years less than zero  Decline in fund balance ratio ◦ Decline in the ratios over the three year period ◦ 2010 ending fund balance less than 2008 beginning fund balance. 21

22.  Debt burden ratio Revenue in funds making debt service payments Annual debt service payments $166,083 $185,400  Ratio calculation:.90 22

23.  Operating margin ratio General fund total revenue –(general fund total expenditures (net) General fund total revenues General Fund RevenuesExpenditures 2008 $3,052,945 $3,241,735 2009 3,180,569 3,285,164 2010 3,692,252 3,823,548 23

24.  Operating margin ratio General fund total revenue –(general fund total expenditures (net) General fund total revenues 3,692,252 – (3,823,548+135,000) 3,692,252  Ratio calculation: (0.07) 24

25.  Change in fund balance ratio Current year fund bal of the general fund – prior year fund balance Prior year fund balance of the general fund General Fund Balance 2008 - Beginning$1,659,887 2008 1,385,765 2009 1,084,294 2010 775,206 25

26.  Change in fund balance ratio Current year fund bal of the general fund – prior year fund balance Prior year fund balance of the general fund 775,206 – 1,041,502 1,041,502  Ratio calculation: (0.26) 26

27.  Causes: uncollected property taxes ◦ 6% of total General Fund revenues ◦ Applied for financial assistance  Solutions: ◦ Spending limits ◦ Reductions in staff ◦ Checks and balances 27

28.  Presentation to the Legislative Audit Committee ◦ Hoehne Superintendent ◦ CDE 28

29.  Important analytical tool  Early warning system  Allows school districts to take prompt action 29