2. 4/30/2015 1 FUNDING PUBLIC EDUCATION Bucks County Schools Intermediate Unit #22 Thursday, April 30 th, 2015 Dave Matyas Business Administrator Central Bucks School District

3. 4/30/2015 2 Typical Role of the Business Administrator Depending on District Size, Oversight of Most Non Academic Areas: –Building and Grounds –Transportation –Food Service –Warehousing –Community School –Business Office Administration Financial Reporting/Accounting/Audits Budgeting Taxes (Real Estate, Earned Income, Real Estate Transfer, etc) Payroll Accounts Payable Investment Management Child Accounting Purchasing Insurance

4. 4/30/2015 3 Develop the Annual Budget Fiscal/Budget Year is from July 1 to June 30. Funds of a School District –General Fund –Food Service Fund –Capital Construction Fund Technology Fund Transportation –Fund Balance (limited to 8-12% of the budget) Governor Wolf has been discussing lowering this amount to 4% for all school districts

5. Act 1 is a law limiting real estate tax increases to an inflation formula Developed by averaging the State Average Weekly Wage (SAWW) and Employment Cost Index (ECI) to approximate the base rate of inflation over the past 18 months Act 1 also allows exceptions to Act 1 to allow for greater inflation growth due to factors outside the control of a school board The Act 1 index is published in September 4/30/2015 4 Act 1 of 2006

6. 1.Emergencies/natural disasters – approved by courts 2.Threats/bomb scares/terrorism –approved by courts 3.Court orders – special ed. awards, assessments 4.School Improvement Plans Required by NCLB 5.Enrollment growth greater than 7.5% 6.Health Care for contract prior to 2006 7.State/local revenue growth below the base index 8.Construction debt prior to 2006 9.Special Education 10.Contribution to PSERS greater than base index 4/30/2015 5 Act 1 Exceptions After Act 25 of 2011

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9. 8 2015-16 Budget Timeline Under Act 1 School District Budgeting Must Now Start 3 Months Sooner

10. 4/30/2015 9 School District Expenditures by Major Categories

11. 4/30/2015 10 Local, State, Federal, and Other Revenue

12. 4/30/2015 11 Major Sources of Local Revenues Real Estate Taxes Real Estate Transfer (0.50%) Interim Real Estate Taxes Delinquent Real Estate Taxes Earned Income Tax (0.50%) Investment Income

13. 4/30/2015 12 Looking forward to 2015-16 State/Federal Funding of Public Schools State Subsidies –Basic Education Funding ( Proposed Increase by Gov. Wolf ) –Special Education( Proposed Increase by Gov. Wolf ) –Transportation( flat funding ) –Accountability Block Grant ($0 Under Gov. Wolf’s Proposal) –School District Payments to Charter Schools (Reduced Under Gov. Wolf’s Proposal) Federal Funding For Schools –Title 1, 2, 3(Small Funding Increase is Expected)

14. 4/30/201513 Spending From the State-Wide View Point Lets Take a Look at What has Been Happening to Public School Funding Over The Years

15. 14 CBSD Revenue Comparison 1974-75 to 2015-16 Local Revenue 70% State/Fed. Revenue 30% 1975 2015-16 The impact of decreased state support is about 21 Mills. If state support remained constant through the years, the average assessed house in CB would be paying about $ 840 dollars less in RE taxes. 4/30/2015

16. The Economy 4/30/2015 15 How is the national and state economy impacting local school revenues? –Earned income tax revenues slowly improving (improving employment) –Slow increase in in real estate transfer taxes (improving real estate market) –Slow increase in real estate assessed values (assessment appeals) –Decreased interest earnings on investments –Slow growth in interim real estate taxes (less construction & renovations) –More families applying for free/reduced price lunches - starting to decline

17. 4/30/2015 16 FUNDING PUBLIC EDUCATION Questions?

18. 4/30/2015 17

19. 4/30/2015 18 Local Revenue Detail

20. 4/30/2015 19 State Revenue Detail

21. The Economy 4/30/2015 20 Dow’s Jones Industrial Average 10 Worst Years DATE CLOSE NET CHANGE % CHANGE 1931 77.90 -86.68 -52.7% 1907 58.75 -35.60 -37.7% 2008 8,776.39 -4,488.43 -33.8% 1930 164.58 -83.90 -33.8% 1920 71.95 -35.28 -32.9% 1937 120.85 -59.05-32.8% 1974 616.24 -234.62 -27.6% 1903 49.11 -15.18 -23.6% 1932 59.93-17.97 -23.1% 1917 74.38 -20.62 -21.7%

22. Special Ed. Aid to Bucks County 4/30/2015 21

23. 22 2011-12 State of Pennsylvania General Operating Fund Expenditures (all funds in Billions) Total of $27.3 Billion 4/30/2015 Was 35% for 2010-11

24. Basic State Aid to Bucks County 4/30/2015 23

25. Retirement System Problem 4/30/201524

26. Largest State Retirement Systems ($ Millions) 4/30/201525 2008* 2007* CHANGE NAV 1. CALPERS $213,519 $253,551 $-40,032 2. CALSTRS 147,021 176,098 -29,077 3. NEW YORK STATE COMM. 138,425 164,363 -25,938 4. FLORIDA 114,510 138,439 -23,929 5. TEXAS TEACHERS 95,982 114,878 -18,896 6. NEW YORK STATE TEACHERS 88,487 106,042 -17,555 7. WISCONSIN INVESTMENT BD. 72,493 89,328 -16,835 8. NEW JERSEY 70,826, 82,780, -11,954, 9. NORTH CAROLINA 65,924 77,384 -11,460 10. OHIO STATE TEACHERS 62,611 78,311 -15,700 11. OHIO PUBLIC EMPLOYEES 57,940 84,123 -26,183 12. Pennsylvania School Employees54,666 68,678 -14,012

27. 4/30/2015 26 Expenditures By Major Functional Area 1000’s Function 2000’s Function 5000’s Function

28. 4/30/2015 27 Long Term Planning Fund Balance $11.25M Recurring Technology $1.5M Recurring Transportation $1.3M Recurring Capital Projects $1.0M Self Insurance $750K Debt Service $650K

29. 4/30/2015 28 Typical Budget Timeline Summer Develop District Level Goals Strengthen the District’s Educational Programs –Align Curriculum with Pennsylvania Standard Assessments –Use Portfolios to Engage in Continuous School Improvement –Support the Phase 2 Implementation of the Strategic Plan –Extend Second Chance Learning at the Middle School Level Expand the Availability and Use of Technology Promote Positive Relationships Between the School and Community Respond to the Enrollment Growth of School Age Children Strengthen the Financial Base of the District

30. 4/30/2015 29 Typical Budget Timeline (Continued) Late September through Mid-January –Site Managers given direction and provide budgetary information. Principals Department Managers –Methods of Budgeting Zero-based budgeting Per pupil allocations

31. 4/30/2015 30 Typical Budget Timeline (Continued) February through March –Personnel Needs are Evaluated Enrollment Projections New Programmatic Needs Staffing of New Facilities –Personnel Costs are Determined Salaries Health Benefits Employee Turnover (Retirement) Other Personnel Costs

32. 4/30/2015 31 Typical Budget Timeline (Continued) February through March (Continued) –Budget Appropriations are Totaled –Preliminary Estimates of State Funding Levels –Estimated Local Revenues are Determined –First Look at Revenue / Expenditure Gap –Budget is Evaluated and Adjusted by Administration –Draft Budget Document is Prepared for review by Board committees (Finance, Facility, H.R., Technology)

33. 4/30/2015 32 Typical Budget Timeline (Continued) April through June –Public Budget Hearings are Held Additional Adjustments Considered Health Care Expenses, Debt, Real Estate Assessments –Preliminary Budget Adoption Occurs 30-Day Period Needed between Preliminary Adoption and Final Adoption Adjustments can be made Between Preliminary & Final Final Budget Adoption (must occur on or before June 30 th ) Real Estate Tax Bills are Printed and Distributed in Early July

34. 4/30/2015 33 CBSD History of State Subsidy Per Student (Basic Subsidy, Special Education, Transportation, Medical, Accountability Grant) 2005-06, 06-07, and 07-08 adjusted by the Act 72 Inflation Index Electio n Year

35. 34 2005-06 CBSD, 1.5% Increase = $206,637 2006-07 CBSD, 2.0% Increase = $281,404 2007-08 CBSD, 2.0% Increase = $299,376 2008-09 CBSD, 2.94% Increase = $449,189 2009-10 CBSD, 3.88% Increase = $610,205 4/30/2015

36. 35 2005-06 CBSD, 1.76% Increase = $112,295 2006-07 CBSD, 2.0 % Increase = $130,253 2007-08 CBSD, 2.2 % Increase = $146,176

37. 4/30/201536 May 5, 2007 Bucks County IU #22 Act 1 Overview Higher Income Taxes and Slot Machine Proceeds Reduce Residential Real Estate Taxes

38. 4/30/201537 Act 1 - Overview u Act 1 provides a vehicle for the community within a school district to opt into real estate tax reform by shifting some taxes from real estate to an income tax. u The tax shift from real estate to an income based tax can be accomplished through raising the Earned Income Tax (EIT) or implementing an Equivalent Personal Income Tax (PIT).

39. 4/30/201538 What is EIT u The Earned income tax (EIT) is a tax on gross wages paid to the municipality and school district where you live – not where you work. u The current earned income tax is 1% of gross wages. A half of 1% goes to CBSD and a half of 1% goes to the township or borough where you live. u Pensions and social security are not taxable.

40. 4/30/201539 How Tax Reform Works u Only primary residential properties and Farms are eligible for a real estate tax credit. – Apartments, vacation homes, and commercial properties are not eligible for real estate tax credits. Why? Apartments are considered to be commercial properties. And, commercial properties should not benefit from a tax reduction since the properties will not pay any additional wage taxes to help fund the real estate tax credits. u The county Assessors Office determines what properties are eligible for a real estate tax credit (not the school district).

41. 4/30/201540 Tax Reform in Four Easy Steps

42. 4/30/201541 Step 1 u In Central Bucks, the Median Assessed Value of a home for real estate taxing purposes is $36,800. u Then … – The tax study commission can recommend an assessment reduction ranging from 25% to 50%

43. 4/30/201542 Step 2 u The tax study commission recommended a 25% discount for the median assessed valued home…. – On a home with an assessed value of $36,800, a 25% reduction is $9,200 of assessed value (taxable value). – $9,200 x the district millage rate = the $ discount that people will see on their tax bill. $9,200 x 102 mills (.102) = $970. (after Act 1 formula rounding) This is the discount everyone would see on their tax bill even if their house has an assessed value of more than $36,800

44. 4/30/201543 Step 3 (the tax shift) u To reduce real estate taxes by $970, earned income taxes (EIT) need to be increased by 1%. – CBSD levies a.5% EIT and – the municipalities Levy a.5% – Act 1 EIT increase of 1% u Totals 2% as the new EIT (if the community votes in favor of it on May 15th) – But, it’s the new 1% tax we are interested in…

45. 4/30/201544 Step 4 We know a 1% increase in the EIT will yield about a $970 discount on residential real estate taxes. House #1House #2House #3House #4House #5 Salary = $60,000 Salary = $80,000 Salary = $100,000 Salary = $120,000 Salary = $140,000 Times the extra 1% EIT Extra EIT = $600 Extra EIT = $800 Extra EIT = $1,000 Extra EIT = $1,200 Extra EIT = $1,400 $970 -600 $970 -800 $970 -1,000 $970 -1,200 $970 -1,400

46. 4/30/201545 Who Pays Less, More, and Not Sure? u Retired senior citizens who own a home – Pay Less u Renters with income – Pay More u Everyone else who owns a home and has income ….? See previous step 4 – In general, household in CBSD with incomes over $97,200 will pay more. – Households with incomes below $97,200 will pay less.

47. What This Means To Households 4/30/201546 Senior Citizen Break Even Household

48. Referendum Question Per the Recommendation of the Tax Study Commission, the Act 1 Referendum Question Will Be: 4/30/201547 Do you favor imposing an additional 1% earned income tax? The revenue generated from the increased tax rate will be used to reduce taxes on qualified residential properties by $972. The current earned income tax rate is.5%. Yes No

49. 4/30/201548 Property Tax and Rent Rebate u Act 1 also uses slot machine proceeds and lottery proceeds to provide enhanced real estate tax or rent relief based on household income, primarily for senior citizens. Income (Excludes ½ of Social Security) HomeownerRenter $0 - $8,000$650 $8,001 - $15,000$500 $15,001 - $18,000$300 - $18,001 - $35,000$250 - Gerald Zahorchak 9/15/2006 memo to superintendents

50. 4/30/201549 FUNDING PUBLIC EDUCATION Questions?