Drummey presents five-year forecast
By LENNY C. LEPOLA
News Assistant Managing Editor
During Monday evening’s Big Walnut Local School District Board of Education meeting, district treasurer Felicia Drummey presented the latest five-year forecast for board approval. Drummey described the five-year forecast as a management tool, a way to identify events that could occur, and also as a strategic planning a device.
“The five-year forecast is used to review historic trends and economic fluctuations in order to model planned activities and anticipate future outcomes,” Drummey said. “It’s used to review different events and identify financial challenges in future years, and also to engage stakeholders. But we have to remember that a five-year forecast only tells part of the story; many assumptions drive most of the numbers.”
In the past, Drummey has said five-year forecasts have both subjective and objective considerations. Subjective considerations are based on experience, biases, perceptions and district goals; objective considerations are based on historical trends and revenue stream and expenditure driving factors.
Drummey opened the five-year forecast presentation with the district’s largest income source, real estate taxes – representing well over half of the school district’s income stream.
“Property values have decreased 5 percent; that decrease will show up in 2012–13 collections,” Drummey said. “However, we do anticipate an annual 1.25 percent growth in new construction. That’s a variable, but it’s an important trend for us to watch.”
Drummey said the school district’s $4.9 million emergency operating levy expires in December of 2014, and that will result in a decrease in collections that the district will see during the 2016–17 school year. She said the levy must be replaced in 2015 to avoid any gap in collections.
There will be some new revenue from American Electric Power’s Vassell Substation being constructed east of Sunbury, Drummey said, but she was hesitant to estimate what revenue amount it would generate for the school district.
“The substation project will be completed in August of 2014, and a utility cannot be taxed until it is completed and used in business,” Drummey said. “With a public utility it’s hard to perceive any potential value received. Our share will be based on the number of miles of distribution lines in our school district.”
Typically around 18 percent of the school district’s annual revenue stream, income tax had an almost $1 million boost in 2011 as the result of a Powerball winner living in the district, Drummey said. In 2012 another high-end taxpayer added $750,000 to district coffers, but for 2013 and beyond Drummey said she anticipates a slow, one-half percent per year growth in income tax revenue.
“We’re seeing some normalization in income tax revenue growth, closer to pre-recession levels,” Drummey said.
Drummey said state funding is always a variable driven by the state budget and legislative action, and school districts statewide are waiting for an anticipated new funding model as the governor prepares the next biennial budget.
“The governor’s funding formula is being kept very quiet,” Drummey said. “We’re not expecting an increase in state aid to education. Because we’re considered a high wealth district, the district will be guarantee funded not formula funded. We anticipate a reduction of the guarantee of 1 percent per year until it’s at 95 percent of where it’s at now.”
Casino revenues will result in $21 per pupil added to district coffers in fiscal year 2013, and $71 per pupil thereafter. Drummey said casino revenue would plug the hole left by the elimination of federal stimulus dollars, but the increase in funding from casino revenue could cause education-funding cuts elsewhere in the state budget.
Property tax allocation, tax relief paid by the state to the taxing authority (the school district) is more problematic, Drummey said. Tangible personal property reimbursement generated $735,000 for the school district in fiscal year 2011, but the governor’s acceleration of the tangible personal property reimbursement that was scheduled to begin phasing out in 2019 has been fully phased out in fiscal year 2013.
Drummey said she is not anticipating changes in other revenue sources – TIF dollars, tuition paid into the district, interest, school fees, facility rentals and BAB interest rebates.
“My forecast reflects a conservative approach warranted as the economy struggles,” Drummey said. “The bottom line is, revenue will be flat to declining; and the 2010 emergency operating levy will need to be replaced when it expires.”
Because the school district is a service industry, personnel salaries and benefits represent almost 80 percent of the district’s expenditures; and Drummey acknowledged that there have been some increases in ongoing personnel expenditures.
“While the majority of staffing at the new intermediate school was accomplished by moving staff around within the district, we did hire three new staff for the intermediate school,” Drummey said. “Four other district positions that were paid with expired federal stimulus dollars are now paid out of the general fund, so they look like new hires; and we hired one new fourth-grade teacher because of an expanding class size.”
Drummey said negotiated contracts with unions resulted in 1.5 percent to 2.8 percent salary increases from July of 2012 through June of 2014, but benefit costs are more difficult to project.
“Benefits are a variable,” Drummey said. “Our healthcare cost history shows 10 percent average growth over time; we’re currently projecting a 14 percent increase. During union negotiations we negotiated plan design changes that will help mitigate some of those healthcare costs increases and get them down to single figures, but premiums typically go up 1 point to 1.25 points per month. Group healthcare insurance costs are the single most volatile and unpredictable number in the 5-year forecast. We want to compensate our staff, and retain valuable staff, but within available resources.”
Drummey anticipates a 6 percent annual increase in purchase services — tuition paid out, utilities, physical therapy services, psychological services, legal services and buildings. She said purchase services are being negatively impacted by the elimination of federal stimulus money. Most notably, the district lost $133,000 in special education services that were funded by federal dollars. Because of the expiration of those funds that same amount now comes out of the general fund to maintain those required services.
Drummey also projected a 3.5 percent annual increase in the cost of supplies and materials – textbooks, software, custodial supplies, maintenance supplies, and transportation parts and supplies — adding that she is not alarmed by those increases.
“In conclusion, with the 2010 levy expiring in 2014, we will see declining revenue in 2016–17, and operating expenditures increasing 6 percent annually,” Drummey said. “The good news is, our forecast reflects our commitment to make the levy last, but in 2016 there will be a structured deficit without a levy replacement; we will need to replace the levy no later than 2015.
“There are other permanent improvement needs in the district,” Drummey added. “We must determine how to address those needs in the future, and that will affect any future levy amount.”