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.”

Posted by Gary Henery on Oct 10 2012. You can follow any responses to this entry through the RSS Feed. Both comments and pings are currently closed.