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Finance Committee

Cash management update, investment yields, budget overview & analysis, revenue projections, appropriation changes, financial considerations.

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Finance Committee

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  1. Finance Committee March 9, 2017

  2. Cash Management Update March 9, 2017 Chief Investment Officer Kevin Karpuk

  3. Current General Fund Balances

  4. TD Bank Crediting Rate: 0.55% • Net Yield: 0.5% Security: • FDIC coverage up to applicable amounts • Act 72 collateral Risks: • Crediting rate lags market – i.e. not indexed • Collateral becomes illiquid

  5. PLGIT Crediting Rate (net of fees): • PLGIT – Class: 0.45% (fees 0.31%) • PLGIT/PLUS – Class: 0.58% (fees 0.22%) • PLGIT/I – Class: 0.61% (fees 0.18%) • PLGIT PRIME: 0.83% (fees 0.30%) Security: • $25 mm of insurance per instance • Underlying investments – pre-Act 10 allowable investments for non-PRIME portfolios Risks (non-PRIME): • Balances over insurance • Portfolio faces large liquidity drawdown

  6. Wilmington Trust Yield (shown net of fees) – (fees 0.08%/year) • 3 month yield – 0.60% • 6 month yield – 0.74% • 1 year yield – 0.90% • 2 year yield – 1.20% Security: • $125 mm of insurance per loss • Underlying investments – non-commingled Risks: • Liquidity mismatch • Short-term mark-to-market fluctuations

  7. Fixed Income Concepts Current Yield – income derived from investment divided by price Par/Face Value – Amount to be received by investor at maturity Maturity Date – date that principal of bond will be paid back at par Accrued Income/Interest – Amount earned on bond but not yet paid Duration – sensitivity of market value of investments to interest rate changes • Quoted as change in price for a 1% change in interest rates • Will be shorter than maturity except for 0% coupon bonds

  8. Interest Rate Environment Rates have increased since election – reflation trade

  9. Interest Rate Environment District’s investment yield is directly correlated to Federal Open Market Committee (FOMC) actions, especially short-term interest rate fluctuations.

  10. Effect of Interest Rate Changes Considerations: • Income versus interim principal fluctuations • Individual bond ownership allows for holding to maturity Wilmington Trust will be charged with managing portfolio to investment specifics: • 3 year maximum maturity • 1.5 year maximum duration

  11. 2017-2018 Budget Discussion • Overview of the First Draft of the 2017-2018 Budget. • Major overview of the budget • Revenues, Expenditures and Use of Fund Balance • Additional revenues available through increase in real estate mil rate. • Analysis of Increases of Revenues • Real Estate Tax Calculations • Other Local Revenues • State Revenues • Analysis of Increase of Appropriations

  12. First Draft of the 2017-2018 Budget, F-2 * Assumes 2.5 % increase in the Real Estate Tax Mil Rate.

  13. Changes in Estimated Revenues • Local Revenues, F-3 • Current Real Estate Taxes - $4,671,801 • Earned Income Taxes - $200,000 • Realty Transfer Taxes - $350,000 • Earnings on Investments - $500,000

  14. Changes in Estimated Revenues (continued) • State Revenues, F-3 • Basic Education increase $269,851 • Transportation Subsidy decrease $(200,000) • State Share of Social Security increase by $104,965 • State Share of Employer Retirement Contribution increased by $1,886,380 • Federal Revenues (not received through the Intermediate Unit) F-3 • Adjusted to reflect most recent information $1,453,000 • ACCESS Funds Reduced by $(312,418) to $900,000

  15. 2017-2018 Real Estate Tax Estimated Revenue Calculation, F-4 • 2017 Real estate assessed value increased by $8,980,090 to $1,280,245,370 or 0.71%. • This equates to an additional $1,027,973 in current real estate tax revenue without increasing the 2017 mil rate of 117.77.

  16. Changes in Appropriations

  17. Key Appropriations Budget Assumptions • Savings associated with CREA retirements have not been considered – 15 retirements of senior employees equates to $1 million. • Retirement contribution rate increased from 30.03% to 32.57%. • Developed premiums for healthcare rates are based on claims data from January 1 – December 31, 2016 • Medical 8.49% increase • Prescription Drug 17.05% increase • Reduced to 4.52% increase with estimated cost avoidance through contract with new Pharmacy Benefit Manager (PBM) • Combined 7.51% • Employer Costs adjusted for • Change in employee % of premium assistance

  18. 300-900 Object Appropriation Increases • Technology Budget increased $565,988, F-95 • Debt Service increased $305,467, F-107 • The last of three planned annual increases in association with the Middle School Projects • Educational Priorities $207,976, F-75 • Building/Pupil Allocations $203,636 • Middle Buck Institute of Technology increased $112,183, F-53 • Student Transportation increased $85,150, F-91

  19. Budget Summary – Numbers For Discussion

  20. Why must we increase the mil rate the full 2.50%? • Maintaining the educational program of the District at the 2016-2017 levels. • Slow the reduction of our existing fund balance. • Continue to fund the annual capital expenditures of the District at $3 million annually. • Financial uncertainty to the state level • Elimination of Property Taxes • State budget deficit without any long-term solutions

  21. Financial History Transfer includes $440,000 contribution to bond refunding. Transfer includes $600,000 contribution to bond refunding. Transfer includes $650,000 contribution to bond refunding and $1,000,000 transfer to self-insurance fund. Transfer includes $1,000,000 contribution to bond refunding.

  22. Where have we been? • We faced financial challenges in the 2011-2012 and 2016-2017 Budgets. • $14.2 Million and $14.0 Million Deficits respectively. • Staff Reductions: • Other savings affecting staffing: • Aramark contract reduction $468,000 – Staff duties are adjusted

  23. Where have we been? (Continued) • District budget increased from $199.3 Million in 2010-2011 to $226.5 Million in 2016-2017. An increase of $27. 2 Million or 13.68% over the seven years. • $23.8 Million of that increase was retirement. The employer’s contribution rate went from 8.65% to 30.03% • The additional $3.4 Million included all other cost centers, including salaries, healthcare and other employee benefits, operations of our facilities, student transportation, instructional materials and debt service.

  24. Summary of Financial Forecast

  25. Fiscal Year 2017-18 Budget Timeline Calendar

  26. Capital Planning – Middle School Projects • Over the past six years we have been managing our existing debt to minimize the budgetary impact of the large capital expenditures needed at the middle school level. • Refinanced bond issues when appropriate and utilized the savings to reduce our future debt costs; over $15.5 million in reduced debt service; • Contributed financially from the general fund to reduce the amount of the refunding bond issues to further reduce future debt service. • Maintain a “AA” credit rating and strong name in the municipal bond market to reduce the cost of our debt; • Took advantage of the historically low interest rates in the municipal bond market. • Thus we are able to finance the $105 million middle school projects and only increase taxes by under 0.75 mils over three years. • We have also been able to structure our debt to allow for future borrowing additional capital needs.

  27. Additional Savings • Demand Response - Implemented the Demand Response program not previously pursued by the CRSD - $200,000; • Power Factor Correction - Installation of Harmonic Devices at RHES. Saves utility costs and extends life of equipment- $15,000 • Development of Capital Improvements Plan - Detailed plan documenting current conditions of facilities, costs, priorities to assist in developing summer projects and master planning ($55,000 initial preparation + $10,000 yearly updates) • Entered into a long-term electric generation contract for $0.05385/kWh • Renegotiation of software contract with Performance Plus & Tyler Munis. • Limit travel expenses by not providing hotels, meals, for most staff participating in conferences and training.

  28. Labor Relations • The Board and labor groups have worked hard over the past several years to minimize wage and salary increases. Below is a table showing the actual salary and wages paid in each of the past six years: (1) During the 2012-2013 fiscal year the district began to provide the speech and language services with our own personnel. Previously, the Bucks County Schools Intermediate Unit provided these services. This resulted in increased salaries of approximately $1.2 million.

  29. Risk Management • Several years ago the district moved from a fully insured healthcare plan to a self insured plan that saved considerable money over the past several years. • We have worked with our association to have our employees share more in the cost of healthcare: • Higher % of premium assistance • Higher co-pays for services and prescription drugs • More economical benefits plans • Proposing a change in Pharmacy Benefit Managers (PBM) reduction in costs estimated at $1 million. • Workmen’s Compensation • Moved from a fully insured to a retrospective plan. • Actively manage claims with our employees • Each year we have saved over $350,000 based on the fully insured quote at the time we changed.

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