Public Hearing on the 2014-15 General Fund Budget

1. June 2, 2014 Public Hearing on the 2014-15 General Fund Budget “Tradition of Excellence”

2. Budget Presentation • 2013-14 Final Proposed Budget Amendment • Variances since December • Proposed 2014-15 General Fund Budget • Budget Assumptions & State Budget update • Revisions since last month’s update • Proposed Sinking Fund and Debt Retirement Fund budgets • Future Forecast (2015-16 and 2016-17) • Budget Assumptions • Financial Information • Historical review of revenues • Historical review of expenses • Wages, health benefits, retirement • Historical use of fund balance and budget reductions • Bulletin 1014 • Looking towards future years • State Aid – what is possible? • MPSERS and related School Aid Fund support of MPSERS • Discussion/Questions “Tradition of Excellence”

3. 2013-14 Final Amendment “Tradition of Excellence”

4. 2013-14 Final Budget Amendment AmendedFinal Revenue $28,085,558 $28,134,097 Expenses $28,466,270$28,617,232 Net Change ($380,712) ($483,135) Net Chg. (Unreserved) ($324,712) ($427,135) Net Chg. (IB Reserve) ($56,000) ($56,000) Ending Fund Balance $2,514,444 $2,412,021 Fund Balance 8.8% 8.4% Ending IB Reserve $324,606 $324,606 “Tradition of Excellence”

5. Variances from Amended • Change in Revenues: Increase of $48,539 • KISD Itinerant funding: $54,000 • Medicaid reimbursements: $18,000 • Early Childhood Revenues: ($25,000) • Others: $1,539 • Change in Expenses: Increase of $150,962 • Increase in Utilities: $129,000 • Heat: $74,000 • Electric: $55,000 • Security Purchases: $26,000 • Purchase of additional access controls, two way radios, replacement of some security cameras • Others: ($4,038) “Tradition of Excellence”

6. 2014-15 Proposed Budgets “Tradition of Excellence”

7. 2014-15 Budget Proposals Governor’sHouseSenate Foundation Increase $104 $115 $257 Foundation Allowance $7,554 $7,565 $7,707 Best Practices $52 $52 $0 Performance Funding $70 $70 $0 MPSERS Credit $0$0$0 Total Funding $7,676 $7,687 $7,707 MPSERS Liability % 19.76% 19.76% 20.96% Net Impact $208,926 $241,706 $112,132 “Tradition of Excellence”

8. Other Budget Assumptions • 2% increase to Act 18 Special Education funding • $150,000 in EGRNOW! funding • No increase in wages/salaries (scale or step increment) • Health Insurance: • MESSA increase: 6.07% + Approximate 2% for PPACA fees • WMHIP: 1.5% decrease in premiums, PPACA fees included • As a district, expenses are still less than the state “cap” • Retirement: • “All in” retirement rate of 34.09% • “All in” expenses offset by $1,611,347 of School Aid Fund support • Net retirement rate: 24.68% • Enrollment: 2,980 FTE students • Kindergarten/Young 5’s almost at budgeted amount • FTE count up 11 since the fall (2,994 to 3,005) • Utilities: • Kept 50% of the 2013-14 overage in the 2014-15 budget to account for higher per unit prices and another potential cold winter • Have not budgeted for any cost savings from bond program “Tradition of Excellence”

9. 2014-15 Proposed Budget “Tradition of Excellence”

10. 2014-15 Budget changes from last month • Last month projected a $89,000 deficit • Proposed budget is a $123,000 deficit • Changes since last month: • Utilities: Increased expenses by approximately $50,000 to reflect rising per unit prices and potential for another cold winter • No energy savings from bond projects budgeted at this time • Other 2013-14 adjustments rolled forward to 2014-15 • Approximate $40,000 negative impact • Retirement Expenses/Stabilization payment: • Increase in “all in” expense: Approximately $737,000 • Increase in stabilization payment: $782,000 • $45,000 positive variance “Tradition of Excellence”

11. 2014-15 vs. 2013-14 • Revenues: Increase of $664,931 • MPSERS Stabilization payment: $782,000 • State Funding: $176,000 • Reduction in students (3,000 to 2,980): ($149,000) • EGRNow!: ($280,000 to $150,000): ($130,000) • Others: ($14,069) • Expenses: Increase of $616,780 • MPSERS Expense: $737,000 • Joint Facilities: $250,000 • Health Care: $75,000 • Retirement Incentive in 2013-14: ($138,000) • Budget Reductions: ($125,000) • Utilities: ($80,000) • Tech Purchases in 2013-14: ($26,000) • Others: ($76,220) “Tradition of Excellence”

12. Proposed Sinking Fund Budget 2013-142014-15 Revenue $295,486 $302,986 Expenses $250,000$552,000 Net Change $45,486 ($249,014) Ending Fund Balance $1,286,299 $1,037,285 “Tradition of Excellence”

13. Long Term Sinking Fund Plan “Tradition of Excellence”

14. Proposed Debt Fund Budget 2013-142014-15 Tax Collections $4,774,955 $6,496,109 School Bond Loan Fund $1,427,160$1,069,819 Total Revenues $6,202,115 $7,565,928 Expenses $6,202,115$7,407,274 Net Change $0 $158,654 Ending Fund Balance $225,557 $384,211 “Tradition of Excellence”

15. Future Years Forecast “Tradition of Excellence”

16. Budget Assumptions • Per-Pupil Funding: • 2015-16: $125 increase ($7,679) • 2016-17: $150 increase ($7,829) • $150,000 in EGRNOW! funding • 2,980 FTE students • Salaries: No scale increase, step increase in both years • Health Insurance: 3% increase • Retirement: • Net retirement rate remains at 24.68% for both years • “All-in rate projected to grow to over 35% in 2015-16, level off for 2016-17? • School Aid Fund support of MPSERS exceeds $2 million for both years • Utilities: 5% price increase each fiscal year, offset by energy savings from bond program for a “net zero change” to utilities “Tradition of Excellence”

17. 2015-16 & 2016-17 Forecast “Tradition of Excellence”

18. Financial Information “Tradition of Excellence”

19. State Foundation Grant History “Tradition of Excellence”

20. Total State Funding History Total includes: Best Practices, Performance Funding, Federal Stabilization Total does not include: MPSERS Credit, Change in Y’5/Kindergarten funding “Tradition of Excellence”

21. Personnel Expense Trend (2008-09 to 2014-15 Budget) “Tradition of Excellence”

22. Budget Reductions & Use of Fund Balance “Tradition of Excellence”

23. Bulletin 1014 – 3 year trend * 2012-13 drop in rankings for general fund revenues and operations & maintenance is the result of separating recreational millage revenue and related expenses from the General Fund “Tradition of Excellence”

24. Looking ahead to future years “Tradition of Excellence”

25. Key Variables for the future • Some key costs are stabilized: • Health care – maximum contribution cap in place • Retirement – district’s contribution towards unfunded liability is capped • Offset is lost funding opportunity through School Aid Fund support • Wages/Salaries: • Local control • Wage scales frozen last three years • EGRNOW!: Does it continue? At what level? • State Funding • Biggest variable moving forward • $150 per year to offset a step increase and 3% health increase • 3% “Cost of Living” increase would be $225/pupil at today’s level • Does MPSERS support continue to increase, level off, or decrease moving forward? • 3% employee contribution to MPSERS health insurance • Contributions being held in escrow as legal challenge continues • Supreme Court recently agreed to hear arguments “Tradition of Excellence”

26. State Aid Possibilities 2014-15 and 2015-16 are state estimates, 2016-17 is district estimate “Tradition of Excellence”

27. State Aid – Use of “fund balance” “Tradition of Excellence”

28. MPSERS – Looking forward • Although district “cost” is contained, overall cost of the program is not • “All in” cost at 34% • Plan is about 60% funded as of 9/30/13 • Driving factors: • In 2004, 2 active members for every retiree, 2014: 1.06 active members for each retiree. • Investment performance: • Assumes 8% annual return • Plan uses 5 year average to measure actuarial gain or loss • 15% loss in 2008, 7% loss in 2009, but returns of 15.96% in 2012 and 13.27% in 2013 • Actuarial investment loss which had averaged $3 billion from 2009 to 2012, was “only” $860 million in 2013. • Overall actuarial loss for 2013 was $400 million “Tradition of Excellence”

29. MPSERS – Looking forward • Possible positive variables going forward: • Improving actuarial investment experience • Stabilizing active member to retiree ratio • Eventual payoff of state early retirement incentive plan (1.36% of rate) • Supreme Court ruling in state’s favor on 3% employee contribution to retirement health insurance ($600 million in escrow, plus ongoing benefit of 3% contribution) • What to hope for: • Leveling off of school aid fund support for MPSERS • Decrease in school aid fund support for MPSERS • Additional alterations to the program to make it more cost efficient • Eliminate school aid fund support of MPSERS and begin to reduce the unfunded liability, which would lower the employer contribution rate. “Tradition of Excellence”

30. Summary • 2014-15 Budget Proposal • Maintain all academic programs for students in 2014-15 • Significant progress toward eliminating our structural deficit • Ability to continue the process to implementing the International Baccalaureate program • School Aid Fund growth: • Will the growth expand in future years? • How much of that growth will be consumed by support for MPSERS? • What type of legislative decisions will be made in Lansing? • MPSERS: • Will the true cost of the program continue to grow? • Additional legislative changes to the program? • How does the Supreme Court rule on the 3% health care contribution • Others: • How quickly can we leverage the bond to provide operational savings (utilities)? • Employee compensation – How can we increase efficiency, recognizing that pay scales are projected to be frozen for a 4th straight year. “Tradition of Excellence”

31. Questions/Discussion? “Tradition of Excellence”