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Fiscal Health Analysis of Colorado School Districts

Fiscal Health Analysis of Colorado School Districts. Financial Policies & Procedures Committee October 12, 2012 Crystal Dorsey Office of the State Auditor. Fiscal Health Analysis. Roles of the OSA and CDE Trends and evaluation of ratios

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Fiscal Health Analysis of Colorado School Districts

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  1. Fiscal Health Analysis of Colorado School Districts Financial Policies & Procedures Committee October 12, 2012 Crystal Dorsey Office of the State Auditor

  2. Fiscal Health Analysis • Roles of the OSA and CDE • Trends and evaluation of ratios • Factors that impacted 6 school districts for Fiscal Year 2011

  3. Fiscal Health Analysis Auditor: District’s reserves dwindling By Steve Block, Staff writer, TTi June15, 2012

  4. Background • 178 school districts in Colorado • Funding sources • Local - property taxes • State share - $3.2 billion • Charter School Institute

  5. Roles of OSA & CDE • Colorado Department of Education (CDE) • Oversight & monitoring of accreditation • Public School Financial Transparency Act • Office of the State Auditor • Compliance with Local Government Audit Law • Authority to hold property taxes • Review of audit report

  6. Development • Development of Fiscal Health Analysis • Three year period to review • Trends that provide warning indicators

  7. Focus on highest risk • General Fund • Debt • Changes in fund balance • Excludes Proprietary Funds

  8. Ratio 1: Asset Sufficiency Ratio • Are assets larger than liabilities? • Formula: General fund total assets General fund total liabilities • Warning trend: A consistent deficit in assets’ adequacy to meet obligations over the 3-year period.

  9. Ratio 2: Debt Burden Ratio • Do annual revenues cover debt service payments? • Formula: Total governmental revenue of fund(s) paying debt Total governmental debt payments • Warning trend: Annual revenues consistently below the annual debt payment for each of the three years.

  10. Ratio 3: Operating Reserve Ratio • How long will reserves last for future expenditures? • Formula: Fund balance of the general fund Total general fund expenditures (net transfers) • Warning trend: A reserve that covers less than 1 week of future expenditures, which is the equivalent of .0192, or 1/52, for each of the 3 years.

  11. Ratio 4: Operating Margin Ratio • How much is added to reserves for every dollar generated in revenues? • Formula: General fund total revenue – (general fund total expenditures (net) General fund total revenues • Warning trend: A loss in reserves for each of the 3 years.

  12. Ratio 5: Change in Fund Balance Ratio • Are reserves increasing or decreasing? • Formula: Current year fund balance of the general fund – prior year fund balance Prior year fund balance of the general fund Warning trend: Consistent decreases in reserves.

  13. Trend analysis • Purpose • Warning trends over three year period • 2009, 2010, 2011 • Limitations • Warning indicator in one year • Current budgetary actions

  14. Warning Indicators - 2012 • 19 school districts with one or more warning indicators • 13 districts with one • 6 districts with two

  15. Warning Indicators • Warning indicators do not always mean there is a problem • Planned capital expenditures • Deliberate spending of reserves • However: the more warning indicators, the greater the risk • Identify potential problems early

  16. Appendices • Appendix A • Ratio descriptions, calculations, benchmarks, warning indicators • Appendix B • Districts with two or more warning indicators • Comparison with prior year • District responses • Appendix C • Map • Appendix D • Data for all school districts

  17. Districts with Two Warning Indicators • North Park R-1 (Jackson County) • Mountain Valley(Saguache County) • Trinidad 1 (Las Animas County) • Jefferson County R1 (Jefferson/Broomfield) • La Veta RE-2 (Huerfano County) • Hoehne(Las Animas County)

  18. Two Warning Indicators • Not necessarily a problem • Reasons centered around two themes • Various planned expenditures • Reductions in state school finance funding

  19. Two Warning Indicators • Plans to correct the situation • Budget cuts – eliminate jobs • Cuts to education programs • Further spend down of fund balance • CDE Actions

  20. Prior Year • 6 districts identified with two in 2011 analysis • Fiscal Year 2010 • 4 districts showed improvement • 3 districts had two last year – none this year • 1 district had three last year – two this year • 2 districts no change

  21. Prior Year • Four districts with warning indicators in last three Fiscal Health Analysis reports • Hoehne • Jefferson County • La Veta • Pritchett RE-3

  22. Prior Year • Overall number of districts with warning indicators has declined • 2012 – 6 districts • 2011 – 6 districts • 2010 – 19 districts

  23. School District Fiscal Health • Important analytical tool • Early warning system • Allows school districts to take prompt action

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