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					2008 Financial State of the School – February 11, 2008

Tonight, I would like to present to the community a report on the 2008 Financial State of the School, including where the school corporation stands currently, and to talk about the challenges ahead. I am here to report that the financial health of our corporation at this point in our history is probably about as good as it has ever been, however I would liken our position as that of the Gulf Coast of the United States prior to Katrina. We have been tracking the storm that is headed in our direction for some time, and it is headed in our direction. How we choose to deal with this news will determine the condition in which we are able to weather the storm ahead. In a nutshell, we are looking into the future and seeing that we are going to have to deal with rising costs and decreasing revenues. Tonight, I intend to present to the community the same data that the Board will be using as we plan for the future. Our current financial condition is not something that

we celebrate, but we look at the storm on the horizon and see that we must develop a plan to deal with it in the best interest of our school corporation. The purpose of this presentation is to make the public aware that we must evolve if we are to make the changes necessary in order to remain financially solvent.

In order for this school system to continue to thrive, our ability to live within our means is key. This means that our revenues must be sufficient to handle our expenses. School funding is directly tied to the number of students that are enrolled. As you may be aware, the enrollment at Hamilton Community Schools has declined every year since 2000 except for one. In 2000 the enrollment at Hamilton exceeded 700 students. This year, the enrollment on Count Day was 565. We are projecting, all other things being equal; the enrollment will be near 440 in 2013. Taking those students that are already enrolled here and working them through the system, and then figuring a constant

30 students entering the system in kindergarten, which is consistent with enrollment the past several years, is what has led us to this conclusion. Clearly, on the road forward, we will have to come to terms with increased spending and declining revenue. How we choose to deal with these issues will require a significant amount of effort and the willingness for those involved with the school, in whatever capacity, to accept change.

At this point, I want to digress and give you a primer of school finance. Funding for schools comes from various sources. The largest portion comes as tuition support in the State’s Basic Grant. This amount is arrived at through a complex school funding formula that takes into account the enrollment and a complexity index, which accounts for things like the socioeconomic conditions of a given school corporation. The second largest source of revenue is the property tax. A portion of this tax is levied by this Board to cover the local portion of what is

needed to support our educational enterprise. Other sources are come from excise taxes, commercial vehicle taxes, and the financial institutions tax. These monies come to the school and are apportioned to the various funding silos, based on the budget that was approved by the Department of Local Government Finance. These are called silos because the money in each fund cannot be spent for any purpose assigned to another fund.

There are six main funds that we work with at the school. The first and largest fund is the General Fund. This Fund is for salaries, benefits, instructional supplies, library funding, and any other purpose in conducting the school’s business, subject to rules and regulations that are monitored by the Indiana State Board of Accounts. The second fund is the Debt Service Fund, which pays for the public indebtedness. The third is the Capital Projects Fund, which pays for facilities, maintenance, technology, and the purchase of equipment. There are two

additional funds that deal with Transportation, the first is Transportation Operating Fund, and the second is the Bus Replacement Fund. The sixth fund is for Special Education Preschool Fund. A seventh fund was added in 2003 and that is the Pension Bond Fund. For the purposes of this discussion we will focus on the General Fund, as it is this fund that has the greatest significance for our long term existence.

The financial history of Hamilton Community Schools has had its ups and downs. In the late 90s, there was a time where the corporation was looking at being a controlled school. Today, I can report that we are probably in better financial shape than we have ever been, but there are storms looming on the horizon that we need to be able to weather. The best way to do that is to make decisions that are necessary to insure our safety and security moving forward.

To define exactly what we are talking about, I will tell you that at the end of 2007 the General Fund cash balance for Hamilton Community Schools was $2,585,553. This number represents a balance that is nearly 60% of our annual expenses, and is very good news. Quite frankly, it is a tribute to the school board and the administration that they had the foresight and moved to accumulate this cash, so that it would be available when the funding fell off. We must remember, however, that the moment that we build in recurring expensed that are financed by the cash balance, we are headed for trouble. If it happens, then it should only be viewed, as a short-term fix, and that there should be a plan in place for a balanced budget. The cash balance is the starting point where we will take a look at our revenues and expenses over the next 5 years.

The projections that we have made are based on assumptions that we will outline here. These assumptions are as follows:

1. No additional programs or personnel will be added unless mandated to do so. 2. Personnel costs will increase no more that 2% per year. 3. Health insurance costs will increase at 10% per year. 4. Other fixed costs will increase at 3% per year. 5. There is no replacement for the retirements this year. It is assumed that there will be two retirements every year over the next 5-year period, that those positions after this year will be replaced each year.

Projections are just that, projections. They are the best guesses as to what we need to do moving forward. Projections are not set in stone and will have to be adjusted as we move forward. The following projection is based on the above assumptions moving forward:

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

Beginning Cash 2,585,553.00 2,336,324.93 2,137,442.52

1,917,480.66

1,689,736.39

1,448,908.49

Revenues

4,080,473.00 4,118,014.00 4,228,314.00

4,358,014.00

4,480,214.00

4,612,614.00

Expenses

4,329,701.07 4,316,896.41 4,448,275.87

4,585,758.27

4,721,041.89

4,937,122.76

Ending Cash

2,336,324.93 2,137,442.52 1,917,480.66

1,689,736.39

1,448,908.49

1,124,399.73

We see that the trend is that of a snowball going downhill. The longer it goes, the bigger the revenue shortfall becomes. This projection demonstrates that the reductions that were built in as part of our assumptions are insufficient, and we must make an effort moving forward to further reduce expenses to insure long-term viability. We must consider reductions that will reduce expenditures to match incoming revenues and thereby

balance the budget. At this point, everything must be on the table, including people and/or programs.

Moving forward, we must establish priorities for what reductions need to be made in the best interest of the school corporation. This may include but not be limited to a reduction in force (RIF) that could include teachers, support staff, and administrative staff. There is an option out there that we go from two schools administratively to one school. We may consider moving the central administration to the K-12 facility. We may have to have class sizes increase, not because we want to, but because salaries and benefits make up the vast majority of our expenses. Fewer teachers mean that the same number of students will be divided among the number of teachers that are left. As a last resort we may have to consider reductions in programs as a means of saving money. As stated earlier, all things must be on the table.

I am going public tonight with this information because I believe that this information is of great public interest. The public needs to be aware of large shifts in the economic fortunes of the school and the potential implications that this has for the community. At the present time, the Indiana General Assembly are meeting in Indianapolis to determine how to address a situation that is called a property tax crisis. There is talk that the State will take over 100% of the general fund levy. I am told that if this happens that it is possible that we would receive less money than what is projected. Until we this legislative session to know exactly what will happen this year, particularly with the circuit breakers, and the new bureaucracy that the government wants to create in each county to control school and other government tax and spending policies. We need to keep abreast of the legislative actions next year, as that is the year that they write the budget. Is it possible to stem the tide and remain financially sound? I believe that we can for the foreseeable future, but we will need

to have the support of the community going forward for the things that the board may have to do to deal with the declining revenue, declining enrollment, and legislative action. Additionally, there are too many things outside our control that will impact our future. We must remember that property tax legislation, government reform legislation, and who will sit in the Governor’s chair for the next four years will all have a significant impact.

Hamilton Community Schools is not the only school corporation that are facing these same issues. Financially, the last couple of years are some of the best that we have seen. It is the storm that is brewing off our shores that is providing this consternation. The question going forward is how do we deal with it going forward. I bring these issues forward tonight so that the community can let their elected board members know their thoughts on these issues, as I will take my lead from them as we move to address these issues.


				
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