Summary of Five Year Forecast Assumptions October 16, 2008
The Northwood Local School District achieved an Excellent Rating on the 2007-2008 Ohio Department of Education School Report Card.. We commend the students, parents, staff and community for this achievement. This five year forecast covers the funding that has been used to support this achievement and will be used to support the continual improvement to the programs and services offered to Northwood students. School districts all across Ohio are facing the same difficulties and challenges that our school district is facing. The state share of per pupil funding that is received by our district is progressively being shifted from the State to Northwood taxpayers. A portion of our funding is being sent to other school districts (through open enrollment and community schools). At present, this shifting of funds to other districts represents 2% of our general fund budget. This is the first year for open enrollment for Northwood Schools. It is our hope that we will generate enough income to offset a portion of the outgoing. That projection cannot legally be factored into the forecast. In addition, when Northwood’s property values increase, the state lowers its state funding; however, the district does not get an increase in revenue on the local level unless there is new construction or a new levy is passed. Also, the State is phasing out the locally collected business tangible property tax and replacing it with the State collected Commercial Activity Tax (CAT). What does all this mean? It means that only by approving new revenue levies that direct the funds specifically to Northwood Local Schools can Northwood taxpayers be assured that funds stay local. When funds go directly to the State as with the case of the CAT, the State will allocate which school districts will get what. We have no way of knowing what we will be receiving but what we do know is the State’s formula historically has not provided growth for Northwood. State law requires the filing of a Five-Year Financial Forecast with the Ohio Department of Education twice a year (October and May). Due to the uncertainties and changing nature of school finance and economic factors, this forecast is fluid and subject to change. Estimates are based on what we consider to be sound, but conservative assumptions as well as taking into consideration in historical patterns. The goal of the Board and Administration of Northwood Local Schools is to continually improve the effectiveness and efficiency of the District’s programs and services by reallocating our resources so as to not compromise our effectiveness and efficiency. Following is a summary of the assumptions used to compile this forecast:
Revenues
LINE 1.010 – General Property Tax (Real Estate) General Property tax revenue estimates are based on historical growth patterns, which includes a triennial update (occurs three years after reappraisal to update the market value of all real property) in 2008 and reappraisal in 2011. Estimates for the current fiscal year are based on information provided by the Wood County Auditor. Total revenue in this category has, on the average, increased 2.5%. The voters of Northwood showed their support for the District by passing a 7.9 mill continuing operating levy on March 4, 2008 which is estimated to generate $993,831.14 per year. Collections will begin in January 2009, with half collection factored in the FY 2009 figures. Full collection is not realized until FY 2010.
LINE 1.020 – Tangible Personal Property Tax Personal Property revenues are declining due to a 25-year phase-out of the inventory portion of the tax. No replacement is forecasted for the inventory portion of the tax. Due to the passage of House Bill 66, this phase-out will now be completed by 2010. HB 66 also instituted a phase-out of the remainder of the Tangible Personal Property Tax. This includes all taxes on the following: business tangible property (which includes machinery, equipment, furniture, fixtures and inventory), public utility property of local and inter-exchange telephone companies and public utility railroad property. The phase-out began in tax year 2006. By tax year 2011 and years following, there will be no local tax revenue from these types of properties. Northwood Local Schools is to be “held harmless” by the state through tax year 2010. Valuation is based on Fiscal Year 2004 valuations, through a combination of direct payments through the state foundation program (included in Line 1.050) and through a reduction in district property valuation resulting in a smaller charge-off amount on the state foundation. Northwood residents and businesses are providing the forecasted revenue increases for our school system by paying local real property taxes directly to our school system. Total revenues in this category have, on the average, increased 2.5%. Local Revenue (Lines 1.010 & 1.020) represents 60% of the revenue received by the district.
LINE 1.035 – Unrestricted Grants-in-Aid (State Foundation) Current fiscal year revenues are based on the latest estimate provided by the State. HB 66 made significant changes to the complex funding formula which is reflected in the amount the District receives. For example, the phasing out of the cost of doing business factor which is an adjustment to the foundation amount in the formula aid calculation to account for labor cost differentials across the state. Student enrollment and property valuations are two of the main driving forces that correlate to the amount this District receives in state aid. Student enrollment is remaining fairly steady to
slightly declining. Our basic aid declines if enrollment declines. However, with the recent adoption of open enrollment, it is the District’s hope that enrollment will increase or at the very least, offset what the District loses from residents attending charter/community schools or attending other districts through open enrollment. We are not permitted to factor in projections of open enrollment counts in this forecast. Due to the uncertainties in student enrollment numbers, a conservative growth rate of 1% has been applied.
LINE 1.040 – Restricted Grants-in-Aid This line item includes Poverty Based Aid, Bus Purchase Allowance and Career Tech Aid all which are received from the State through the bimonthly foundation payments. This District is forecasting little or no growth in these areas.
LINE 1.050 – Property Tax Allocation This line item includes the 10% Rollback and Homestead, Electric Deregulation payment and Tangible Personal Property Tax reimbursement (“hold harmless” payment). Beginning in Fiscal Year 2006, the District began receiving the “hold harmless” payments from the state. This is not to be considered new money, it is reallocated money that was, prior to Fiscal Year 2006, included on Line 1.020. Forecasted amounts in this category were based on taking into consideration the anticipated growth and decline in property taxes as well as following historical patterns.
LINE 1.060 – All Other Revenues This line item includes student/miscellaneous fees, interest payments on investments, building rental fees, manufactured homes tax, tuition from other districts, and donations in lieu of taxes for abatements granted under Enterprise Zones and Community Reinvestment Areas have been negotiated with area firms for periods of seven to ten years. The district and City of Northwood expect continued economic development, so future tax abatement donation agreements are expected. Total tax abatement donation agreements negotiated and signed to date for total payable by fiscal year are listed below:
Contributor Spartan Wrhse. NFO Prescription Sup. NAMSA Hirzel Canning Reece Bros. Label Masters D.R. Ebel Johnson Control
FY 05 $17,338.00 $61,494.00 $25,000.00 $5,675.00 $12,420.00 $6,351.00 $2,431.00 $1,459.00 $83,721.00
FY06 $17,338.00 $61,494.00 $25,000.00 $39,927.00 $12,420.00 $6,351.00 $2,431.00 $1,459.00 $107,734.00
FY07 $17,338.00 $61,494.00 $25,000.00 $39,927.00 $12,420.00 $6,351.00 $2,431.00 $1,459.00 $107,734.00
FY 08 $0.00 $61,494.00 $0.00 $54,369.00 $0.00 $6,351.00 $2,431.00 $1,459.00 $107,734.00
FY09 $0.00 $0.00 $0.00 $54,369.00 $0.00 $0.00 $0.00 $1,459.00 $107,734.00
FY10 $0.00 $0.00 $0.00 $54,369.00 $0.00 $0.00 $0.00 $0.00 $107,734.00
FY11 $0.00 $0.00 $0.00 $54,369.00 $0.00 $0.00 $0.00 $0.00 $107,734.00
FY12 $0.00 $0.00 $0.00 $54,369.00 $0.00 $0.00 $0.00 $0.00 $107,734.00
Laser Line Turner Vault Treu House Total
$1,191.00 $21,354.00 $0.00 $238,434.00
$1,191.00 $21,354.00 $0.00 $296,699.00
$1,191.00 $21,354.00 $0.00 $296,699.00
$1,191.00 $21,354.00 $182,937.00 $439,320.00
$1,191.00 $21,354.00 $182,937.00 $369,044.00
$1,191.00 $21,354.00 $182,937.00 $367,585.00
$1,191.00 $16,369.00 $182,937.00 $362,600.00
$1,191.00 $16,369.00 $182,937.00 $362,600.00
Investment earnings are projected to continue to decline due to not only the decline in projected ending cash balances which provide the principal for investments, but also due to the decline in interest rates on investments. Very little growth is expected in this category.
LINES 2.040 – 2.070 - All Other Financing Sources This line item includes transfers in (typically used to repay HB 264 debts), advances in and refunds from prior fiscal years. Projections are based on historical trends.
Expenditures
LINE 3.010 – Personnel Services The District has negotiated agreements with two employee associations (both through OEA – Ohio Education Association) representing Certified Staff and Classified Staff. (The most recent agreement expired June 30, 2008.) Both associations agreed to roll their contracts in FY 07 which resulted in just step increases which are automatic increases awarded for years of experience and degrees. Negotiations with the Certified staff was completed in September 2008, reaching an agreement of a 3% salary increase for FY 09 and FY 2010. At the time of compiling this forecast and notes, we entered in negotiations with the Classified staff. A tentative agreement has been reached with a 2.75% increase in FY 09 and a 3% increase in FY 2010. I have projected that the union will ratify the agreement, so the increases are reflected in this forecast. Several recent changes in the way Northwood Local Schools typically has done business has resulted in a reduction in personnel service costs. At the end of Fiscal Year 2007 the Board approved the moving of the 5th grade classes to Northwood Middle School. This enabled the District to not replace two teachers who retired at the end of Fiscal Year 2007. Beginning with this fiscal year (09), the two elementary schools have been restructured into grade level buildings. This has enabled the District to eliminate one elementary principal and not replace a retiring custodian. Also included is a reduction in hours for the Media Specialist. There were four teachers who retired at the end of the FY 08. The District, through attrition, will realize a continual savings. Severance payments, however, have been factored in Fiscal Year 2009 personnel costs for the known retirees.
Historical trends are used when factoring in substitute costs, overtime, unpaid leave, and severance payments.
LINE 3.020 Employees’ Retirement/Insurance Benefits This line item includes retirement contributions, Medicare, medical/dental premiums, life insurance premiums, workers’ compensation, School Employees Retirement System (SERS) surcharge and unemployment compensation. Medicare, retirement, SERS surcharge, unemployment compensation and workers’ compensation are tied directly into the district’s total payroll. Any negotiated salary increases will increase each of these. Worker’s compensation premiums are expected to increase due to adverse claims experience, which have caused the District to be penalty rated. We are currently enrolled in the OASBO Worker’s Compensation Pool with Sheakley. Historical trends were used in projecting the increase in this category.
LINE 3.030 – Purchased Services This line item includes utilities, legal fees, contractual professional development, post-secondary option fees, payments to charter/community schools, open enrollment payments, repairs, services provided by outside agencies such as the Wood County Educational Service Center and the Children’s Resource Center. The 5.5% projection in this line item is based not only on historical trends, but taking into consideration the rising costs in natural gas and fuel for the buses and other school owned vehicles.
LINE 3.040 – Supplies and Materials The majority of the purchases in this line item are for instructional supplies and materials. There was a considerable jump in expenditures in this line item from Fiscal Year 2007 to Fiscal Year 2008. This was caused by the need to purchase math and reading textbooks for grades Kdn-5. Historically this category increases on the average of 3% which was used for projections.
LINE 3.050 – Capital Outlay The majority of the District’s capital outlay needs are provided by a 2.5 mill Permanent Improvement levy, which is not included in the forecast. This levy generates approximately $240,000 a year. This levy is due to expire at the end of 2009. Capital outlay in Fiscal Year 2008 was kept to a minimum due to a spending freeze implemented by this office. It is predicted that, with the changes occurring in the District, there will be a need to purchase items that fall under this category such as updating technology in the classrooms and replacement of aging equipment and furniture (student desks, cafeteria tables) and buses.
LINE 4.010 – 4.060 Debt Service The District is currently paying on bonds resultant of a bond issue passed in 1994. In the Fall of 2004 we refinanced the majority of the bonds resulting in a savings of $100,000 over the remaining life of the bonds. Other debt includes two HB 264 Energy Conservation Bonds that were issued in 2000 and 2001, which will be paid in full December 1, 2009 and December 1, 2010 respectively.
LINE 4.300 Other Objects This line item includes Wood County Educational Service Center’s administrative fee, audit costs, auditor and treasurer's fees, OASBO Worker’s Compensation Premium, property taxes the District pays on vacant property owned by the District and other miscellaneous expenses. Minimal increases are expected in this line item.
LINE 5.010 – Operating Transfers-Out Transfers to debt service funds for H.B. 264 (002-XXXX) make up the non operating expenses of the district.
LINES 6.010 and 15.010 – Excess of Revenues and Other Financing Sources over (under) Expenditures and Other Financing Uses / Unreserved Fund Balance June 30 One of many financial goals that Northwood Schools is working toward is to have a balanced budget. In order to meet this goal, revenues must be equal to or greater than expenditures and the unreserved balance must be higher than that in Fiscal Year 2008. The District will continue to work toward meeting that goal without compromising the excellent service it provides to its students.
Respectfully submitted by,
Patricia A. Weber Treasurer