August 11, 2015
Welcome to meeting number two!
Chief Operations Officer Paula Barbaroux opened Tuesday’s FIRST meeting by welcoming everyone to their second meeting. She then gave a reminder of the purpose of FIRST and explained that the district was still actively in the facility assessment process. There are no set projects and no set dollar amounts regarding a possible bond proposal. The information being presented during this session is intended to educate, inform and explain why the district has initiated this process.
GCISD Operating Budget
GCISD’s Chief Financial Officer DaiAnn Mooney introduced FIRST members to the Maintenance and Operations (M&O) budget and the Debt Service budget, explaining how the district develops these budgets.
Ms. Mooney compared the two budgets to two buckets and explained that the GCISD total tax rate of $1.32 is divided into two ‘buckets:’
The district CANNOT move money from one ‘bucket’ to another--the budgets cannot be mixed.
Ms. Mooney also explained that the M&O tax rate of $1.04 is the maximum a school district Board of Trustees can levy without voter approval. The state has capped the M&O tax rate and $1.04 is the maximum rate for that ‘bucket.’ The only way to add more pennies to this bucket, is through a voter-approved Tax Ratification Election (TRE). Through a TRE, 13 more pennies is the maximum allowed addition. [However, for a Robin Hood district like GCISD, the recapture rate on these additional pennies is greater than on the other pennies.]
Developing the budget is a six-month process. The largest and most critical piece of the budget is salary costs. Campus and Departments receive budget allocations and manage their budgets directly. Another important factor of developing the district budget is fixed costs (e.g. utilities, fuel, insurance, etc.). These are costs the district must include when building the budget and in some cases are out of the district’s control.
Team members then took a moment to participate in an activity to understand the breakdown of the district’s M&O Budget. Team members were given a pie chart with the various pieces that make up the district budget, including Classroom/Instructional Leadership/Staff Development, Campus Leadership, Counseling/Social Services, Transportation, Athletics/Fine Arts/Extra-curriculars, Central Administration, Facility Maintenance/Custodial/Security, Technology, Recapture (Robin Hood), KidzU After-school care, Library Services, Health Services and Utilities. Ms. Mooney presented the question to the group: How many pennies of every dollar is spent on these areas? Team members were given 100 pennies and they had to divide these pennies into the pie, budgeting for each component of the M&O budget.
Following their best guestimate, team members then watched a video that revealed the answers:
Classroom/Instructional Leadership/Staff Development (52 cents), Campus Leadership (5 cents), Counseling/Social Services (4 cents), Transportation (2 cents), Athletics/Fine Arts/Extra-curricular (2 cents), Central Administration (3 cents), Facility Maintenance/Custodial/Security (6 cents), Technology (1 cent), Recapture (Robin Hood) (19 cents), KidzU After-school care (1 cent), Library Services (1 cent), Health Services (1 cent) and Utilities (3 cents). Note that no money is allocated to the Nutrition Services operation. This service to students is funded by sales unlike many school districts.
Ms. Mooney explained that the district works to dedicate 63% of the M&O budget directly to instruction. “We are a service oriented entity so it’s natural that most of our budget goes to payroll. The next largest piece of the annual budget is Recapture (also known as Robin Hood). GCISD will send $26M to the state this school year for the recapture payment.”
The state has mandated that GCISD may only keep property value of $514,000 per student. Any value over that amount is remitted to the state. Since the inception of Robin Hood, GCISD has sent over $500M to the state.
Looking back at the M&O Budget Breakdown, after Payroll and Recapture, the district is left with a small piece of the pie to cover all other support-oriented costs, and this piece is not big enough to cover operation costs and capital needs (facilities, technology, equipment, buses, etc.).
Ms. Mooney closed her presentation with a demonstration. She had four jars with the following labels: M&O, Payroll, Robin Hood (i.e. Recapture), Debt Service. Starting with the M&O jar filled with pennies, she poured a large amount of pennies into the Payroll jar and then moved pennies over to the Robin Hood jar leaving only 10 pennies in the M&O budget for operating costs. She explained that 10 cents is not enough for daily operations and consequently cannot cover any capital needs. This is reason for the Debt Service jar. Through an approved bond election, a few more pennies can be added to the Debt Service jar to help cover long-term capital needs. Additionally, Ms. Mooney explained that the best part about these debt-service pennies is that 100% of them stay in the GCISD community because they are not subject to recapture.
School Finance & What it Means for GCISD
Superintendent of Schools Dr. Robin Ryan opened his discussion asking team members if they learned something new or were surprised by something in the Breakdown of a $1 activity. Team members expressed that they were surprised by how few pennies from each dollar went to some areas or functions of the district. They also expressed the realization that pennies are meaningful.
Dr. Ryan emphasized that our focus in the district is for our students -- they are our priority and our M&O budget bears this out.
The presentation took team members back to June 2011, when the district passed a balanced budget. By the time the district reopened after the July break that summer, a special Legislative Session had been called that cut $14M (over the biennium) from the GCISD budget ($5.4B was cut to school finance across the state).
“This was a big cut -- one that we haven’t fully recovered from," Dr. Ryan said.
Dr. Ryan explained that the ‘piggy bank’ is broken all while the state has increased accountability standards.
In 2013, the state did add funds back, but not in the same way they cut them leaving GCISD still behind from our 2011 budget by more than $10.8M. The state returned $1.6M per year to GCISD and we provided employees a Cost of Living Adjustment (COLA) with that money. Employees had received minimal salary increases in the previous three years. Again, in 2015, the state added funds for public schools, but still not in the same way or manner it had cut in 2011. Dr. Ryan explained that we as a district are grateful for the additional $2M per year, but we’re still not back to the 2011 funding amounts.
GCISD is still about $3.2 million per year (or $6.8M for the biennium) shy of where we were in 2011.
Revenue sources for the district come from local taxes (87%), state (8%), federal (1%) and other local (4%) funds.
In 2006, the GCISD tax rate was decreased by the state to $1.04 from a $1.47, and the M&O portion of the tax rate has not increased in 10 years. The only change in the total tax rate is a result of the voter-approved 2011 bond program. Due to the M&O tax capping, GCISD has not seen any new revenue for the M&O (daily operating) budget in the last 10 years.
Dr. Ryan expressed that, in GCISD, we have to work to keep costs down while still providing a fantastic education for all students.
One way the district has kept costs down is through minimal or no Cost of Living Adjustments for employees. This has kept the district from eliminating positions and cutting programs. Dr. Ryan emphasized that adjustments have not kept up with inflation or other school districts and that this is very difficult for employees. It is important for the district to continuously focus on having a positive culture and making it a great place to work.
Another way the district keeps costs down is through a three-tier approach to energy savings. This has included installing more efficient lighting and HVAC units (as a result of the 2011 bond program), hiring a consultant to change the method of purchasing electricity, and implementing a behavior program to reduce utility costs. And this approach has proven successful. We’ve reduced utility costs from $4.6M in 2011 to $3.1M in 2015.
For 2012-2013 and 2013-2014 the district eliminated block scheduling at CHHS and GHS, saving $1.2M each year. However, Dr. Ryan explained that we felt block scheduling was more beneficial to our students and our community expressed the desire to add it back. We restored the program for 2014-2015 in a way that was half the original cost.
Dr. Ryan explained that funding for our district is not adequate for us to do our job. Furthermore, we do not have the ability to generate additional new revenue. Therefore, even before the 2011 state cuts, GCISD joined a lawsuit against the state with 600 other Texas districts. In February 2013, State District Judge Dietz ruled the state school finance system is unconstitutional and does not adequately fund education. In September of 2014, the state appealed that ruling to the Supreme Court. In September of this year, the Supreme Court is set to hear the case.
Until relief comes, the district must find a way to stay afloat while producing top-quality programs, opportunities and experiences for all of our students.
Just this past June, GCISD adopted a budget with a $9.8M deficit for the 2015-2016 school year. To fill this shortfall, the district will pull from its fund balance. If we didn’t do this, GCISD would need to cut people and therefore programs for students.
The GCISD fund balance is currently healthy, but the district would only be able to keep this practice up for another couple of years. District board policy states that we cannot have our fund balance drop below $22M. We will need relief from the state, or significant budget cuts, or a Tax Ratfication Election (TRE) to stay afloat. Dr. Ryan explained that about half of what would be gained from a TRE would still be sent to the state due to Robin Hood. This is higher percentage recapture rate.
Our M&O budget covers daily operating expenses and payroll. But what about our capital needs?
That’s where a bond program comes in to support capital needs, such as technology, facility upgrades, equipment/classroom furniture, buses/vehicles and new facilities.
The GCISD community has shown its support for previous bond programs.
Dr, Ryan explained that we remain financially responsible with our debt management. One example of this is from the 2011 bond program. We were able to secure a 23.4% lower tax increase than originally proposed to our voters. Strategic selling of the bonds resulted in $33.5M in interest cost savings to taxpayers. Another example of our responsible debt management came in April 2015 when the district refinanced its older bonds from an original interest rate of 5% to 1.71%. This has been done multiple times for savings to taxpayers.
And our diligence is recognized, garnering good ratings from Moody’s Investors Service and Standard & Poor’s, which look at our financial position and our debt-to-income ratio. At 2.93%, GCISD is below the state average. GCISD also has the sixth lowest Debt Service Tax Rate of comparable non-fast growing districts in DFW.
Dr. Ryan closed with a focus on the district’s vision to look toward the future needs of our students. He explained that this is FIRST’s charge -- we need FIRST to look at what our students’ need and what educational needs we have in this district.
Debt Status and Capacity, Comparative Data, Interest Rates Projection & Tax Implications of Various Bond Package Values
Josh McLaughlin with BOSC, Inc. began his presentation by pointing out the impact of the state’s decision to not fund facilities. The debt service trend for Texas school districts has been increasing over the last 10 years and more districts have reached the $0.50 maximum Debt Service Tax Rate.
Mr. McLaughlin also reviewed the taxable value trends for GCISD, which have been volatile over the last eight years. GCISD currently has a taxable value of $10,124.143,115. Since the 2007-2008 school year, the district’s taxable value has increased by $318,829,148. Mr. McLaughlin explained the current structure of the district’s existing debt. The district has a total principal amount of outstanding bonds equal to $326,820,150 that will be repaid in 20 years.
Mr. McLaughlin showed historical interest rates and current interest rates, which remain historically low giving the district more funding capacity and making it a good time to sell bonds.
Mr. McLaughlin then presented a preliminary tax rate analysis with five different scenarios for various bond program examples, ranging from $100M to $200M. He also discussed assumptions used in building this analysis, which included expectations for short-term projects related to a possible bond. For example, $15M for technology-related projects would be repaid within seven years and $30M for equipment, buses, and other short-term assets would be repaid within 15 years.
The tax rate impact of the five scenarios ranged from adding 4.3 cents to 10.53 cents to the debt service tax rate. The cost of the tax rate impact is based on the average taxable home value in GCISD of $275,739. The five scenarios result in annual increases ranging from $119 to $290, which equates to a monthly increase between $10 and $24.
Student Enrollment Projections
Jeff Baker with Templeton Demographics discussed housing market activity for Colleyville and Grapevine. He also presented a sampling of various new developments in the district, showing potential areas of growth and increases in student population.
Mr. Baker’s presentation gave team members an update on GCISD enrollment history, with the most current numbers coming from October 2014. He noted that these numbers do not include iUniversity Prep since those students would not occupy district facilities.
He explained that GCISD is a “mature” district; meaning enrollment was stable. He added that this is supported by looking at 12th grade enrollment of 1,099 and and first grade enrollment of 914. “When these numbers are close, you know the district is stable or “mature, said Mr. Baker.”
GCISD has about 13,555 students, 22.1% of which are economically disadvantaged. GCISD is also made up of the following races/ethnicities:
Mr. Baker also gave a 10-year forecast, projecting the district will gain about 5% in students over next decade -- about ½ % to 1% each year. The district is projected to add approximately 440 students in the next five years.
In summary, Mr. Baker concluded that people will continue to move to the area because DFW is leading the nation in job creation and we can expect regeneration in overall areas of the district.
Ms. Barbaroux asked the group the following question. If GCISD has less students coming in at elementary level, what does that mean for M&O revenue? It’s decreasing. The counterbalance is regeneration and the good news is that we can expect a regeneration in our student population in the next few years.
Ms. Barbaroux asked team members to look back at the student enrollment forecast slides and review the projected growth for identified schools. Housing developments will add students in concentrated areas of the district and not in all schools. She explained that the team will later have conversation about what this means for facilities.
The financial presentations of the second meeting are the backdrop and the information the team will need in making decisions for the district’s future. While the district is facing many financial challenges, Ms. Barbaroux reiterated that a lot of wonderful things are taking place in GCISD for the benefit of our students and the issues faced are to be viewed as opportunities.