January 17, 2017
Finance Committee Meeting
The Finance Committee met on January 17th to present a first look at the 2017-2018 budget and to reveal the 5-year projections for revenue and expenditures (“A Five Year Plan”) for the Avon Grove School District (AGSD). A brief discussion regarding the single bid received for the Penn London Elementary (PLE) modular classrooms also occurred.
First Look: 2017-2018 Budget
The meeting began with a review of the 2015-2016 budget. Less revenue than budgeted was received in 2015-2016 ($82 million vs $82.2 million budgeted); delayed money due from the State ($735K) contributed to this variance. Actual expenses were lower than budgeted ($82.5 million vs $84.4 million) but still slightly greater than the revenue taken in. In addition, $1.2 million was transferred to the Capital Projects Fund. To cover the deficit in revenue and the transfer of funds to the Capital Projects Fund, $1.7 million was deducted from the General Fund which as of June 2016 contained $26.2 million.
The 2017-18 preliminary budget presented assumes no tax increases and State and Federal funding is based on similar assumptions used for the 2016-17 budget. Total revenue is estimated to be $94.8 million which includes $9.2 million transferred from the General Fund ($6.9 million to cover a deficit between revenue and spending along with $2.3 million to be transferred to Capital Projects to cover the current capital plan for next year). Expense growth includes a salary increase of $750K of which $408K is for Full Day Kindergarten. An additional $1million is needed to meet obligations for the teacher retirement fund (PSERS). There was also $324K of growth in funding allocated to Occupational Education for the Technical High School - Pennock’s Bridge Campus which is an increasingly popular option for Avon Grove High School students. Nearly 300AGHS students spend half their day at this school. No funds are included in this budget to build a new school, perform major renovations on the current buildings or replace the failing roof of the high school. Based on these numbers, it is unlikely that a no tax increase scenario will stand.
The First Look Budget for 2017-18 is available here.
Five Year Projection
Five year projections for revenue and expenditures for the AGSD were presented at the meeting. The revenue projections assume ACT 1 tax increases of 2.5% each year including 2017-18 which showed no increase in the First Look Budget. To show 2017-18 with no increase would exhaust the fund balance so quickly the impact of the current trend would be revealed in the form of significantly higher taxes in the following years. The average tax increase for the past 3 years is 2.7%. It also assumes that the assessed values for real estate will increase by 2.5% with a 97% collection rate.
Teachers’ salaries are projected to increase by 1.5% each year though the recently negotiated teachers’ annual salary increase is greater than 1.5%. The administration assumes that teacher retirements will help to offset the overall salary increase. Employee benefits are expected to increase from a cost of 61% of salary cost in the current year to 67% in 2022-23. Charter School Tuition is shown as decreasing very slowly. The FDK financials estimated that there would be $4.17million in savings over 5 years. Interestingly, the projection seems to assume a much smaller reduction of approximately $500K.
The projections do not include a budget reserve or placeholders to set aside money for future debt or major capital spending. The 5 Year Capital Plan (maintenance/upgrades on existing facilities) is significantly underfunded in this projection though it is difficult to know by exactly how much. Replacing the high school roof ($3-4million) is not included in the projections.
The General Fund Balance is significantly depleted over the course of the 5-year projections taking it from a high of $26.2 million at the start of the current year to a low of $9.4 million in 2022, using the $16.8 million to make it possible to keep the tax increases at the 2.5% level.
Finally there is nothing in the projection showing any of the funding/debt that would be required for a new school or major renovations on the current buildings. It is likely that the administration will utilize the full extent of the tax increases allowed via the ACT 1 index to support the borrowing of funds to pay for the new high school and/or major renovations of the current buildings. Financial advisors speaking to the Administration and Facilities Input Group recently recommended not only increasing taxes to the Act 1 limit annually but also to apply for any available exceptions to exceed Act 1 to build revenue and accumulate cash reserves to fund new construction.
The 5 Year Projection is available here.
The 5 Year Capital Plan is available here: http://www.avongrove.org/uploaded/District/Strategic_Plan/Facilities/Fig_Meeting_Summaries/Long_Range_Plan.pdf
PLE Modular Classrooms
A single bid was received for the modular classrooms. The bid ($731K) is lower than the budgeted amount ($893K) allowing additional upgrades for the classrooms including a fabric canopy and the insulation of the electrical supply to the modular classrooms.
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