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Budget

The district's financial picture has improved greatly over the past four years, despite budgetary instability from state and local sources.  School finance is a complex subject and there are many relevant topics for discussion.



FUNDING SOURCES

The district receives funding from state and local sources.  State funding makes up approximately two-thirds of DCSD's per-pupil spending.  Those sources come from income, sales and use taxes paid to the state.  The other third is made up of local sources, including property taxes and specific ownership (i.e. vehicle registration) taxes.

Most parents are familiar with the "count day," October 1, when children are counted at schools and the number reported to the Colorado Department of Education (CDE).  This number forms the basis of the pupil count upon which district funding is based. The state uses a complex formula that takes into account the number of at-risk children, including those eligible for free lunch, English language learners, and other factors.  Per pupil funding is the total dollars allocated to a district divided by the number of students in attendance, weighting for part-time students.  The CDE has published an informational guide to school finance in Colorado.

Since Douglas County does not have many children considered to be at-risk, our funding is the lowest in the metro area, nearly $300 below the state average.  The Denver Post published an article detailing the changes in per-pupil funding over the course of the last five years.  The graphic on the left shows the disparity between DCSD and other districts.
Denver Post article, July 16, 2013.


SITE-BASED BUDGETING

The district takes a site-based approach to budgeting.  Based on the number of students in schools, each principal receives a budget allocation and retains authority over how to spend these dollars.  Principals have discussions with school accountability committees (SACs) to help decide what local priorities are.  One school may choose to hire additional teachers in lieu of an assistant principal; another school may decide that it needs more administration to meet its needs.  Programmatic, curriculum, and staffing choices are all made at the school level.  The district has staff and limited funding available to assist schools in their efforts.

An important part of site-based budgeting is the school and department carryover dollars.  DCSD is exceedingly rare among government entities in that it allows schools and departments to carry money over between fiscal years.  Instead of the spend-to-zero approach, where a school must exhaust its funds by the end of the fiscal year and start over again the following year, the district allows schools to save the money.  Schools may save over multi-year periods toward a large expenditure; one school built a new library, another chose to change its curriculum.  The district keeps these funds for the school or department; they are subject to accounting, but the district commits to ensure they are only spent by their owner school or department.

FUND BALANCE (FINANCIAL STATEMENTS)

The district Comprehensive Annual Financial Report (CAFR) is published every December.  It is an audited statement of the preceding fiscal year.  The most recent audited CAFR available is for the fiscal year (FY) ending June 30, 2012.  It represents an exhaustive list of district accounts and line items for FY2012.  The fund balance summary is on page 75 of this document.  Here is how the pieces of the fund balance break down.


Non-spendable
.  The non-spendable fund balance consists of inventories and pre-paid costs.  This includes amounts that cannot be spent because they are either not spendable in form or are legally or contractually required to be maintained intact.  The CAFR notes that "certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid costs in both government-wide and fund financial statements."







Restricted.  This amount represents the emergency reserve required under law by the Taxpayer's Bill of Rights, or TABOR, in the Colorado state constitution.  Every government entity must withhold an amount equal to 3% of fiscal year spending, excluding bonded debt service.  The constitution defines emergency; more specifically, it states that "emergency excludes economic conditions, revenue shortfalls, or district salary or fringe benefit increases."  The district may not use this reserve for revenue shortfalls or similar cash flow problems.  It is not a true reserve, but an emergency fund meant for catastrophic circumstances.  If money is spent from the TABOR reserve, it must be repaid the following year.  




Assigned.  The district intends to use assigned funds for specific purposes.  The categories in the assigned fund balance include the following.

Full Day Kindergarten.  This fund contains dollars from the district's full-day kindergarten program, which currently levies fees from parents.  

Early Separation.  In the spring of 2009, the district initiated an early separation program as a cost-saving measure for employees who were considering retirement.  The program paid one year's salary to participating employees over the course of five years.  The $3.2M represents the balance of the plan.

Risk Insurance.  The Risk Insurance Reserve Fund provides services associated with property, liability and worker’s compensation.

Transportation.  The district maintains transportation funding and expenditures on a separate line item.

School and Department Carryover.  This number, $19.1M, represents all schools and all departments.  Since the district has committed to preserving the funds, DCSD must budget every year as if all of this money will be spent, although it is unlikely that  it will be.  This can lead to perceived budget inaccuracies.  In fact, schools and departments are exercising their prerogative to spend, or not to spend, their dollars.  The CFO requests a spending plan from each entity on a yearly basis so the district remains informed as to schools' plans.

Capital Projects.  The Capital Projects, or Building, fund is often excluded from discussions about the fund balance; however, it is not separate.  These funds are earmarked for needed building repairs and improvements as well as other one time capital infrastructure needs such as an upgrade to our financial software systems. Additional funding will require voter approval in a future bond election or a new certificate of participation be granted by the District administration for a particular project.

Extended Service Severance.  The district began phasing out its extended service severance agreement, instead reallocating ongoing compensation dollars to employees remaining in the district.  The liability for this totals about $6M, $2.9M of which went to employees who retired in 2012.  DCSD must budget the entire liability and draw down from it in future years.

FY14 PERA Increase.  The Public Employee Retirement Fund, or PERA, is the retirement fund for teachers and other public employees in Colorado.  To shore up PERA, the state has required that contributions increase.  Rather than pass along the costs to teachers, the district covered the entire increase for FY2014 and has budgeted for this additional dollar need.

School Discretionary Fund.  To keep the unassigned fund balance (which I will discuss next) at approximately 4%, the district reallocated $125 per student back into the classroom once it was known that the district had extra funds to pass along.  Although the budget is set in June of any given year for the following year, taxes are not collected in sync with the fiscal year and, along with other revenue sources, can be unpredictable.  Any extra money is allocated back into schools, either in the form of discretionary dollars for schools, or compensation increases.

One-Time Retention Pay.  Although money could not be guaranteed for ongoing compensation increases at that time, the district paid teachers a one-time stipend of 2% for returning their contracts and declaring their intent to teach in the 2012-13 school year.  


Unassigned.  This amount represents the board's "rainy day fund."  During the difficult economic times beginning in 2008-2009, the district changed its ending fund balance policy to permit a letter of credit to stand in for the district's TABOR reserve.  In 2011-2012, the district's financial picture had improved such that the policy was reverted to the historical norm of requiring an additional 3% unassigned fund balance, along with a 1% contingency fund balance above TABOR.  The letter of credit was allowed to lapse, saving taxpayers $160,000 of investment fees per year.

This fund is a reasonable amount that represents just under one month's salary for our employees.  The district is prepared for unexpected situations and will not have to take money away from the classroom if these situations come to pass.  It should be noted that the $18M is one-time money.  It is not ongoing money and cannot be sustained.  If the district chooses to use it, it must make cuts or draw money away from the classroom to replace it.  It cannot be used, for example, to hire new teachers, to make permanent changes to schedule, or other such changes.  Any school that received these one-time dollars to make these changes would need to find the money again the following year to continue with the changes.

Impact on Bond Rating.  The district's financial situation is regularly reviewed by bond rating agencies Moody's and Fitch Ratings.  These agencies examine the district's policies and overall health to issue a rating and guarantee our investors that their money is well-placed.

The district's bond rating has been at AA+ for the past several years.  Although DCSD achieved this rating with considerably fewer resources than it has now, a few things have happened in the interim.  Fitch notes that previously, the district had a "dependence on ballot initiatives for budget balance."  After unsuccessful elections in 2008 and 2011, DCSD has made changes to its spending patterns and reserve policies.  The Fitch report indicates that the rating agency "expects the District to generally sustain the higher level of balance sheet cushion reflected in fiscals 2010 and 2011 than reported in the years prior."  

Fitch specifically warns against spending down the reserve.  "Failure to maintain structural balance and available reserves at or above current levels, given the uncertainty of future voter-approved overrides, enrollment trends, and potential state-aid cutbacks, could cause negative rating action."  If the district's rating were to be lowered, higher interest-rate costs would siphon money away from our classrooms, causing an unacceptable drop in funding that could be avoided. 
Subpages (1): SBB Allocation