It is that time of year again when scary costumes, spiders, and spooky things are on our minds. Some potentially bizarre things can happen to our forecasts for November as well. This is a quick summary of some of the more common scary items to consider as part of your defense to keep these creepy items out of your forecast.
Fund 467 and 507 Costs Returning to the General Fund
For several years, districts received revenues that many used to help the General Fund. In some cases, General Fund staff was moved to these funds. In other cases, new staff and programs were added to help with learning losses. Whatever your situation, it is essential to know what amount of staff wage and fringe benefits cost will be returned or kept in the General Fund when these funds are exhausted. Forgetting to put these costs back in your forecast will certainly be a frightening experience.
Negotiated Pay Increases
Naturally, make sure any multi-year negotiations with staff have been included for each year of the agreement. Districts are mixed on, including 0 percent base increases in years where there is no agreement yet, and yet others rely on a long history that shows there has almost always been some form of base increase. Consideration must be given to your district’s cash balance scenario through FY27 in determining to use an estimated base increase.
Health Insurance Rate Adjustments
If your health care plan renews on Jan. 1, you should be getting an idea from your consortium or insurance broker on what that rate will look like. Unfortunately, insurance rates in many areas of the state seem to be on the rise more than in the past couple of years. People are back getting elective surgeries and care that may have been postponed due to the pandemic.
Energy and Utility Costs
Luckily, west Texas intermediate broke below $80 a barrel on September 23rd, and the price of gas and diesel may moderate to decline. Much of the spike in these fuels was felt in your FY22 expenses. You may have a decrease in FY23 as the raw materials costs fall. On the other hand, electric utility costs are projected to continue to be higher. If your district is in a fixed rate agreement expiring this year or next, you may want to speak to your supplier and get an idea of what renewal rates are running. Residential electric rates are up nearly 100 percent over a year ago September for the same one (1) year agreement. Natural gas futures point to a decline in late spring, but this could be impacted by a harsh winter and events still unfolding in Europe over energy shortages.
New Tax Year 2022 Property Values
By the time you read this article, county auditors will have filed their tax year (TY) 2022 Class I and Class II values with the Ohio Department of Taxation. Why not ask for a preliminary look at the value so you can get a read on what changes from TY21 there have been? Note that there can and likely will be some changes, but you will get a good read on values. If TY22 was a reappraisal or update year, you might be shocked at the increase. We have already seen 27 percent Class I, and some may be higher. Note that your Class I and II fixed-rate levies will roll back unless you are at the 20-mill floor and that emergency levies do not count toward the 20-mill floor. While rates can move around, you will get an increase on your inside millage for any value increase. If you are on the 20-mill floor for Class I or II, you will get a nice bump in tax revenues.
New Tax Increment Financing & PILOT Payment Revenues
Over the past year, if you have a new agreement concerning tax incentives that may result in new revenues to your district, you will need to get a copy of these and map out any estimated benefit to your community. The granting entity should have estimates they provided when they asked for your board of education’s support, or you can request that data. Also, if you have any property under a tax incentive, lower your other revenue estimates and add those values to your assessed value to increase your property tax collections.
Expiring/Renewing Levies
When you roll your model forward for FY23 to FY27, you add a new year to the plan that was not there in November and May last year. You may have a new renewal that needs to be moved to Line 11.01 or 11.02.
State Funding FY24-25
Nobody likely knows what funding will be in the next biennium, including the governor and legislature. A gremlin in the budget debates is the likelihood that our economy will be in a recession in the spring of 2023 when central deliberations will take place. This is unfortunate timing because the state is otherwise in good financial shape. The graph below shows that the state is not the only entity in good condition. District ending cash balances estimates from November 2021 to the May 2022 forecast were estimated to increase to $9.7 billion, as noted. When the November 2022 forecasts are filed, we will pull actual FY22 ending cash, and it will probably be even higher. General fund cash balances combined for all school districts have never been higher. ESSER money and increasing values and school district income taxes contribute to high cash levels for school districts. We are not alone in this knowledge; I can assure you. If you look at this like a legislator facing a recession, you may not feel public school districts are in deep need of state aid.
So, what do you do? Like most districts on one of the guarantees, you could continue your FY23 estimates through FY27. This has generally been safe or conservative because while the state has not been fast enough to increase cash to school districts, they have not been in a hurry to reduce its funding. If you are on the formula and see your enrollment declining, FAGI and assessed values are increasing. Your local capacity will generally increase, lowering your state share percentage. If this is your scenario, you may want to determine how far you could fall before your new HB583 funding base catches you. With local capacity increasing and enrollment falling, you will likely see fewer state revenues in this scenario.
I would have to write several more pages to touch on all the areas that can impact the forecast, but the above are some of the more common ones that can haunt your forecast. Happy forecasting.
Christopher S. Mohr is the President of K-12 Business Consulting, an OASBO Platinum Sponsor. He can be reached at cmohr@k12consulting.net or 614.580.8544.