Operations Work Group 2015-16 Budget Update June 8, 2015 · 2019-05-30 · MMSD Budget Strategy More About Option A Increase General Fund Revenues: o $4.1 million related to categorical

Operations Work Group

2015-16 Budget Update

June 8, 2015

Agenda for June

I. State Budget Update & MMSD Budget Options

II. Debt Service Options

III. Board Amendment Tracker

IV. TID 25 Draft Memorandum of Agreement

V. Policy on Facility Use

VI. Athletics Discussion

Draft of Preliminary Budget Dated April 27, 2015

o Balanced budget based on ‘worst case’ scenario

o Priority actions Advanced, Scaled Back, or Put On-Hold

o District level reductions and school level reductions

o Hold health insurance to zero rate increase

o Under-levy of $1 million

o Tax levy increase of 4.72% due to:

o State Aid Loss

o Referendum Impact

o Use of Levy Carry-Over

o Enrollment Gain

Developments Since April Preliminary Budget Draft

Joint Finance Committee Action on K-12 Funding: 2015-16: • Restores $4.1 million in categorical aid in 2015-16 ($150 per pupil) • Confirms zero increase in revenue limit per pupil for 2015-16 • Confirms zero increase in statewide equalization aid pool for 2015-16 2016-17 • Increases categorical aid in 2016-17 by $100 per pupil • Confirms zero increase in revenue limit per pupil for 2016-17 • Confirms est. 2% increase in equalization aid pool for 2016-17 for tax relief only • MMSD faces budget gap in 2016-17 There are several choice, voucher and other K-12 policy issues which may become part of the state budget. We will address these as necessary at a future meeting.

Developments Since April Preliminary Budget Draft

• Health Insurance Negotiations Completed - Achieved a Zero Rate

Increase from the HMO’s

• Behavior Education Policy Adopted - Additional Funding $1.9 million

• Referendum / Debt Service Plan - For Board Consideration Tonight • Board Budget Amendment Tracker - For Board Discussion Tonight

• Additional Public Input - June 22 Input Session

Developments Since April - Implications for MMSD Budget

We developed two budget strategies which represent the range of options available for Board consideration:

Option A – This option uses the Board’s full tax levy authority to generate a temporary $3.2 reserve (Fund Balance) in 2015-16 for use in reducing the budget gap in 2016-17

Option B – This option will reduce the proposed tax levy by $2.2 million in 2015-16, but does not build a reserve to reduce the budget gap in 2016-17

MMSD Budget Strategy Option A

Under Option A, revenues increase by $5.1 million while expenditures increase by $1.9 million to fund the BEP:

The Net Difference ($3.2 million) becomes a Fund Balance

Reserve; use this to reduce the 2016-17 budget gap

Note: Additional spending in 2015-16 will decrease the $3.2 million Fund Balance Reserve and, by increasing shared cost per pupil, cause further loss of equalization aid in 2016-17

MMSD Budget Strategy More About Option A

Increase General Fund Revenues:

o $4.1 million related to categorical aids

o $1.0 million by using full levy authority in 2015-16

o Additional funding for the Behavior Education Plan (BEP) $1.9 million

Generate a Fund Balance increment (reserve) of $3.2 million in 2015-16

Budget Gap in 2016-17 reduced to $4-6 million (by using $3.2 million reserve)

Estimated Tax Rate Increase of 4.9% in 2015-16 (was 4.72% in April Draft)

Estimated Tax Rate Increase of 4.5%-4.85% in 2016-17 (range)

Also: Delay until 2016-17 the $1.3 million tax levy chargeback (Attic Angels)

Rationale for Tax Levy Recommendation

A responsible budget plan - spending increase is 1.3%

State budget for 2015-17 offers little support for K-12

Levy increase includes a two-year strategy

Levy includes voter-approved referendum

There is strong 5% tax base growth to support the levy

The tax levy increase to support current operations is less than 2%. This is a responsible budget that

protects top priorities while planning for next year.

Developments Since April - Implications for MMSD Budget

We developed two budget strategies which represent the range of options available for Board consideration:

Option A – This option uses the Board’s full tax levy authority to generate a temporary $3.2 reserve (Fund Balance) in 2015-16 for use in reducing the budget gap in 2016-17

Option B – This option will reduce the proposed tax levy by $2.2 million in 2015-16, but does not build a reserve to reduce the budget gap in 2016-17

MMSD Budget Strategy Option B

Under Option B, net revenues increase by $1.9 million and expenditures increase by $1.9 million to fund the BEP:

Net Revenues: $4.1 million due to restored aid

- $2.2 million under-levy = $1.9 million Revenues to Fund BEP

Note: No reserve generated to assist in 2016-17 Larger budget gap pending in 2016-17 Like Option A, assume full use of levy authority in 2016-17

MMSD Budget Strategy More About Option B

Lower Year 1 tax levy increase

No reserve created to reduce Year 2 budget gap

2016-17 Budget Gap Estimated $6.0—$8.5 million

Estimated Tax Rate Increase of 3.65% in 2015-16

Estimated Tax Rate Increase of 5.7%-6.0% in 2016-17

Delay until 2016-17 the $1.3 million tax levy chargeback (Attic Angels)

Agenda for June

I. State Budget Update & MMSD Budget Options

II. Debt Service Options

III. Board Amendment Tracker

IV. TID 25 Draft Memorandum of Agreement

V. Policy on Facility Use

VI. Athletics Discussion

$41 million New Issue for Referendum • Lower Interest Rate Estimate • $1,500,000 Lower Interest Costs

$11.58 million Refinancing of 2007 Olson Debt • Lower Interest Rate Estimate • $523,000 Lower Interest Costs $4.1 million Refinancing of 2010 WRS • Interest Rate Cost $256,000 • Will provide sustainable Tech Plan funding thru 2019

A Package of 3 Debt Issues For July 20 Bidding

Page 16

Historical Interest Rate Trend AAA Municipal Market Data (MMD) Index Past 30 Years

SOURCE: Thomson Municipal Market Data of as of May 28, 2015

Very Favorable Timing

Page 17

Referendum Financing Illustration Fund 39 – MAY 2015 UPDATE

Update assuming market interest rates as of May 18, 2015

April 2015 Referendum

$41,000,000EXISTING G.O. PROMISSORY NOTES FUND 39FUND 39 Dated July 20, 2015 DEBT LEVY STATE AID

LEVY YEAR DEBT (First interest 3/1/16) EXISTING IMPACT COMBINED COMBINED YEAR

YEAR DUE SERVICE PRINCIPAL INTEREST LESS: TOTAL PLUS NEW OVER BASE COST MILL RATE DUE(A) (3/1) (3/1 & 9/1) BID (A) (B) (Factoring Aid) (C)

TIC= PREMIUM

Actual 2015 2.30%

Levy

2014 2015 $4,202,660 $0 $0 $0 $4,202,660 $0 $4,202,660 $0.19 2015

2015 2016 $3,344,819 $2,400,000 $1,187,800 ($1,131,087) $2,456,713 $5,801,532 $0 $5,801,532 $0.26 2016

2016 2017 $3,339,575 $3,660,000 $1,003,300 $0 $4,663,300 $8,002,875 $777,296 $8,780,171 $0.38 2017

2017 2018 $3,340,250 $4,035,000 $926,350 $4,961,350 $8,301,600 $1,651,825 $9,953,425 $0.43 2018

2018 2019 $3,343,050 $4,115,000 $844,850 $4,959,850 $8,302,900 $2,017,185 $10,320,085 $0.44 2019

2019 2020 $3,337,275 $4,225,000 $740,325 $4,965,325 $8,302,600 $2,023,041 $10,325,641 $0.44 2020

2020 2021 $1,580,100 $4,105,000 $615,375 $4,720,375 $6,300,475 $2,037,973 $8,338,448 $0.35 2021

2021 2022 $1,582,550 $4,225,000 $490,425 $4,715,425 $6,297,975 $1,039,428 $7,337,403 $0.30 2022

2022 2023 $1,336,250 $4,605,000 $357,975 $4,962,975 $6,299,225 $1,042,819 $7,342,044 $0.30 2023

2023 2024 $1,337,850 $4,745,000 $217,725 $4,962,725 $6,300,575 $1,044,308 $7,344,883 $0.30 2024

2024 2025 $1,338,950 $4,885,000 $73,275 $4,958,275 $6,297,225 $1,046,479 $7,343,704 $0.30 2025

2025 2026 $1,344,875 $1,344,875 $1,043,185 $2,388,060 $0.10 2026

IMPACT=

$29,428,204 $41,000,000 $6,457,400 ($1,131,087) $46,326,313 $75,754,517 $13,723,540 $89,478,057 $0.25

(A) Does not include annual levies for 2012 Energy Efficiency Borrowing in Fund 38. Shown net of savings from hypothetical refinancing of 2007 Bonds.

(B) State aid based on incremental expenditure change vs. base year (Fiscal Year 2014-15) at the following aid level (14-15 October Certification):

Tertiary Aid Percentage................................................................................................................................-48.80%

(C) Mill rate based on 2014 Equalized Valuation (TID-OUT) of $22,479,334,828 with annual growth of 1.00%.

Page 18

Tax-Exempt Refinancing Illustration Fund 39 –Refinance 2006 Referendum Debt for Tax Levy Management

Update assuming market interest rates as of May 18, 2015

Illustration of Hypothetical Refinancing (1)

BEFORE REFINANCING * AFTER REFINANCING

*

$30,365,000 * $30,365,000 $11,585,000 TOTAL POTENTIAL

G.O. School Build. & Ref. Bonds (CR) * G.O. School Build. & Ref. Bonds (CR) G.O. Refunding Bonds (AR) NEW DEBT DEBT SERVICE

Dated March 15, 2007 * Dated March 15, 2007 Dated July 20, 2015⁽¹⁾ SERVICE SAVINGS

Calendar PRINCIPAL RATE INTEREST TOTAL * PRINCIPAL INTEREST TOTAL PRINCIPAL INTEREST TOTAL

Year (3/1) (3/1 & 9/1) * (3/1) (3/1 & 9/1) (3/1) (3/1 & 9/1)

* TIC=

* 2.23%

*

2015 $1,040,000 4.000% $582,450 $1,622,450 * $1,040,000 $582,450 $1,622,450 $1,622,450 $0

2016 $1,085,000 4.000% $539,950 $1,624,950 * $1,085,000 $67,100 $1,152,100 $20,000 $400,744 $420,744 $1,572,844 $52,106

2017 $1,135,000 4.000% $495,550 $1,630,550 * $1,135,000 $22,700 $1,157,700 $60,000 $358,950 $418,950 $1,576,650 $53,900

2018 $1,180,000 4.500% $446,300 $1,626,300 * *** $1,225,000 $346,100 $1,571,100 $1,571,100 $55,200

2019 $1,235,000 4.000% $395,050 $1,630,050 * *** $1,255,000 $321,300 $1,576,300 $1,576,300 $53,750

2020 $1,290,000 4.000% $344,550 $1,634,550 * *** $1,290,000 $289,400 $1,579,400 $1,579,400 $55,150

2021 $1,345,000 4.000% $291,850 $1,636,850 * *** $1,330,000 $250,100 $1,580,100 $1,580,100 $56,750

2022 $1,400,000 4.000% $236,950 $1,636,950 * *** $1,380,000 $202,550 $1,582,550 $1,582,550 $54,400

2023 $1,205,000 4.000% $184,850 $1,389,850 * *** $1,185,000 $151,250 $1,336,250 $1,336,250 $53,600

2024 $1,255,000 4.000% $135,650 $1,390,650 * *** $1,235,000 $102,850 $1,337,850 $1,337,850 $52,800

2025 $1,310,000 4.125% $83,531 $1,393,531 * *** $1,280,000 $58,950 $1,338,950 $1,338,950 $54,581

2026 $1,370,000 4.125% $28,256 $1,398,256 * *** $1,325,000 $19,875 $1,344,875 $1,344,875 $53,381

*

$14,850,000 $3,764,938 $18,614,938 * $3,260,000 $672,250 $3,932,250 $11,585,000 $2,502,069 $14,087,069 $18,019,319 $595,618

Maturities callable 3/1/2017 or any date thereafter.

CALLABLE MATURITIES *** REFINANCED WITH 2015 ISSUE. TRANSFER FROM PRIOR D/S……………………………………………………………………………..

ROUNDING AMOUNT……………………………………………………………………………………………………………$3,631

(1) POTENTIAL GROSS SAVINGS………………………………………………………………………………………………………………)$599,249

(2) POTENTIAL PRESENT VALUE SAVINGS $…………………………………………………………………………………………………………………………………..)$523,313

POTENTIAL PRESENT VALUE SAVINGS %…………………………………………………………………………………………………………………………………)4.515%

(2) Present value calculated using the All Inclusive Cost (AIC) of 2.39% as the discount rate.

Interest Rate Sensitivity

Change Est. PV % Est. PV $

in Rates Savings Savings

-0.30% 6.503% $753,708

-0.20% 5.836% $676,368

-0.10% 5.174% $599,652

+0.10% 3.864% $447,832

+0.20% 3.220% $373,160

+0.30% 2.576% $298,547

This illustration represents a mathematical calculation of potential interest cost savings (cost),

assuming hypothetical rates based on current rates for municipal bonds as of 5/18/15. Actual

rates may vary. If actual rates are higher than those assumed, the interest cost savings would

be lower. This illustration provides information and is not intended to be a recommendation,

proposal or suggestion for a refinancing or otherwise to be considered as advice.

Restructuring Existing Debt Can Make it Possible to Support Annual Increases in the Tech Plan thru 2019 without Drawing Away Funds from Other Areas of the Budget

Fund 38 Debt Restructure Premise

Page 20

Taxable Refinancing Illustration Fund 38 – Restructure Debt for Budget Capacity Management

Update assuming market interest rates as of May 19, 2015

Illustration of Hypothetical Refinancing (1)

BEFORE REFINANCING * AFTER REFINANCING

*

$28,495,000 OTHER TOTAL * $28,495,000 $4,115,000 OTHER TOTAL POTENTIAL

Tax G.O. Ref Bonds (CR) FUND 38 DEBT DEBT * Tax G.O. Ref Bonds (CR) Tax G.O. Refunding Bonds (AR) FUND 38 DEBT NEW DEBT DEBT SERVICE

Dated March 25, 2010 SERVICE SERVICE * Dated March 25, 2010 Dated July 20, 2015⁽¹⁾ SERVICE SERVICE SAVINGS/(COST)

Calendar PRINCIPAL RATE INTEREST (A) * PRINCIPAL INTEREST PRINCIPAL INTEREST TOTAL (A)

Year (3/1) (3/1 & 9/1) * (3/1) (3/1 & 9/1) (3/1) (3/1 & 9/1)

* TIC=

* 3.28%

*

2015 $875,000 3.500% $393,938 $1,849,914 $3,118,852 * $875,000 $393,938 $1,849,914 $3,118,852 $0

2016 $1,585,000 3.750% $348,906 $1,859,914 $3,793,820 * $1,585,000 $197,264 $146,749 $146,749 $1,859,914 $3,788,927 $4,893

2017 $1,705,000 4.000% $285,088 $1,868,264 $3,858,352 * $1,110,000 $145,345 $131,745 $131,745 $1,868,264 $3,255,354 $602,998

2018 $1,835,000 4.000% $214,288 $1,881,639 $3,930,927 * $605,000 $111,045 $131,745 $131,745 $1,881,639 $2,729,429 $1,201,498

2019 $1,975,000 4.150% $136,606 $1,885,989 $3,997,595 * $80,000 $97,285 $131,745 $131,745 $1,885,989 $2,195,019 $1,802,576

2020 $2,125,000 4.500% $47,813 $2,495,464 $4,668,277 * $2,125,000 $47,813 $131,745 $131,745 $2,495,464 $4,800,022 ($131,745)

2021 +++ $4,117,151 $4,117,151 * $131,745 $131,745 $4,117,151 $4,248,896 ($131,745)

2022 +++ $4,132,038 $4,132,038 * $131,745 $131,745 $4,132,038 $4,263,783 ($131,745)

2023 +++ $3,235,788 $3,235,788 * $131,745 $131,745 $3,235,788 $3,367,533 ($131,745)

2024 +++ $3,204,594 $3,204,594 * $131,745 $131,745 $3,204,594 $3,336,339 ($131,745)

2025 +++ $3,202,325 $3,202,325 * $131,745 $131,745 $3,202,325 $3,334,070 ($131,745)

2026 +++ $0 $0 * $2,025,000 $100,358 $2,125,358 $0 $2,125,358 ($2,125,358)

2027 +++ $0 $0 * $2,090,000 $34,485 $2,124,485 $0 $2,124,485 ($2,124,485)

2028 $0 $0 * $0 $0 $0

2029 $0 $0 * $0 $0 $0

2030 $0 $0 * $0 $0 $0

2031 $2,770,000 $2,770,000 * $2,770,000 $2,770,000 $0

*

$10,100,000 $1,426,638 $32,503,082 $44,029,719 * $6,380,000 $992,689 $4,115,000 $1,467,297 $5,582,297 $32,503,082 $45,458,067 ($1,428,348)

Remaining Maturities not callable prior to maturity. LESS TRANSFER FROM PRIOR ISSUE D/S FUND……………………………………………………………………………..$0

+++ Refunded with 2012 Taxable Bonds. PARTIALLY REFINANCED WITH 2015 ISSUE.

ROUNDING AMOUNT…………………………………………………………………………………… $2,596

POTENTIAL GROSS SAVINGS (LOSS)……………………………………………………………………………………….)($1,425,752)

(2) POTENTIAL PRESENT VALUE SAVINGS (LOSS) $…………………………………………………………………………………………..)($256,109)

POTENTIAL PRESENT VALUE SAVINGS (LOSS) %…………………………………………………………………………………………..)-6.885%

(1)

(2) Present value calculated using the All Inclusive Cost (AIC) of 3.43% as the discount rate.

(A) Includes 7.3% subsidy reduction through 2024 for 2010 QSCB & 2012

QZAB. Includes 2012 EEE Borrowing. In 2015-2016, the District intends to

utilize the Energy Efficiency Levy.

This illustration represents a mathematical calculation of potential interest cost savings (cost), assuming hypothetical

rates based on current rates for municipal bonds as of 5/19/15. Actual rates may vary. If actual rates are higher than

those assumed, the interest cost savings would be lower. This illustration provides information and is not intended to

be a recommendation, proposal or suggestion for a refinancing or otherwise to be considered as advice.

From April Operations Work Group: Goal: Ensure the Tech Plan is both 1) economically feasible and 2)

sustainable in the long run

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023

Original Tech Plan Financially Sustainable Submitted Plan Current Funding

Repurposing Requirements: • $625,000 per year in FY 17, FY18, FY19

June Update Goal: Ensure the Tech Plan is both 1) economically feasible and 2)

sustainable in the long run

Repurposing Requirements: • $625,000 per year in FY 17, FY18, FY19

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023

Original Tech Plan Funding Plan Spending Plan Current Funding

Fund 38 Restructure Provides ‘Cap Room’

Board Budget Amendment Tracker

Proposed Budget Amendment Tracker

Item Sponsor Estimated Cost

A Board Stipend @ $8K/year DL $26,634

B Middle School Athletics MF $250,000-$500,000

High School Athletics MF $40,000-$80,000

C School Forest JH $8,000

D Class Size (8 FTE) TM $640,000

E Fund 38 Debt Structure TM No Cost

F Shabazz 0.2 FTE (Equity Cut) TM $12,000

G Class Action Research (CAR) TM $25,000

H Maintenance Budget TM $500,000

I Tutoring Program TM $30,000

J DLI Planner -> ELL Planner TM No Cost

K BEP Funding TM $1.5 - $2.0 million

L Restore school-level reductions TM $500,000-$2 million

M Special Education staffing TM $250,000-$500,000

N PD for Dyslexia AM $36,782

O Restore Student Services reductions DL $1.9 million

TID 25 Draft Memorandum of

Agreement (Draft in Packet)