budget presentation 1415 · budget preparation calendar 2014-2015 date action planned january 15th...

Tomball ISD

2014 2015Huey Kinchen, SuperintendentJim Ross, Chief Financial O cer

Budget Preparation Calendar..................................................... 3 The Budgeting Process.............................................................. 4 Board of Trustees…................................................................... 5 Organizational Chart….............................................................. 7 District Schools……................................................................... 8 Legal Requirements of Budgeting.......………………………….. 13 Description of Funds.................................................................. 14 Description of Programs............................................................ 15 Enrollment and Demographics………..….................................. 17 State and Local Funding of School District in Texas…………… 20 Current Public School Finance System..................................... 24 Significant Factors for 2014-2015………………………………… 30 2014-2015 Revenue Projections................................................ 32

o Funding Sources o Changes in Taxable Base & Certified Taxable Amounts o Changes in Total Tax Rate o Changes in State’s Target Revenue per WADA o Total Operating Revenues

2014-2015 General Fund Budget................................................ 36 o Current District Staffing o Additional Staffing for 2014-2015 o Payroll o Contracted Services o Supplies & Materials o Other Operating Costs o Capital Outlay

Expenditure Analysis by Function Code..................................... 41 2014-2015 Food Service Fund Budget....................................... 43 2014-2015 Debt Service Fund Budget........................................ 44 Financial Outlook........................................................................ 46 2014-2015 Proposed Budget by Fund and Function….……. 48

LIST OF SPREADSHEETS Projection by Rate of Collection & Tax Rate……………………. 34 Revenue Analysis………………………………………………….. 35 Staff Counts by Position………………………………………….. 37 Expenditure Analysis……………………………………………… 42

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BUDGET PREPARATION CALENDAR 2014-2015

Date Action Planned

January 15th Budget Discussion with Principals, Directors and Assistant Superintendents

March 7th Campus/Department budgets and personnel requests are due to CFO at the Finance Department by 2 p.m.

March 26th Meeting with the Board of Trustees Budget Committee Review items that will discussed in 1st Budget Workshop

April 14th First Budget Workshop with Board of Trustees Discuss state funding for next year Discuss coming estimate of property values Discuss preliminary teacher staffing needs

April 30th Meeting with the Board of Trustees Budget Committee Review items that will discussed in 2nd Budget Workshop

May 12th Second Budget Workshop with Board of Trustees Discuss certified estimate of property values Discuss preliminary budget totals Discuss general pay increase

May 28th Meeting with the Board of Trustees Budget Committee Review items that will discussed in 3rd Budget Workshop

June 9th Third Budget Workshop with Board of Trustees Discuss recommendations for general pay increase Discuss adoption of Salary and Benefits book Discuss additional staff recommended by Executive Council Discuss proposed budget revenues and expenditures

July 14th Budget Hearing

July 15th Budget Adoption

September 9th Tax Rate Adoption

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TOMBALL INDEPENDENT SCHOOL DISTRICT 2014-2015 BUDGET

The following is a comprehensive discussion of the budget for the Tomball Independent School District for the 2014-2015 fiscal year. The Budgeting Process

The budgeting process is comprised of four major phases: budget planning, site-based budget preparation, administrative evaluation and adjustment, and finally Board adoption. The budgetary process must begin with sound planning. Plans are based on Board-defined goals, with objectives and programs for attaining those goals defined by the district planning committee. Once these objectives and programs have been established, budgetary resource allocations are made to support them. Budgetary resource allocations are the preparation phase of budgeting. However, until plans have been established with goals and objectives, the allocations cannot be made.

Once a budget has been prepared it is then evaluated by administration for its efficiency and effectiveness in attaining planned goals and objectives. Evaluation typically involves an examination of how funds are planned to be allocated as compared to how funds were expended in prior years. The outcomes that resulted from these prior-year expenditures are evaluated to determine to what degree these outcomes achieved the objectives stated during the prior-year planning phase. Following this review the budget is finalized.

The final stage of the budget process is presentation to the Board of Trustees for adoption consideration. The Board reviews the proposed budget in regards to achieving its targeted goals. Satisfied that the proposed budget attains these pre-defined goals, the proposed budget is discussed in an open public hearing and then adopted by the Board.

In summary, budget preparation is not a one-time exercise to determine how a school district will allocate funds. Rather, school district budget preparation is part of a continuous cycle of planning, evaluation and allocation to achieve district goals.

Organization The District is governed by seven school board trustees who are elected in November of even-numbered years for rotating four-year terms. Trustees are elected by position. The Superintendent of Schools works closely with the executive team made up of the three Assistant Superintendents and Chief Financial Officer to oversee and manage the day-to-day operations of the District’s 14 schools. Department heads and Principals report to the Assistant Superintendents and Chief Financial Officer. All district executives report directly to the Superintendent.

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TOMBALL ISD BOARD OF TRUSTEES

SCHOOL BOARD ASSISTANT SECRETARY Ken Odom has been a member of the Board of Trustees since November 2004. He has served as an officer of the Board, including as President in 2010 and 2011. He graduated Summa Cum Laude with a BSM in Finance from Tulane University and received an MBA from the University of Houston - Victoria. He is a Certified Financial Manager (CFM) and Certified Management Accountant (CMA).

SCHOOL BOARD PRESIDENT Mark Lewandowski has been a member of the Board of Trustees since November 2003. He has served as an officer of the Board, including as President in 2008. He is a graduate of Tomball High School and received a Bachelor of Science degree in Technology from the University of Houston.

SCHOOL BOARD VICE PRESIDENT Michael J. Pratt has been a member of the Board of Trustees since November 2010. He received a Bachelor of Science degree in International Relations from Tulane University and a Masters in Business Administration from Texas Christian University.

SCHOOL BOARD SECRETARY Kathy Handler has been a member of the Board of Trustees since November 2010. She received a Bachelor of Arts in History from The University of Texas in 1987.

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SCHOOL BOARD TRUSTEE Lisa Nicholas has been a member of the Board of Trustees since May 2004. She has served as an officer of the Board, including as President in 2009. She earned her Bachelor of Science degree in Education from Brigham Young University.

SCHOOL BOARD TRUSTEE John E. McStravick has been a member of the Board of Trustees since 2000. He has served as an officer of the Board, including as President in 2005 and 2012. He received his Bachelor of Science degree in Agricultural Engineering from Texas A&M. He received his Juris Doctorate from St. Mary's University School of Law in San Antonio and is a member of the Texas bar.

SCHOOL BOARD TRUSTEE Sam A. Gregson has been a member of the Board of Trustees since November 2001. He has served as an officer of the Board, including as President in 2007. He received his Bachelor of Science degree in Mathematics from Oklahoma State University.

SUPERINTENDENT OF SCHOOLS Huey Kinchen Jr. is the Superintendent of the Tomball Independent School District where he has served the past 15 years. He has held positions as Principal of Tomball High School, Assistant Superintendent, and Deputy Superintendent before being selected Superintendent in 2013. He received his Master of Science in Education from Southeastern Louisiana University.

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Tomball Independent School DistrictLEADERSHIP ORGANIZATIONAL CHART

Attorney

Auditor

Chris TrotterAssistant Superintendent

for Administrative Services

Dr. Randy ReedyDirector of Compliance

and Accountability

David SchuelkeAssistant Superintendent

for Ancillary Services

Huey KinchenSuperintendent

Jim RossChief Financial Officer

2013-14 Rev 07/08/13

Zach BolesDirector of Finance

Brian LudwigDirector of PropertyTax Administration

Heather NicholsDirector of Special Services

Carol RangelDirector of Bilingual,

ESL, and LOTE

Bob HigginbothamDirector of

Environmental Services

Mark TiedtDirector of Maintenance

and Operations

Whitney JohnsonDirector of Child Nutrition

Beverly BeisertDirector of

Transportation Services

Dr. Staci StanfieldDirector of Communications

Tom BrawleyDirector of

Technology Services

Brad BouleyDirector of Fine Arts

Cathy PoolDirector of

School Nursing

Dr. Joan SlaterDirector of Language Arts,

Social Studies, GT

Kit PfeifferDirector of

Administrative Services

Richard VelaDirector of

Risk Management

Ronny PeacockDirector of Athletics

James BakerDirector of

Human Resources

Diane TidwellDirector of

Instructional Technology

Board of Trustees

Chris ScottDirector of

Math and Science

Dr. Valerie PetrzelkaExec Dir of Elementary and

Intermediate Schools

Gary MossDirector of CATE, Health,

and Physical Ed

TBDDirector of Digital Learning

Gary HuttonDirector of Construction

Campus PrincipalsGrades 7 - 12

Campus PrincipalsGrades PK - 6

Dr. Darlene BlairAssistant Superintendent forCurriculum and Instruction

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TOMBALL HIGH SCHOOL30330 Quinn Road

Tomball, TX 77375

Principal: Greg Quinn

281-357-3220

Serving Grades 9, 10, 11, 12Greg Quinn

TOMBALL MEMORIAL HIGH SCHOOL19100 Northpointe Ridge Ln

Tomball, TX 77375

Principal: Carol Houston

281-357-3220

Serving Grades 9, 10, 11, 12Carol Houston

TOMBALL JUNIOR HIGH30403 Quinn Road

Tomball, TX 77375

Principal: Dr. Amy Schindewolf

281-357-3000

Serving Students in Grades 7 & 8Amy Schindewolf

DISTRICT SCHOOLS

Built in 1993, the current total facility square footage is 164,615 with student capacity of 1,071. The total cost of the building, land, furniture and equipment is $13,108,718.

BUDGETED OPERATING COSTS

BUDGETED OPERATING COSTSThe total cost of the building, land, furniture and equipment is $73,569,300.

Built in 1974, the current total facility square footage is 602,868 with student capacity of 3,933.

2,256 enrolled2013-20142012-20132011-2012

$16,910,882$7,496 per pupil

1,882 enrolled$17,476,776

$9,286 per pupil

1,575 enrolled$13,859,361

$8,800 per pupil

843 enrolled 1,742 enrolled$7,195,147 $12,870,597


BUDGETED OPERATING COSTS2011-2012 2013-20142012-2013

1,314 enrolled$8,628,709

$8,535 per pupil $7,338 per pupil

$5,352,532 $5,545,501 $6,129,112$7,146 per pupil $6,880 per pupil $7,077 per pupil

2011-2012 2012-2013 2013-2014749 enrolled 806 enrolled 866 enrolled

$6,567 per pupil

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WILLOW WOOD JUNIOR HIGH11770 Gregson Road

Tomball, TX 77377

Principal: Robert Frost

281-357-3030

Serving Students in Grades 7 & 8Robert Frost

NORTHPOINTE INTERMEDIATE

11855 Northpointe Blvd

Tomball, TX 77377Principal: Darrell McReynolds

281 357 3020Serving Students in Grades 5 & 6

Darrell McReynolds

TOMBALL INTERMEDIATE

723 W Main Street

Tomball, TX 77375

Principal: Crystal Romero-Muller281-357-3150

Serving Students in Grades 5 & 6Crystal Romero Muller

2011-2012 2013-2014867 enrolled 987 enrolled


BUDGETED OPERATING COSTS2012-2013

940 enrolled

Built in 2003, the current total facility square footage is 106,512 with student capacity of 920. The total cost of the building, land, furniture and equipment is $11,745,961.

BUDGETED OPERATING COSTS2011-2012 2012-2013 2013-2014

$5,960,111 $6,546,662$6,874 per pupil $6,633 per pupil

$5,937,031$6,312 per pupil

$6,367 per pupil $6,544 per pupil $6,325 per pupil

Built in 1962 with additions in 2009, the current total facility square footage is 127,445 with student capacity of 920. The total cost of the building, land, furniture and equipment is $15,985,595.


872 enrolled 869 enrolled 921 enrolled$5,552,290 $5,687,117 $5,825,310



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DECKER PRAIRIE ELEMENTARY

27427 Decker Prairie Rosehill Road

Magnolia, TX 77355

Principal: Teresa Sullivan281-357-3134

Serving Students in Grades PK to 4thTeresa Sullivan

LAKEWOOD ELEMENTARY

15614 Gettysburg Drive

Tomball, TX 77377

Principal: Holly Hickman Jones281-357-3260

Serving Students in Grades PK to 4thDaron Aston

ROSEHILL ELEMENTARY

17950 Waller Tomball Road

Tomball, TX 77377

Principal: Greg Chappell281-357-3075

Serving Students in Grades PK to 4thGreg Chappell













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TOMBALL ELEMENTARY

1110 Inwood Street

Tomball, TX 77375

Principal: Meredith Walker281-357-3280

Serving Students in Grades PK to 4thMeredith Walker

CANYON POINTE ELEMENTARY

13002 Northpointe Blvd.

Tomball, TX 77377

Principal: Maricela Canady

281-357-3122 Serving Students in Grades PK to 4 th

Maricela Canady

WILLOW CREEK ELEMENTARY

18302 N. Eldridge Parkway

Tomball, TX 77377

Principal: Jo Ann Colson281-357-3080

Serving Students in Grades PK to 4thMary Marshall













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CREEKSIDE FOREST ELEMENTARY

5949 Creekside Forest

The Woodlands, TX 77389

Principal: Jenine Deyoe

281-357-3122 Serving Students in Grades PK to 6 th

Jeanine Deyoe

TIMBER CREEK ELEMENTARY

8455 Creekside Green Dr

The Woodlands, TX 77389

Principal: Jenine Deyoe

281-357-3122 Serving Students in Grades KG to 6 th

Jo Ann Colson

TOMBALL ALTERNATIVE

1302 Keefer Street

Tomball, TX 77375

Principal: Becky Dale

281-357-3261

Becky Dale

$8,401 per pupil $7,751 per pupil





$2,419,507 $3,604,255



288 enrolled 465 enrolled

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Legal Requirements for Budgeting Sections 44.002 through 44.006 of the Texas Education Code establish the legal basis for budget development in public school districts. The following six items summarize the legal requirements from the code:

• The Superintendent is the budget officer for the District and prepares or causes the budget to be prepared.

• The District budget must be prepared by a date set by the state board of education, currently August 20th for our District’s fiscal year.

• The President of the Board of Trustees must call a public meeting of the Board, giving ten days public notice in a newspaper, for the adoption of the District budget. Any taxpayer in the district may be present and participate in the meeting.

• No funds may be expended in any manner other than as provided for in the adopted budget. The Board does have the authority to amend the budget or adopt a supplementary emergency budget to cover unforeseen expenditures.

• The budget must be prepared in accordance with GAAP (generally accepted accounting principles) and the state guidelines described below.

• Revised in 2009 the tax rate may be adopted before the adoption of the budget. However if a district is not planning a tax rate election, the budget will be adopted before the adoption of the tax rate. If the tax levy exceeds the prior year levy an internet posting is required disclosing this fact and a resolution stating the same must be adopted by the Board. A school district must publish a revised notice and hold another public meeting before the district may adopt a tax rate that exceeds either the rate proposed in the notice prepared using the certified estimate of the Chief Appraiser, or the district’s rollback rate using the certified appraisal roll.

The Texas Education Agency (TEA) has developed additional requirements for public school district budget preparation as follows:

• All budget amendments must be adopted by the Board of Trustees no later than the ending date of the budget year, currently August 31st for Tomball ISD.

• Minutes from district board meetings will be used by TEA to record adoption of and amendments to the budget.

• Budgets for the General Fund, the Food Service Fund (whether accounted for in the General Fund, a Special Revenue Fund or Proprietary Fund) and the Debt Service Fund must be included in the official district budget (legal or fiscal year basis). These budgets must be prepared and approved at least at the fund and function levels to comply with the state’s legal level of control mandates.

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Description of Funds General Fund The General Fund is defined as a governmental fund, with required Board budgetary control, which is used to show transactions resulting from operations of on-going organizations and activities. It is funded from a variety of revenue sources for which the fund balance is controlled by and retained for the discretionary use of the District. The general fund utilizes the modified accrual basis of accounting and comprises the majority of the total budget. Debt Service Fund The Debt Service Fund is a governmental fund, with required Board budgetary control, that must be used to account for general long-term debt principal and interest for debt issues and other long-term debts for which a tax has been dedicated. This fund’s resources must be segregated and a separate bank account must be kept for this fund. Principal and interest payments for operating indebtedness including warrants, notes, and short-term lease-purchase agreements, are to be made from the fund for which the debt was incurred. This fund utilizes the modified accrual basis of accounting. Special Revenue Funds

The Special Revenue funds are governmental funds used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. These funds typically are linked to grants awarded by state or federal agencies. Applications for grants must include budget information indicating how the funds will be expended. Acceptance of these grant funds implies expenditures will match the submitted budget. Special Revenue funds do not include expendable trusts and major capital projects. Special Revenue funds utilize the modified accrual basis of accounting.

Food Service Fund

The Food Service Fund is used for programs using federal reimbursement revenues originating from the United States Department of Agriculture (USDA). The Food Service Fund for Tomball ISD is considered a Special Revenue Fund with required Board budgetary control because it meets the criteria regarding user fees and charges, and:

• The General Fund may subsidize the Food Service Fund for all amounts required in excess of the National School Lunch Program reimbursements and user fees.

• The school district does not require the Food Service Fund to be self-sustaining.

This fund may have a fund balance not to exceed three months of food service operations, and such balances are to be used exclusively for allowable child nutrition program purposes.

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Capital Projects Fund

The Capital Projects Fund is a governmental fund, with required Board budgetary control, that must be used to account on a project basis for projects financed by the proceeds from bond issues, or for capital projects otherwise mandated to be accounted for in this fund. The capital projects fund utilizes the modified accrual basis of accounting.

Description of Programs Basic (Regular) Education (Intent Code 11)

This program is used to identify costs for expenditure function 11 (instruction) and other expenditure functions for which operational costs can be specifically identified with the regular instructional program. The term “basic” is defined as the curriculum provided for those students that are not in special education that emphasizes literacy in language, mathematics, science, history and related social studies, and other subject areas excluding vocational. Basic educational services also include the costs to evaluate, place, and provide educational services to students in honors, college preparatory and advanced placement courses. All enrolled students are entitled to basic education services.

Gifted and Talented Education (Intent Code 21) This program is used to identify costs for expenditure function 11 and other applicable expenditure functions for academic programs established for students who have been identified as functioning at a higher intellectual level and/or possessing talents exceeding those normally exhibited by the majority of the student population. Gifted and Talented educational services include the costs incurred to assess students for program placement and provide instructional services designed to meet the needs of these students beyond the basic educational program. Career and Technology (Vocational) Education (Intent Code 22)

This program is used to identify costs for expenditure function 11 (instruction) and other expenditure functions that can be specifically identified with those vocational education programs approved by the Texas Education Agency. Career and Technology educational services includes the costs incurred to evaluate, place and provide educational and/or other services to prepare students for gainful employment, advanced technical training or for homemaking. This may include apprenticeship and job training activities.

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Services to Students with Disabilities (Special Education)(Intent Code 23) This program is used to identify costs for expenditure function 11 (instruction) that can be specifically identified with the instruction and related services for those programs approved by the Texas Education Agency for students with disabilities. Programs are designed for children with special needs incorporating distinctive techniques, materials, and arrangements suited to their learning needs. Approved programs must be organized and operated within the instructional arrangements provided by rules of the State Board of Education and the Federal IDEA laws. Special Education services includes the costs incurred to evaluate, place and provide educational and/or other services to students who have Individual Educational Plans (IEP) approved by Admission, Review and Dismissal (ARD) committees. These plans are based on students’ disabilities and the continued reassessment of those students’ needs. Accelerated (Compensatory) Education (Intent Code 24)

This program is used to identify costs for expenditure function 11 (instruction) that can be specifically identified with the instructional strategies to provide services in addition to those provided at the basic level of instruction. Accelerated education seeks to provide a challenging and meaningful instructional program to close the achievement gap between children at risk of dropping out of school and their peers by increasing the amount and quality of instructional time for students at risk of dropping out of school. Accelerated education services are those costs attributable to activities that supplement the regular education program for students at risk of dropping out of school.

Bilingual/ESL Education (Intent Code 25)

This program is used to identify costs incurred to evaluate, place and provide educational and/or other services that are intended to make students proficient in the English language, primary language literacy, composition and academic language related to required courses. These services include the bilingual basic program of instruction and special assistance to increase cognitive academic language proficiencies in English.

High School Allotment (Intent Code 31)

This program is used to record the costs associated with secondary programs designed to assist students with college readiness coursework. It also identifies costs associated with recovering high school dropouts and completion of high school degrees.

Athletics and Related Activities (Intent Code 91)

This program is used to record the costs incurred to provide for participation in competitive athletic activities such as football, volleyball, basketball, baseball, softball, soccer, golf, swimming, tennis, track, etc. This includes costs associated with coaching as well as sponsors for drill team, cheerleaders, pep squad or any other organized activity to support athletics. However, this does not include band.

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Enrollment and Demographics Tomball Independent School District is focused on meeting the needs of its current 12,493 students while anticipating enrollment growth to 13,191 in 2014-2015. As can be seen using the Texas Public Education Information Management System (PEIMS) data from 2008-2009 to 2013-2014, student enrollment has steadily risen at an average rate of 4.75% per year. Student Enrollment Student enrollment for 2014-2015 is projected to increase by 5.59% above the prior year. An excellent website to review the history of Tomball ISD student enrollment is the TEA website with Standard Reports at http://ritter.tea.state.tx.us/adhocrpt/Standard_Reports.html. Once at this location choose standard reports/student enrollment/ Selected District Totals by District Number and enter 101921.

Change in Student Demographics

An important aspect to budget planning is the demographic change of the student enrollment. The change in the composition of the student enrollment can significantly add to annual district costs. In the five years shown on the next page, the Hispanic student population has risen from 24.6% of the total to 29.2%. Many of these students require bilingual services and supplemental programs providing specialized instruction and frequently smaller class sizes.

9,0009,3009,6009,900

10,20010,50010,80011,10011,40011,70012,00012,30012,60012,90013,20013,500

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Enrollment Growth

6.12%

3.57%

5.58%3.80%

4.11%

5.83%

5.59%

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Weighted Average Daily Attendance (WADA)

For budget planning purposes and analysis of data, student enrollment is converted to a weighted total. The weight assigned is based on the educational programs provided to students for specialized instructional needs. For example, an increase in the enrollment of economically disadvantaged students will create an increase in the weighted average daily attendance for the District. An increase in any program other than the Regular Education Program will cause WADA to increase. The projected increase in WADA for 2014-2015 is 5.37%, and the average change in WADA over the past five years has been 4.30%.

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The weighted average daily attendance, or WADA, has become an extremely important number. Funding allowed by the State of Texas for a public school district is limited to a maximum revenue amount per WADA. As WADA increases, allowable funding for the district increases. Conversely if WADA decreases, funding for the district decreases. For this reason it is important to look at the actual weighted average daily attendance amount.

Campus Grade Configuration

Campus grade configuration is an important budget consideration for staffing purposes and the number of operating campuses. Currently Tomball ISD divides its campuses into Elementary for grades EE-4, Intermediate for grades 5 and 6, Junior High for grades 7 and 8, and High School for grades 9-12. Prior to 2009-2010 the percentage of enrolled student in these grade configurations had remained relatively constant. As can be seen in the graph below Elementary enrollment has increased from 2009-2010 to 2013-2014 by 1.6%. Rapid growth in the lower grades is an indicator of a continuously growing district.

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STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS

Litigation Relating to the Texas Public School Finance System On April 9, 2001, four property wealthy districts filed suit in the 250th District Court of Travis County, Texas against the Texas Education Agency, the Texas State Board of Education, the Texas Commissioner of Education and the Texas Comptroller of Public Accounts in a case styled West Orange-Cove Consolidated Independent School District, et al. v. Neeley, et al. The plaintiffs alleged that the $1.50 maximum maintenance and operations ("M&O") tax rate had become in effect a state property tax, in violation of Article VIII, Section 1-e of the Texas Constitution, because it precluded them and other school districts from having meaningful discretion to tax at a lower rate. Forty school districts intervened alleging that the Texas public school finance system was inefficient, inadequate, and unsuitable, in violation of Article VII, Section 1 of the Texas Constitution, because the State of Texas did not provide adequate funding. This case has twice reached the Texas Supreme Court, which rendered decisions in the case on May 29, 2003 ("West Orange-Cove I") and November 22, 2005 ("West Orange-Cove II"). After the remand by the Supreme Court back to the District Court in West Orange-Cove I, 285 other school districts were added as plaintiffs or intervenors. The plaintiffs joined the intervenors in their Article VII, Section 1 claims that the Finance System was inadequate and unsuitable, but not in their claims that the Finance System was inefficient. On November 30, 2004, the final judgment of the District Court was released in connection with its reconsideration of the issues remanded to it by the Supreme Court in West Orange-Cove I. In that case, the District Court rendered judgment for the plaintiffs on all of their claims and for the intervenors on all but one of their claims, finding that (1) the Finance System was unconstitutional in that the Finance System violated Article VIII, Section 1-e of the Texas Constitution because the statutory limit of $1.50 per $100.00 of taxable assessed valuation on property taxes levied by school districts for maintenance and operation purposes had become both a floor and a ceiling, denying school districts meaningful discretion in setting their tax rates; (2) the constitutional mandate of adequacy set forth in Article VII, Section 1 of the Texas Constitution was greater than the maximum amount of funding available under the funding formulas administered by the State; and (3) the Finance System was financially inefficient, inadequate, and unsuitable in that it failed to provide sufficient access to revenue to provide for a general diffusion of knowledge as required by Article VII, Section 1, of the Texas Constitution. The intervening school district groups contended that funding for school operations and facilities was inefficient in violation of Article VII, Section 1 of the Texas Constitution, because children in property-poor districts did not have substantially equal access to education revenue. All of the plaintiff and intervenor school districts asserted that the Finance System could not achieve "[a] general diffusion of knowledge" as required by Article VII, Section 1 of the Texas Constitution, because the Finance System was

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underfunded. The State, represented by the Texas Attorney General, made a number of arguments opposing the positions of the school districts, as well as asserting that school districts did not have standing to challenge the State in these matters. In West Orange-Cove II, the Supreme Court's holding was two-fold: (1) that the local M&O tax had become a state property tax in violation of Article VIII, Section 1-e of the Texas Constitution and (2) the deficiencies in the Finance System did not amount to a violation of Article VII, Section 1 of the Texas Constitution. In reaching its first holding, the Supreme Court relied on evidence presented in the District Court to conclude that school districts did not have meaningful discretion in levying the M&O tax. In reaching its second holding the Supreme Court determined that: (i) the public education system was "adequate," since it is capable of accomplishing a general diffusion of knowledge, (ii) the Finance System was not "inefficient," because school districts have substantially equal access to similar revenues per pupil at similar levels of tax effort, and efficiency does not preclude supplementation of revenues with local funds by school districts, and (iii) the Finance System does not violate the constitutional requirement of "suitability," since the Finance System was suitable for adequately and efficiently providing a public education. In reversing the District Court's holding that the Finance System was unconstitutional under Article VII, Section 1 of the Texas Constitution, the Supreme Court stated:

Although the districts have offered evidence of deficiencies in the public school finance system, we conclude that those deficiencies do not amount to a violation of Article VII, Section 1. We remain convinced, however, as we were sixteen years ago, that defects in the structure of the public school finance system expose the system to constitutional challenge. Pouring more money into the system may forestall those challenges, but only for a time. They will repeat until the system is overhauled.

In response to the intervenor districts' contention that the Finance System was constitutionally inefficient, the West Orange-Cove II decision states that the Texas Constitution does not prevent the Finance System from being structured in a manner that results in gaps between the amount of funding per student that is available to the richest districts as compared to the poorest district, but reiterated its statements in Edgewood Independent School District v. Meno, 917 S.W.2d 717 (Tex. 1995) ("Edgewood IV") that such funding variances may not be unreasonable. The Supreme Court further stated that "[t]he standards of Article VII, Section 1 - adequacy, efficiency, and suitability - do not dictate a particular structure that a system of free public schools must have." The Supreme Court also noted that "[e]fficiency requires only substantially equal access to revenue for facilities necessary for an adequate system," and the Supreme Court agreed with arguments put forth by the State that the plaintiffs had failed to present sufficient evidence to prove that there was an inability to provide for a "general diffusion of knowledge". Funding Changes in Response to West Orange-Cove II In response to the decision in West Orange-Cove II, the Texas Legislature enacted House Bill 1 ("HB 1"), which made substantive changes in the way the Finance System is funded, as well as other legislation which, among other things, established a special fund in the State

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treasury to be used to collect new tax revenues that are dedicated under certain conditions for appropriation by the Legislature to reduce M&O tax rates, broadened the State business franchise tax, modified the procedures for assessing the State motor vehicle sales and use tax and increased the State tax on tobacco products (HB 1 and other described legislation are collectively referred to herein as the "Reform Legislation"). The Reform Legislation generally became effective at the beginning of the 2006–07 fiscal year of each district. Current Litigation Related to the Texas Public School Finance System Several lawsuits were filed in 2011 and 2012 in District Courts which alleged that the Finance System, as modified by legislation enacted by the Legislature since the decision in West Orange Cove II, and in particular as modified by Senate Bill 1 in 2011, has resulted in a funding system that violates principles established in West Orange Cove I, West Orange Cove II, and prior decisions of the Supreme Court relating to the constitutionality of the Finance System and several provisions of the Texas Constitution. In general, each suit presented the legal perspectives and arguments of the different coalitions of school districts represented, but as a general matter, each group challenged the adequacy of funding provided by the Legislature for the Finance System, and the plaintiffs in each suit sought to have an injunction issued to the State and its officials to prevent the distribution of any funds under the current Finance System until a constitutional system is created, and sought a declaration that changes in funding for the Finance System since the enactment of HB 1 have effectively converted the local M&O tax into a State property tax in violation of the Texas Constitution. The defendants in the suits include State officials and the State Board of Education. The first suit was filed on October 10, 2011, styled “The Texas Taxpayer & Student Fairness Coalition, et al. vs. Robert Scott, Commissioner of Education et al.” A second suit was filed on December 9, 2011, styled “Calhoun County Independent School District, et al. v Robert Scott, Commissioner of Education, et al.” A third suit was filed on December 13, 2011, styled “Edgewood Independent School District, et al. v. Robert Scott, Commissioner of Education, et al.” A fourth suit was filed on December 23, 2011, styled “Fort Bend Independent School District, et al. v. Robert Scott, Commissioner of Education, et al.” The State Defendants filed an answer with respect to the each of the first four suits filed, denying the plaintiff’s allegations, and all four of these suits were assigned to the 250th District Court of Travis County. On February 24, 2012 a plea of intervention to the Fort Bend Suit was filed by seven parents and a group named “Texans for Real Efficiency and Equity in Education.” The intervenors asserted that the Finance System is qualitatively inefficient, and that the Finance System is unconstitutional, in part based on arguments made by other plaintiffs. A fifth suit was filed on June 26, 2012 by individuals and the Texas Charter School Association, styled “Flores, et al. v. Robert Scott, Commissioner of Education, et al.” The petition for the Charter School Suit agreed with the arguments of the school districts in the first four suits filed that the Finance System is unconstitutional and also sought to have an injunction issued against the State Defendants in the same manner as the first four suits. The Charter School Suit added additional grounds holding the Finance System unconstitutional, including that charter schools receive no funding for facilities and that the statutory cap on charter schools is unconstitutionally arbitrary. The State Defendants also filed a general denial in the Charter School Suit.

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All five suits were consolidated by the 250th District Court of Travis County and the trial commenced on October 22, 2012. On February 4, 2013, the District Court rendered a preliminary ruling generally as follows: (i) the Finance System is inefficient "in that it fails to provide substantially equal access to revenues necessary to provide a general diffusion of knowledge;" (ii) the Finance System is not "adequately funded" and arbitrarily funds districts at different levels below the amount required to provide for a general diffusion of knowledge; (iii) the Finance System has created a Statewide property tax in violation of the Texas Constitution because districts lack "meaningful discretion" in setting their tax rates, as exemplified by the ruling that low property wealth districts are forced to tax at or near the maximum M&O tax rate of $1.17 to meet State education standards and other districts cannot lower their M&O tax rate without compromising their ability to meet State education standards nor can they raise their M&O tax rate because they are either legally or practically unable to do so. In his preliminary ruling, the Presiding Judge of the District Court did not grant nor address the injunctive relief sought by any of the plaintiffs, and the Court declined the requests of Texans for Real Efficiency and Equity in Education for a declaration that the Finance System is unconstitutional on the basis of their arguments that included that greater competition, including more charter schools and less regulation, could result in a more efficient public school finance system. In response to arguments on behalf of the State's charter schools, the District Court also held in its preliminary ruling that it is within the discretion of the Legislature, and not unconstitutional, to fund charter schools differently from public schools. In announcing his preliminary February 4, 2013 ruling, the Presiding Judge indicated that he would issue an omnibus order in the case within four to six weeks. No such order has been issued. On June 19, 2013, a hearing was held by the District Court at which the Presiding Judge directed the parties to the suits to provide supplemental evidence to the District Court pertaining to new funding provided by the Legislature for the Finance System during the 83rd Regular Session of the Texas Legislature, which concluded on May 27, 2013. A trial to consider this evidence began on January 21, 2014 and concluded on February 7, 2014. The Presiding Judge stated that a ruling in this trial would be made in the Spring of 2014. All parties to the suits have indicated their intent to appeal any ruling against them to the Texas Supreme Court. Tomball ISD has at no time, either presently or in the past, participated in any legal action against the State of Texas and can make no representations or predictions concerning the effect this litigation, or the current ruling by the District Court and any appeals, may have on the District’s financial condition, revenues or operations. 2013 Legislative Session The 83rd Texas Legislature ended May 27, 2013 with the adoption of a biennial budget that “restored” $3.2 billion of the $4 billion that was cut from basic state aid for the Finance System during the 2011 legislative session and some $100 million of the $1.3 billion cut from grant programs during the 2011 Legislative Session. The revenues that were added back to the Finance System do not take into account growing student enrollments in the State. The Legislature did not materially change the Finance System during the session.

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CURRENT PUBLIC SCHOOL FINANCE SYSTEM

Overview The following description of the Finance System is a summary of the Reform Legislation and the changes made by the State Legislature to the Reform Legislation since its enactment, including modifications made during the regular through third called sessions of the 79th Texas Legislature (collectively, the "2006 Legislative Session"), the regular session of the 81st Texas Legislature (the "2009 Legislative Session"), the regular and first called sessions of the 82nd Texas Legislature (collectively, the "2011 Legislative Session") and the regular session of the 83rd Texas Legislature (the "2013 Legislative Session"). Funding for school districts in the State is provided primarily from State and local sources. State funding for all school districts is provided through a set of funding formulas comprising the "Foundation School Program," as well as two facilities financing programs. Generally, the Finance System is designed to promote wealth equalization among school districts by balancing State and local sources of funds available to school districts. In particular, because districts with relatively high levels of property wealth per student can raise more local funding, such districts receive less State aid, and in some cases, are required to disburse local funds to equalize their overall funding relative to other school districts. Conversely, because districts with relatively low levels of property wealth per student have limited access to local funding, the Finance System is designed to provide more State funding to such districts. Thus, as a school district’s property wealth per student increases, State funding to the school district is reduced. As a school district’s property wealth per student declines, the Finance System is designed to increase its State funding. Local funding is derived from collections of ad valorem taxes levied on property located within each district's boundaries. School districts are authorized to levy two types of property taxes: a limited maintenance and operations ("M&O") tax to pay current expenses and an unlimited interest and sinking fund ("I&S") tax to pay debt service on bonds. Under current law, M&O tax rates are subject to a statutory maximum rate of $1.17 per $100 of taxable value for most school districts. Current law also requires school districts to demonstrate their ability to pay debt service on outstanding indebtedness through the levy of an ad valorem tax at a rate not to exceed $0.50 per $100 of taxable property at the time bonds are issued. Once bonds are issued, however, districts may levy a tax to pay debt service on such bonds unlimited as to rate or amount. The Reform Legislation, which generally became effective at the beginning of the 2006–07 fiscal year of each school district in the State, made substantive changes to the Finance System. While each school district's funding entitlement was calculated based on the same formulas that were used prior to the 2006–07 fiscal year, the Reform Legislation made changes to local district funding by reducing each district’s 2005 M&O tax rate by one-third over two years through the introduction of the "State Compression Percentage," with M&O tax levies declining by approximately 11% in fiscal year 2006–07 and approximately another

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22% in fiscal year 2007–08. (Prior to the Reform Legislation, the maximum M&O tax rate for most school districts was $1.50 per $100 of taxable assessed valuation. Because most school districts levied an M&O rate of $1.50 in 2005, application of the Reform Legislation compression formula reduced the majority of school districts' M&O tax rates to $1.00). Subject to local referenda, a district may increase its local M&O tax levy up to $0.17 above the district’s compressed tax rate. Based on the current State Compression Percentage, the maximum possible M&O tax rate is $1.17 per $100 of taxable value for most school districts. Local Funding for School Districts The primary source of local funding for school districts is collections from ad valorem taxes levied against the taxable property located in each school district. Prior to the Reform Legislation, the maximum M&O tax rate for most school districts was generally limited to $1.50 per $100 of taxable value, and the majority of school districts were levying an M&O tax rate of $1.50 per $100 of taxable value at the time the Reform Legislation was enacted. The Reform Legislation required each school district to "compress" its tax rate by an amount equal to the "State Compression Percentage." For fiscal years 2007–08 through 2014–15, the State Compression Percentage has been set at 66.67%, effectively setting the maximum compressed M&O tax rate for most school districts at $1.00 per $100 of taxable value. Tomball ISD has a compressed rate of $0.96, which is $1.44 (2005 M&O tax rate) times 66.67%. The State Compression Percentage is set by legislative appropriation for each State fiscal biennium or, in the absence of legislative appropriation, by the Commissioner. School districts are permitted to generate additional local funds by raising their M&O tax rate above the compressed tax rate as long as the rate does not exceed the rollback rate for the district (for most districts, up to $1.04 per $100 of taxable value). Voter approval is required for a tax rate that exceeds the rollback rate, and voters can approve an M&O tax rate to a maximum of $1.17 per $100 of taxable value. State Funding for School Districts State funding for school districts is provided through the Foundation School Program, which provides each school district with a minimum level of funding (a "Basic Allotment") for each student in average daily attendance ("ADA"). The Basic Allotment is calculated for each school district using various weights and adjustments based on the number of students in average daily attendance, and may vary depending on each district's compressed tax rate. The Basic Allotment formula determines most of the allotments making up a district's “Tier One” entitlement. Tier One allotments are intended to provide all districts a basic level of education necessary to meet applicable legal standards. This basic level of funding is then "enriched" with additional funds known as "Tier Two" of the Foundation School Program. Tier Two allotments are intended to guarantee each school district that is not subject to the wealth transfer provisions an opportunity to supplement that basic program at a level of its own choice. Tier Two provides a guaranteed level of funding for each cent of local tax effort that exceeds the compressed tax rate (for most districts an M&O tax rate above $1.00, for Tomball ISD an M&O tax rate above $0.96).

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The Finance System also provides an Existing Debt Allotment ("EDA") to subsidize debt service on eligible outstanding school district bonds and an Instructional Facilities Allotment ("IFA") to subsidize debt service on newly issued bonds. IFA primarily addresses the debt service needs of property-poor school districts. A New Instructional Facilities Allotment ("NIFA") also is available to help pay operational expenses associated with the opening of a new instructional facility; however, NIFA awards were not funded by the Legislature for either the 2012–13 or the 2014-15 State fiscal bienniums. The 2013 Legislative Session did appropriate funds in the amount of $1,268,000 for the 2014-15 State fiscal biennium for continued EDA and IFA support for property-poor districts. Tier One and Tier Two allotments represent the State's share of the cost of M&O expenses of school districts, with local M&O taxes representing the district's local share. If a district qualifies, EDA and IFA allotments supplement a school district’s local I&S taxes levied for debt service on eligible bonds issued to construct, acquire and improve facilities. Tier One and Tier Two allotments and existing EDA and IFA allotments are generally required to be funded each year by the Legislature. Future-year IFA and EDA awards were not funded by the Legislature beyond the 2014–15 fiscal biennium, so debt service on new bonds issued may be funded solely from local I&S taxes. As described above, the cost of the basic program is based on an allotment per student known as the "Basic Allotment". For fiscal year 2013-14, the Basic Allotment is $4,950 and for fiscal year 2014-15, the Basic Allotment is $5,040 for each student in average daily attendance. The Basic Allotment is then adjusted for all districts by several different weights to account for inherent differences between school districts. These weights consist of (i) a cost adjustment factor intended to address varying economic conditions that affect teacher hiring known as the "cost of education index", (ii) district-size adjustments for small and mid-size districts and (iii) an adjustment for the sparsity of the district's student population. The cost of education index and district-size adjustments applied to the Basic Allotment, create what is referred to as the "Adjusted Allotment". The Adjusted Allotment is used to compute a "regular program allotment," as well as various other allotments associated with educating students with other specified educational needs. Tier Two supplements the basic funding of Tier One and provides two levels of enrichment with different guaranteed yields depending on the district's local tax effort. The first six cents of tax effort that exceeds the compressed tax rate will for most districts generate a guaranteed yield of $59.97 and $61.86 per penny of tax effort per weighted student in average daily attendance ("WADA") for the fiscal year 2013-14 and fiscal year 2014-15, respectively. The second level of Tier Two is generated by tax effort that exceeds the district's compressed tax rate plus six cents and has a guaranteed yield per penny per WADA of $31.95 for fiscal years 2013-14 and 2014-15. School districts that have an M&O tax rate that exceeds the district's compressed tax rate plus six cent are subject to recapture above this tax rate level at the equivalent wealth per student of $319,500. Tomball ISD’s M&O tax rate is currently at the compressed rate plus six cents ($0.96 plus $0.06 or $1.02) and will be subject to the $319,500 wealth recapture for any additional pennies added to the current M&O tax rate.

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Special rules apply to additional allotments for facilities as the EDA or IFA awards. Tomball ISD does not qualify for assistance with either allotment, however this is irrelevant since neither was funded for the 2014–15 fiscal biennium by the Legislature. Prior to the 2012–13 biennium, a district could also qualify for a NIFA allotment, which provided assistance to districts for operational expenses associated with opening new instructional facilities. As previously mentioned, this program was not funded for either the 2012–13 or 2014-15 State fiscal bienniums. Tomball ISD lost a substantial amount of NIFA funding with the opening of Tomball Memorial High School and Timber Creek Elementary when this funding was cut. 2006 Legislation Since the enactment of the Reform Legislation in 2006, most school districts in the State have operated with a "target" funding level per student ("Target Revenue") that is based upon the "hold harmless" principles embodied in the Reform Legislation. This system of Target Revenue was superimposed on the Foundation School Program and made existing funding formulas substantially less important for most school districts. As noted earlier, the Reform Legislation was intended to lower M&O tax rates in order to give school districts "meaningful discretion" in setting their M&O tax rates, while holding school districts harmless by providing them with the same level of overall funding they received prior to the enactment of the Reform Legislation. Under the Target Revenue system, each school district is generally entitled to receive the same amount of revenue per student as it did in either the 2005–2006 or 2006–2007 fiscal year (under existing laws prior to the enactment of the Reform Legislation), as long as the district adopted an M&O tax rate that was at least equal to its compressed rate. The reduction in local M&O taxes resulting from the mandatory compression of M&O tax rates under the Reform Legislation, by itself, would have significantly reduced the amount of local revenue available to fund the Finance System. To make up for this shortfall, the Reform Legislation authorized Additional State Aid for Tax Reduction ("ASATR") for each school district in an amount equal to the difference between the amount that each district would receive under the Foundation School Program and the amount of each district's Target Revenue funding level. 2009 Legislation During the 2009 Legislative Session, legislation was enacted that increased the Basic Allotment for the 2009–2010 fiscal year from $3,218 to $4,765. In addition, each district's Target Revenue was increased by $120 per WADA. Target Revenue amounts were also adjusted to provide for mandatory employee pay raises and to account for changes in transportation and NIFA costs since the original Target Revenues were set. Overall, the Legislature allocated approximately $1.9 billion in new State aid for school districts. 2011 Legislation During the 2011 Legislative Session, the Legislature enacted a budget that cut $4 billion from the Foundation School Program for the 2012–13 State fiscal biennium, as compared to the funding level school districts were entitled to under the current formulas, including Target Revenue, and also cut approximately $1.3 billion in various grants (i.e., pre-

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kindergarten grant program, student success initiative, etc.) that were previously available. Such cuts were made in light of a projected State deficit of up to $27 billion for the 2012–2013 State fiscal biennium. In order to reduce formula funding, a Regular Program Adjustment Factor ("RPAF") was applied to the formula that determines a district's regular program allotment. RPAF is multiplied by a school district's count of students in ADA (not counting the time a student spends in special education and career & technology education) and its Adjusted Allotment, which is the $4,765 Basic Allotment adjusted for the cost of education index and the small- and mid-sized district adjustments. The RPAF for the 2011–2012 fiscal year was 0.9239 and 0.98 for the 2012–2013. The Legislature established an RPAF value of 0.98 for the 2013–15 State fiscal biennium, subject to increases by subsequent legislative appropriation not to exceed an RPAF value of 1.0. The RPAF factor and its related provisions are scheduled to expire on September 1, 2015. The RPAF was the primary mechanism for formula reductions in the 2011–12 fiscal year. However, the 2011 Legislation also added a reduction percentage to school district entitlement to be applied to the calculation of ASATR. Because it only applies to ASATR, its impact is generally felt only by school districts for which the formula funding system does not provide the district with its Target Revenue. In the 2012–13 fiscal year, the RPAF of 0.98 was combined with a percentage reduction in each school district's Target Revenue per WADA to 92.35% of its formula amount. For the 2013–14 and 2014-15 fiscal years, the percentage reduction of each district's hold harmless ASATR amount is 92.63%. With regard to this adjustment, the ASATR relief that funds the hold-harmless Target Revenue system is being phased out between now and September 1, 2017. This will have a significant negative impact on Tomball ISD. 2013 Legislation No significant modifications were made to the underlying school finance structure during the 2013 Legislative Session. However, several of the revenue reduction formulas, notably the RPAF, were eliminated. As stated above, the 2011 Legislation created the RPAF as the primary mechanism for formula reductions in the 2012–13 State biennium. For the 2013–14 and 2014-15 fiscal years, the State Legislature set the RPAF to 1.00 which restores the regular program allotment funding at 100% of which each district is entitled. The RPAF expires at the end of fiscal year 2014-15 on September 1, 2015. The 2013 Legislature also continued the reduction in each district’s ASATR payment but changed the reduction from 92.35% to 92.63% of what the district would have received in hold harmless ASATR funding for the 2013-14 and 2014-15 school years. The 2013 Legislation also increased the Basic Allotment for the 2013-14 fiscal year to $4,950 and for the 2014-15 fiscal year to $5,040. Wealth Transfer Provisions Some districts have sufficient property wealth per student in WADA ("wealth per student") to generate their statutory level of funding through collections of local property taxes alone. Districts whose wealth per student generates local property tax collections in excess of their

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statutory level of funding are referred to as "Chapter 41" districts because they are subject to the wealth equalization provisions contained in Chapter 41 of the Texas Education Code. Chapter 41 districts may receive State funds for certain competitive grants and a few programs that remain outside the Foundation School Program, as well as receiving ASATR until their overall funding meets or exceeds their Target Revenue level of funding. Otherwise, Chapter 41 districts are not eligible to receive State funding. Furthermore, Chapter 41 districts must exercise certain options in order to reduce their wealth level to equalized wealth levels of funding, as determined by formulas set forth in the Reform Legislation. For most Chapter 41 districts, this equalization process entails paying the portion of the district’s local taxes collected in excess of the equalized wealth levels of funding to the State (for redistribution to other school districts) or directly to other school districts with a wealth per student that does not generate local funds sufficient to meet the statutory level of funding; a process known as "recapture". The equalized wealth levels that subject Chapter 41 districts to wealth equalization measures for fiscal year 2013–14 are set at (i) $495,000 per student in WADA with respect to that portion of a district's M&O tax effort that does not exceed its compressed tax rate (for Tomball ISD, the first $0.96 per $100 of taxable value) and (ii) $319,500 per WADA with respect to that portion of a district's M&O tax effort that is beyond its compressed rate plus $.06. For the 2014-15 fiscal year, the first equalized wealth level increases from $495,000 to $504,000, however the second equalized wealth level remains at $319,500. For Tomball ISD M&O taxes levied above $0.96 but below $1.02 per $100 of taxable value are not subject to the wealth equalization provisions of Chapter 41. Under Chapter 41, a district has five options to reduce its wealth per student so that it does not exceed the equalized wealth levels: (1) a district may consolidate by agreement with one or more districts to form a consolidated district; all property and debt of the consolidating districts vest in the consolidated district; (2) a district may detach property from its territory for annexation by a property-poor district; (3) a district may purchase attendance credits from the State; (4) a district may contract to educate nonresident students from a property-poor district by sending money directly to one or more property-poor districts; or (5) a district may consolidate by agreement with one or more districts to form a consolidated taxing district solely to levy and distribute either M&O taxes or both M&O taxes and I&S taxes. A district may not adopt a tax rate until its effective wealth per student is at or below the equalized wealth level. The School Finance System as Applied to the District Since Tomball ISD’s wealth per student for the 2014-15 school year is below the first equalized wealth value ($495,000 per WADA) and below the second equalized wealth value ($319,500 per WADA), and the District’s M&O tax rate does not exceed $1.02 per $100 of taxable value, the District is not required to make wealth equalization payments.

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Significant Factors for 2014-2015 There were numerous concerns influencing the preparation of the 2014-2015 budget. The most significant were:

The Texas State Legislature ended the 83rd Session in 2013 retaining modifications to the state funding formulas that apply a percentage reduction in target revenue per pupil for those districts with a higher target revenue amount. The Legislative intent is to leave this reducing factor in place through the 2014-2015 fiscal year to hold down the per pupil revenue available to the higher target revenue districts while at the same time increasing the basic allotment to move more districts to a higher revenue per pupil. As a district that was in the top quartile of target revenue per pupil and subject to this reducing factor, the impact on Tomball ISD has been a radical reduction in target revenue per pupil. As can be seen in the graph below Tomball ISD has received less revenue per pupil over the past three years than received in 2005-2006. This reduced revenue per pupil has forced constraints on budget growth and could be a factor when we open three new schools in 2015-2016.

$5,600

$5,700

$5,800

$5,900

$6,000

$6,100

$6,200

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Target Revenue per WADA

The Texas State Legislature also ended the 83rd Session in 2013 passing Senate Bill 1458 that added a 1.5% charge per payroll dollar to most governmental entities whose employees receive Teacher Retirement System pensions. The cost of $870,335 was added to the 2014-2015 budget and is funded in part for the first year. The full cost will be borne by the District in all budgets that follow 2014-2015. With consideration of the impact on future budgets, personnel added this year will carry the additional 1.5% expense in the future. This was a constraining factor in budget preparation.

HB 1 Passed

HB 3646 Passed

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The District had remained cautious about spending into the target revenue per pupil with the thought the target revenue would be decreased at some point by the Legislature. However at no time was it considered the target revenue would be reset to an amount lower than the revenue per pupil funding available ten years earlier. The graph below shows the historical results of actual revenues and expenditures through 2012-2013, and the budgets for 2013-2014 and 2014-2015. The 2014-2015 budget is balanced, but future budgets will face the expense associated with adding four new schools in a two year period of time. Surpluses appearing in the graphs below have been set aside to offset the anticipated impact of a reduced target revenue, however $8 million of those reserves was spent on the purchase of 205 acres in 2013-2014. A contingent liability exists with the implementation of GASB Statement #68 that could reduce fund balance available in the future by an amount not yet known. Will reserves that have been set aside be sufficient remains a concern.

$60,000,000

$65,000,000

$70,000,000

$75,000,000

$80,000,000

$85,000,000

$90,000,000

$95,000,000

$100,000,000

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Operating Revenues Operating Expenditures

School districts adjacent to Tomball ISD were forced to deal with low target revenue

per pupil since House Bill 1 passed in 2006. Pushed by lawsuits to equalize funding, the Legislature chose a funding level below the 50 percentile average revenue per pupil. School districts that were in the top quartile of funding per pupil must face reductions similar to what Tomball ISD is experiencing. Moving all districts to a similar revenue per pupil, districts that were in the bottom half of funding per pupil are seeing funding increases they have not seen in years. The response to this additional funding appears to be that of “pent-up frustration” and substantial increases in salaries and hourly wages are being adopted. The new target amount in starting teacher salary is now $50,000 and a minimum per hour wage of $10. Tomball ISD desires to remain competitive in salaries and wages and was forced to consider the steps necessary to fund matching increases. This salary competition may have a major impact on future budgets that must be considered.

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2014-2015 Revenue Projections Funding Sources

Tomball ISD has two major sources of revenue: local property taxes and state funding. Local property taxes are dependent on the tax rate set on the assessed taxable values of the district. These assessed taxable values are determined by the Harris County Appraisal District (HCAD) and Montgomery County Appraisal District (MCAD). State funding amounts are an offset to local tax revenues designed to restrict funding in revenue per pupil from local taxes and state sources to a specific target revenue amount. If the local tax base increases and local tax revenues increase, state aid decreases. If local decreases, state aid increases.

Changes in the Taxable Base and Certified Taxable Amounts

The County Appraisal Districts are required by law to provide taxable values on two different occasions during the time period for usual school district budget preparation. The first of these values is a Certified Estimate of Taxable Values due on or before April 30th. The Certified Estimate for 2014 Taxable Values was received on April 30th from the Chief Appraisers. The value of $7,575,115,096 is an increase from the prior year of 14.3%. This estimate is extremely important because the school district Board of Trustees must set its tax rates based on these certified amounts. This certified estimate of taxable value has also been used in budget preparation for local tax and state funding revenue.

Audited and Certified Taxable Values

4.663

4.9565.196 5.348

6.076

6.627

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

2008 2009 2010 2011 2012 2013 2014

BILLIONS OF DOLLARS C

ertif

ied

Estim

ate

7.575

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Changes in the Total Tax Rate

Current law requires all districts to compress their M&O tax rates to a level equal to 66.67% of the 2005-2006 M&O tax rate. Tomball ISD’s compressed M&O tax rate is $0.96 ($1.44 * 0.6667). The District is allowed to add pennies to this compressed rate as long as the total added does not exceed a legal maximum tax rate.

The maximum allowable tax rate for general operating is one of two tax rate calculations. The first rate is calculated as the maximum M&O tax rate defined in state law of $1.0401 [($1.50 X 66.67%) + $0.04] plus any voter approved M&O pennies. State law allows local district voters the authority to approve as much as 13 cents to the $1.0401. The second rate is the calculated effective tax rate plus 4 cents. The effective tax rate is calculated using a worksheet in the Texas State Comptrollers’ Truth in Taxation handbook, and for 2014-2015 the effective rate is $1.0199. Adding four pennies to the effective rate is the second tax rate maximum and would be $1.0599. The maximum M&O tax rate, or rollback rate, for general operating is the lower of these two rates. The lower rate for 2014-2015 is $1.0401.

Each additional penny above the compressed rate, up to 6 pennies in 2014-2015, is equalized to the per penny revenue yield per WADA of Austin ISD. Because of the additional funding related to these six additional pennies, they are typically called golden pennies.

In 2014-2015 each penny of the tax rate for Tomball ISD will generate $757,512 at a 100% collection rate, and each penny of the first six pennies of tax rate above the compressed rate of $0.960 will generate equalizing funds from the state of $178,022 to bring the district to the estimated revenue per penny per WADA of Austin ISD. This equalized amount added to the local tax revenue is a total gain per additional penny of $935,534, or a yield of 123.501%.

The district passed a $1.01 M&O tax rate in 2008-09, 2009-10, 2010-11, 2011-12 and in 2012-2013 which was 5 additional pennies above the compressed tax rate for these years, and below the maximum rate of $1.0401. The 2013-2014 M&O tax rate adopted was $1.02 and the 2014-2015 proposed M&O tax rate is $1.02. The change in 2013-2014 added the last golden penny available to Tomball ISD. This has been a needed addition to revenue.

The district passed a $0.35 I&S tax rate in 2008-09, 2009-10, 2010-11, 2011-12 and in 2012-2013. Since 2008 the District has taken advantage of the low interest rate environment to sale new bonds and to recall and refinance bonds outstanding. This allowed the District to sell $198 million in bonds to fund the Bond 2007 projects while maintaining a flat I&S tax rate of $0.35, well below the maximum of $0.41 promised in the bond election. The 2013-2014 adopted I&S tax rate was $0.34. The growth in taxable property values allows the District to maintain the proposed I&S tax rate of $0.34 despite the recent sale of $86 million in bonds.

The worksheet on the following page titled Projection by Rate of Collections and Tax Rate shows the calculation using the tax rates based on the property value projections and percentage collection rates for the tax levy. The total proposed tax rate is $1.36 – the same total tax rate for seven consecutive years.

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TOMBALL INDEPENDENT SCHOOL DISTRICT

PROJECTION BY RATE OF COLLECTION AND TAX RATE

2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

DESCRIPTION FISCAL YEAR FISCAL Y EAR FISCAL YEAR FISCAL YEAR FISCAL Y EAR

A UD IT ED A UD IT ED A UD IT ED B UD GET ED EST IM A T ED

Property Values and Value Statistics 2010 F IN A L 2011 F IN A L 2012 F IN A L 2013 TAXABLE VALUE 2014 TAXABLE VALUE

Certif ied District Property Values 5,290,768,420 5,676,372,527 6,240,385,108 6,827,589,255 7,776,183,218

less: Exemptions & Abatements (299,794,600) (308,788,438) (305,820,471) (314,995,085) (324,444,938)

Taxable Value After Exemptions 4,990,973,820 5,367,584,089 5,934,564,637 6,512,594,170 7,451,738,280

plus: Taxable Value Property under Protest 222,269,183 231,159,950 226,736,794 233,538,898 240,545,065

less: Value Loss for Frozen Levy plus Addt'l (112,596,385) (113,722,349) (114,859,572) (116,008,168) (117,168,249)

Net Taxable Value $5,100,646,618 $5,485,021,690 $6,046,441,859 $6,630,124,900 $7,575,115,096

Percent of Tax Collection (Audited) 100.890% 100.800% 100.307% 100.000% 100.000% Tax Dollars raised per $0.01 Tax Rate 514,604 552,890 606,500 663,012 757,512

Weighted Average Daily Attendance 12,099.541 12,684.440 13,257.150 14,038.668 14,792.796

Average Wealth per WADA $421,557 $432,421 $456,089 $472,276 $512,081

Adopted Tax Rates

Operating Tax Rate 1.01000 1.01000 1.01000 1.02000 1.02000

Debt Service Tax Rate 0.35000 0.35000 0.35000 0.34000 0.34000

Total Adopted Tax Rate $1.36000 $1.36000 $1.36000 $1.36000 $1.36000

Effective & Rollback Tax Rates

Compressed Operating Tax Rate 0.96005 0.96005 0.96005 0.96005 0.96005

Maximum Operating Tax Rate w /out Election 1.04000 1.04000 1.04000 1.04000 1.04000

Maximum Debt Tax Rate 0.38204 0.36974 0.35180 0.34243 0.34479

Total Rollback Tax Rate w/out Election 1.42204 1.40974 1.39180 1.38243 1.38479

M&O Tax Rate Cap (w ith voter approval) $1.17005 $1.17005 $1.17005 $1.17005 $1.17005

Remaining Operating Tax Available $0.16005 $0.16005 $0.16005 $0.15005 $0.15005

Total Tax Collections

Operating Collections (including Delinquent)) 52,020,465 55,862,166 61,256,545 67,627,274 77,266,174

Debt Service Collections (incl. Delinquent) 17,966,010 19,328,650 21,227,516 22,542,425 25,755,391

Total Tax Collections (audited) 69,986,475 75,190,816 82,484,060 90,169,699 103,021,565

Debt Service Requirement for Year 19,486,603 20,280,318 21,337,080 22,703,716 26,117,986

Total Operating Revenues

A spreadsheet on the following page compares actual audited data from prior years to the 2013-2014 budgeted revenues and the 2014-2015 projected revenues. This spreadsheet shows an decrease in state funding and an increase in local taxes for 2014-2015 due to the increase in the taxable property values. The total revenue is $98,775,000 and is significantly more than the previous year. The total revenue per pupil (WADA) is $6,706 and a 3.28% increase over the prior year. This increase in revenue is due to the change in the Weighted Average Daily Attendance projection.

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DESCRIPTION 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015Audited Audited Audited Audited ADOPTED PROJECTED

Pupil Weighted ADA 11,556.057 12,099.542 12,684.440 13,257.150 14,038.668 14,729.796% change from prior year 5.41% 4.70% 4.83% 4.52% 5.90% 4.92%

GENERAL FUNDLocal Property Taxes 50,674,625 52,020,465 55,862,166 61,383,715 67,597,513 77,266,174

% of Fund Revenues 62.48% 63.86% 67.04% 71.21% 74.16% 78.22%

Other Local Revenues 1,431,961 1,367,418 1,358,564 1,006,357 845,927 1,184,681

% of Fund Revenues 1.77% 1.68% 1.63% 1.17% 0.93% 1.20%

State Assistance 28,287,881 27,549,975 25,795,604 23,305,022 22,340,284 19,899,145

% of Fund Revenues 34.88% 33.82% 30.96% 27.03% 24.51% 20.15%

Federal Assistance 709,422 522,924 304,559 510,631 366,276 425,000

% of Fund Revenues 0.87% 0.64% 0.37% 0.59% 0.40% 0.43%

GENERAL FUND Total Revenue 81,103,889 81,460,782 83,320,893 86,205,725 91,150,000 98,775,000

per WADA Pupil Revenue 7,018 6,733 6,569 6,503 6,493 6,706

% Change from Prior Year per Pupil 3.97% -4.07% -2.43% -1.01% -0.15% 3.28%

DEBT SERVICELocal Revenues 17,641,275 18,130,176 19,499,867 21,208,110 22,540,000 26,160,000

% of Fund Revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

State Assistance 0 0 0 0 0 0

% of Fund Revenues 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

DEBT SERVICE Total Revenue 17,641,275 18,130,176 19,499,867 21,208,110 22,540,000 26,160,000

per WADA Pupil Revenue 1,527 1,498 1,537 1,600 1,606 1,776

% Change from Prior Year per Pupil 1.71% -1.84% 2.60% 4.06% 0.36% 10.61%

FOOD SERVICELocal Revenues 2,172,933 2,265,644 2,591,109 2,747,554 2,777,160 3,131,027

% of Fund Revenues 60.97% 58.00% 59.63% 59.10% 60.37% 60.20%

State Assistance 84,554 92,138 96,908 100,726 111,243 116,147

% of Fund Revenues 2.37% 2.36% 2.23% 2.17% 2.42% 2.23%

Federal Assistance 1,306,199 1,548,177 1,657,316 1,800,914 1,711,597 1,954,076

% of Fund Revenues 36.65% 39.64% 38.14% 38.74% 37.21% 37.57%

FOOD SERVICE Total Revenue 3,563,686 3,905,959 4,345,333 4,649,194 4,600,000 5,201,250

per WADA Pupil Revenue 308 323 343 351 328 353

% Change from Prior Year per Pupil 5.48% 4.68% 6.12% 2.37% -6.57% 7.77%


REVENUES ANALYSIS

2014-2015 PROPOSED BUDGET

Revenue Analysis GF DS FS 1415.xls 5/21/2014

35

2014-2015 General Fund Budget The 2014-2015 proposed General Fund budget is $98,775,000, which is 7.19% higher than the 2013-2014 originally adopted budget. The budget is divided into five major expenditure categories, with these expenditure categories called object codes in school accounting.

The object codes indicate expenses in payroll, contracted services, supplies and materials, other operating costs, and capital outlay. Education is a service-oriented business, and typical for this type of business payroll costs are a very high percentage of expenditures. As can be seen in the pie chart above, payroll is the largest expense in the General Fund budget and 87.52% of the total. Due to the importance of payroll to total operating expenses, our discussion will begin with staffing, followed by a discussion on each object code separately. Current District Staffing The District currently has 1,631 employees. This staff is comprised of 961 (58.9%) professional and 670 (41.1%) non-professional positions. Of the total staff 761 (46.66%) are teachers, 141 (8.65%) are professional support such as librarians and counselors, 43 (2.64%) are campus administrators, 16 (0.98%) are professionals that have district-wide administrative duties, 151 (9.26%) are educational aides providing direct assistance to teachers, and 519 (31.81%) are support personnel for providing food services, custodial services, clerical support, transportation services, and maintenance of district plant facilities and grounds.

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TOMBALL ISDSTAFF COUNTS BY POSITION

TOTAL PERSONNEL

TEACHERS 649 47.1% 659 46.8% 670 46.7% 711 46.7% 761 46.6% 803.2 47.6%

Pre-K & Kindergarten 57 56 56 64 65

Elementary 288 307 322 344 385

Secondary 246 242 250 264 280 ADD Special Education 47 47 n/a n/a n/a 42.5 All Level 11 7 42 39 30

Unknown 0 0 0 0 0

SUPPORT STAFF 114 8.3% 118 8.4% 121 8.4% 126 8.3% 141 8.6% 144.5 8.6%

Counselors 20 20 20 21 22

Educ Diagnosticians 7 8 8 8 11

Librarians 12 15 13 14 14 ADD Nurses 15 15 14 14 16 3.5 Therapists 8 9 9 10 12

Psychologists 6 6 6 6 6

Other Support Staff 46 45 51 53 60

ADMINISTRATORS 53 3.8% 55 3.9% 54 3.8% 55 3.6% 59 3.6% 60.5 3.6%

Admin/Instr Officers 11 12 11 9 11

Principals 13 14 14 15 15 ADD Assistant Principals 24 23 23 25 28 1.5 Superintendent 1 1 1 1 1

Ass't Supt's 4 5 5 5 4

TOTAL PROFESSIONAL 816 59.2% 832 59.1% 845 58.9% 892 58.6% 961 58.9% 1008 59.7%

EDUCATIONAL AIDES 132 9.6% 136 9.7% 120 8.4% 141 9.3% 151 9.3% 155 9.2%

AUXILIARY STAFF 430 31.2% 440 31.3% 469 32.7% 490 32.2% 519 31.8% 525 31.1%

10,266 10,669 11,107 11,777 12,493 13,191

Student/Teacher Ratio 15.82 16.19 16.58 16.56 16.42 16.42Student/Staff Ratio 7.45 7.58 7.75 7.73 7.66 7.81

1434

2010-20112009-2010

1378

2014-2015

16881408

2011-2012

1523

2013-20142012-2013

1631

From 2009-2010 to 2014-2015 the number of employees has risen at an average rate of 3.75% per year while student enrollment has risen at an average rate of 4.75%. During this time period the number of employees did increase by a total of 310 employees. This growth was 192 (61.94%) professional positions and 118 (38.06%) non-professional positions. The table above details the change in the number of district employees by position from fiscal year 2009-2010 through 2014-2015. The percentage change in total employees from year to year was: 2009-2010 increased by 3.84%, 2010-2011 increased by 2.18%, 2011-2012 increased by 1.85%, 2012-2013 increased by 6.21%, and 2013-2014 increased by 7.09%. The primary driver for the staffing increases seen in 2012-2013 and 2013-2014 has been the opening of Tomball Memorial High School and Timber Creek Elementary.

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Additional District Staffing for 2014-2015 In April the Board granted permission to the Superintendent to begin hiring additional teaching staff for growth at the campus level. Not all teaching positions indicated as added for 2014-2015 will be filled immediately, however the funding has been added in this budget. Whenever possible, existing staff positions are absorbed as vacancies occur during the school year with either resignations or retirements. The list of planned staffing increases can be seen in the last column of the table Staff Counts by Position on the previous page. The cost for these new positions in the General Fund budget is approximately $3,388,860.

The 2014-2015 composition of the total staff will be 47.6% teachers, 8.6% professional support staff, 3.6% campus and district-wide administrators or directors, 9.2% educational aides, and 31.1% auxiliary staff. With a 2014-2015 student enrollment projected of 13,191, the student to teacher ratio is 16.42 to 1, and the student to staff ratio is 7.81 to 1.

Payroll Overall (Object Code 6100) Tomball ISD strives to maintain a solid market presence for wages paid. Each year the district reviews neighboring district salaries in all position pay structures to consider any shifts occurring in our immediate market. Based on a survey of neighboring districts the Superintendent recommended a salary increase for 2014-2015 for all current staff members. The general pay increase recommended was 3.0% on the mid-point value of each pay grade. This general pay increase is expected to match the average value of pay increases for our neighboring districts. We are seeing from 2.0% to 3.5% as common for the 2014-2015 school year in our immediate geographical area. The cost of this pay increase is $2,549,617. That cost of this pay increase can be broken down as $303,417 (11.90%) for Administrative Program staff, $79,373 (3.11%) for Administrative Management staff, $132,618 (5.20%) for Administrative Support staff, $127,073 (4.98%) for Instructional Support staff, $325,971 (12.79%) for Auxiliary staff, and $1,581,165 (62.02%) for Teachers.

The payroll budget for 2014-2015 is $86,448,687 and is an increase of $6,130,339 or 7.63% higher than last year. Payroll expenditures account for 87.52% of the total operating budget. Salaries for instructional staff are 67.66% of the total payroll costs, and are actually 61.19% of the total operating budget, excluding capital outlay expenses for the budget year.

School accounting also includes further detail about the purpose of an expense with function codes. Examining the payroll in detail by function code we can see the greatest concentration of payroll expense exists in the areas of Instruction, School Leadership, Plant Maintenance and Operations, Counseling, Student Transportation, and General Administration. The wide diversity of duties for non-instructional employees can easily be seen in the next chart.

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Contracted Services (Object Code 6200) This major account classification is used to record expenditures/expenses for services rendered to the school district by firms, individuals and other organizations. This classification is the second largest expenditure group and accounts for 6.93% of the total operating budget.

The largest component cost of this classification is utilities, which is 53.02% of the total. Utility costs for the 2014-2015 operating budget increased by 13.02%. This increase is directly associated with utility costs for adding three new schools in the last four months of the fiscal year. Other costs that would be included in Contracted Services would be the cost for independent auditors, consultants, attorneys, and appraisal districts.

There is an overall increase in Contracted Services of 6.08% when comparing 2013-2014 to the 2014-2015 budget for the General Fund. The total for Contracted Services is $6,848,147.

Supplies & Materials (Object Code 6300)

This expenditure classification is the third largest expenditure group and at $3,700,370 accounts for 3.75% of the total operating budget. There is an increase of $122,538 or 3.42% when comparing the 2013-2014 budget to the 2014-2015 budget for Supplies & Materials in the General Fund. Supplies and materials budgets have continued to increase providing for the materials needed for Instructional Technology following the elimination of the technology allotment in the 82nd Legislative Session. The technology allotment was not restored in the 83rd Legislative Session with the funding added to education.

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Other Operating Costs (Object Code 6400)

This major classification is used to classify expenditures/expenses for items other than Payroll Costs, Professional and Contracted Services, Supplies and Materials, Debt Service and Capital Outlay that are necessary for the operation of the school district. This expenditure classification accounts for 1.44% of the total operating budget, and is primarily composed of costs related to travel for students and staff, and property casualty insurance.

There is an increase of 12.36% for Other Operating Costs in the 2014-2015 General Fund budget. This increase is directly related to the increase in cost per hundred dollar value for property casualty insurance, the addition of three new schools in the later part of the fiscal year, and the increases experienced in student athletic insurance and travel for two high schools in our 4A district. Employee travel is closely observed and there is an increase in the mileage reimbursements being paid. The total for Other Operating Costs is $1,426,386.

Capital Outlay (Object Code 6600)

There is a decrease of 33.54% when comparing 2013-2014 to the 2014-2015 budget for Capital Outlay in the General Fund. The decrease is due to revenue per pupil decreases and the inability to balance the General Fund budget if all requests were granted. Total capital outlay costs are $351,410 or 0.36% of the total operating budget.

General Fund Expenditures

- 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

2012-2013

2013-2014

2014-2015

Payroll Contracted Services Supplies Other Operating Capital Outlay

When reviewing the total operating budget in the graph above it should be obvious there are very minor changes in the percentage make-up of the total budget from year to year.

in millions

40

Expenditure Analysis by Function Code

The State requires expenditures be properly identified as to the specific purpose of the expense. This is accomplished by using what is called function codes and payroll was detailed by function earlier. A function represents a general operational area in a school district, and the first digit of the code helps group together related activities. Function groups are identified with a first digit of 1, 2, 3, 4, 5, 6, 7, 8 or 9. These groups are for instruction, school leadership, student support services, administrative support, and non-student support.

Functions are further defined in detail by adding a second digit. The two-digit detail function codes, and the costs associated with each function for the operating budget, are indicated in the chart below.

The budget is generally reviewed based on the expense per weighted average daily attendance in the functional groups prescribed by TEA. A spreadsheet titled Expenditure Analysis follows on the next page which compares actual audited data from prior years to the 2013-2014 adopted budget expenditures and the 2014-2015 proposed expenditures. This spreadsheet shows a percentage increase of 7.19% in total General Fund operating expenses, and an increase of 1.72% in total General Fund operating expense per pupil.

41

DESCRIPTION 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015Audited Audited Audited Audited ADOPTED PROPOSED

Pupil Weighted ADA 11,556.057 12,099.542 12,684.440 13,257.150 14,038.668 14,792.796% change from prior year 5.41% 4.70% 4.83% 4.52% 5.90% 5.37%

GENERAL FUND less ConstructionInstructional Services 43,395,025 44,704,475 46,162,684 51,788,863 57,546,137 62,221,898

per WADA Pupil Costs 10's 3,755 3,695 3,639 3,906 4,099 4,206Function % of Fund Expenditures 59.14% 59.09% 60.34% 61.47% 62.45% 62.99%

School/Instruc Leadership 5,482,641 5,920,429 5,981,246 6,317,003 6,735,500 7,271,222 per WADA Pupil Costs 20's 474 489 472 476 480 492Function % of Total Expenditures 7.47% 7.82% 7.82% 7.50% 7.31% 7.36%

Student Support Services 9,375,476 9,916,644 9,877,449 10,927,611 12,009,704 12,090,999 per WADA Pupil Costs 30's 811 820 779 824 855 817Function % of Fund Expenditures 12.78% 13.11% 12.91% 12.97% 13.03% 12.24%

Administrative Support Services 2,430,162 2,553,622 2,543,279 2,796,846 2,902,780 3,193,820 per WADA Pupil Costs 40's 210 211 201 211 207 216Function % of Fund Expenditures 3.31% 3.38% 3.32% 3.32% 3.15% 3.23%

Non-Student Support Services 12,132,391 11,984,001 11,330,501 11,783,011 12,266,766 13,222,948 per WADA Pupil Costs 50's 1,050 990 893 889 874 894Function % of Fund Expenditures 16.53% 15.84% 14.81% 13.98% 13.31% 13.39%

Other/Ancillary Expenses 567,238 581,757 606,509 641,736 689,113 774,113 per WADA Pupil Costs 60 & 90's 49 48 48 48 49 52Function % of Total Expenditures 0.77% 0.77% 0.79% 0.76% 0.75% 0.78%

GENERAL FUND Expenditures 73,382,933 75,660,928 76,501,668 84,255,070 92,150,000 98,775,000 per WADA Pupil Costs 6,350 6,253 6,031 6,355 6,564 6,677% Change from Prior Year per Pupil Costs 5.57% -1.53% -3.55% 5.38% 3.28% 1.72% Dollar Difference from Prior Year $3,871,780 $2,277,995 $840,740 $7,753,402 $7,894,930 $6,625,000% Change from Prior Year in Dollars 5.57% 3.10% 1.11% 10.13% 9.37% 7.19%

DEBT SERVICE Expenditures 17,429,166 19,486,603 20,280,318 21,353,363 22,539,361 26,160,000 per WADA Pupil Costs 70's 1,508 1,611 1,599 1,611 1,606 1,768% Change from Prior Year per Pupil Costs 1.67% 6.78% -0.73% 0.74% -0.32% 10.15%

FOOD SERVICE Expenditures 3,508,914 3,793,891 4,252,743 4,406,517 4,600,000 5,201,250 per WADA Pupil Costs 35 304 314 335 332 328 352% Change from Prior Year per Pupil Costs 5.76% 3.26% 6.93% -0.86% -1.42% 7.31%


EXPENDITURES ANALYSIS

2014-2015 PROPOSED BUDGET

Expenditure Analysis GF DS FS 1415.xls 5/23/2014

42

2014-2015 Food Service Fund Budget The total proposed Child Nutrition and Food Service budget for 2014-2015 is $5,201,250. This budget is an increase above the prior year’s budget of 13.07%. Payroll is 33.85% of the total budget.

The cost of food is the largest expense in the food service budget, and totals 59.10% of the total budget. Other expenses included in the Food Service budget are for contracted services, miscellaneous operating expenses, and capital outlay. These account for the remaining 7.05% of the total budget.

There is a federally mandated meal price increase in meal prices for the 2014-2015 school year. Projected additional revenue, due to the meal price increase, is $56,874. Anticipated revenue receipts should fully fund all expected expenditures for the year.

Food Service expenses are typically analyzed based on the revenue and cost per meal. The following charts show the results for four prior years and the current year-to-date. NOTE: The amounts listed in the 2013-2014 columns are not final until audited.

BREAKFAST 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 Meal Rates $1.25 $1.25 $1.25 $1.25 $1.25 Free - Avg Daily 570 668 758 761 810 Reduced- Avg Daily 87 78 107 94 101 Paid – Avg Daily 310 315 366 400 421 Total Served Daily 967 1,061 1,231 1,255 1,332

LUNCH 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 Meal Rates – Elem $2.00 $2.00 $2.25 $2.25 $2.25 Meal Rates – Sec. $2.25 $2.25 $2.50 $2.50 $2.50 Free - Avg Daily 1,516 1,741 1,859 1,798 1,817 Reduced- Avg Daily 361 297 361 350 316 Paid – Avg Daily 2,802 2,861 3,054 2,913 2,100 Total Served Daily 4,679 4,899 5,274 5,061 5,233

TOTALS 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 Revenues $3,026,478 $3,905,961 $4,345,331 $4,649,194 $3,744,102 Revenue per Meal $3.28 $3.64 $3.70 $4.02 $3.42 Total Expenses $2,557,711 $3,547,741 $3,650,051 $4,166,348 $3,538,644 Expense per Meal $2.77 $3.31 $3.12 $3.61 $3.23 Total Served- Year 920,298 1,073,019 1,171,263 1,154,059 1,094,132

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2014-2015 Debt Service Fund Budget

The Debt Service Fund is used to account for the accumulation of resources for the payment of general long-term debt principal and interest. A separate tax rate is assessed to fund the debt payments based on the scheduled maturities. This debt tax rate, called the Interest and Sinking (I&S) tax rate, is approved by the Board of Trustees annually.

Bond Sales

In May 2007 Tomball ISD voters approved the sale of bonds to add facilities, update existing facilities and infrastructure, add technology, purchase land and acquire buses. Bonds approved were $198.0 million and the last of these bonds were sold in August 2011.

In October 2012 the Board of Trustees commissioned a facility needs study to be lead by community stakeholders. Based on the recommendations of this facility committee the Board of Trustees called for a bond election to be held on May 11, 2013. The $160 million bond call passed with the approval of over 65% of voters. Budgets for bond projects were decided during the 2013-2014 fiscal year, and several have been approved by the Board.

Bond Credit Ratings For all bonds issued and outstanding prior to May 2009, the District has a primary bond guarantee through the State of Texas Permanent School Fund (PSF). Moody’s Investor Service, Standard and Poor’s Ratings Group, and Fitch Ratings, Inc. rate bonds guaranteed by the Permanent School Fund as “Aaa”, “AAA” and “AAA”, respectively. From March 2009 to March 2010 the Texas Education Agency ceased all Permanent School Fund (PSF) guarantees for collateralizing bond funds because the PSF fund had reached its legal capacity to guarantee bonds for Texas school districts. Bonds sold in May 2009 had to be guaranteed with the purchase of bond insurance. Without the PSF backing on bonds, the underlying rating of an individual school district became extremely important. Currently the PSF backing has been restored to bond issuances. The following table reflects the District’s underlying bond credit rating in years of bond issuance. Rating Year Moody’s Standard & Poors Fitch 2014 Aa2 AA Rating not requested2013 Rating not requested AA AA reaffirmed 2011 Rating not requested AA AA 2010 Rating not requested AA AA 2009 Rating not requested AA- AA- 2008 A1 A+ Rating not requested 2007 A1 A+ Rating not requested

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Proposed 2014-2015 Debt Service Budget

The total proposed 2014-2015 budget for the Debt Service Fund is $26,160,000. This is a $3,610,000 increase above the adopted 2013-2014 budget. Following the recent sale of voter-authorized and approved bonds, the total bonds issued and outstanding were $373,760,000 for a net debt per net assessed valuation of 2014 values of 4.93%.

With the low interest rate environment existing over the past six years all callable bonds outstanding were recalled and resold at a premium. The premiums received were used to either increase Debt Service fund balance reserves or reduce future debt payment amounts in order to control and maintain a flat I&S tax rate of $0.35 for five years from 2008-2009 to 2012-2013. In 2013-2014 the I&S tax rate was reduced one penny to $0.34. The estimated taxable property values for 2014-2015 are 14.3% higher than 2013-2014 allowing the I&S tax rate to remain at $0.34 despite the sale of half the newly authorized 2013 bonds.

In the following graph scheduled payments for principal and interest are shown for the debt currently issued and outstanding. Total payments are scheduled to peak at around $27 million annually, but this level will not occur until 2021-2022. With the continued growth in the accessed property values there is ample capacity for the additional bonds passed in May of 2013, and the ability to maintain the I&S tax rate below the $0.40 promised voters.

$0

$5

$10

$15

$20

$25

$30

Future Bond Payments

Principal Interest

MILLIONS

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FINANCIAL OUTLOOK Current Financial Status of Tomball ISD

Tomball ISD is in strong financial condition and positioned favorably to deal with the reductions currently being faced in state funding since the 2012-2013 fiscal year. Operating budgets have been prepared to maintain a low operating tax rate, and adequate ‘rainy-day’ reserves have been set-aside. Reserves are committed for the opening of new schools and to provide fiscal stability during times of state funding fluctuation.

Tomball ISD’s operating tax rate in 2013-2014 was $1.02 with the legal maximum operating tax rate of $1.04 (unless voters have approved a higher tax rate amount as high as $1.17). Maintenance and operating tax rates for the 1,022 Texas public school districts in 2013-2014 were as follows:

288 districts had an M&O tax rate of $1.17 (28.18%) 65 districts had M&O tax rates above $1.04 but below $1.17 ( 6.36%) 574 districts had M&O tax rates at $1.04 - maximum w/out voter approval (56.17%) 95 districts had M&O tax rates that were less than $1.04 ( 9.29%)

The House Bill 1 funding formulas continue to exist and allow only two ways to increase funding: (1) through revenue generated on a per pupil basis due to increased enrollment and average daily attendance, or (2) through revenue gained with an increase in the operating tax rate. The first way with enrollment growth will add revenue, but also adds expense unless the average daily attendance percentage increases. The second way of adding additional pennies to the tax rate will provide new revenue without expenses associated.

The ability to add pennies to the operating tax rate is vital for the future fiscal capacity of our school district. As can be seen with the 2013-2014 operating tax rates of all other school districts over 90% do not have the option of adding tax rate pennies without voter approval. Tomball ISD has a lower operating tax rate than 961 of the 1,022 school districts or 94.03%. In financial positioning terms, Tomball ISD has fiscal capacity remaining that can be used in the future. The 2014-2015 operating tax rate for Tomball ISD will remain well-positioned with the $1.02 tax rate proposed leaving two additional pennies available for future years. It should be noted that any pennies added above the $1.02 will not yield the level per penny seen in the past. These pennies are subject to recapture at the $319,500 wealth threshold.

Tomball ISD’s student enrollment has been rising continuously since 2007-2008. During that time our district has also had a state assigned target revenue rate per pupil for funding that was higher than most area school districts. Due to our District’s enrollment growth, the increase in the daily attendance rate of our student enrollment, the property value increases of our taxable base, and our high target revenue rate per pupil, significant fund balance reserves have been set aside over the past six years. These fund balance reserves will be needed in the coming years with the new schools that will be added in August of 2015 and 2016.

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Long-Range Financial Outlook

Since the 2012-2013 fiscal year the District has been forced to deal with a significant reduction in funding from the State. The funding reduction was due to a revenue shortfall created by a poorly designed buy-down of school tax rates in House Bill 1 adopted by the State Legislature in the 3rd Called Session of the 79th Legislature. The revenue shortfall faced by the 82nd Legislature was partially solved with a $5.3 billion reduction in public education funding. The 83rd Legislature, in session from January to June of 2013, convened with a large surplus from the previous biennium funding cuts. Public education did receive some additional funding in the session, but additional funding was primarily designed to benefit the low-wealth and low target revenue districts. The funding change was an expansion on the Robin Hood concept of equity. Tomball will not do as well with this funding scenario.

The District has seen operating expenses increase substantially with the opening of the second high school and rapid student enrollment growth over the past five years. The 2013-2014 fiscal year will end with an operating deficit. The District will use fund balance reserves set-aside in earlier years to fully fund this deficit year.

With the planned opening of three new elementary schools in August 2015 and a junior high in August 2016 the District will continue to be financially stressed with operational cost increases. In addition to these concerns the funding system created by House Bill 1 (3rd Called Session, 79th Legislature) will expire in August 2017 and the 2017-2018 school year returns to the funding system existing in 2005. There will be a huge shortfall in revenue for Tomball ISD because the current HB1 system contains funding elements for over $2,900 per teacher per year in salary increases given by the Legislature in the 2006 and 2009 sessions. All that funding is gone when the system returns to its original 2005 state. Quite a funding problem for public education created with short-sighted planning by the Legislature.

Sound leadership is paramount to an organization’s financial stability in difficult business environments. Operating in a business environment that is constantly changing due to manipulation (legislative changes) rather than market force changes is even more difficult. Due to changes in funding (legislative manipulation) district leadership is never quite sure where we are today, or tomorrow. Fortunately Tomball ISD has prudent leadership that can sort through the issues and deal with the fluctuating political environment existing in Austin.

Summary Tomball ISD’s continued financial stability in unstable times is not a coincidental occurrence. The leadership of the District has a practice of continuously monitoring the operating environment and controlling expenses to end-of-year outcomes required for the conditions that exist. Economic corrections are fairly predictable because they are cyclical and discernible. By observing economic trends and by practicing sound strategic business management the District prevents “knee-jerk” reactions in response to economic change.

However a greater danger than economic downturns exists for local governmental entities. It is the unpredictable political actions of the state legislative body. Our District is, and will be, successful if micro-management by the State Legislature is kept to a minimum.

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Our children arethe promise of our

future

Tomball ISD

2014 2015AdoptedBudgetby

Fundand

Func on


2014-2015PROPOSED BUDGET

Run Date: Debt Food Total05/21/14 Function Object General Service Service All

Code Code Fund Fund Fund Funds

Instruction: 11Payroll Costs 6100 58,492,615 0 0 58,492,615Contracted Services 6200 571,257 0 0 571,257Supplies & Materials 6300 996,722 0 0 996,722Other Operating Costs 6400 52,765 0 0 52,765Capital Outlay 6600 67,000 0 0 67,000

Total $60,180,359 $0 $0 $60,180,359

Instruction Resourcesand Media Services: 12

Payroll Costs 6100 999,658 0 0 999,658Contracted Services 6200 7,980 0 0 7,980Supplies & Materials 6300 144,695 0 0 144,695Other Operating Costs 6400 3,110 0 0 3,110Capital Outlay 6600 0 0 0 0

Total $1,155,443 $0 $0 $1,155,443

Curriculum and StaffDevelopment: 13


Total $886,096 $0 $0 $886,096

InstructionalLeadership: 21


Total $957,999 $0 $0 $957,999

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Debt Food Total05/21/14 Function Object General Service Service All


School Leadership 23Payroll Costs 6100 6,171,186 0 0 6,171,186Contracted Services 6200 45,955 0 0 45,955Supplies & Materials 6300 67,277 0 0 67,277Other Operating Costs 6400 28,805 0 0 28,805Capital Outlay 6600 0 0 0 0

Total $6,313,223 $0 $0 $6,313,223

Guidance, Counseling,and Evaluation 31

Payroll Costs 6100 3,210,334 0 0 3,210,334Contracted Services 6200 2,110 0 0 2,110Supplies & Materials 6300 58,115 0 0 58,115Other Operating Costs 6400 7,100 0 0 7,100Capital Outlay 6600 0 0 0 0

Total $3,277,659 $0 $0 $3,277,659

Social Work Services 32Payroll Costs 6100 71,057 0 0 71,057Contracted Services 6200 9,000 0 0 9,000Supplies & Materials 6300 800 0 0 800Other Operating Costs 6400 1,000 0 0 1,000Capital Outlay 6600 0 0 0 0

Total $81,857 $0 $0 $81,857

Health Services 33Payroll Costs 6100 1,101,389 0 0 1,101,389Contracted Services 6200 23,000 0 0 23,000Supplies & Materials 6300 31,100 0 0 31,100Other Operating Costs 6400 2,200 0 0 2,200Capital Outlay 6600 23,310 0 0 23,310

Total $1,180,999 $0 $0 $1,180,999

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Student Transportation 34Payroll Costs 6100 3,599,564 0 0 3,599,564Contracted Services 6200 127,300 0 0 127,300Supplies & Materials 6300 846,100 0 0 846,100Other Operating Costs 6400 108,700 0 0 108,700Capital Outlay 6600 0 0 0 0

Total $4,681,664 $0 $0 $4,681,664

Food Services 35Payroll Costs 6100 0 0 1,760,550 1,760,550Contracted Services 6200 0 0 198,200 198,200Supplies & Materials 6300 0 0 3,074,000 3,074,000Other Operating Costs 6400 0 0 28,500 28,500Capital Outlay 6600 0 0 140,000 140,000

Total $0 $0 $5,201,250 $5,201,250

Cocurricular/Extra-curricular Activities 36

Payroll Costs 6100 1,864,545 0 0 1,864,545Contracted Services 6200 182,550 0 0 182,550Supplies & Materials 6300 281,350 0 0 281,350Other Operating Costs 6400 539,275 0 0 539,275Capital Outlay 6600 1,100 0 0 1,100

Total $2,868,820 $0 $0 $2,868,820

GeneralAdministration 41

Payroll Costs 6100 2,471,165 0 0 2,471,165Contracted Services 6200 361,081 0 0 361,081Supplies & Materials 6300 124,373 0 0 124,373Other Operating Costs 6400 237,201 0 0 237,201Capital Outlay 6600 0 0 0 0

Total $3,193,820 $0 $0 $3,193,820

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Plant Maintenance 51Payroll Costs 6100 5,448,663 0 0 5,448,663Contracted Services 6200 4,034,934 0 0 4,034,934Supplies & Materials 6300 886,648 0 0 886,648Other Operating Costs 6400 364,925 0 0 364,925Capital Outlay 6600 60,000 0 0 60,000

Total $10,795,170 $0 $0 $10,795,170

Security 52Payroll Costs 6100 99,454 0 0 99,454Contracted Services 6200 375,300 0 0 375,300Supplies & Materials 6300 13,330 0 0 13,330Other Operating Costs 6400 2,750 0 0 2,750Capital Outlay 6600 0 0 0 0

Total $490,834 $0 $0 $490,834

Data Processing 53Payroll Costs 6100 1,295,444 0 0 1,295,444Contracted Services 6200 272,000 0 0 272,000Supplies & Materials 6300 167,500 0 0 167,500Other Operating Costs 6400 2,000 0 0 2,000Capital Outlay 6600 200,000 0 0 200,000

Total $1,936,944 $0 $0 $1,936,944

Community Services 61Payroll Costs 6100 4,113 0 0 0Contracted Services 6200 0 0 0 0Other Operating Costs 6400 0 0 0 0

Total $4,113 $0 $0 $0

Debt Service 71Capital Outlay 6500 0 26,160,000 0 0

Total $0 26,160,000 $0 $0

Facilities/Construction 81Debt Service 6600 0 0 0 0

Total $0 0 $0 $0

SSA-Pymnts to JJAEP 95Contracted Services 6200 25,000 0 0 0

Total $25,000 $0 $0 $0

Other Intergovernmental 996200 745,000 0 0 0Total $745,000 $0 $0 $0

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2014-201505/27/14 PROPOSED APPROPRIATIONS

Debt Food TotalObject General Service Service AllCode Fund Fund Fund Funds

Summary:

Payroll Costs 6100 86,448,687 0 1,760,550 88,209,237

Contracted Services 6200 6,848,147 0 198,200 7,046,347

Supplies & Materials 6300 3,700,370 0 3,074,000 6,774,370

Other Operating Costs 6400 1,426,386 0 28,500 1,454,886

Debt Service 6500 0 26,160,000 0 26,160,000

Capital Outlay 6600 351,410 0 140,000 491,410

Total Appropriations $98,775,000 26,160,000 $5,201,250 $130,136,250

2014-2015PROPOSED ESTIMATED REVENUES

1.020 0.370 1.390

Debt Food TotalObject General Service Service AllCode Fund Fund Fund Funds

Local Property Taxes 571X 77,266,174 26,151,255 0 103,417,429

Other Local Revenues 57XX 1,184,681 8,745 3,131,027 4,324,453

State On-Behalf Payments 583X 4,533,479 0 90,000 4,623,479

State Foundation Payments 581X 15,365,666 0 0 15,365,666

Other State Funds 5829 0 0 26,147 26,147

Federal CNP Program 592X 0 0 1,698,217 1,698,217

Other Federal Programs 59XX 425,000 0 255,859 680,859

Transfers In 7XXX 0 0 0 0

Total Revenues $98,775,000 26,160,000 $5,201,250 $130,136,250

PROPOSED CHANGES IN FUND BALANCES

Debt Food TotalGeneral Service Service All

Fund Fund Fund Funds

Changes in Undesignated Unreserved Gen Fund 0 0 0 0

Changes in Reserves for Debt Service 0 0 0 0

Changes in Reserves for Food Service 0 0 0 0

$0 $0 $0 $0

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budget presentation 1415 · budget preparation calendar 2014-2015 date action planned january 15th...

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