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Fiscal Health Analysis of Colorado School Districts

Financial Policies & Procedures Committee

October 12, 2012Crystal Dorsey

Office of the State Auditor

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• Roles of the OSA and CDE

• Trends and evaluation of ratios

• Factors that impacted 6 school districts for Fiscal Year 2011

Fiscal Health Analysis

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Fiscal Health Analysis

Auditor: District’s reserves dwindlingBy Steve Block, Staff writer, TTiJune15, 2012

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• 178 school districts in Colorado

• Funding sources– Local - property taxes– State share - $3.2 billion

• Charter School Institute

Background

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• Colorado Department of Education (CDE)– Oversight & monitoring of accreditation– Public School Financial Transparency Act

• Office of the State Auditor – Compliance with Local Government Audit

Law– Authority to hold property taxes– Review of audit report

Roles of OSA & CDE

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• Development of Fiscal Health Analysis

– Three year period to review

– Trends that provide warning indicators

Development

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Focus on highest risk

• General Fund

• Debt

• Changes in fund balance

• Excludes Proprietary Funds

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• Are assets larger than liabilities?

• Formula: General fund total assets General fund total liabilities

 • Warning trend: A consistent deficit in

assets’ adequacy to meet obligations over the 3-year period.

Ratio 1: Asset Sufficiency Ratio

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• Do annual revenues cover debt service payments?

• Formula: Total governmental revenue of fund(s) paying debt Total governmental debt payments

 • Warning trend: Annual revenues consistently

below the annual debt payment for each of the three years.

Ratio 2: Debt Burden Ratio

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• How long will reserves last for future expenditures?

• Formula: Fund balance of the general fundTotal general fund expenditures (net transfers)

• Warning trend: A reserve that covers less than 1 week of future expenditures, which is the equivalent of .0192, or 1/52, for each of the 3 years.

Ratio 3: Operating Reserve Ratio

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• How much is added to reserves for every dollar generated in revenues?

• Formula: General fund total revenue –(general fund total expenditures (net)General fund total revenues

• Warning trend: A loss in reserves for each of the 3 years.

 

Ratio 4: Operating Margin Ratio

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• Are reserves increasing or decreasing?

• Formula: Current year fund balance of

the general fund – prior year fund balancePrior year fund balance of the general fund

 

Warning trend: Consistent decreases in reserves.

Ratio 5: Change in Fund Balance Ratio

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• Purpose– Warning trends over three year period – 2009, 2010, 2011

• Limitations– Warning indicator in one year– Current budgetary actions

Trend analysis

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• 19 school districts with one or more warning indicators

– 13 districts with one

– 6 districts with two

Warning Indicators - 2012

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State of ColoradoFiscal Health Analysis

School Districts With Warning IndicatorsFor the Three-Year Period Ending June 30, 2011

Fiscal Health Ratio

Number of Districts with

Warning Indicator1

As of June 30, 20102

As of June 30, 20093

Ratio 1: Asset Sufficiency Ratio 0 0 0

Ratio 2: Debt Burden Ratio 10 13 7

Ratio 3: Operating Reserve Ratio 0 0 0

Ratio 4: Operating Margin Ratio 10 16 40

Ratio 5: Deficit Fund Balance Ratio 0 0 0

Ratio 6: Change in Fund Balance Ratio 5 6 21

Total Indicators 25 35 68Total Districts With One orMore Indicators 19 26 49

Source: Analysis performed by the Office of the State Auditor, Local Government Audit Division using data from audited financial statements submitted by school districts.

1Some districts had indicators in more than one category.2Number of districts with indicators in prior analysis, which covered the three-year period ending June 30, 2010.3Number of districts with indicators in prior analysis, which covered the three-year period ending June 30, 2009.

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• Warning indicators do not always mean there is a problem– Planned capital expenditures– Deliberate spending of reserves

• However: the more warning indicators, the greater the risk– Identify potential problems early

Warning Indicators

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• Appendix A– Ratio descriptions, calculations, benchmarks,

warning indicators• Appendix B

– Districts with two or more warning indicators– Comparison with prior year– District responses

• Appendix C– Map

• Appendix D– Data for all school districts

Appendices

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• North Park R-1 (Jackson County)• Mountain Valley(Saguache County)• Trinidad 1 (Las Animas County)• Jefferson County R1

(Jefferson/Broomfield)• La Veta RE-2 (Huerfano County) • Hoehne (Las Animas County)

Districts with Two Warning Indicators

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• Not necessarily a problem

• Reasons centered around two themes

– Various planned expenditures

– Reductions in state school finance funding

Two Warning Indicators

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• Plans to correct the situation– Budget cuts – eliminate jobs

– Cuts to education programs

– Further spend down of fund balance

• CDE Actions

Two Warning Indicators

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• 6 districts identified with two in 2011 analysis

– Fiscal Year 2010– 4 districts showed improvement

• 3 districts had two last year – none this year• 1 district had three last year – two this year

– 2 districts no change

Prior Year

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• Four districts with warning indicators in last three Fiscal Health Analysis reports

– Hoehne– Jefferson County– La Veta– Pritchett RE-3

Prior Year

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• Overall number of districts with warning indicators has declined

– 2012 – 6 districts

– 2011 – 6 districts

– 2010 – 19 districts

Prior Year

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• Important analytical tool

• Early warning system

• Allows school districts to take prompt action

School District Fiscal Health