For a complete copy of the Recommendations for Budget Reductions report from the Jan. 30, 2013, Board of Education meeting, which includes a
description of the approved reductions and information about the financial impact, program impact and implementation timeline for each reduction, click here.
Frequently Asked Questions about
Long-Term Financial Planning During 2012-2013 School Year
What is Long-Term Financial Planning (LTFP)?
The Long-Term Financial Planning (LTFP) effort during the 2012-2013 school year was a comprehensive, systematic review of District expenditures. The goal of LTFP was to make recommendations for permanent budget reductions to the Board of Education in January 2013. The District has been studying its expenditures in some form since 2010. The LTFP committee during the 2012-2013 school year was comprised of District administrators, staff, Board members, parents and Clayton community members who met on a regular basis during the fall of 2012 to learn about and discuss staffing and programming across all levels and departments of the District.
Why did the District need to take part in LTFP?
The LTFP effort during the 2012-2013 school year was necessary because the District needed to make permanent changes in both its operating expenses and operating revenues. Along with business, public education was one of the sectors hardest hit by the recession. While the District's supportive community and strong tax base delayed the arrival of these financial challenges, we were not able to avoid them.
The District was in its fourth consecutive year of deficit spending during 2012-2013, which occurs when operating expenses are greater than operating revenues. This is largely attributed to expenses rising at a rate that is outpacing stagnant revenues. When a school district deficit spends, it uses money from its fund balance to close the gap between expenses and revenues.
Click on the image to the right to view a graph of the District’s projected revenues, expenses and fund balance projected in 2012 for the next five years.
What is the impact of deficit spending?
Deficit spending is part of the natural cycle of school finance. While it allows school districts to delay making significant budget reductions or asking their community to approve a tax levy increase, it is not a permanent solution. Deficit spending erodes a school district’s fund balance. Without an adequate fund balance, a school district would need to engage in short-term borrowing to fund day-to-day operations.
School districts like Clayton, which are funded primarily by local property taxes, receive most of their tax revenue in December and January of each year. As a result, Clayton must keep enough of its budget – at least 18 percent – in reserve to ensure it will have adequate cash flow to fund operations without borrowing money throughout the course of the year. Each year of deficit spending erodes the District’s fund balance. Absent any budget reductions or revenue increases, the District’s fund balance would have fallen below its 18 percent goal in the 2015-2016 school year, requiring short-term borrowing to fund District operations.
What is the fund balance approach to school finance?
A school district’s fund balance is the amount of money that is left in the bank at the end of a fiscal year. School districts throughout Missouri carry fund balances that average 15 to 40 percent of their annual budgets. A district’s fund balance serves two main purposes:
1. To ensure adequate cash flow for operations throughout the fiscal year
2. To offset expenditures in years when a district is deficit spending
School district finance follows a cyclical pattern. A school district builds its fund balance in the years when revenues exceed expenditures, usually following a voter-approved tax increase or a revenue increase from other sources. Districts then spend down their fund balance once operating expenses begin to exceed operating revenues by engaging in deficit spending. When a district’s fund balance falls below its required minimum, it must either reduce its expenditures, increase its revenues or a combination of both.
Why are revenues not able to keep pace with expenditures?
The District’s largest source of revenue is local taxes, which account for approximately 70 percent of Clayton’s operating revenues. State law restricts the District’s ability to increase its revenues from local taxes. For any year property assessments increase more than the Consumer Price Index (CPI), state law requires school districts to lower their tax rate so the total tax dollars collected do not exceed the previous year’s collection, plus an adjustment for the Consumer Price Index or five percent - whichever is lower. In years when property assessments decrease, school districts are allowed to increase their levies but, again, only to generate the same amount of revenue collected during the previous year. Read more about other District revenue sources by clicking here.
If the District’s local tax revenues are essentially stagnant, why have my property taxes risen in the past several years?
Many individual homeowners have experienced increases in their property taxes. One of the primary causes of increases on residential property taxes has been a shift in the tax burden from commercial to residential property owners. This is largely a result of successful tax protests by commercial property owners. Since 2001, the portion of commercial property taxes that comprise the District’s local tax base has decreased by more than 10 percent. That decrease has increased residential property taxes by the same amount, leaving residential tax payers to provide almost half of the District’s local taxes as compared to less than 40 percent ten years ago. Increases have also resulted from voter-approved bond issues (Proposition S) and increases in the cost of living (CPI).
Would the District’s financial challenges have gone away as the economy continues to improve?
No. While any improvement in the economy is good, it would not have alleviated the District’s need to reduce expenditures and increase revenues. There is only a small portion of the District’s operating revenues (interest income and tax revenue from new construction) that is directly driven by the economy. Interest revenue and new construction comprised only .37 percent of the District’s operating budget in 2012. Even if both were to return to their five-year average levels, the District would still be facing an operating deficit of approximately $1.7 million. Furthermore, any improvement in the economy would not have affected the more than 70 percent of the District’s revenue (local taxes) that is essentially held flat due to limitations imposed by state law.
What had the District done prior to 2012 to address these financial challenges?
How did the District determine the reductions in expenditures?
During the 2011-2012 school year, the District continued its study of how it allocates resources in order to ensure funds are designated in a manner that supports the District’s mission, vision and core values. That year’s work resulted in $935,000 in permanent reductions to the District’s budget. However, with projections of flat revenues and steadily increasing expenditures, both additional reductions of $1-2 million and increased revenues are necessary to address financial challenges.
The LTFP committee in 2012-2013 was comprised of members from all buildings and levels across the District as well as from the Board of Education and the community-at-large. Those individuals met on a regular basis during the fall of 2012 to learn about and examine the programs and staffing across the District. Once this comprehensive review was complete, recommendations were developed based on what is best for the entire District and Clayton community; reductions were considered in some way at every level across the District, with the goal of targeting budget items with the least impact on the classrooms and students. The District is committed to maintaining its reputation as a provider of world-class education and was committed to not eliminating the aspects of the District that define it.
How will the District maintain its current level of excellence?
The LTFP process is focused on ensuring the District’s long-term financial health while not sacrificing Clayton’s longstanding reputation as a provider of world-class education. The decisions made through LTFP will not compromise the educational qualities that are unique to Clayton and have made the District a destination for students and families from across the region. The District’s commitment to excellence will be considered in all decisions regarding reductions to ensure Clayton maintains the high-quality education it provides to all students.
Would the reductions eliminate the need for a tax increase in the near future?
No. Even with $1-2 million of permanent budget reductions, the District will still need to return to voters to request an operating tax levy increase. The size of a future tax levy will be determined based on the amount of budget reductions made. The previous tax levy passed in 2003 was estimated to last the District for three years, but due to the District’s fiscal responsibility, it has already lasted for more than 10 years. In order to maintain the current quality of education provided to Clayton students, the District needed to make permanent budget reductions and increase its revenues.
Click on the image to the right to view the operating tax levy scenarios developed by Chief Financial Officer Mary Jo Gruber. These scenarios outline the size of the tax levy necessary based on the amount of budget reductions made and the year in which the levy is placed on the ballot.
Could the funding from the recently-approved bond issues have been used to offset operating expenses?
No. State law restricts the use of funds generated by voter-approved bond issues. By law, the funds approved through Proposition S in 2009 and Proposition W in 2010 could only be used for capital expenditures, such as new construction and building renovations. Prop S funded the renovations and expansion of Clayton High, Captain Elementary, Glenridge Elementary, Meramec Elementary and the Family Center, while Prop W funded the construction of the new Wydown Middle School. Salaries and benefits, school supplies, equipment and maintenance can only be funded through the District’s operating tax levy.
Following the completion of LTFP in 2013, what are your plans to examine your finances in the future?
LTFP must become an ongoing, annual process. The District will maintain its historical practice of closely monitoring our finances. Through financial projections, the District has been able to predict the need to consider reductions or tax increases in the future. Considering the current economy, the District will continue to keep a close watch on its funding sources to determine the future health of its finances.
A standing LTFP committee was formed in the spring of 2015. This committee will meet on a regular, ongoing basis. View more information about the work of this committee by clicking on the links in the left column.