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Grosse Pointe Public School System

Financial Transparency Series

FUND EQUITY
This Presentation Should Provide
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A Definition of Fund Equity and How Fund
Equity is Generated

Provide Status on GPPSS Fund Equity

An Explanation of the Significance of Fund
Equity in the Proposal A Era

Financial Transparency Series - Fund Equity
Common Funds for Local School Districts
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Operational Facility
Funds Funds

Capital
General
Projects
Fund
Fund

School
Sinking
Services
Fund
Fund
Financial Transparency Series - Fund Equity
What is Fund Equity?
Most Common Reference is to the General Fund’s Equity
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The accumulated
Total Assets less Total
revenue of a fund that
Liabilities. It is NOT a
has not been allocated
cash account.
for any expenditure

Financial Transparency Series - Fund Equity
GPPSS 10 Year History of General Fund Equity
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$25,000 25.0%

$20,000 20.0%

$15,000 15.0%

$10,000 10.0%

$5,000 5.0%

$0 0.0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Fund Equity Value Fund Equity % of Expenditures

Financial Transparency Series - Fund Equity
Fall 2008 Fund Equity Benchmark Data
Fund Equity Fund Equity
Total General
District Name Before as % of
Fund Revenue
Reserves Revenue
Bloomfield Hills School District $23,749,111 $91,195,105 26.04%
Farmington Public School District $35,015,827 $142,211,296 24.62%
Rochester Community School District $33,776,449 $153,665,046 21.98%
Troy School District $29,807,150 $135,868,002 21.94%
Birmingham City School District $22,065,027 $110,376,325 19.99%
Grosse Pointe Public Schools $20,236,956 $107,157,294 18.89%
East Grand Rapids Public Schools $4,992,310 $27,846,958 17.93%
City of Harper Woods Schools $1,957,883 $12,217,750 16.02%
Ann Arbor Public Schools $31,920,873 $200,656,832 15.91%
Grosse Ile Township Schools $2,681,955 $19,240,093 13.94%
Forest Hills Public Schools $13,294,343 $98,049,177 13.56%
Chippewa Valley Schools $16,444,437 $124,994,272 13.16%
West Bloomfield School District $5,215,000 $71,752,320 7.27%
Plymouth-Canton Community Schools $10,582,739 $165,339,891 6.40%
Northville Public Schools $3,860,696 $62,791,020 6.15%
Michigan School Business Officials (MSBO) organization recommends 15-20% General Fund Equity

Financial Transparency Series - Fund Equity 6
The Budget Cycle and Fund Equity
Low likelihood that all assumptions will be 100% accurate
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Budget Built Based Budget Executed Budget Cycle
on Assumptions • Tremendous possibility Concludes
• Per Pupil Funding for budget assumptions • Spending less than
• Enrollment variability revenues contributes to
• Employee Bargaining • Aggressive strategies General Fund Equity.
Unit Contracts adopted for “in cycle” • End of year deficits
cost controls require Fund Equity to
• MPSERS Rate
balance budget
• Health Care Costs
• Facility Repair Needs
• Other Fund sources

Financial Transparency Series - Fund Equity
Budget Assumptions - Example 1
How moderate variability impacts projections
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Each of these variables individually would amount to
roughly 1% of the General Fund Budget

$100MM
1% in
83 Budget employee
students salaries

1.5%
$120 in per
10% in change in
pupil
health care MPSERS
funding
costs rate

Financial Transparency Series - Fund Equity
Budget Assumptions – Example 2
How moderate variability impacts projections
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This combination of variables would amount to
roughly 1% of the General Fund Budget

$100MM
0.20% in
17 Budget employee
students salaries

0.3%
$25 in per
change in
pupil 2% in health MPSERS
funding care costs rate

Financial Transparency Series - Fund Equity
Budgeting and Fund Equity in Practice
A Five Year View of Budget Versus Actual
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Budgeted Change Actual Change
to Fund Equity to Fund Equity
Year Total % of Revenue Total % of Revenue
2004-5 ($1,388,557)1 (1.48%) $742,025 0.77%
2005-6 ($2,872,889)2 (2.77%) ($1,727,355) (1.70%)
2006-7 $1,319,274 1.25% $4,053,370 3.78%
2007-8 $935 0.0% $1,995,095 1.86%
2008-9 $0 0.0% TBD After Official Audit
Total ($2,941,237) (0.75%)3 $5,063,135 1.18%3
1 Allocation of Fund Equity in anticipation of change in High School day from 7 to 6 periods
2 Allocation of Fund Equity to offer an Early Retirement Incentive to teachers.
3 Represents the average percentage change in revenue over years on chart.

Financial Transparency Series - Fund Equity
General Fund Equity FAQ’s
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• The funding challenges require
How could we intense scrutiny on budget
have added to planning and execution.
the General • Over the last five years we have
Fund’s Equity in “beaten our budget” by an
a supposed average of just over 1% annually.
time of budget • The equivalent is a household
crisis? with an income of $100,000
saving just $1,180/year.

Financial Transparency Series - Fund Equity
General Fund Equity FAQ’s (continued)
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• We have used Fund Equity by
Shouldn’t we funding the Early Retirement
be taking Incentive, refinancing our bonded
debt, maintaining the high school
advantage of 7 period day, and reducing our
our General borrowing costs.
Fund’s Equity • The means by which we have
added to Fund Equity are not
position? Isn’t structural and highly variable.
this a “rainy • We incur greater financial risk by
day”? building structural cost increases
into our budget.

Financial Transparency Series - Fund Equity
Maintaining Budget Equilibrium
Balancing Opposing Structural Forces is Critical to Success
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Revenues Expenses
Downward Pressures

Potentially Reduced Increasing Employee

Upward Pressures
Foundation Allowance Salary Costs

Potential loss of 20J Increasing MPSERS
or Sinking Fund Retirement Costs

Increasing Health
Declining Enrollment
Care Costs

Reduced Act 18 Mandated All Day
(Special Ed) Funds Kindergarten
Financial Transparency Series - Fund Equity
Fund Equity’s New Significance under Proposal A
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Before Proposal A
When school districts were under financial distress they went to
voters with a millage increase request … and in GPPS’ case
usually got it. But not everyone … see Kalkaska.

Tax increases could be relied upon to solve most
budget problems.

After Proposal A
The state is now the primary source of revenue. New
millages are not allowed. The state’s financial distress
and declining enrollment threaten revenue like never before...
See Detroit Public Schools and many other large urban districts.

Fund Equity is the local district’s only reliable financial lifeboat.
Financial Transparency Series - Fund Equity
Fund Equity Summary
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The difference of revenues & expenses
over time constitutes a Fund’s Equity.
Over 80 years of operations, GPPS has saved $20MM – or $250,000 per year.
This is similar to a household income of $100,000 saving $250 per year.

Decisions to
Structural threats
Structural options increase
to decrease
to increase structural costs
revenue are real
revenues are must be made
and already
limited. with great
happening.
caution.

Financial Transparency Series - Fund Equity