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ED COMMITTEE #1May 2, 2013Worksession

MEMORANDUM

April 30, 2013TO: Education CommitteeFROM: Essie McGuire, Senior Legislative A n a l y ~ ~ " LSUBJECT: Worksession - FY14 Operating Budget, Montgomery County Public Schools,

continued, and FY14 Capital Budget and Amendments to the FY13-18Capital Improvements Program, Montgomery County Public Schools,continued

Today the Education Committee will continue its review ofthe FY 14 Operating Budgetfor the Montgomery County Public Schools (MCPS). The Committee will also continue itsreview of the FY14 Capital Budget for MCPS, and amendments to the FY13-18 CIP for MCPS.The following individuals are expected to attend this worksession:

Christopher Barclay, President, Board of Education Philip Kaufman, Vice President, Board of Education Joshua Starr, Superintendent Larry Bowers, Chief Operating Officer, MCPS James Song, Director, Department of Facilities Management Thomas Klausing, Director ofManagement, Budget, and Planning, MCPS

The Committee has held two worksessions to date to review the FY14 MCPS OperatingBudget, including one focused on follow-up discussion of the Office of Legislative Oversight(OLO) report on the achievement gap, and a third worksession to review the Board ofEducation's requested FY14 capital budget and amendments to the FY 13-18 CapitalImprovements Program (CIP). The Committee also met with the Health and Human ServicesCommittee to discuss jointly reviewed services.Today the Committee will conclude its review of both the MCPS FY14 operating

budget and the FY13-18 CIP amendments and finalize its recommendations to the Council.This packet includes: follow-up information on the FY13-18 CIP amendments; the most recentestimates ofState Aid for the FY 14 operating budget; the most recent MCPS financial report;and information on Category 12 expenditures.

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I. SUMMARY OF COUNCIL STAFF RECOMMENDATIONSBelow is a summary of the Council staff recommendations for the Committee'sconsideration for both the FY13-18 CIP and FY14 operating budget. The remainder of thepacket contains more detailed discussion of each element.FY14 Capital Budget and Amended FY13-18 CIP:

Add $3.82 million in GO Bonds to FY14 for the HVAC project Assume $20 million in higher school impact tax revenue to meet Executive's affordability assumptions FY14 Operating Budget:Council sta ff recommends fully funding the Board of Education's FY14 operatingbudget request (adjusted for a slight decrease in State Aid).

Appropriate a total tax-supported appropriation of$2,084,337,761 and a grand totalappropriation of $2,225,420,445. These totals include the following elements:o Local contribution at MOE level: $1,413,738,298o Required pension contribution: $ 34,511,689o Fund balance: $ 26,972,451

o State Aid reduction: $ -371,353

II. AMENDMENTS TO THE FY13-18 CIPOn April 15 the Committee reviewed the Board of Education's requested amendmentstotaling $14.2 million in additional FY14 funding in three projects: Facility Planning; HVAC(Mechanical Systems) Replacement; and Planned Lifecycle Asset Replacement (PLAR). TheCommittee also reviewed the County Executive's recommendation, which did not include any ofthe Board's additional requested FY14 funding, took reductions of$5 million in each of the lastfour years of the crp for a total reduction of$20 million in GO Bonds, and did not specify howthese FY15-18 reductions were to be taken.

The Committee unanimously recommended adding $220,000 to FY14 to fund theBoard's requested increase for facility planning, to keep projects moving forward in a timelymanner (PDF on circle 8). The Committee also expressed its interest in increasing funding forthe HVAC project, and its concern about the impact of the Executive's recommendation on theapproved MCPS CIP, particularly the modernization schedule.

For the Committee's reference during this discussion, the tables below show the Board'srequest for HVAC and PLAR (PDF's on circles 9-10):

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The tables below show the different assumptions about school impact tax revenue and theExecutive's recommended affordability reductions (PDF on circle 11):

*Assumes the Council passes the GO Committee recommendation for Bill 39-11, which assumesan annual reduction in $1.1 million in School Impact Tax revenue starting in FYI7.

At this juncture, Council staff recommends the following: HVAC: The Committee discussed the critical needs in this important systemic project.

It is important to note that increased FYI4 funding for this project would go above theExecutive's affordability level and will compete with other Council CIP priorities duringreconciliation.Council staff recommends that the Committee add back one-third ofthe Board's$11.46 million FY14 request, or $3.82 million. While PLAR is also a high needsystemic project, Council staff recommends that the Committee concur with theExecutive's level funding for FY14 and return to consider this project next year in thecontext of the full CIP.

School Impact Tax: The total difference between the Council and the Executive'srevenue assumptions for school impact tax is $20.8 million. Council staff recommendsthat the Committee recommend using the higher revenue assumptions to cover theExecutive's reductions.

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Council staff recommends this approach because it is much less disruptive to theapproved CIP, particularly the modernization schedule, than removing $20 million fromthe approved expenditures. It is important to note, however, that using the revenues forthis purpose would remove the Council's option of using them for other competingpriorities elsewhere in the CIP.

III. STATE AID FOR THE MCPS OPER-\TING BUDGETThe Board's budget assumes a total of$605.4 million in State Aid. MCPS recentlyreceived a revised estimate of State Aid that reflects final action in the General Assembly andenrollment changes statewide. The most recent State Aid figures from the Maryland StateDepartment of Education (MSDE) show a slight reduction for MCPS of -$371,353.The reductions occur in two areas of State Aid: the County's allocation of FoundationAid is lower by $56,914 and the Transportation Aid is lower by $314,439. Council staffunderstands that the Foundation Aid change is primarily due to changes in enrollment in otherjurisdictions that affect the comparative formulas. MCPS staff reports that the State reduced theTransportation Aid to reflect a lower CPI assumption. MCPS staff will be present to respond toadditional Committee questions on these changes.Council staff recommends that the Council 's FY14 appropriation recognize thismost recent State Aid figure, which will reduce the MCPS tax-supported appropriation by$371,353. This will not affect the County contribution or the MOE appropriation.

IV. MCPS MONTHLY FINANCIAL REpORTThe most recent MCPS monthly financial report is attached on circles 12-20. It waspresented to the Board on April 23 and reflects financial activity through February. The reportprojects a total FY13 year-end surplus of $18.2 million. This projection is $1.0 millionhigher than the last month's projection, which the Committee discussed at its overviewworksession on April 8. The projected category balance in Category 3, Instructional Salaries,has increased by $500,000 (from $10 million to $10.5 million) due to increased personnelsavings. The projected category balance in Category 10, Operation of Plant and Equipment, hasincreased by $500,000 (from $1.2 million to $1.7 million) largely due to lower than anticipatedutility expenditures.

The current projection of an FY13 fund balance of $18.2 million combined with thecurrent unappropriated balance from prioryears of$23.5 million leaves a total of$41.7 millionin fund balance available to be reappropriated to MCPS. MCPS requested that $17.0 million beappropriated as a resource for the FY14 operating budget, which would leave an unappropriatedbalance of$24.7 million going forward. The Executive's recommendation, which wouldappropriate $27.0 million of fund balance, would leave an unappropriated balance of$14.7million going forward.In Council staff's view, the available fund balance is more than large enough to

support the Executive's recommendation and allow for any unforeseen developments in

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this fiscal year. Council staff concurs with the Executive's recommendation to appropriate$27.0 million of unappropriated fund balance for MCPS in FY14. Taking this actionallows the Council to fully fund the FY14 MCPS Operating Budget request whilemaintaining the County contribution at the level of MOE.

V. REpORT ON FUNDS BUDGETED IN CATEGORY 12, FIXED CHARGESAs recommended in the November 2011 Office of Legislative Oversight (OLO) report"A Review ofMontgomery County Public Schools' Budget Category 12", the Council requestedthat the Board of Education provide a semi-annual report on key revenue and expenditure trendsin Category 12, Fixed Charges, related to the school system's employee benefit trust funds.Board President Barclay transmitted the most recent report to the Council on March 26 (circles21-49).

Below Council staff highlights certain key aspects of this report. In sum, MCPSanticipates a low funded ratio for its pension fund and high fund balances in its groupinsurance funds. The Committee will want to understand from Board members and MCPSstaff how these trends will affect budgeted and anticipated Category 12 expenditures inFY13 and FYI4.1. Pension FundMCPS makes an annual contribution to its pension fund to pay for cost of: (1) the "core"pension benefit offered employees who do not participate in the State-run pension plan; and (2)the "supplemental" benefit for all permanent employees. For FYI4, MCPS must contribute$79.5 million to meet its pension fund obligation, a $9.0 million (or 13%) increase above theFY13 amount. This amount is projected to increase to $84.3 million in FY15. The cost offuture pension fund contributions will depend on multiple factors, including Board ofEducationdecisions regarding employee pay increases and workforce size.

The "funded ratio" of a pension plan is a term that describes the percentage ofthe plan'sliabilities covered by the current actuarial value ofthe plan's assets. As of July 1,2012, theMCPS pension fund had a funded ratio of 69%. In other words, the MCPS pension fund holds69 cents of assets for every dollar of liability. Among the four County agencies, MCPS currentlyhas the lowest funded pension ratio, with the County Government the next lowest at 77%.Rating agencies consider the pension funding status (among other factors) in determining thebond ratings for local governments.

The MCPS pension funded ratio experienced a significant decline over the past decade.While many public sector pension plans also experienced large funded ratio declines, the drop inthe MCPS pension funding ratio was particularly steep. At the start ofFY03, the MCPS pensionfund held assets that were greater than its liabilities, that is, the funding ratio exceeded 100%.By FYI 0, the MCPS pension funding ratio dropped to below 70% and has yet to recover. Twoprimary factors contributed to the sharp decline: plan enhancements and investmentperformance.

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Plan Enhancements. In 2006, the Board ofEducation approved two pension planenhancements that significantly raised the plan's unfunded liability with a resultingdecrease in the funding ratio. MCPS changed the core pension multiplier (forparticipants in the locally-funded plan) from 1.4% to 1.8% of final earnings for each yearof credited service, retroactive to July 1, 1998. At the same time, the Board increased themultiplier for the locally-funded pension supplement for all employees (includingparticipants in the State-run plan) from 0.08% to 0.20 % for each year of credited service,retroactive to July 1, 1998. These plan enhancements increased MCPS' liability to payfuture pension benefits. As a result, the pension fund's funded ratio declined sinceMCPS had not previously contributed assets to cover this additional liability.

Investment Performance. The MCPS pension fund incurred a combined investment lossofmore than $265 million during FY08 and FY09. While investment gains insubsequent years offset most of the losses, nonetheless, the funded ratio has continued todecline, in part, because the average annual investment return (over the past five years)has fallen below the assumed rate of return.Last year, the Board informed the Council that its Fiscal Management Committee wasevaluating options to improve its pension funding ratio, including amending the method forcalculating the annual contribution and shortening the amortization period for unfunded liability.The Board has yet to adopt any of these changes.The memo from Board President Barclay indicates that the Fiscal ManagementCommittee continues to discuss strategies to improve the funded ratio. Mr. Barclay further notesthat improved investment performance in recent years should improve the funded ratio of theMCPS pension fund. The Committee may want to discuss whether the Board plans to take

any action in the upcoming fiscal year to improve the pension funding ratio.2. Active and Retiree Group Insurance FundsMCPS maintains separate fund accounts for active and retired employees.

For active employees: MCPS ended FY12 with a $22.9 million fund balance in its group insurance fund foractive employees; this amount is 8.7% of expenditures. MCPS currently projects an FY13 year-end fund balance of $32.2 million or 12.3%, anincrease of$9.3 million from FY12. MCPS notes that, as occurred in FY12, claims are running below projections and thisimproved claims performance is in both the medical and prescription plans. For FY14, the Board's budget request includes a decrease of $7.3 million, or 3.2%, forthe employer contribution to the active employee group insurance fund. This decrease inrequested funding results from the Board's decision to utilize the existing fund balance tocover a portion of projected expenditures in FYI4, thus allowing for a smallercontribution into the fund and drawing down the fund balance. This reduction in FYl4does not mean that actual health care expenditures are decreasing. The Superintendent'sOperating Budget in Brief document notes that group insurance claims expenses areprojected to increase by 4% during FYl4 (pg. 37).

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For retired employees: MCPS ended FY12 with a $13.5 million fund balance in its group insurance fund forretired employees; this amount is 17.4% of expenditures. MCPS currently projects an FYI3 year-end fund balance of$15.8 million or 18.9%, anincrease of$2.3 million from FYI2. MCPS reports that retiree claims continue to come in below projections. MCPS notesthat a primary factor in this is that the proportion of under-65 retirees continue to decline(due to later retirements) even while the overall number of retirees continues to increase.When retirees reach age 65, Medicare becomes their primary health plan and the MCPSplan becomes a supplement, reducing costs for MCPS. For FY14, the Board's budget request includes a decrease of$2.0 million, or 4.1 %, in itsemployer contribution to the retired employee group insurance fund.

This report shows that both group insurance funds are anticipated to end FY13 withhealthy and increased fund balances. County Government is also experiencing this trend, andin its FY14-19 Fiscal Projection for the group insurance fund anticipates that it will draw downthe fund reserves to 5% at the end ofFY 15.

As noted above, the FY14 contribution in the Board's budget request is a decrease fromthe FY13 contribution, by a total of$9.3 million across both funds. The Board's budget alsoadjusted this contribution from what was originally budgeted by the Superintendent in hisDecember submission, in which he anticipated a relatively small increase in the contribution foractive employees and level funding for the retiree contribution.The Board's March budget request is $14.4 million lower than the Superintendent'sDecember budget assumptions. The Board's budget action reallocated this budget amount fromthe benefits funds to fund the negotiated agreements for employee compensation. This

reallocation allowed the Board to increase compensation within the same overall budget levelthat the Superintendent had recommended. Alternatively, the Board could have used that budgetamount to fund other program enhancements or restorations, or it could have reduced its overallbudget request to a County contribution at the MOE level, rather than $10 million above.Council staff notes that a similar reallocation occurred in FY12 when the Boarddecreased the amount it contributed to the employee benefit funds in order to meet the Council'sreduced Category 12 appropriation without changing required employee cost-sharing for healthcare benefits. The recent health benefit cost trends and resulting growth in the fund balance haveallowed the Board flexibility to make budget adjustments within its appropriation requestrelatively late in the budget season.

f:imcguire\2013\mcps op cip 14 cont comm pckt 413.doc

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MONTGOMERY COUNTY BOARD OF EDUCATION850 Hungerford Drive + Rockville, Maryland 20850

December 3, 2012

The Honorable lsiah LeggettMontgomery County ExecutiveExecutive Office Building101 Monroe StreetRockville, Maryland 20850The Honorable Roger Berliner, Presidentand Members of the Montgomery County CouncilStella B. Werner Council Office Building100 Maryland AvenueRockville, Maryland 20850Dear Mr. Leggett, Mr. Berliner, and Members of the Montgomery County Council:At its November 19, 2012, meeting, the Board of Education adopted the Requested Fiscal Year(FY) 2014 Capital Budget and Amendments to the FY 2013-2018 Capital ImprovementsProgram (CIP) for Montgomery County Public Schools (MCPS). Enclosed is a copy of theBoard of Education resolution requesting a FY 2014 Capital Budget appropriation of$264,697,000 and an amended FY 2013-2018 ClP totaling $1,367,026,000 (Discussion/Action5.0). The Board of Education is requesting $149,310,000 from the state as its share of theFY 2014 Capital Budget. FY 2014 is the second year of the biennial ClP review process. Inaccordance with the Montgomery County charter, only projects with expenditure orappropriation changes needed in the second year of the adopted six-year ClP were considered bythe Board of Education for FY 2014 amendments.Requested AmendmentsThe Board of Education, in keeping with the spirit of the biennial process, as well asconsideration of the significant six-year expenditure plan approved by the County Council inMay 2012, approved only three essential amendments to the adopted FY 2013-2018 ClP. Theamendments increase the approved ClP by $14.17 million. Three of the amendments are for thefollowing countywide projects: $220,000 for Facility Planning; $11.46 million for Heating,Ventilation, and Air Conditioning (HVAC) Replacement; and $2.49 million for Planned Lifecycle Asset Replacement (PLAR). The first amendment will provide additional funding toconduct feasibility studies to address overutilization at various schools throughout the county andthe last two amendments will reinstate funds that were removed by the County Council in theadopted CIP.The requested amendment for the HVAC Project will provide additional funds for upgradesand/or replacements of HV AC systems that are beyond their expected service life. Thisamendment will begin to address the significant backlog of approximately $160 million. To

Phone 301-279-36174> Fax 301-279-3860. boe@mcpsmd.org+www.montgomeryschoolsmd.org

mailto:boe@mcpsmd.orghttp:///reader/full/www.montgomeryschoolsmd.orgmailto:boe@mcpsmd.orghttp:///reader/full/www.montgomeryschoolsmd.org

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The Honorable Isiah LeggettThe Honorable Roger BerlinerMembers of the County Council 2 December 3, 2012

eliminate the backlog, MCPS would require $28 million per year for the next 10-year period.Additional funding, beyond the approved levels, will be considered as part of the FY 2015-2020CIP. The requested amendment for PLAR will provide additional funds to address other agingbuilding components such as fire alarm systems, public a d d r e s ~ e r g e n c y generators,water and sewer systems, floors, ceilings, lights, windows, and doors. This project is critical tokeep our school buildings safe and structurally sound.EnrollmentFor the 2012-2013 school year, MCPS continues to experience its fifth straight year ofenrollment growth. The official September 30, 2012, enrollment is 148,779. Since 2007, MCPShas experienced a significant surge in enrollment. This growth has resulted from the usual causeof enrollment increases-rising births-as well as from the unusual impact of the recent GreatRecession. This recession resulted in fewer families migrating out of the county and morefamilies migrating into the county, in some cases to share housing with parents or other familymembers. In addition, more students have entered MCPS from nonpublic schools during thisperiod. Between 2007 and 2012, enrollment increased by more than 11,000 students andprojections for the 2018-2019 school year indicate an increase of approximately 2,100 moreelementary students, 5,600 more middle school students, and 2,400 more high school students.Total enrollment is projected to reach 159,433 in 2018, an increase of 10,654 students from thisyear's official enrollment of 148,779. At the elementary school level, capacity shortages are themost severe, with 90 percent of our 385 relocatable classrooms located at these schools. As thewave of elementary school enrollment ages up to middle school, MCPS will begin to face morecapacity deficits at these levels. The following chart shows the official September 30 enrollmentfor this year and the previous five years, as well as the enrollment projection for 2018-2019school year:

FY2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2019 137,745 139,276 141,777 144,064 146,497 148,779 159,433 State Aid

With the need to provide permanent seats for our student population and address the aginginventory of older school facilities, funding for the CIP continues to be a complex issue. Localfunding sources such as County General Obligation bonds, current revenue, the countyRecordation Tax, and the School Impact Tax are utilized in conjunction with state aid to fund theCIP.For FY 2014, the state aid request is $149.3 million. This figure is based on current eligibility ofprojects approved by the County Council in May 2012. Of the $149.3 million request,

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The Honorable Isiah LeggettThe Honorable Roger BerlinerMembers of the County Council 3 December 3, 2012

$26.96 million is for three projects that have received partial state funding in a prior year;$27.62 million is for four construction projects; $9.77 million is for systemic roofing and HVACprojects, as well as energy efficient systemic projects; and the remaining $82.99 million is for 11projects that will require state planning approval in addition to construction funding.It is crucial that MCPS receives a minimum of $40 million, which is the amount assumed by theCounty Council in the adopted eIP. We need to continue to make a compelling case to our stateleaders to provide Montgomery County with its fair share of state construction funds. I fsufficient state aid is not allocated to MCPS for our capital projects, it will be the county'sresponsibility to provide the additional funds, or project schedules will have to be delayed.

N o n ~ C a p i t a l ItemsAs noted above, capacity shortages are most severe at the elementary school level. In theDowncounty Consortium, several elementary schools are projected to exceed capacity over thesix-year period. Therefore, the superintendent recommended, and the Board of Educationapproved, a comprehensive capacity study that will include 12 elementary schools in theDowncounty Consortium to develop and evaluate options to address the projected spaceshortages. This study will assess the option of building additions at several elementary schoolsin the area compared to the option of opening a new elementary school in the area. The scope ofthe study is broad and includes schools that do not exceed capacity but may be identified foradditions or there may be potential school sites in the school service area that could be used for anew elementary school.The superintendent of schools recommended, and the Board of Education approved, one newboundary study and one roundtable advisory committee. The boundary study will determine theservice area for the Clarksburg Cluster Elementary School (Clarksburg Village Site #1). Thenew school will address overutilization of Cedar Grove and Little Bennett elementary schoolsand representatives from those two schools will participate in the boundary advisory study. Theboundary advisory study will be conducted in spring 2013 v.ith Board of Education action inNovember 2013. Participants in the roundtable advisory committee will review the impact ofunpairing New Hampshire Estates and Oak View elementary schools. The roundtable discussionprocess will be conducted in spring 2013, and representatives from the New Hampshire Estatesand Oak View elementary schools ParentTeacher Associations will be included in the discussiongroup.Finally, enrollment at Northwest High School is projected to exceed 2,400 students by the 2018-2019 school year, approximately 300 students more than the school's capacity. Enrollment atSeneca Valley High School is projected to remain at approximately 1,300 students through the2018-2019 school year. A modernization is scheduled for Seneca Valley High School, withcompletion in August 2018 for the building and August 2019 for the restoration of the site. The

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The Honorable Isiah LeggettThe Honorable Roger BerlinerMembers of the County Council 4 December 3, 2012

Board of Education concurs with the superintendent's recommendation that during the design ofthe modernization for Seneca Valley High School, the capacity of the school should be expandedto 1,995 students, which will provide space to relieve the overutilization at Northwest HighSchool through boundary changes when the modernization is complete.The Board of Education looks forward to meeting with you to discuss its request. If additionalinformation is needed, please do not hesitate to contact me.

Sincerely,

stK:1J21PresidentSB:akEnclosureCopy to:Members of the Board of EducationDr. Starr

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Attachment A

Superintendent's Recommended FY 2014 CapitaJ Budgetand Amendments to the FY 2013-2018 Capital Improvements Program(figures in thousands)

ES AdditionES Addition

Chase HS Cluster SolutionChase MS #2

Bradley Hills ES AdditionClarksburg Cluster ES (Clarksburg Village Site #1)Clarksburg HS AdditionC ; l a r k s b u r g l D a ~ s c ~ s r y 1 S . . .. ....

ES Addition

'HVAC (Mechanical Systems) ReplacementImproved (Safe) Access to Schools

3.970

2.69814.398

46.48517.449

951 \ 28.21810.539\ 11 .823t .808 L15,400 !I10.620i 10.5516.101 i 6.820i 28.157

\- ~ . 1 4 J_ 5 . ~ 8 . ..11.177I 4001 8.827817 j . 12.311I 11.805

6.85310.230

3.200 i 18.3931.145, 13.230i 2.3001 19.222 12,622 1

8 ~ 9 1 __ 9 ' ? l 5 4 _ 2 6 ~ . 6 ! Z i. 4.900, 55.575 21.7751I2.057; 25.636 11.2371

600, 8,667 . 5,097j 1,1

~ - , ; : ; ; ; - , ; ' : ~ h1.200: 8,428 4.528j 11,497: 23.767 12.697 j

4.200i1.500'I 3.000! 7.2291 73.292 31,008\I' 4.0001- 1 ; ~ : ~ ~ -. ~ : : ~ ..I 1.000: 13.085 6.735:I 6,4681 62.929 17.653\L J..5Q9i . . ! 2 . ~ 0 _ . , 2 ~ . Q

616 i 3.835;22.0881 98.182:

1.0571.168 1.082'

157;250 : 1,099

1.5471,1.577i1,302,

18,05416.7058.613 : 12,411 !3.229: 3.269 4.948[

1.199 ;15,798;

., .1,1g7 !_ 15.400 , 1?,f25L 10.8764.543\ i

3,546:3.265

2.051

j3.447:

1.8741I

5.190

2.696:

4.359

1 346: 2,8061 2.955'1.921 ! 1.880 2.7891; 738:. 10.967! 8.597i_},68 ... J ..__ _

I

I

3,035i 3.200: 1.200, 1.20011.1451 1.145; 1.145' 1,145 j2.300i 2.300: , 1

1.200i1.145

. l 3 . ~ . 2 Ql 1 ~ 1 . ~ 2 U ~ 0 2 , - 1 2 ! 1 76.627 :4.900\ 4.900 1 4.800: 4.8001 -4.800j"2.057: 2.057 ' 2.05T 2.057, 2.057;

610\ 600! 420: 440 i 200:1.503, 1:503! 817 817i 817: 81. I 8931.- . .- -.l - .. ... . _I .. _ ] ' ~ ~ I . .. 6 . 8 2 ~ __

18,000; 6 , 5 4 0 6,540i 6,540 6,5401.2061 j ,; I1,497 1.497: 1,497;

!,,1.500;

7.2291 7,229! 4,741 4.741 i5.0021 175: 4.106-- - ,- r-- ...- ..- .' - - "4.0001 4.000 ' 2.000 i !1.000t 1.000; 1.000 1.000 1

6.468.....1 . ~ 9 0

616

6,468: 6.468!. I_ 5Q9 , _ .!lOO i616 616:I22 .758 22.5381

1.497

4,741

1.0006,468

_ 5g0._.61621.358

Forest ES Addition

L a n d i ~ g ES Addition

Design. Engineering & ConstructionEnergy Conservation: MCPSFacility Planning: MCPSFire Safety Upgrades

F u t u ~ e ~ p ~ c ~ r T ] e - , ~ ! s ~ d ~ m z a t i o n ~ _ _ ... ...... ,

IMod ific

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Board of Education's Requested FY 2014 Capital Budget and Amendments to the FY 2013-2018 Capital Improvements Program . 1Summary Table~ ~

Approved FY .2013 appropriation tocontinue this project.Asbestos Abatement and . Approved FY 2013 appropriation toHazardous Materials Remediation continue this project.

Modifications andImprovements

Current Replacements!Modernizations .

Design, Engineering, &ConstructionEnergy Conservaiion

Facility Planning

Fire Safety Code Upgrades

FutureReplacements/Modernization

HVAC Replacement

Improved (SAFE) Access toSchoolsIndoor Air Quality ImprovementsLand Acquisition

Approved FY 2013 appropriation tocontinue this project.Approved FY 2013 appropriation tocontinue this project.Request FY 2013 appropriation tocontinue this project...

nnrnn" " ! I "n to

Approved an FY 2013 appropriation forland purchases.

Modifications to Holding, Special Approved FY 2013 appropriation forEducation, and AlternativeCenters . planning funds.Planned Life Cycle Asset .Replacement (PLAR)

Rehab.lReno . of Closed Schools(RROCS)

Approved FY 2013 appropriation tocontinue this project.Approved an FY 2015 expenditure forplanning funds to reopen an elementaryschool and approved expenditures in the

Request FY 2014 appropriation to continue Ongoingproject.Request FY 2014 appropriation to continue Ongoingthis project.Request FY 2014 appropriation for oneplanning and three construction Ongoingmodernization projects.Requthis 2014 appropriation to continueRequest FY 2014 appropriation to continuethis project.Request amendment to theFY2013-2018 CIP to increase level ofng for FY 2014.

OngoingOngoing

Ongoing

2014 appropriation to continue Ongoing

Request amendment to theFY2013-2018 CIP to increase level offunding for FY 2014.

Ongoing

Ongoing IRequest FY 2014 appropriation to continue Ongoingthis project.

2014 appropriation to continue

Request amendment to theFY2013-2018 CIP to increase level offunding for FY 2014,

OngoingOngoing

Ongoing

Ongoing

Ongoing

'Bold ind icates amendment to the FY 2 0 1 3 ~ 2 0 1 8 CIP. Blank indicates no change to the approved project.

to reopen one closed school as afacility and to renovate an existing

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Relocatable Classrooms OngoingRestroom Renovations OngoingRoof Replacement OngoingSchool Gymnasiums 8/13School Security Systems

Technology Modemization

Transportation DepotsWSSC Compliance

Anr,rn,",'n reduction in FY 2013appropriation and expenditures in theoutyears for this project.Approved removal of all expenditures forthis projectApproved FY 2013 appropriation toaddress compliance requirements.

Request FY 2014 appropriation to continuethis project.Request FY 2014 appropriation to continuethis project.Request FY 2014 appropriation to continuethis project.

Ongoing

Ongoing

Ongoing

TBDOngoing

'Bold indicates amendment to the FY 2013-2018 CIP. Blank indicates no change to the approved project.

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FacilityPlanning: MCPS (P966553)Category Montgomery County Public Schools Date Last Modified 11/12/12Sub Category Countywide Required Adequate Public Facility NoAdministering Agen cy Public Schools (AAGE18 ) Relocation Impact NonePlanning Area Countywide Status Ongoing

Total ThruFY12 I RemFY12 Total6 Years FY 13 FY14 FY 15 FY16 FY 17 I FY 18 ) Beyond 6 iYrsEXPENDITURE SCHEDULE ($OOOs)Plannino, DesiQn and Supervision 8,667 5.097 1100 2470 610 600l 420 440 200' 200 0 1

Land 0 0 0 0 0 o! 0 0 0 0 01Site Improvements and Utilities 0 01 0 0 0 0 0 0 0 0 011Construction 0 0 0 0 0 0 0 0 0 01 01Other 0 0 0 0 0 0 0 0 0' 01 01

Total 8667 5097 ,1100 2470 610 600 420 440 200 200 1 0 1FUNDING SCHEDULE I$OOOs

: Current Revenue: General 1 3,nB i 2432 445 901 183 1801 126l 132 140 140 0ICurren! Revenue: Recordation Tax I 885 885 0 0 0 0 01 0 0 0 0iG.O.Bonds 4.004 1780 655 1569 427 4201 294: 308 60 60 0I Totali 8667 5097 1,100 2470 610 6001 4201 440 200 200 oj

APPROPRIATION AND EXPENDITURE DATA (OOOs)iApprooriation Request FY 14 600ISUDolemental Aooropriation Request oiTransfer oICumulative Appropriation 6.807!Expenditure 1Encumbrances 5.097IUnencumbered Balance 1.710

'Date First Appropriation FY 96First Cost EstimateI Current Scope FY96 1,7361Last FY's Cost Estimate 8,037Partial Closeout Thru 4,891New Partial Closeout 0Total Partial Closeout 4,891

DescriptionThe facility planning process provides preliminary programs of requirements (PaRs), cost estimates, and budget documentation forselected projects. This project serves as the transition stage from the master plan or conceptual stage to inclusion of a stand-alone projectin the CIP. There is a continuing need for the development of accurate cost estimates and an exploration of alternatives for proposed. projects. Implementation of the facility planning process results in realistic cost estimates, fewer and less significant cost overruns, fewerproject delays, and improved l i f e ~ c y c l e costing of projects.An FY 2009 appropriation was approved to provide funding for the pre-planning fo r five modernizations, a new middle school and sevenschool capacity additions, an assessment to determine the next set ofschoo s to be proposed in the restroom renovation project, and afeasibility study for the auditorium at Sligo Creek ES/Silver Spring International MS (Cross reference with Old Blair Auditorium in CostSharing: MCG Project #720601).An FY 2010 appropriation was approved to provide funding for the pre-planning for one modernization, eight addition projects, and toupdate feasibility studies previously completed, but then shelved due to the delay In modernization projects. An FY 2011 appropriationwas approved for the pre-planning of four modernizations. eight addition projects, an assessment to determine the next set of schools to beproposed for the modernization schedule, and an assessment of the current holding facilities. In the past, this project was funded solely bycurrent revenue; however, as a resul t of new environmental regulation changes, design of site development concept plans must be doneduring the facility planning phase in order to obtain necessary site permits in time for the ccinstruction phase. Therefore. the fundingsources shown on this PDF reflect the appropriate portions for both current revenue and GO bonds.Due to fiscal constraints, the County Council, in the adopted FY 2011-2016 CIP, reduced the expenditures in FYs 2013-2016 for thisproject. An FY2012 appropriation was approved to continue this project. An FY 2013 appropriation was approved for the pre-plann ing ofthree elementary school modernizations, one middle school modernization, six elementary school additions. and one middle schooladdition. An FY 2014 apppropriation and amendment to the FY 2013-2018 CIP is requested to provide an additional $220,000 for thisproject to conduct feasibility studies to address overutilization at various school throughout the county.Disclosures Expenditures will continue indefinite ly.

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HVAC (Mechanical Systems) Replacement: MCPS (P816633)Category Montgomery County Public Schools Date Last Modified 11112112Sub Category Countywide Required Adequate Public Facility NoAdministering Agency Public Schools (AAGE16) Relocation Impact NonePlanning Area Countywide Status Ongoing

I Thru Rem Total Beyond 61Total J FY12 FY12 6Years FY13 FY14 I FY 15 FY16 FY 17 FY18 YrsEXPENDITURE SCHEDUL.E ($0005)Planning, Desian and Supervision 15900l 0 1500 14.400 4,400 3,600 1600 1,600 1,600 1,600 01:'Land 01 0 0 0 0 0 0 a 0 0 0

Site Improvements and Utilities Oi 0 0 0 0 0 0 o . 0 01 01Constru ction 91 311 1 26415 13136 51760 17600 14400 4940 4940 4,940 4940 OiOther 01 0, 0 0 0 0 0 0 0 0 01

Total 1072111 26,415 14636 66160 22000 18000 6540 6540 6540 6540 01

:G.O. Bonds 93,650 25662i 15466 18,000 6,540 6,540 6,540 6,540 aiStateAld 13561 733 6532 0 a 0 0 0 a

Total 107211 26,415 22,000 18,000 6540 6,540 6540 6,540 0APPROPRIATION AND EXPENDITURE DATA (OOOs)

i Appropriation Req uest FY 14 18.000Supplemental Appropriation Reauest 0Transfer .' 0Cumulative Appropriation 63,051Exoenditure f Encumbrances 26,415Unencumbered Balance 36636

,Date First ApproQl'iation FY 81IFirst Cost EstimateI Current Scope FY 96 16388Last FY's Cost Estimate 72.707: Partial Closeout Thru 61.163LNew Partial Closeout 5132ITotal Partial Closeout 66,295

Description This project provides for the systematic replacement of heating, ventilating, air conditioning, automated temperature controls, and plumbing systems for MCPS facilities. This replacement approach is based on indoor environmental quality (IEQ), energy performance, maintenance data, and the modernization schedule. Qualifying systems and/or components are selected based on the above 'criteria and are prioritized within the CIP through a rating system formula. MCPS is participating in interagency planning and review to share successful and cos t effective approaches. . An FY 2009 appropriation is requested to continue this level of effort project. An FY 2009 special appropriation of $252,000 and an FY 2009 transfer of $523,000 was approved by the County Council on January 27,2009 for emergency repair work at five schools. An FY 2010 appropriation and amendment to theFY 2009-2014 'CIP was approved to provide an additional $4,4 million beyond the $5.6 million in the adopted CIP for this systemic project. The additional funding will begin to address the assessed backlog of HVAC projects that are vital to the successful operation of our schoolfacilities. An FY 2011 appropriation was requested for mechanical systems upgrades and/or replacements at the following schools: Belmont, Cedar Grove, Clopper Mill, Dufief, Gaithersburg, Maryvale, and Wyngate elementary schools; Eastern, Banneker, and Silver Spring International middle schools; Montgomery Blair, Col. Zadok Magruder, Poolesville, and Wheaton/Edison high schools; and Northlake holding facility. However, due to fiscal constraints, the County Council's adopted FY 2011-2016 C IP reduced the expenditures, as requested in the Board of Education's FY 2011-2016 CIP in FYs 2012-2016 by approximately $45 million, The title ofthis PDF has been changed to more accurately reflect the work accomplished through this project. An FY 2012 appropriation and amendment to the FY 2011-2016 CIP was approved to provide an additional$6.52 million above the adopted CIP to reinstate funds that were removed by toe County Council during reconciliation in May 2010. An FY 2013 appropriation was approved for mechanical systems upgrades and/or replacements at Damascus and Col. Zadok Magruder high schools, Neelesville Middle School, and Takoma Park, Waters Landing, Cold Spring, Rosemary Hills, Rachel Carson, Washington Grove, Bannockburn, Westbrook, East Silver Spring, and Piney Branch elementary schools. The County Council, in the adopted FY 20132018 GIP, Significantly reduced the expenditures requested by the Board of Education for this project for FY 2014 and beyond. An FY 2014 appropriation and.amendment to the FY 2013-2018 CIP is requested to provide an additional $11.46 million above the adopted CIP to reinstate funds that were removed by the County Council during reconciliation in May 2012. Disclosures Expenditures will continue indefinitely. Public Schools (A 18) asserts that this project conforms to the requirements of relevant local plans, as required by the Maryland Economic Growth. Resource Protection and Planning Act. Coordination CIP Master Plan for School Facilities

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Planned Life Cycle Asset Repl: MCPS (P896586)Category Montgomery County Public Schools Date Last Modified 11/20/12Sub Category Countywide Required Adequate Public Facility NoAdministering Agency Public Schools (AAGE18) Relocation Impact NonePlanning Area Countywide Status Ongoingl Total Thru ,FV12 Rem I TotalFV12 6Vears FV 13 FV14 FV15 FV16 I FY17 FV18 Beyond 61VrsEXPENDITURE SCHEDULE /$OOOs\!Planning, Desion and Suoervision 8,008 618! 9901 6400 1400 1400 900 900' 900 900' aILand 0 a 01 0 a 0 0 a 0 0 01

~ D r o v e m e n t s and Utilities 10395 4,2971 2,O98! 4000 1,000 1,000 500 500 500 500 0'Construction 54 889 26,0931 5,7741 23022, 4829 4829 3,341 3,341, 3341 3,341 0

'Other 0 0: ol 0 0 o! 0 0 0 0 0I Total' 73292 31 o ~ 8 1 88621 33422 7229 7,229 4741 4741 ' 4741 ~ , 7 4 1 0A in Scliools Pr ram 0' 0 0 0 0G.O. Bonds 7229 4741 4741 4741 4741 0

, Qualified Zeme Academ Funds 0 0 0 0 0 07,229 4,741 4741 4,741: 4,741 0

APPROPRIATION AND EXPENDITURE DATA (ODDs)~ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - .:Appropriation Request FY 14 7,229ISupplemental Appropriation Request 0'ITransfer ' 0: Cumulative Appropriation 47,099,Expenditure / Encumbrances 31.008!Unencumbere"'d"-'B""a""la::.!nc:::::e=--________ - ! . : 1 6 ~ , 0 : : : 9 : . ! . J 1

r--=-----__- - ~ ~ - - - - - - - - - - _ ,FY 89FY96 24.80258,657

48.68152249,203

Description ,This project funds a comprehensive and ongoing plan to replace key facility and site components based on an inventory of their age andconditions. A comprehensive inventory of all such components has been assembled so that replacements can be anticipated andaccomplished in a planned and orderly manner. Facility components included in this project are code corrections, physical educationfacility/field improvements, school facility exterior resurfacing, partitions, doors, lighting, media center security gates, bleachers,communication systems, and flooring.On July 28, 2009 an FY 2010 special appropriation of $603,000 was approved to provide funding through the state's ASP program. An FY2010 special appropriation in the amount of $151,000 was approved as a result of state funding through the QZAB program. An FY 2011appropriation was approved to continue this project and fund one additional position to manage the playgound renovation project, as well asto centralize the asphalt and concrete project development and management duties. Due to fiscal constraints, the County Council'sadopted FY 20112016 CIP reduced the expenditures in FYs 20122016 by approximately $6.6 million. Two FY 2011 supplementalappropriations were approved - one for $603,000 through the state's ASP program and the other for $480,000 through the state's QZABprogram. An FY 2012 appropriation and amendment to the FY 20112016 CIP was approved to provide an additional $948,000 above theadopted CIP to reinstate funds that were removed by the County Council during reconciliation in May 2010. An FY 2012 supplementalappropriation was approved for $1.85 million through the state's QZAB program. An FY 2012 supplemental appropriatin was approved for$849,000 through the state's ASP program.An FY 2013 appropriation was approved to fund capital projects that will address MCPS infrastructure . Projects include: exterior resurfacing, repair/replacement of partitions and doors, lighting upgrades/replacement, replacement of media center security gates, repair/replacement of bleachers, communication systems upgrades, and repair/replacement of various flooring. This project also funds playground eqUipment replacement, tennis court and running track renovations, and cafeteria eqUipment replacement. The County Counci l, in the adopted FY 20132018 C1P significantly reduced the expenditures requested by the Board of Education for this project for FY 2014 and beyond. An FY 2014 appropriation and amendment to the FY 2013-2018 CIP is requested to provide an additional $2,49 mill ion above the adopted CIP to reinstate funds tha t were removed by the County Council during reconciliation in May 2012. See Appendix F of the Superintendent's Recommended FY 2014 Capital Budget and the Amended FY 2013-2018 Capital Improvements Program. Disclosures Expenditures will continue indefinitely. Public Schools (A18) asserts that this project conforms to the requirements of relevant local plans, as required by the Maryland Economic Growth, Resource Protection and Planning Act. Coordination CIP Master Plan for School Facilities, FY 13 FY1418Salaries and Wages 361 1805Fringe Benefits 161 805Workyears 5 25

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. MCPS Affordability Reconciliation (P056516)

Category Montgomery County Public Schools Date Last Modified 3113/13Sub Category Miscelianeous Projects Required Adequate Public Facility NoAdministering Agency Public Schools (AAGE18) Relocation Impact NonePlanning Area Countywide Status OngoingI Total ThruI FY12 RemFYi2 : Total I6 Years FY 13 FY14 I FY 15 FY 16 FY17 FY18 IBeyond 6\1 Yrs

EXPENDITURE SCHEDULE ($OOOs)r - -IPlannina. Desiqn and Suoervision 01 0 01 0 0 0 0 0 0 0 0iLandISite ImQ.rovements and Utilities 1 oi0 1 00

0',00101

00

00

00

00

00

00

00

1ConstructionIOther 0,-34.1681 00 00 01-34168 1 00 0-14.168 0-5.000 0-5.000 0-5000 0-5.000 001 Total -34,1681 0 0, _34168 1 0 -14168 ' -5 000 5000 .5,000 -5000 0

FUNDING SCHEDULE ($OOOsl ,-5356 o! 0' -53561 -4143 1 -1,2131 0 0Current Revenue: General 0' 05.410 0' 01 5.410I 2,289 661 1 1168 400 113 779Current Revenue: Recordation Tax 1-38,487 0 0 1 -38,4871 -1,692 05,147 -4853 -5.511G.O. Bonds 15,361 -5.9234265 01 01 4.265! 3,546 -260' -268 074 5 245 253Schools Impact Taxl Totad -34,168 oi . 0' -34168' 0 -14,168 -5,000 -5,000 -5,0001 05000

APPROPRIATION AND EXPENDITURE DATA (ODDs)~ - - - - - - - - - - - - - - - - - - - = ~ - - - - - - ~ ~) . : : ' A ~ p p ! r c : : o J : : ! P ! n - " , a : ; : : t i o : : : ' . n ! . . ! R . . : : e = q l u e : ; ; ; : s ~ 1 _____ :-FY.:...:.14'--___5"'.;:;;:35:.:::1 iDate First Appropriation FY 14t:=1:;:uJ::P!p::!;e;:!m:::e;:!:f1!:ta::,;1 ~ ~ P = f ) ! r o " , Q ; . : . : r i a ; : ! t i : : : ; o n : . : . : . . : . R e ; : . : q , - " u . : ; ; e s ; . ; . !_______ -::-t0 LFirs! Cost Estimater I T . ! ! r a : ; : n ~ s f c ; : e ! . . r_______________-"-1 1 Current Scqpe FY01 oICumulative Appropriation 0 I Last FY's Cost Estimate o1 ~ I E : . : : x ~ p e e ~ n ~ d J ~ ' t u ~ r e ~ I ~ E J : : J n c : : c u ~ m ~ , b ~ r n ~ n ~ c e - s - - - - - - - - - - - - - - - ~ O'Unencumbered Balance 0

DescriptionThis project reconciles the Board of Education's request with the County Executive's recommendation. Fiscal constraints lead the CountyExecutive to adjust the annual amounts to be affordable within the CIP. The County Executive's recommendation maintains all funding atthe approved FY13 and FY141eveis and makes reductions in FY15 through FY18. The County Executive reached the FY14 funding level byrecommending maintaining the Facility Planning, Planned Life Cycle Asset Replacement, and Heating, Ventilation, Air Conditioning projectsFY14 funding at the level previously approved by the County Council. By beginning the reductions in FY15, the Board of Education will havemore time to determine how to revise the school construction schedule to conform to the recommended funding levels. This recommendedreduction reflects 2.38% of the total Montgomery County Public School Capital funding fo r these fou r years.Fiscal NoteReflects funding switches between the following: Schools Impact Tax, Current Revenue: Recordation Tax, Current Revenue: General, andGO Bonds funding sources. .

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DISCUSSION9.0Office of the Superintendent of Schools MONTGOMERY COUNTY PUBLIC SCHOOLS

Rockville, Maryland April 23, 2013

MEMORANDUMTo: Members of the Board ofEducationFrom: Joshua P. Starr, Superintendent ofSchoolsSubject: Monthly Financial ReportThis financial report reflects the actual financial condition of Montgomery County PublicSchools (MCPS) as of February 28, 2013, and projections through June 30, 2013, based onprogram requirements and estimates made by primary and secondary account managers. At thistime, revenues have a projected surplus of$2.7 million, and expenses have a projected surplus of$15.5 million.Due to Fiscal Year (FY) 2011 comprehensive expenditure restrictions, MCPS ended the yearwith an expenditure surplus. The FY 2012 Operating Budget included a fund balance of$17.0 million of the total savings as a source of appropriation, leaving a fund balance of$11.9 million. This balance, together with the FY 2012 expenditure and revenue surplus of$28.6 million, equals $40.5 million that will be available to fund future operating budgets. TheCounty Council used $17.0 million of the fund balance as a source of revenue for the FY 2013Operating Budget, leaving an available balance of $23.5 million. Based on the revenue andexpenditure projections as of February 28, 2013, the FY 2013 fund balance will be $41.7 millionat year end. My expectation is that the available fund balance will be used for appropriation overseveral years to avoid any sudden increase in the need for local contribution to replace fundbalance as a revenue source.Staffwill continue to closely monitor both revenues and expenditures. A discussion of the actualfinancial condition of MCPS as of February 28, 2013, and projected revenues and expendituresthrough June 30, 2013, follows. In addition, the attachments provide detailed financialinformation.Attachment 1 presents a chart displaying budgeted and projected revenues as reflected in thisreport. Attachment 2 is a chart detailing expenditure information by state category. The chartdisplays authorized (budgeted) expenditures, actual y e a r - t o ~ d a t e expenditures and encumbrances,projected expenditures for the remainder of the fiscal year, and the projected year-end balance asreflected in this report.

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Members of the Board ofEducation 2 April 23, 2013

REVENUETotal revenue is projected to be $2,187,610,210, which is $2.7 million more than the revisedbudget. The amount projected is the same as last month.CountyThe projected revenue from the county is $1,419,513,701.StateThe projected revenue from the state is $590,494,275, which is $2.2 million more than therevised amount budgeted for state aid.FederalThe projected revenue from Impact Aid is $450,000, which is $150,000 more than the amountestimated in the FY 2013 Operating Budget.OtherThe projected revenue from other sources is $4,075,708, which is $350,000 more than therevised budget.Appropriated Fund BalanceThe projected revenue from appropriated fund balance is $24,069,165. This amount includes$7,069,165 for prior-year encumbrances.Enterprise FundsThe projected revenue from enterprise funds is $58,818,378. This represents a $1.0 millionincrease over last month. The increase is due to approval of a $1.0 million supplementalappropriation by the County Council for the Food Services Fund. This increase does not changethe overall revenue projection because the revised FY 2013 budget includes an increase of$1.0 million for expenditures.Supported ProjectsThe anticipated revenue for supported projects is $90,188,893. This estimate includes $9,230,705for funds carried forward from FY 2012. Projects approved this month have been assigned$85,604,159.

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Members of the Board of Education 3 April 23, 2013

EXPENDITURESThere is a projected surplus of $15,500,000. This is an increase of $1,000,000 over the amountprojected last month. There are projected surpluses in Category 1, Administration; Category 2,Mid-level Administration; Category 3, Instructional Salaries; and Category 10, Operation ofPlant and Equipment. Expenditures for all other categories are projected to be on budget by theend of the fiscal year. The following provides an explanation of the projections for eachcategory, including changes from the prior month.Category l-AdministrationThe overall projected end-of-year surplus of $500,000 in Category 1, Administration, remainsthe same from last month. As of February 28, 2013, 93 percent of the funds budgeted in thecategory have been spent or encumbered. It is projected that an additional $2.2 million or6 percent of budgeted funds will be spent during the remainder of the year. Currently, there are10 vacant Full-time Equivalent (FTE) positions. The balances associated with these vacanciesare offset by the estimated amount that will be needed to fill the vacancies. There is a projectedposition salary surplus of $900,000, which is $90,000 higher than the $810,000 reported lastmonth. Partially offsetting the increase in salary surplus is additional spending for temporarypart-time salaries. The surplus of $286,000 in temporary part-time salaries projected last monthis reduced by $40,000 to $246,000. The deficit of $94,000 projected last month in the otherexpenditure category remains the same. The amount projected for supplies and materials isprojected to be on budget as reported last month. The $502,000 deficit projected last month incontractual services has increased by $50,000 to $552,000. The deficit is due to higher thanbudgeted costs for legal services and the hiring of outside contractors for technology services asa result ofvacant positions.Category 2-Mid-levelAdministrationThe projected end-of-year surplus of $2.8 million in Category 2, Mid-level Administration,remains the same as reported last month. As of February 28, 2013, 97 percent of the fundsbudgeted in this category have been spent or encumbered, and it is anticipated that an additional$1.3 million or 1 percent ofbudgeted funds will be expended during the remaining months of theyear. Most of the surplus ($2.5 million) is related to position salary balances. Currently, thereare 17 vacant FTE positions. While there is one less vacancy than last month, the projectedsurplus in position salaries remains the same. The projection for temporary part-time salaries isprojected to be on budget as reported last month. Also, the overall surplus of $300,000 incontractual services, supplies and materials, and other expenditures is the same as reported lastmonth. This surplus consists of many small amounts in many Category 2 accounts spread amongseveral MCPS units.

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Members of the Board of Education 4 April 23, 2013

Category 3-Instructional SalariesThe projected end-of-year surplus in Category 3, Instructional Salaries, of $10.0 million reportedlast month has increased by $500,000 to $10.5 million. As of February 28, 2013, approximately97 percent of the funds budgeted in Category 3, Instructional Salaries, have been spent orencumbered. It is projected that an additional $16.6 million or 2.0 percent of the budgetedamount will be spent during the remainder of the year. The $7.9 million surplus projected forposition salaries last month has increased by $100,000 to $8.0 million. This is related to changesin projections for filling vacancies and an increase of 6.0 vacant positions over the 159 vacantFTE positions reported last month. The surplus of $2.1 million in non-position salary accountsreported last month has increased by $400,000 to a total of $2.5 million based on updatedprojections for short-term substitutes and other part-time salaries, sick and annual leave payout,and expenditures for long-term leave.Category 4-Textbooks and Instructional SuppliesExpenditures in Category 4, Textbooks and Instructional Supplies, are expected be on budget,and there is no change in the projection from last month. As of February 28, 2013, approximately76.5 percent of the funds budgeted in this category have been spent or encumbered. Remainingfunds are projected to be spent throughout the rest of the fiscal year for textbooks, instructionalsupplies and materials, media materials, and school equipment purchases that cost less than$1,000.Category 5-0ther Instructional CostsExpenditures in Category 5, Other Instructional Costs, are projected to be on budget, and there isno change from the prior month. As of February 28, 2013, approximately 68 percent of thefunds budgeted in the category have been spent or encumbered. Examples of expenditures thatwill be made throughout the rest of the fiscal year include costs for interscholastic sports,replacement of school furniture and equipment, maintenance of duplicating equipment, andstudents living in out-of-county placements.Category 6-Special EducationExpenditures for Category 6, Special Education, are projected to be on budget. As ofFebruary 28, 2013, 99 percent of the funds budgeted in this category have been spent orencumbered. The $380,000 deficit projected in position salaries reported last month is reducedby $330,000 to a deficit of $50,000. Some vacant positions that were projected to be filled arenow projected to be filled with long-term substitutes for the remainder of the year. Also, salaryexpenditures for 6.0 positions will be shifted to the Medical Assistance grant. The deficit of$160,000 in temporary part-time salaries reported last month has increased by $65,000 to$225,000. The deficit is primarily a result of higher than budgeted expenses for long-term leaveand increased costs for part-time employees. The deficit of $460,000 in contractual servicesreported last month has increased by $40,000 to $500,000. The deficit is based on actual billingand projected spending for contractual speech, occupational therapy, and physical therapy

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Members of the Board of Education 5 April 23, 2013

services for students. The surplus of $850,000 reported last month for tuition for students withdisabilities in nonpublic programs has decreased by $150,000 to $700,000 based on anenrollment increase of five additional students this year. Also, the projected net surplus of$150,000 in textbooks, instructional materials, and equipment for students has decreased by$75,000 to $75,000 due to additional purchases of assistive technology devices for students withdisabilities.Category 7-Student Personnel ServicesAs reported last month, expenditures for Category 7, Student Personnel Services, are projected tobe on budget. As of February 28, 2013, approximately 96 percent of all budgeted funds in thecategory have been spent or encumbered. There is a 0.9 vacant FTE position, the same as lastmonth, and the projected position salary surplus of $90,000 remains unchanged. Expendituresfor part-time salaries and operating expenses will continue to be made throughout the year andare expected to offset the surplus in position salaries.Category 9-Student TransportationThe projection for Category 9, Student Transportation, remains the same as reported last monthand is expected to be on budget. As of February 28, 2013, approximately 90 percent of allbudgeted funds in the category have been spent or encumbered. There are 75 position vacancies,24 fewer vacancies than reported last month. This change has little impact on the overallCategory 9 projection because changes in position salaries generally are offset by changes intemporary part-time school bus operator salaries. Additional expenditures will be made forschool bus parts and repairs throughout the year. Bus fuel prices as of the end of February arethe same as the budgeted price per gallon, and it is anticipated that expenditures for school busfuel will be on budget.Category lO-Operation of Plant and EquipmentThe projected end-of-year surplus of $1.2 million for Category 10, Operation of Plant andEquipment, has increased by $500,000 to $1.7 million. Approximately 80 percent of allbudgeted funds in this category have been spent or encumbered. It is projected that$21.5 million will be spent throughout the remainder of the year on substitute building serviceworker salaries and utilities. Currently, there are 24 FTE position vacancies, primarily buildingservice positions. This is five more vacancies than reported last month. However, the netposition salary surplus of $130,000 projected last month is reduced by $11 0,000 to $20,000 dueto projected expenditures for building services due to community use. The projected deficit of$550,000 for temporary part-time salaries remains the same as reported last month. The deficitin temporary part-time salaries is due to higher than budgeted expenses for long-term leave andprojected part-time salary needs. The $1.5 million surplus previously reported for utilities hasincreased by $500,000 to $2.0 million. The changes are based on current data that indicate thatelectricity, natural gas, and fuel oil consumption are lower than previously projected. Utilitiesprojections are based on prior-year consumption trends and are adjusted for increased squarefootage of building space and weather factors. The surplus of $120,000 projected last month for

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Members of the Board of Education 6 April 23, 2013

supplies and equipment has increased by $110,000 to $230,000. This change is a result ofinventory adjustments in the Department ofMaterials Management.Category ll-Maintenance of PlantExpenditures in Category 11, Maintenance of Plant, are projected to be on budget, as reportedlast month. Approximately 90 percent of budgeted funds have been spent or encumbered as ofFebruary 28, 2013, and all funds are expected to be spent by year end. Currently, there are 18FTE position vacancies. As a result of adjusting projections on filling position vacancies,position salary savings from lapse and turnover is projected to be $700,000, an increase of$100,000 over the $600,000 reported last month. The projected deficit of $170,000 in long-termleave remains the same. The $430,000 deficit projected last month for contractual maintenanceservices, maintenance- supplies, and vehicle operating costs is increased by $100,000 to$530,000. The change is a result of increased vehicle operating costs.Category 12-Fixed ChargesThere is no change in the projection for Category 12, Fixed Charges, and expenditures areprojected to be on budget. Approximately 71 percent of budgeted funds have been spent as ofFebruary 28, 2013. Since MCPS is planning on transferring the budgeted funds for employeehealth benefits to the Employee Benefit Health Plan Trust Fund, there is no projected surplus ordeficit. The projected deficit of $150,000 for unemployment insurance due to trends showinghigher than expected claims is unchanged from last month. Also, there is a projected deficit of$100,000 for the Federal Insurance Contribution Act (FICA) tax. These deficits are offset by aprojected net surplus of $250,000 for tuition reimbursement for MCPS staff and tuition paymentsmade on behalf of students attending Johns Hopkins and George Washington universities. M CPShas partnerships with these universities; MCPS pays the tuition for students who then work inMCPS classrooms and are paid at long-term substitute rates rather than permanent teacher salaryamounts. The surplus is due to fewer students participating in the partnership programs.JPS:LAB:TPK:jpAttachments

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ATTACHMENT 1

MONTGOMERY COUNTY PUBLIC SCHOOLS Monthly Financial Report and Year-end Projections As of February 28, 2013

REVENUE

Projection Current ReportFY 2013 Variance

Source OriginalBudget RevisedBudget(a)As of

2/28/2013As of

1/31/2013Over (Under)Revised Budget

CountyStateFederal

OtherAppropriated fund balance

$ 1,419,513,701588,331,986

300,0003,725,708

17,000,000

$ 1,419,513,701588,312,375 (d)

300,0003,725,708

24,069,165 (b)

$ 1,419,513,701590,494,275

450,0004,075,708

24,069,165

$ 1,419,513,701590,494,275

450,0004,075,708

24,069,165

$2,181,900

150,000350,000

SubtotalFood ServicesReal Estate ManagementField TripEntrepreneurial ActivitiesInstructional TelevisionSupported ProjectsTotal

2,028,871,39548,476,295

3,520,6032,026,0463,006,9361,457,591

73,670,729$ 2,161,029,595

2,035,920,94948,515,419

3,527,2642,026,0463,292,0581,457,591

90,188,983$ 2,184,928,310

(e)

(c ) (d)

2,038,602,84948,515,419

3,527,2642,026,0463,292,0581,457,591

90,188,983$ 2,187,610,210 $

2,038,602,84947,515,419

3,527,2642,026,0463,292,0581,457,591

90,188,9832,186,610,210 $

2,681,900

2,681,900

Notes:(a) Revised budget includes carryover of prior-year encumbrances.(b) Includes $7,069,165 for prior-year encumbrances.(c) Includes $9,230,705 carried forward from FY 2012 and $7,267,938 in supplemental appropriations.(d) Includes $19,611 for fund shift from Foundation grant to Federal Education Job funds(e) Includes $1,000,000 for Food Services Enterprise Fund supplemental appropriations

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ATTACHMENT 2

MONTGOMERY COUNTY PUBLIC SCHOOLS Monthly Financial Report and Year-end Projections As of February 28, 2013

EXPENDITURES

Actual Expenditures Current Report Prior ReportYear-ta-Date and Projected Projected Projected VarianceAuthorized Expenditures Encumbrances Encumbrances Expenditures Year-end Year-end Over (a)Category Expenditures 212812013 212812013 212812013 613012013 Balance Balance (Under) Percentage01 Administration $ 38.896,271 $ 24.102,532 $ 12.071,369 $ 36.173.901 $ 2,222.370 $ 500,000 $ 500,000 $ 1.29Position salaries 17,738,350 10,943,100 28,681,449Non-position salaries 444,108 0 444.108____ p ~ r 2 t ~ ! l . e!p_elJ.s:s_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 1 ~ Q , q y i _ _ _ _ ! . . 1 . . . 2 ~ ~ 6 ~ _ _ _ _ , 0 _ 4 ~ , ~ 4 i _____________________________________ _02 Midlevel Administration 136,605.026 $ 81,397,065 $ 51,098,428 $ 132,495,494 1,309,533 2.800,000 2,800.000 2.05Position salaries 78,406,944 50,450,244 128,857,188Non-position salaries 1,127,802 168,195 1,295,997____ p ~ r 2 t ~ ! l . e!p_elJ.s:s_ _ _ _ _ _ _ __________ ! . . 8 " ? ~ , ~ Q _ _ _ _ _ ~ ~ , ~ 8 ~ _ _ _ _ 3 _ 4 ~ , ~ 0 ~ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _03 Instructional Salaries 819,313,949 471,285,020 320,940,985 792,226,005 16,587,9 44 10,500,000 10,000,000 500,000 1.28Position salaries 447,448,816 320,408,216 767,857,032____ : : ! 0 D - E O ~ i ! ! O ! ! ~ a L a r : ! . e ! ' . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ~ ~ ~ ~ O i _____ 5 } ? , ~ ! ! . _ _ . . ? i . 3 . . ? ~ ! : ! ! ~ _____________________________________ _04 Textbooks a nd Instructional Supplies 24,920,279 14.699,426 4,352,137 19.051,563 5,868,716-05 - Other lnsi ruct iOna lCoSts- - - - - - - "11.6-82,9M - - - - 6 .5 09 ,2 86 - - - - 1. 36 7, 446 - - - -7.876,733 - - - - 3;866;236- - - - - - - - - - - - - - - - - - - - - -:. - - - - - :- -06 -Special-Education - - - - - - - - - 252.387.539 - - - f44 . f93 ,562 - - - f04,801.825 - - - 248,995.387 - - - -3;392:152- - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Position salaries 120,856,623 86.613,309 207,469.932Nonposition salaries 3,371,895 366,746 3,738,641____ p ~ r 2 t ~ ! l . e ! p . . e l J . s : s _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ~ 9 _ 6 ~ , ~ 4 i ___ ..n, 8 2!,7}!! ___ } I . 7 _ 8 1 l , ~ 1 i _____________________________________ _

07 Student Personnel Services 10,268,248 6.112,984 3,768,095 9,881,079 387,168Position salaries 5,938,097 3,763,338 9,701,436Non-position salaries 77,126 0 77,126____ p ~ r ~ t ~ ! l . e ! p _ e , ! s ! : s _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . 9 I . ~ 6 ! _ _ _ _ _ _ _ _ _ _ _ . . . 0 ? ~ 1 I _____________________________________ _08 Health Services 37,402 16,736 0 16,736 2 0,666 Position salaries Non..position salaries 1,924 1,924

____ .._____ . ! ? ~ ~ ~ ~ ! ~ . 9 . . ! . ' : ! < E ~ ! ! ~ _ ~ ~ __..__ .._._______________......__.........__......._..._......._ ! i ~ ~ J . . ~ ..___.._..._.___..........___ .._Q_._.____......___ .._ ! i ~ ~ J . . ? . __ ..__ ....__ ....______ ..___..__ ..___.._.........____..__ ..__________..______________.........._________.. _______..___

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ATTACHMENT 2MONTGOMERY COUNTY PUBLIC SCHOOLS Monthly Financial Report and Year-end Projections As of February 28, 2013

EXPENDITURES

Actual Expenditures Current Report Prior ReportYear-ta-Date and Projected Projected Projected VarianceAuthorized Expenditures Encumbrances Encumbrances Expenditures Year-end Year-end Over (a)Category Expenditures 2128/2013 2/28/2013 212812013 6/30/2013 Balance Balance (Under) Percentage09 Student Transportation 95,352,853 54,084,878 31,447,973 85,532,851 9,820,003Position salaries 35,875,923 25,632,962 61,508,885Non-position salaries 3,829,256 129,272 3,958,528____ p l l r ~ t ~ 9 . . e ! ~ e r : ! s ~ s _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 1 ~ ~ g , ~ 9 ~ ____ 1 6 _ 8 ~ , ~ 3 ~ ___ " ? Q . . 0 _ 6 ~ , ' ! . 3 I _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _10 Operation of Plant & Equipment 114,851,533 66,401,875 25,244,284 91,646,15 9 ,505,374 1,700,000 1,200,000 500,000 1.48Position salaries 37,907,094 23,915,404 61,822,498 Non-position salaries 1,941,574 231,174 2,172,749 Operating expenses 26,553,207 1,097,706 27,650,91 3 -11 -Maintenance of Plant - - - - - - - - 34,329,672 - - - - 20 ,160 ,464 - -"10,71:2",8-84 - - - 30,873,348 - - - - 3 ; 4 5 6 ~ 3 2 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Position salaries 14,243,286 8,968,706 23,211,992Non-position salaries 652,537 78,208 730,745____ p l l r ~ t ~ 9 . . e ! p . ! l r : ! s ~ s _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 1 2 _ ~ , ~ 4 ! ____ ! , . ~ 6 ! 1 ~ Q . _ _ _ _ 9 } Q . . 6 _ 1 ! _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _12 Fixed Charges 497,225,209 355,086,701 297,548 355,384,24 9 141,840, 960-14 -Commu-nitySerVices- - - - - - - - - - - -50,600 - - - - - -61,170 - - - - - - - - 0 - - - - - -61,170 - - - - -(1(170) - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Non-position salaries 11,170 0 11,170Operating expenses 50,000 50,000Subtotal - - - - - - - - - - - - 2,035,920,949 1,244,111 ,702 566,102,9 73 1,810,214,675 210,206,274 15,500,000 14,500,000 1,000,000 0,76

61 Food Services 48,515,419 31,211,743 7,370,159 38,581,902 9,933,51751 Real Estate Management 3,527,264 2,585,861 809,851 3,395,712 131,55371 Field Trip 2,026,046 1,009,076 118,851 1,127,927 898,11981 Entrepreneurial Activities 3,292,058 1,994,657 334,913 2,329,570 962,48837 Instructional Television 1,457,591 862,129 354,106 1,216,235 241,356Supported Projects 90,188,983 43,932,248 18,620,397 62,552,645 27,636,338

Total $ 2,184,928,310 $ 1,325,707,416 $ 593,711,249 $ 1,919,418,665 $ 250,009,645 $ 15,500,000 $14,500,000 $ 1,000,000 0.71

Note:(a) Percentage of projected year-end balance to authorized expenditures.

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{ ~ , ~ f f UMONTGOMERY COUNTY BOARD OF EDUCATION

850 Hungerford Drive. Rockville l Maryland 20850

March 26, 2013

The Honorable Nancy Navarro 071973President Montgomery County Council :-;;:: C:). "r l "tella B. Werner Council Office Building .

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The Honorable Nancy Navarro 2 March 26, 2013

contributed each year is applied to the anticipated salaries to be paid from the MCPSoperating budget. The percentage contribution is based on actuarial assumptions as follows:a. Salary adjustments: Aggregate salaries for continuing employees will increase onepercent overall during the next two years, reflecting current economic realities, returningto two percent after two years.b. Changes in workforce size: The number of employees will increase by one percent eachyear, with salaries adjusted to 0.57 percent to reflect the lower salaries paid to newemployees.c. Investment Performance: MCPS will achieve its actuarial assumed rate of return on itspension fund of 7.5 percent in all future years. Pension fund investment performance isincluded through January 31, 2013.d. Plan Modifications: The pension plan changes effective July 1,2011, are amortized overa 30-year closed period, the same method used to incorporate the impact of the July 1,

2006, changes.e. Actuarial Assumptions: Current assumptions of mortality, age at retirement, maritalstatus, and payment option selected will remain the same. The transition of actuaries in201i identified very slight differences in disability assumptions. The net impact of thechanges was an increase of contribution of 0.01 percent.

3. A written summary of the Board's current strategy to achieve a desired pensionfunding level ("funded ratio") and the short- and long-term effects of this strategy onthe Category 12 budget.As described in the letter of April 4, 2012, to then-Council President Roger Berliner fromMs. Shirley Brandman, then-president of the Board of Education (Enclosure B), the Board'sFiscal Management Committee continues to discuss strategies to improve the fund's status inlight of the current fiscal environment. A decision point will occur with the Fiscal Year (FY)2016 budget, when the actuarial projection identifies a decrease in percentage of salarycontribution. At that time, it might be appropriate to recommend maintaining the contributionpercentage to achieve an 80 percent funding level sooner.As described above, the investment performance of the fund over the past year has helpedmaintain the funded status. We are optimistic that the improved positioning of the portfoliointo index funds along with an allocation to alternative strategies, the implementation of acash overlay strategy, and the accompanying reduction of costs will enable investmentreturns to contribute to improvement of the fund's status. Additionally, the last year ofrecognition of the 2009 investment losses occurs with the valuation as of June 30, 2013.After that point, the funded status of the plan should begin to improve more rapidly.During FY 2012, the pension fund lost 0.6 percent to end the year at $1.021 billion. DuringFY 2013 through January 31, 2013, the total fund has exceeded its actuarial rate ofretum toearn 10 percent, up to a value of $1.165 billion. While the 2012 performance did not achieve

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The Honorable Nancy Navarro 3 March 26,2013

the actuarial return, the flat performance was equal to the investment benchmark and doesnot create significant losses to be recognized in the future, unlike 2008 and 2009.4. A comparison of current fiscal year budgeted versus actual revenues and expenditures

to date for the Active Employee and Retiree Group Insurance Funds.The comparison is attached for active employees (Enclosure C) and retirees (Enclosure D).

5. The projected year-end balance for the Active Employee and Retiree Group InsuranceFunds. This should include an accompanying explanation of the factors causing thevariation (e.g., claims experience, plan enrollment) if the projected balance in eitherFund differs from what was assumed at the beginning of the fiscal year.These figures are based on revenues and expenses as of January 31, 2013.Active employeesBeginning fund balance $22.9 millionAnticipated change to fund balance 9.3 millionProjected ending fund balance $32.2 millionRetireesBeginning fund balance $13.5 millionAnticipated change to fund balance 2.3 millionProjected ending fund balance $15.8 millionChanges were made to co-payments for both medical and prescription plans effectiveJanuary 1, 2013. We also introduced a mandatory generic step therapy program andpharmacy restrictions for specialty medications. Due to the lag of billing and payment, thesechanges have not yet begun to impact the actual experience of the plans, although theirimpact is in our projections.The active employee fund balance is projected to increase by just over $9 million. It wasexpected that the fund balance would be reduced by $3.3 million, but claims continue to bebelow projection. Improved claims performance is in both the medical and prescription plans.

The retiree fund balance is projected to increase by $2.3 million. It was expected that thefund balance would increase by $1.7 million, but claims continue to be below projection.The projected retiree fund balance increase is due to favorable claims experience. While theoverall number of retirees continues to increase, the number of under-65 retirees continues todecline, due primarily to later retirements. This continues to contribute to reduced claims, asover-65 retirees have primary coverage from Medicare, reducing MCPS claim liability.

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The Honorable Nancy Navarro 4 March 26, 2013

The members of the Board of Education, the superintendent of schools, and MCPS staff areprepared to work with the County Council and Council staff to provide additional clarificationsas needed.

Sincerely,C/M441C h r i s t o P ~IBarc1ayPresidentCSB:jer

EnclosuresCopy to:Members of the County CouncilMembers of the Board ofEducationDr. StarrMr. BowersMrs. DeGrabaMr. KlausingMr. Ikheloa

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Enclosure A AONHewitt

February 19, 2013

Ms. Susanne DeGrabaChief Financial OfficerMontgomery County Public Schools850 Hungerford DriveRockville, MD 20850-1747Re: Six-Year Projection of Board Contributions to MCPS's Pension PlansDear Sue:We estimated Board contributions to the Montgomery County Public Schools Employees' Retirementand Pension Systems (the "Plan") for the next six years under the investment return/contributionassumptions used for the July 1, 2012 valuation. As a reminder, this assumes assets will earn 7.5%gross (before investment expenses are subtracted). The actual contribution percentage will vary andmay vary significantly from the results of this projection due to actuarial gains/losses anddemographic changes.The results are summarized in the table below.

BoardFiscal Year (FY) Contribution as % Funded % FundedValuation Date Ending % of Payroll AVA Basis MVA BasisJuly 1. 2012 June 30. 2014 5.74 68.83 66.51July 1, 2013 June 30. 2015 6.00 68.82 73.36July 1. 2014 June 30. 2016 5.79 72.67 75.19July 1. 2015 June 30, 2017 5.60 76.02 77.07July 1, 2016 June 30. 2018 5.55 77.75 78.66July 1,2017 June 30, 2019 5.42 79.97 79.97July 1, 2018 June 30, 2020 5.41 81.18 . 81.18

The slight contribution increase from FY 2014 to FY 2015 is due to recognizing a large asset loss in200812009. The contribution decreases as a percentage of payroll after FY 15 through FY 2020 aredue to past asset gains (including those from July 1, 2012 to January 31, 2013) being recognized inthe actuarial value of assets. In addition to the contribution decreasing due to recognizing prior assetgains, the contribution savings are increasing over time as more and more partiCipants are coveredby the new plan features for new hired described in the July 1, 2012 actuarial valuation report.For a historical perspective, the table below shows the Board contributions from July 1, 1994 untilnow.

Aon Hewitt I Retirement & Investment Consulting555 East Lancaster Avenue, Suite 300 I P.O. Box 73001 Radnor, PA 190877300t+1.610.834.2100 I f+1.610.B34.2176 I aonhewltlcom

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Ms. Susanne DeGrabaFebruary 19, 2013Page 2

Board ContributionValuation Date Fiscal Year Ending as % of PayrollJuly 1,1994 June 30, 1996 2.92July 1,1995 June 30, 1997 3.30July 1,1996 June 30, 1998 2.83July 1,1997 June 30, 1999 2.53July 1,1998 June 30, 2000 2.11July 1,1999 June 30,2001 1.98July 1, 2000 June 30, 2002 1.89July 1, 2001 June 30, 2003 1.86July 1, 2002, June 30, 2004 2.06July 1,2003 June 30, 2005 2.74 July 1, 2004 June 30, 2006 3.30 July 1, 2005July 1, 2006 June 30, 2007June 30, 2008 4.854.59July 1, 2007 June 30, 2009 4.53July 1,2008 June 30, 2010 4.53 *July 1,2009 June 30, 2011July 1, 2010 June 30, 2012July 1, 2011 June 30, 2013 5.42

The valuation resulted in a 4.37% Board contribution rate, but MCPS continued with the same contribution rate as theprevious valuation to avoid a larger increase from fiscal year 2010 to fiscal year 2011.+ Beginning with the July 1, 2010 valuation report, the contribution was increased with interest from July 1 to October 1

based on expected timing of the actual contribution. The FY 2012 Board contribution was later revised to 5.12%, asdescribed In Mercer's May 13, 2011 letter, to reflect the Plan changes effective July 1, 2011. Prior to reflecting the Planchanges, the Board contribution would have been 5.57% of pay.The last half of the 1990s was characterized by high asset returns, allowing a drop in the Boardcontributions. The challenging market environment during 2001-2003 caused Board contributions toincrease. The Plan amendment associated with House Bill 1737 caused the spike in Boardcontribution for the fiscal year ending June 30, 2007. All increases in cost sharing from theamendment (i.e. phased increase in employee contributions) were reflected fully in the contributionfor the fiscal year ending June 30, 2009. MCPS's favorable returns on assets during 2004-2007helped to lower contributions in FY 2008 & 2009. It is expected that there will be approximately 95million of unrecognized asset gains as of July 1, 2013, contribution should decline over the next fewyears as the asset gains are reflected in the smoothed asset value.There has been a great deal of volatility in the contribution rate in the past, and the causes of thisvolatility will continue into the future. One of the main causes of this volatility is the asset returns thefund generates. To calculate contributions, MCPS uses an actuarial value of assets which smoothesmarket returns over a 5-year period, but even with this smoothing technique, contributions and fundedratios can be volatile. The following table illustrates a distribution of financial outcomes over thecourse of a one-year time period including the potential change in the Plan's funded status and thecorresponding impact on the contribution required for the fiscal year ending in 2015 assuming that allactuarial assumptions are met. Please note, the average expected return below is base on averagemarket returns using the board's investment policy, which is lower than the boards long term rate of7.50% investment return. Also, for illustrative purposes, for a full year's volatility the table below isprojected from the June 30, 2012 asset value as apposed from the January 31, 2013 value used inthe 6-year prOjection above. '

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Ms. Susanne DeGrabaFebruary 19, 2013Page 3

BoardFiscal Year Expected Contribution as % Funded % Funded(FY) Ending Percentile Return % of Payroll AVA Basis MVABasisJune 30, 2015 5th (13.2%) 6.24 65.14 54.95June 30. 2015 25th (1.9%) 6.15 66.56 62.07June 30, 2015 50th 6.8% 6.08 67.66 67.55June 30, 2015 75th 16.2% 6.00 68.84 73.47June 30. 2015 95th 31.3% 5.87 70.74 82.99

. The following statement can be used to interpret the first row of this chart: there is a 5% chance (or 1chance in 20) that asset returns will be bad enough to result in a funded status of 65.14% or ower,and a Board contribution of 6.24% of payroll or higher. Similarly, there is a possibility that higher thanexpected returns will actually decrease the future board contributions needed to fund the Plan. Thesepercentages assume a normal distribution of returns around the mean. There is a school of thoughtthat a normal distribution understates the portion bf returns in the tails (I.e. below 10% ofabove 90%)of the curve. In determining the returns. we did not take into consideration the positive return fromJuly 1, 2012 to the present. The normal distribution of return is based on a short term period of 1year.In order to complete this 6 year projection, we used the following methods and assumptions: . A 7.5% annual return on the market value of assets (gross) from the actual January 31,2013assets to June 30. 2013 and all future years. Reflecting the updated asset amount as of January31.2013 results in an $86 million gain compared to the 7.5% assumption. Payroll and employee contributions for the current number of active partiCipants, short term are

assumed to increase by 1.00% for three years. 2.00% thereafter to reflect current conditions. Total expenses are assumed to be 0.70% of beginning of year market value of assets. We amortize unrecognized gains and losses over an open 15-year period. For the contribution volatility exhibit, we have relied on portfolio volatility based on Hewitt EnnisKnupp's one-year time horizon projection. Unless otherwise noted. we used the same assumptions and Plan provisions as for the 2012 valuation. We assumed there will be no changes to the valuation assumptions or provisions in the future. Please give us a call if you have any questions.Sincerely.Michael Schooley, A.S.A E.A.

MJS/edrEnclosurecc: Jamie. RobertsThomas G. Vicente

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Enclosure B MONTGOMERY COUNTY BOARD OF EDUCATION

850 Hungerford Drive + Rockville, Maryland 20850April 2012

The Honorable Roger Berliner, PresidentMontgomery County CouncilStella B. Werner Office Building100 Maryland AvenueRockville, Maryland 20S50Dear Mr. Berliner:As requested in your memorandum of January IS, 2012, this letter provides the informationregarding State Expenditure Category 12, an area continually monitored by the Board's FiscalManagement Committee. I look forward to working with you, other County Council members, Boardof Education members, and the superintendent ofschools to address the fiscal challenges we face.1. Estimates of the amount of the annual employer contributions to the MCPS pension fundfor the next five fiscal years.The estimated annual required contributions are expected to be the following amounts:

FY2013* $70.5 million 5.42 percent ofpayrollFY2014 $77.0 million 5.81 percent ofpayrollFY2015 $S1.0 mUlion 6.02 percent ofpayrollFY2016 $80.0 million 5.85 percent ofpayrollFY 2017 $79.8 million 5.69 percent ofpayrollFY 2018 $SI.1 million 5.64 percent ofpayroH*FY2013 provided as a point ofreference

2. A description of the major factors (e.g., salary adjustments, changes in workforce size,investment performance, plan modifications, actuarial assumptions) that affect estimatedpension fund contributions over the next five years.The calculation of the annual employer contribution above is based on actuarial work performed bythe Montgomery County Public Schools (MCPS) actuary, Mercer, and submitted toMrs. Susanne G. DeGraba, chief financial officer, on February 15, 2012 (Attachment A). Anaddendum was submitted by Mercer (Attachment B) that incorporates the updated market value ofassets as of February 14, 2012. The actuary's estimate of the percentage of salary that is required tobe contributed each year is applied to the anticipated salaries to be paid from the MCPS operatingbudget. The percentage contribution is based on actuarial assumptions as follows:L SalaJ.)! Adjustments: Aggregate salaries for continuing employees will increase one percentoverall over the next three years, reflecting the current economic realities, returning to twopercent after three years.

Phone 301-279-3617 + Fax 301-279-3860 boe@mcpsmd.org www.montgomeryschoolsmd.org

mailto:boe@mcpsmd.orghttp:///reader/full/www.montgomeryschoolsmd.orgmailto:boe@mcpsmd.orghttp:///reader/full/www.montgomeryschoolsmd.org