August 2011

Office of the State Auditor

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Analysis and ratios

Roles of the OSA and CDE

Trends and evaluation of ratios

Factors that impacted 6 school districts

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178 school districts in Colorado

Funding sources

Colorado Department of Education (CDE)◦ Oversight & monitoring of accreditation

Office of the State Auditor ◦ Compliance with Local Government Audit Law◦ Authority to hold property taxes◦ Review of audit report

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Public School Transparency Act◦ CDE monitors through financial accreditation

process

Development of Fiscal Health Analysis◦ Three year period to review◦ Focus on areas of highest risk – General Fund◦ Debt and changes in fund balance

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Are assets larger than liabilities?

Formula: General fund total assets General fund total liabilities

  Warning trend: A consistent deficit in

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

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Do annual revenues cover debt service payments?

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

Total governmental debt payments  Warning trend: Annual revenues consistently

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

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How long will reserves last for future expenditures?

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

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

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

Formula: General fund total revenue –

(general fund total expenditures (net)General fund total revenues

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

 

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How much revenue does it take to cover a deficit fund balance?

Formula: Total (absolute value) deficit fund balance – positive fund balance of the general fund Total revenue in deficit fund balance(s)

Warning trend: The portion of annual revenue needed to cover the deficit fund balance is increasing over the 3-year period.

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Are reserves increasing or decreasing?

Formula: Current year fund balance of the

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

  Warning trend: Consistent decreases in

reserves.

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Purpose◦ Warning trends over three year period ◦ 2008, 2009, 2010

Limitations◦ Warning indicator in one year◦ Current budgetary actions

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26 school districts with one or more

◦ 20 districts with one

◦ 5 districts with two

◦ 1 district with three

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State of ColoradoFiscal Health Analysis

School Districts With Warning IndicatorsFor the Three-Year Period Ending June 30, 2010

Fiscal Health Ratio

Number of Districts with Warning

Indicator1

As of June 30, 20092

As of June 30, 20083

Ratio 1: Asset Sufficiency Ratio 0 0 2Ratio 2: Debt Burden Ratio 13 7 7Ratio 3: Operating Reserve Ratio 0 0 2Ratio 4: Operating Margin Ratio 16 40 33Ratio 5: Deficit Fund Balance Ratio 0 0 0Ratio 6: Change in Fund Balance Ratio 6 21 17Total Indicators 35 68 61Total Districts With One orMore Indicators 26 49 43

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

1 Some districts had indicators in more than one category.2 Number of districts with indicators in prior analysis, which covered the three-year period ending June 30, 2009.3 Number of districts with indicators in prior analysis, which covered the three-year period ending June 30, 2008.

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

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

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Appendix A◦ Ratio descriptions, calculations, benchmarks,

warning indicators Appendix B

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

Appendix C◦ Map

Appendix D◦ Data for all school districts

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Otis R-3 (Washington County)

Ouray R-1 (Ouray County)

Jefferson County (Jefferson, Broomfield)

Buena Vista R-31 (Chaffee County)

La Veta RE-2 (Heurfano County)

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Not necessarily a problem

Reasons centered around three themes◦ Various planned expenditures◦ Reductions in state school finance funding◦ Capital improvements

Plans to correct the situation◦ Budget cuts◦ Further spend down of fund balance◦ Apply for grants

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19 districts identified with two in 2010◦ Majority showed improvement◦ 13 districts had one last year – none this year◦ 3 districts decreased from two to one

Four districts with warning indicators in all three Fiscal Health Analysis reports◦ Hoehne◦ Platte Valley RE-3◦ Pritchett RE-3◦ Widefield 3

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Overall number of districts with warning indicators has declined

◦ 2011 – 6 districts

◦ 2010 – 19 districts

◦ 2009 – 15 districts

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Hoehne Reorganized 3 (Las Animas County)

◦Debt Burden

◦Operating Margin

◦Change in Fund Balance

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Debt burden ratio◦ Decline in the ratios over the three year period◦ 2010 ratio less than one

Operating margin ratio◦ Decrease over the three year period◦ All three years less than zero

Decline in fund balance ratio◦ Decline in the ratios over the three year period◦ 2010 ending fund balance less than 2008

beginning fund balance.

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Debt burden ratio

Revenue in funds making debt service paymentsAnnual debt service payments

$166,083$185,400

Ratio calculation: .90

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Operating margin ratio

General fund total revenue –(general fund total expenditures (net)

General fund total revenues

General FundRevenues Expenditures

2008 $3,052,945 $3,241,735 2009 3,180,569 3,285,164 2010 3,692,252 3,823,548

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Operating margin ratio

General fund total revenue –(general fund total expenditures (net)

General fund total revenues

3,692,252 – (3,823,548+135,000)3,692,252

Ratio calculation: (0.07)

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Change in fund balance ratio

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

General Fund Balance2008 -

Beginning $1,659,8872008 1,385,765 2009 1,084,294 2010 775,206

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Change in fund balance ratio

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

775,206 – 1,041,5021,041,502

Ratio calculation: (0.26)

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Causes: uncollected property taxes◦ 6% of total General Fund revenues◦ Applied for financial assistance

Solutions: ◦ Spending limits◦ Reductions in staff◦ Checks and balances

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Presentation to the Legislative Audit Committee

◦ Hoehne Superintendent◦ CDE

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Important analytical tool

Early warning system

Allows school districts to take prompt action

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