|January 13, 2017
January Consensus Revenue Estimating Conference Results
Yesterday marked the official beginning of the FY2017-18 school budget season with the January Consensus Revenue Estimating Conference (CREC) taking place at the state Capitol. With ice covering the roads and school closures all around, school business officials were hoping for some warmer conditions as the state’s estimated revenues were being determined! You’ll be happy to hear that although the weather was cold outside, warmer temperatures prevailed with a slight uptick in revenues. However, the forecast of “partly to mostly cloudy with a slight chance of thunder snow” continues to prevail over the state economic outlook, and especially school aid.
Some of the Financial Details
The full implications of the FY2017-18 School Aid Budget won’t be known for some time, but as of today, it is certain that the overall revenue estimate we saw at the May 2016 CREC remained on track in January 2017.
In the final CREC agreement for the January 2017, the GF/GP estimate from May 2016 was increased $151.6 million for FY2016-17 but was decreased by $84.4 million for FY2017-18. Revenue for the FY2018-19 was unveiled only showing a .6 percent growth or $66.6 million above the estimated FY2017-18 level.
The May 2016 SAF estimates for FY2016-17 were increased by $54.6 million, totaling a $338.3 million increase over prior year revenues. FY2017-18 estimates were increase $22.3 million, totaling $326.1 million over FY2016-17, and FY2018-19 is slated to increase $348.4 million above the FY2017-18 level. The increases year over year represent growth at 2.8%, 2.6% and 2.7% for the three fiscal years respectively.
The question becomes whether the increase is enough to provide a foundation allowance increase or will it be used to increase categorical funding including those that are currently being prorated? The pressure on the GF/GP could also be an issue as that fund shows a slight reduction in estimated revenue from the May 2016 consensus, especially as we see the first look at FY2018-19 GF/GP estimates. The interaction between the two funds is certainly something we watch closely as the transfer of revenue from the GF/GP to the SAF has been a significant source of ongoing support for SAF programming.
The change in the revenue forecast was caused by several factors including:
Income tax refunds have increased but if you recall from our eblasts during the lame duck session, income tax refunds are fully absorbed by the GF/GP because it is the gross income tax revenues that are split between the GF/GP and SAF. This was a hot button issue for the Governor and Legislature last session and there were concerns that the SAF dedicated gross income tax revenue calculation would be changed to “net” income tax revenue, after refunds were paid. The estimated loss of revenue for the SAF would be $430 million if that change was enacted. Although the idea fell short of gaining enough support last session, legislative leaders indicated that the issue would be taken up again in this new legislative session.
The balance sheet represents the best high level estimate of revenues and ending balances based on yesterday’s consensus agreement. Depending on policy decisions, it appears that there are funds available to increase foundation allowances or possibly increase other categorical funding in FY2017-18! Caution though, spending more than $97 million of the $241 million projected ending balance will create a structural problem for FY2018-19.
The SFA balance sheet estimate is very similar to the HFA with the exception of the $30 million additional expense for a change in the retirement investment rate of return. That is not reflected in the SFA ending balance of $273.7 million for FY2017-18.
First Step in the Budget Process
It’s important to remember that year over year student numbers are still declining, but the unexpected positive change from May in the local district student numbers of 6,700 for FY2016-17 resulted from:
Admittedly, these may be conservative student projections but the implementation and expansion of the above bullet points could have a negative impact on how much per pupil funding is available. The conservative approach is appropriate as underestimating the number of students would negatively impact the school aid fund.
Bottom Line and Other Considerations
Of course, the House and Senate will both have their chance to propose changes to the budget during the normal legislative process.
And don’t forget, there is the second Consensus Revenue Estimating Conference scheduled the third week of May. That estimate will hopefully bring all the variables together so that we can truly see the revenues available to the GF/GP and to the SAF.
In the meantime, districts will have a lot of assumptions to be juggling when preparing their FY2017-18 budgets. What is hopefully obvious is that districts need to be conservative in budgeting and negotiating while the process unfolds. The closer we get to the Governor’s and Legislature’s generally self-imposed deadline to finalize the budget of June 1, the better the information.
We’ll have a detailed discussion about these revenue estimates and the impact on the SAF next week at the MSBO Financial Strategies Conference. There is still time to reserve your seat though our online registration process and get the best information at the right time to start your district budget process.
Stay Tuned!David and Bob
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