|January 12, 2018
January Consensus Revenue Estimating Conference Results
The official FY2018-19 school budget season began yesterday with the January Consensus Revenue Estimating Conference (CREC). We saw an uptick in revenues, and compared to the General Fund/General Purpose (GF/GP) fund, schools received pretty decent news yesterday. However, we know that the funding level in the School Aid Fund (SAF) is only one part of the formula, the funding level in the GF/GP and how the funding is distributed can make all the difference between pretty decent and not so decent!
The full implications of the FY2018-19 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 2017 CREC has improved and remains on track.
In the final CREC agreement for January 2018, the GF/GP estimate from May 2017 was decreased $100.9 million for FY2017-18 and was decreased by $149.9 million for FY2018-19. Revenue for the FY2019-20 was unveiled showing a 0.7 percent growth or $73.9 million above the estimated FY2018-19 level.
The May 2017 SAF estimate for FY2017-18 was increased by $114.0 million, totaling a $399.4 million increase over prior year revenues. FY2018-19 estimate was increased $133.5 million, totaling $379.5 million over FY2017-18, and FY2019-20 is slated to increase $358.7 million above the FY2018-19 level. The increases year after year represent growth at 3.1%, 2.9% 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 revenues from the May 2017 consensus, especially as we see the first look at FY2019-20 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 increased sales tax revenues and lower than expected income tax revenues.
Income tax refunds have increased but if you recall from last year’s discussion, 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 in excess of $400 million if that change was enacted. Although the idea fell short of gaining enough support last session, legislative leaders indicated that the issue may be taken up again.
The balance sheet represents the best high-level estimate of revenues and ending balances based on the consensus agreement. Depending on policy decisions, it appears that there are funds available to increase foundation allowances or possibly increase other categorical funding in FY2018-19. Caution is needed because spending more than $333.1 million of the $563.6 million projected ending balance will create a structural problem for FY2019-20.
First Step in the Budget Process
It’s important to remember that student numbers are still declining, but at a slightly slower rate.
Bottom Line and Other Considerations
Revenue estimates for the current and coming years show slow, steady growth but there are a number of issues to cause us concern:
Remember, this is the beginning of the process. These numbers are subject to change as more financial information comes in over the next few months. Given what we heard at the CREC, assuming a large foundation allowance increase might be premature. We’ll hear the Governor’s “State of the State” on January 17, as well as his budget proposal on February 8. That will give us a better indication of where his priorities are for FY2018-19 and will give us a lot more detail on the estimated local impact. Of course, the House and Senate will both have their chance to propose changes to the budget.
And don’t forget, there is the second Consensus Revenue Estimating Conference scheduled in May. It should include the full estimated impact of the federal tax reform. 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 be juggling a lot of assumptions when preparing their FY2018-19 budgets, and will need to be conservative in budgeting and negotiating while the process unfolds. The closer we get to the Governor’s and Legislature’s self-imposed deadline to finalize the budget by 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 through our online registration process until midday Monday or as a walk-in when you arrive to the conference on Tuesday, and get the best information at the right time to start your district budget process.
Stay Tuned!David and Bob
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