Fiscal Health Analysis of
Colorado School Districts
Financial Policies & Procedures
Committee
October 12, 2012
Crystal Dorsey
Office of the State Auditor
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Fiscal Health Analysis
• Roles of the OSA and CDE
• Trends and evaluation of ratios
• Factors that impacted 6 school districts for
Fiscal Year 2011
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Fiscal Health Analysis
Auditor: District’s reserves dwindling
By Steve Block, Staff writer, TTi
June15, 2012
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Background
• 178 school districts in Colorado
• Funding sources
– Local - property taxes
– State share - $3.2 billion
• Charter School Institute
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Roles of OSA & CDE
• Colorado Department of Education (CDE)
– Oversight & monitoring of accreditation
– Public School Financial Transparency Act
• Office of the State Auditor
– Compliance with Local Government Audit Law
– Authority to hold property taxes
– Review of audit report
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Development
• Development of Fiscal Health Analysis
– Three year period to review
– Trends that provide warning indicators
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Focus on highest risk
• General Fund
• Debt
• Changes in fund balance
• Excludes Proprietary Funds
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Ratio 1: Asset Sufficiency
Ratio
• 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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Ratio 2: Debt Burden
Ratio
• 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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Ratio 3: Operating
Reserve Ratio
• How long will reserves last for future expenditures?
• Formula:
Fund balance of the general fund
Total 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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Ratio 4: Operating Margin
Ratio
• 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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Ratio 5: Change in Fund
Balance Ratio
• Are reserves increasing or decreasing?
• Formula:
Current year fund balance of the
general fund – prior year fund balance
Prior year fund balance of the general fund
Warning trend: Consistent decreases in
reserves.
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Trend analysis
• Purpose
– Warning trends over three year period
– 2009, 2010, 2011
• Limitations
– Warning indicator in one year
– Current budgetary actions
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Warning Indicators - 2012
• 19 school districts with one or more
warning indicators
– 13 districts with one
– 6 districts with two
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State of Colorado
Fiscal Health Analysis
School Districts With Warning Indicators
For the Three-Year Period Ending June 30, 2011
Number of
Districts with
Warning
As of June 30, As of June 30,
Fiscal Health Ratio
Indicator1
20102
20093
Ratio 1: Asset Sufficiency Ratio
0
0
0
10
13
7
Ratio 3: Operating Reserve Ratio
0
0
0
Ratio 4: Operating Margin Ratio
10
16
40
Ratio 5: Deficit Fund Balance Ratio
0
0
0
Ratio 6: Change in Fund Balance Ratio
5
6
21
Total Indicators
Total Districts With One or
More Indicators
25
35
68
19
26
49
Ratio 2: Debt Burden Ratio
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, 2010.
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3 Number of districts with indicators in prior analysis, which covered the three-year period ending June 30, 2009.
Warning Indicators
• 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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Appendices
• 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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Districts with Two Warning
Indicators
• North Park R-1 (Jackson County)
• Mountain Valley(Saguache County)
• Trinidad 1 (Las Animas County)
• Jefferson County R1 (Jefferson/Broomfield)
• La Veta RE-2 (Huerfano County)
• Hoehne (Las Animas County)
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Two Warning Indicators
• Not necessarily a problem
• Reasons centered around two themes
– Various planned expenditures
– Reductions in state school finance funding
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Two Warning Indicators
• Plans to correct the situation
– Budget cuts – eliminate jobs
– Cuts to education programs
– Further spend down of fund balance
• CDE Actions
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Prior Year
• 6 districts identified with two in 2011
analysis
– Fiscal Year 2010
– 4 districts showed improvement
• 3 districts had two last year – none this year
• 1 district had three last year – two this year
– 2 districts no change
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Prior Year
• Four districts with warning indicators in
last three Fiscal Health Analysis reports
–
–
–
–
Hoehne
Jefferson County
La Veta
Pritchett RE-3
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Prior Year
• Overall number of districts with warning
indicators has declined
– 2012 – 6 districts
– 2011 – 6 districts
– 2010 – 19 districts
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School District Fiscal Health
• Important analytical tool
• Early warning system
• Allows school districts to take prompt
action
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