Lakota's Five-Year Financial Forecast: Key Takeaways from Treasurer/CFO Adam Zink

Lakota Treasurer and Chief Financial Officer Adam Zink presented the district’s five-year forecast at the May 20, 2024 board of education meeting. In Ohio, school boards are required to adopt a five-year forecast in November and May for each fiscal year (FY).

Zink explained to the Board that the forecast provides history as well as projections and is used as a long-range planning tool. “It’s a roadmap of what financial implications we have in the near and further out future.” He also stressed that the forecast is a snapshot based on the information that is known at this moment. Furthermore, the forecast is only focused on the district’s general fund.

Operating Revenue Assumptions

Local revenue sources, including property taxes, make up 69% of Lakota’s income. The State revenue sources make up the other 31%. “We have a stable collection forecasted for our real estate revenue, with only a one percent delinquency rate,” Zink told the Board. For state funding, Lakota remains guaranteed at FY21 funding levels.

He also noted high interest rates but continues to monitor this as the Federal Reserve looks to lower interest rates beginning in the latter half of 2024.

Challenges to Future Operating Revenues

In calendar year 2026, the county will go through a property reappraisal. “We feel like we are trying to be as accurate as we can be with that,” Zink told the Board, noting that he tends to be very conservative when building the five-year forecast. 

Zink also cautioned that there is a property tax reform committee that is reviewing how property taxes are being billed, including a possible cap on how much taxes could grow. “If that was to happen, for all of us (who) are residents of the district, that would be wonderful news,” he continued. “However, for the district, if there was a cap on real estate growth, then that could have a negative implication for future forecasts.”  

Additionally, there have been discussions at the State about the reduction of the “20 mill floor.” Per the Ohio constitution, the 20 mill floor is the lowest effective rate a district’s levies may be reduced to, which limits the impact on property tax bills when taxpayers’ property value increases. In this five-year forecast, this does not apply to Lakota. The district currently collects 23.29 mills from residential and agriculture, also known as Class I, and over 30 mills on commercial, or Class II, property taxes for the general fund. 

With the most recent triennial property valuation in tax year 2023, Lakota’s effective millage, or the millage amount the district can collect, decreased about seven mills. This is a result of House Bill 920, which ensures that a school district cannot increase the amount it collects in property taxes year over year. In other words, when property values increase, the amount of millage Lakota collects decreases (cannot go below the floor of 20 mills).

“We have had a tremendous decrease in our effective millage,” Zink said. Lakota’s Class I total effective millage for tax year 2023, or the amount collected, has dropped below what it was in 2012, going from 38.69 mills to 26.51 mills in tax year 2023, which residents pay in 2024. “This is a result of our growing community and not going back (to the taxpayers) for additional operating dollars.” The last time Lakota asked the community to support a levy was in 2013. 

Zink shared that there is a balance in being as conservative as they can be while also being realistic. State funding is currently in the third year of a six-year phase-in. The latest state simulations show the district receiving about $8 million in guaranteed state aid in FY25. Based on the simulations, the district will be $12 million on the guarantee at the end of the sixth year of the phase-in. This aid would be lost if the state legislature does not continue to guarantee state funding and the state simulation holds true. 

The district is currently reviewing preschool tuition compared to neighboring preschools to ensure that Lakota is in line.

Notable Expenditure Assumptions

The general fund’s operating expenses are predominantly spent on staffing and services. The forecast includes increases in wages for FY24 that were in place due to the current contract with both the teacher and classified unions. Healthcare expenses increased by 25% beginning January 1, 2024. A seven percent healthcare increase is forecasted for the remaining years.

The last remaining ESSER funds were utilized in FY24. This was one-time funding that we will not receive going forward. Lakota used this funding throughout the COVID-19 pandemic, including $2.6 million to pay for student fees to give relief to families in our community. Now that the funds have been fully utilized, student fees will be brought back for the coming school year.

Fifty-one percent of the district’s purchased service expenses are for transportation. Zink is forecasting a three percent increase in FY25-28. However, he shared that they are forecasting a decrease of six routes in FY25 due to restructuring the pickup locations of freshman bus riders. “This will not only result in operational savings, but it will also result in better servicing for our community.” 

Challenges to Future Operating Expenditures

Zink said it is important to note that a new contract between the district and both unions has not been completed, which could impact the five-year forecast. The cost of certified staffing (teachers) for fiscal year 2025 has increased from the November forecast. Zink shared that it is the hope of the district that the staffing numbers have leveled off, aligning with the educational needs of students, new report card requirements and programming needs. He also noted this forecast assumes reallocation of staff as future needs appear.

While the bus driver shortage resulted in lower than expected fuel costs, the forecasted years reflect every route being covered every day. This prediction could be impacted by further driver shortages.

The Master Facility Plan could also have an impact on the forecast. “As we begin to go further into the years of the forecast,” Zink began, “it is very apparent that picking up some economies of scale, picking up some consolidations of services, that’s going to result in valuable operational savings.”

The Bottom Line

The district’s ending cash balance is beginning to decline. Board policy 6218 states that when the district’s cash balance is above 150 days of operating expenses, “the Superintendent may prepare a plan for the expenditure of the excess General Operating cash balance on one or more of the deliverables of the strategic plan.” At 90 days, the superintendent and treasurer must present a plan to the Board to stabilize the budget. 

While the May five-year forecast shows expenses dipping below the 150 day cash balance, it does not dip below 90 days. Therefore, the superintendent and treasurer do not have to present a plan to the Board to stabilize the finances.

Fiscal Transparency

Zink invites the community to visit Lakota’s finance website for many resources, including the current and past forecasts, budgets and financial prospectus.