Understanding Lakota's Financial Future: Key Insights from the Five-Year Forecast

Lakota Treasurer and Chief Financial Officer Adam Zink presented the five-year forecast to the Board of Education at its Nov. 18, 2024 meeting. The treasurer presents the forecast for the Board’s approval every November and May, per Ohio law. The forecast looks at general fund, or operating dollars, only.

Zink shared with the Board that the purpose of the forecast is to provide a financial history as well as projections for the coming years. It is a management tool that helps with long-range planning. Zink reminded the Board that the forecast is a snap-shot in time, based on current information available at this time. “It’s not etched in stone; it is very fluid,” he said.

Revenue Insights

Revenue highlights from the presentation include:

• Local revenues make up just over 70% of the District’s revenues.
• The District’s tax revenue for Fiscal Year 2025 (FY25) is stable with a 1.5% delinquency.
• As interest rates decrease, revenue also decreases for the District.
• Lakota remains on the State’s guarantee for funding, or is currently receiving more than the state formula calculates.

Along with highlights, Zink reviewed challenges to future operating revenues. These include:

• 2026 will see a tax reappraisal that may impact revenues.
• Senate Bill 271 could potentially have a negative impact on the District’s collections. The bill seeks a limit to the growth of the reappraisal cycles to a five percent increase to qualified taxpayers.

Understanding Millage

Zink further reviewed millage and how it is calculated. Millage is the amount of money collected from taxpayers by the District. Millage, or mills, is calculated at 35% the appraised property value as noted by the Butler County Auditor. One mill is worth $1 for every $1,000 of tax-assessed property. He further reviewed the impact of House Bill 920, which ensures that school districts collect the same amount in local tax revenue as the year prior for outside millage. 

With House Bill 920, the outside millage collected by a school district will increase or decrease so the district does not collect more money or less from its taxpayers as it did the previous year, down to a state minimum of 20 mills operating revenue, which is referred to as the “20 mill floor.” Lakota’s effective mills for all funds, which pays for operating expenses, permanent improvements and bond issues have dropped below its pre-levy numbers, going from 38.69 in 2012 to 26.51 total mills in 2023. 

With regards to the recent appraisal update by the County, the 37% increase homeowners saw equals a rollback of millage for Lakota to ensure that the District collects the same amount of revenue from its taxpayers as it did the previous tax year. 

“Tax year 2023 took about a 6.4 mill drop due to the large (appraisal) increase,” said Zink. He further explained that when the reappraisal takes place in tax year 2026, the mills will continue to decrease until it reaches the 20 mill floor, as allowed by the State. “For Lakota at this time, if you had a one percent increase (in the reappraisal), it would generate about $230,000. If you were on the (20 mill) floor, it would be about $711,000 per one percent.” The difference is due to current collections only increasing with the 6.49 “inside mills.” Once on the 20-mill floor, this change would increase on all 20 mills.

“There was a lot of fear when we saw those property reappraisals,” said Board President Julie Shaffer. “But if you look at the actual numbers in the forecast, because of House Bill 920, our local revenue went up 3.5%.” Shaffer reiterated that if another reappraisal amounts to a high increase for homeowners, it does not necessarily mean that taxes to Lakota will increase drastically.

Operating Expenses

Salaries and benefits make up 75.5% of Lakota’s operating expenses, with transportation included as a purchased service because it is outsourced to Petermann. If transportation were to be included, Zink shared that salaries, benefits and purchased services would account for about 93% of the District’s operating expenses.

Notable expenditure assumptions for FY25 include:

• Zink reminded the Board that the collective bargaining units agreed to a contract rollover for two years with negotiations beginning in the spring of 2026.
• Healthcare saw a 25% increase in calendar year 2023 and an additional seven percent increase this year (2025). FY25 will reflect about a 15% increase due to the blended rate for the fiscal year. Zink is forecasting a four percent increase through FY29.
• Transportation accounts for 54% of the overall purchased service expense. This amounts to just over $22 million this year.
• School Resource Officers are part of the “other services” expense.
• Curriculum rotations are also built into all years of the five-year forecast.

Zink noted that, while operating expenses have increased slightly over the years compared to revenues, state funding has remained mostly flat.

Future Operating Expenditure Challenges

In addition to the already mentioned contract negotiations and healthcare expenses, Zink noted that the State’s retirement program for licensed educators, STRS, will change next summer. Certified staff will be able to retire after 33 years of service, down from 34. “With that, we may see an increase of retirees here at Lakota,” he said. “If we do see that, that could result in a retirement-replacement and would result in a lower cost overall.” Although this could result in a lower cost for wages, it could also increase severance expenses in FY25.

Master Facilities Plan

The impact of the master facilities planning work will depend on the timing of implementation. It has the potential to impact the forecast beginning in FY29. However, Zink is not forecasting this currently. Forecasting changes would occur once the community supports a bond issue for the plan.

Looking Ahead

In 2019, the Board approved policies 6217 Budget Stabilization and 6218 Cash Balance Reserve to act as guardrails for district finances. Policy 6217 authorizes the treasurer to transfer a portion of unencumbered operating funds (budgeted money that was not used) into a reserve fund to be used upon board approval for unexpected (and unbudgeted) expenses. Policy 6218 requires the District to maintain a reserve fund that can pay for at least 90 days worth of operating expenses. If the District’s cash balance drops below 90 days at any point in the five-year forecast period, the treasurer and superintendent must present options to the Board for its consideration.

In the current five-year forecast period, Zink informed the Board that the cash balance hits the 90 day mark in FY28, dropping to 71 days in FY29. “That’s something that Dr. Whitely and I will begin making plans to bring to the Board per policy to see what we can do or what directions we may want to take,” said Zink. 

“I know that this is a snapshot in time,” said Vice President Kelley Casper. “I appreciate that you and Dr. Whitely are looking at when we might dip below that 90 days (and) what we can do. And, by May, maybe that changes and we don’t dip below until (farther out).”

“As always, the forecast is a forecast,” summed up Zink. “It will change by May.” In addition to the board presentation, a detailed summary of the forecast is available on the Finance website.