The Roland-Story school district’s financial health report was presented to the school board by Superintendent Matt Patton and Finance Director Candi Holm recently.
The current financial health of the district is in very good shape, Patton said. The report is a key to providing and maintaining a quality education program at Roland-Story. Patton also stated that the district’s positive financial condition is due to previous work done by past and present board members.
“I am extremely grateful to those (past and present) leaders for making the necessary, and often difficult, business decisions to secure the financial future of the school district,” said Patton. “Annually reviewing the financial health indicators, and making corrections when needed, will help ensure that Roland-Story remains in a good financial position for many years to come.”
Various ratios were used to analyze the school district’s financial condition. The ratios selected were identified as being the most effective predictors of financial health for Iowa’s K-12 public school districts, as supported by formal quantitative research. The source of the data for most of the ratios is the Certified Annual Report (CAR), which is required by the Iowa Department of Education each year.
Creditors Equity Ratio (CER)
The creditors equity ratio measures how much the district’s current general fund equity is funded with borrowed money. The amount of short-term borrowing would be indicative of how dependent the school is on credit to cash flow business operations. Normally, as a school increases available cash to service operations, the less dependent on short-term debt it would become.
The CER = Iowa Schools Cash Management Program restricted assets/current assets, and therefore, the ideal scenario would suggest the minimum ratio be zero, indicating that no short-term borrowing would be necessary. Roland-Story’s CER for the past five years has been stable, with a ratio of zero, which is the desired level, with no corrective action needed at this time.
Current Ratio (CR)
The current ratio is a widely used measure of short-term liquidity; it is used to predict the school’s ability to meet its current obligations from current assets from continuing operations. In a way, it’s like measuring the district’s working capital.
The CR = current assets/current liabilities. The minimum target amount for the ratio is 1.0 (or 100 percent). An indicator less than 1.0 would show that the school has more liabilities than assets. Roland-Story has been stable or slightly lower for the past five years — 164.1 percent (2013), 172.9 percent (2014), 166.8 percent (2015), 160.8 percent (2016) and 158.9 percent (2017) — and is where the district wants to be, with no corrective action necessary. In 2017, the district had $6,564,136 in assets, with only $4,130,343 in liabilities.
Day’s Net Cash Ratio (DNCR)
The DNCR is typically calculated at the end of the fiscal year and gives a good indication of how many days a district can operate without the additional influx of revenue. A limitation of this indicator is that district expenses are usually made in large amounts on only a few days each month, i.e. monthly or bi-monthly payroll or vendor payments that are paid only once or twice a month.
Revenue, for most school districts, is usually received in large amounts as well, only a few times a month (such as state aid), or in the case of property taxes, twice a year. Receiving these funds and the timing of expenditures is important for a district to maintain effective business operations. Having inadequate cash available to handle expenses requires the district to borrow funds, which creates added debt not directly associated with student instruction. On the other hand, having too much cash on hand is also a mismanagement of the district’s financial situation.
The DNCR = cash + investments/total general fund expenses/365. The target range for this indicator is 80 to 90 days. Roland-Story has been trending upward since 2010, when the ratio was 12 days. In the past five years, the trend has been lower. In 2017, the district’s ratio was 81 days, and therefore, is trending in the right direction. In 2017, Roland-Story had $2,444,367 in cash and investments, with $10,976,374 in expenditures, for a daily expenditure of $30,072.
Employee Cost Ratio (ECR)
Because education is a service-based industry, staff costs represent the single largest category of General Fund expenditures. The ECR was added to the report to show important trends in staffing costs as a percentage of total General Fund expenditures. Typically, school districts spend 75 to 85 percent of their General Fund budget on staff-related costs. The equation is: wages + benefits/general fund spending. The target range for schools in Iowa is less than 80 percent. Districts that exceed this percentage over a period a time soon exhibit financial stress.
Currently, the Roland-Story district shows a stable ECR of 83.5 percent ($9,159,839/$10,976,374). The indicators for R-S have ranged from 83.1 percent in 2014 to 83.6 percent in both 2016. The ratio is in the desired range, but the district will continue to watch this closely in the years ahead. There is no need for any changes at this time.
Financial Solvency Ratio (FSR)
The ratio of financial health came about from the “Study of School Corporation Financial Operations” study, which was conducted in 1990 by Ehlers. It shows the ratio of an unreserved, unrestricted general fund balance to actual revenues. The FSR equation is as follows: unreserved and undesignated general fund balance/total general fund revenues. The range should show a target solvency of 5 to 10 percent. An acceptable solvency position would be 0 to 4.99 percent. A ratio of -3.00 to -.01 percent would cause an “alert” for the district. And a strong solvency concern would be a ratio of less than -3.00 percent.
Currently, the Roland-Story district is trending stable and is considerably above the desired ranged at this time, with a ratio of 18.9 percent. Total revenue for the district in 2017 was $11,276,822. The unreserved, unrestricted general fund balance (UUGFB) in 2017 was $2,132,265. By all current indications, there is no district action necessary.
Student Transportation Ratio (STR)
This ratio measures the amount a school budget spends on transportation costs. Examples of such costs are operating and maintaining bus routes, driver costs, equipment, upkeep of buses and fuel. A high ratio would indicate too much is being spent on transportation. The STR = transportation costs/general fund costs. There is not a suggested target range for Iowa schools at this time.
Roland-Story spent $274,497 on transportation in 2017, with total expenditures totaling $10,976,374; a ratio of 2.50 percent. The ratio at R-S has ranged from 2.50 percent to 2.74 percent (2013) for the past five years. The district’s own target range is to keep transportation costs in the 3 to 5 percent range; and, as presented, is currently below that range at this time. The district will continue to maintain a quality fleet of vehicles and continue to show efficiency in establishing bus routes. No change in action is, therefore, necessary.
Unspent Balance Ratio (UBR)
The unspent balance ratio measures the district’s unbudgeted spending reserves not spent at the end of each fiscal year. An adequate level of budget reserves is important, so a district can respond to emergencies and changes in enrollment. This spending authority is vitally important to the financial health of any district in Iowa, which is why this ratio is included in the group of indicators that make up this health report. The data for the ratio is provided by the Iowa Department of Management on the Unspent Balance Calculations Report. The UBR = unspent cumulative spending authority/maximum budget authority. The suggested target for this indicator should be 10 percent or higher.
Currently, for 2017, Roland-Story is trending lower at 15.15 percent, with an unassigned, unspent balance of $2,132,265 and a maximum budget authorized at $14,070,085. No corrective action is required at this time.