December 2015 Oklahoma School Finance Financial Numbers

December Finance Report Andy Evans, Finance Director

December 9, 2015

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Executive Summary: OPSRC’s Quarterly Financial Report has a discussion of the following subjects:

State Dedicated Revenue Month to Month Comparisons and Year to Year Comparisons

Page 7 Motor Vehicle Calculations Page 8 State Tax Collections Page 10 State Aid Formula Discussion Page 13 Petroleum Sector Summary: Education’s State Dedicated Revenue (Collectibles) all were lower in November and December showed a marked decrease both monthly and in total for FY 16. The decline is showing a deceleration of all collections. The receipts for the year showed their first departure from the FY 15 numbers in a more dramatic statistical movement in November’s payments. Motor Vehicle Tax collections are being dispersed differently than in years past. The Hold Harmless calculation was changed in Appropriations legislation last spring. The overall effect is that if the Tax Commission collects less than the same period in FY 15 ADA is utilzed to disperse the funds, if the Tax Commission collects more than the same period in FY 15 the Hold Harmless stays in effect and the excess is then dispersed by ADA. State Tax Collections were all below expectations last month. OMES and the State Treasurer’s Office indicated that the state revenue is below target. The Board of Equalization will take the first look at FY 17 Budget Funds and FY 16 Received Funds on December 21, 2016. OPSRC will get information out to members as soon as possible after the meeting. A discussion of the past patterns of the State Aid formula is on pages 10 to 12. The patterns of State Funding, the funds making up the 1017 Fund, and possible consequences from current year finances are in this discussion. Oklahoma Common Education funding is becoming much more dependent on the Local and County Funds than in years past. Foundation Aid and Salary and Incentive Aid have dipped below the percentage of the Chargeables. The increasing reliance on local wealth may be complicated by the continuing decrease in collections of Chargeables. The Petroleum Sector is showing increasing fragility and the Crude Oil price is holding in the very low $40’s with dips into the $30’s. The volume of Crude Oil and Natural Gas being produced in Oklahoma is declining, with a 5% decline over the same time last year. The overall volume of the Crude Oil supply is at a 30.5 day supply for the first time since 1983-1985. The movement in Oil prices could change dramatically over the weekend of December 4 with the meeting of the OPEC nations.

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State Dedicated Revenue Trends Collections of the State Dedicated Revenue (Chargeable Revenue) paid out by the Oklahoma Tax Commission to Districts is showing a general decline. This month we have seen a very noticeable departure from the Total Collections overall for the year. The Gross Production and Motor Vehicles is showing declines from FY 15 levels for total collections. All areas of collections showed a marked decrease for November’s number from FY 15. This overall collection deficit is currently $15,270,722 for FY 16 collections from the same period in FY 15. It is important to remember that deficits from the State Aid Chargeables will result in subtractions from the State Aid Formula Foundation Aid portion of the formula. The trend line appears to be a widening economic deceleration gap. The source for all of the tables in this section are Tax Commission Report MSACR75-2.

July August September October November December

FY 15 $33,578,643.98 $67,978,462.51 $103,996,086.6 $136,038,196.6 $170,039,630.0 $204,204,841.9

FY 16 $30,991,685.74 $63,199,174.18 $95,224,907.10 $127,196,630.0 $156,043,058.0 $180,742,340.1

$-

$50,000,000.00

$100,000,000.00

$150,000,000.00

$200,000,000.00

$250,000,000.00

December Total Dedicated State Revenue excluding School Land (December Payment unavailable)

FY 15 FY 16


2015 $33,578,643. $67,978,462. $103,996,086 $136,038,196 $170,039,630 $204,204,841

2016 $30,991,685. $63,199,174. $95,244,907. $127,196,630 $156,043,058 $180,742,340

$- $50,000,000.00

$100,000,000.00 $150,000,000.00 $200,000,000.00 $250,000,000.00

Total State Dedicated Chargeable Collections

2015 2016

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When looking at the Month to Month collections we see a similar trend with September and October having been a stronger month, except in the area of Gross Production. November has shown an increasing weakness in the collections and dispersments from the State Tax Commission. This is indicative of the State Income Collections in these areas. Gross Production is showing an increasing tendency toward under collection. The Motor Vehicle Collections data is showing an under collection in all months but October, with an acceleration in December. The baseline averages for the current year will need to be taken into account in FY 17 budgeting due to the increased volatility of the Chargeables. Without the Hold Harmless portion of Motor Vehicle Collections and the volatility of Gross Production any changes to any formulas utilized to assign collections to Districts could cause a cash flow issue.

Gross Production REC Motor Vehicles

2015 $7,406,075.17 $3,186,752.82 $23,752,383.88

2016 $4,066,133.14 $2,976,667.14 $17,656,481.76

$-

$5,000,000.00

$10,000,000.00

$15,000,000.00

$20,000,000.00

$25,000,000.00

State Dedicated Chargeable for December

2015 2016


FY 15 $7,370,747.42 $8,473,493.13 $10,069,445.71 $7,992,829.98 $7,792,525.81 $7,406,075.17

FY 16 $4,889,429.12 $6,652,427.85 $6,453,808.23 $5,493,958.00 $5,025,812.76 $4,066,133.14

$-

$2,000,000.00

$4,000,000.00

$6,000,000.00

$8,000,000.00

$10,000,000.00

$12,000,000.00

Gross Production Monthly Comparison

FY 15 FY 16

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The trend towards declining State Dedicated Revenue may have a negative effect on the FY 2017 Funding Formula, both in initial allocations and mid-term allocations. The table below is based on currently allocated amounts for the State Dedicated Revenue with current collections next to them. Please note these are current


FY 15 $3,125,448.74 $3,466,325.85 $3,638,462.33 $3,672,213.01 $3,950,028.64 $3,186,752.82

FY 16 $3,018,861.40 $3,352,559.41 $3,662,097.98 $3,766,568.00 $3,390,123.54 $2,976,667.14

$- $500,000.00

$1,000,000.00 $1,500,000.00 $2,000,000.00 $2,500,000.00 $3,000,000.00 $3,500,000.00 $4,000,000.00 $4,500,000.00

REC Monthly Comparison

FY 15 FY 16


FY 15 $23,082,447. $22,459,699. $22,310,016. $20,377,066. $22,258,878. $23,752,383.

FY 16 $23,083,395. $22,202,501. $21,947,826. $22,691,196. $20,430,000. $17,656,481.

$-

$5,000,000.00

$10,000,000.00

$15,000,000.00

$20,000,000.00

$25,000,000.00

Motor Vehicles Collection by Month

FY 15 FY 16

July August September October November

FY 15 $11,406,169.00 $3,982,805.00 $7,605,100.00 $6,098,176.00 $11,819,452.00

FY 16 $11,235,375.00 $4,768,247.00 $5,781,653.00 $10,727,668.00 $7,124,609.00

$-

$5,000,000.00

$10,000,000.00

$15,000,000.00

Month to Month Comparison of School Land Earnings

FY 15 FY 16

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collection levels and will probably not reflect final collections, these are a simple projection based on the first five months of the fiscal year divided by the percentage of 5/12 or .4166. There are many factors that could change the collections. The sources for this table are the Initial State Aid Allocation Sheets for FY 16 (11/06/15) and State Tax Commission Report MSACR75-2.

State Dedicated Revenue Category

Initial Allocation Sheet Current Amounts Received Through November

5 months of Fiscal Year

Projected Final Amount computed from Current Amounts Divided by (5 Months/12 Months)

Budgeted Received 5 Month/12 School Land $ 102,813,929.00 $ 39,637,552.00 $ 102,813,929.00 Gross Production $ 88,671,791.00 $ 28,497,436.22 0.41666667 $ 68,393,846.93 Motor Vehicle $ 261,401,207.00 $ 110,355,410.07 0.41666667 $ 264,852,984.17 REA Tax $ 42,022,728.00 $ 17,190,211.14 0.41666667 $ 41,256,506.74 Total $ 494,909,655.00 $ 195,680,609.43 0.41666667 $ 477,317,266.83

Difference $ (17,592,388.17)

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Motor Vehicle Payments Due to HB 2244 there has been a change in the way Motor Vehicle Tax is figured on a month to month basis. OPSRC visited with the Tax Commission to understand why this is occurring and what is triggering the changes after we had several different calls from members and nonmembers. We visited with several legislators to ensure this was a correct interpretation. As a source of background it is important to remember that in the past Motor Vehicles has been held Hold Harmless from previous years. That made budgeting easier because Districts knew from month to month what amount of income to expect at a minimum. Judging from the number of questions and comments about this topic it caught us all by surprise. The following rules have been added by HB 2244

1. If the collections for this month this year are higher than the collections of this month last year: a. The hold harmless provision stands and schools receive as much Motor Vehicle Tax as they did last

year. b. The amount over last year is then disbursed based on current ADA rates to all schools.

2. If the collections for this month this year are lower than the collections of this month last year: a. The hold harmless provision cannot be used

b. The entire amount is sent out based on current ADA rates. 3. For motor vehicle collections:

a. The allocation does not go through a county then school process. b. It is based on the ADA of the school as a percentage of the ADA for the state. c. Gross Production collections go through the county then school method.

The table below gives the amount of money collected by month for Motor Vehicles since the start of FY 16, with a comparison to FY 15. The attached spreadsheet gives you the income for each month of FY 15 and the ADA used to figure the formula.

The source for the numbers cited is the Oklahoma Tax Commission Report for the months cited Oklahoma Tax Commission Report MSACR75-2


$23,083,395.22 $22,202,501.18 $21,947,826.71 $22,691,196.98 $20,430,490.62

$23,082,447.82 $22,459,699.55 $22,310,016.14 $20,377,066.97 $22,258,878.97

Income from Motor Vehicle Tax Comparisons of State Total Collected ending in that month. The source for the numbers cited is the Oklahoma Tax Commission Report for the months cited Oklahoma Tax Commission Report MSACR75-2


$23,083,395.22 $45,285,896.40 $67,233,723.11 $89,924,920.09 $110,355,410.71

$23,082,447.82 $45,542,147.37 $67,852,163.51 $88,229,230.48 $110,488,109.45

If you wish to figure what your probable income may be over the next seven months we have included the Month to Month figures for Motor Vehicle Tax from FY 15. To determine this follow these steps:

a) Divide the District ADA by the State ADA at the top of the columns. This will give the percentage of the state ADA for the District’s students (this is available from OPSRC or the SDE)

b) Multiply the percentage by the monthly collection from last year. That will give an approximate dollar figure.

c) Remember that the District will be held harmless if the number is above last year’s collections. If the State over collects the formula changes back to the Hold Harmless number. The overage is then dispersed through multiplication of the ADA percentage times the overage.

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State Tax Collections The Office of Management and Enterprise Services released the State Collections data for the FY 16 Year through October on 11/10/2015. The following trends were reported:

Figure 1All Funds are in Millions of Dollars

Nov FY 15; November of 2014,

Income Tax, $227.12 , 27%

Nov FY 15; November of 2014, Gross Production,

$66.15 , 8%Nov FY 15; November of 2014, Sales Tax1,

$380.50 , 45%

Nov FY 15; November of 2014, Motor Vehicle Tax,

$51.21 , 6%

Nov FY 15; November of 2014,

Other Sources2, $121.08 , 14%

NOVEMBER OF 2014

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Figure 2All Funds are in Millions of Dollars

The above table and graphs demonstrates that are several different areas of under collections in the state revenue stream. This is mostly attributed to the effect of the under performance in the petroleum sector. There was a passage in the OMES discussion of the budget on 11/10/2015 that stated FY16’s cushion has been negatively impacted by the undercollection of revenues for current year FY 16. The December State Treauser’s Report solidifies this trend. The meeting for the first discussion for revenue certification will be in December. State Treasurer Miller indicated that the initial discussion would be placed later in December to get the best possible numbers to make an evaluation of Oklahoma’s overall funding sitaution.

Income Tax, $267.43 , 32%

Gross Production, $30.15 , 4%

Sales Tax1, $361.91 , 44%

Motor Vehicle Tax, $53.93 , 6%

Other Sources2, $117.92 , 14%

NOVEMBER 2015

$1,240,648,934.00

$2,314,828,782.00

$2,259,047,304.00

$2,762,334,135.00

$0.00

$500,000,000.00

$1,000,000,000.00

$1,500,000,000.00

$2,000,000,000.00

$2,500,000,000.00

$3,000,000,000.00

$3,500,000,000.00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

State Funding of Common Education Including All Sources of General Fund Revenue

State Aid Local and County Federal

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Education doesn’t normally think of itself as being affected by Sales Tax revenue. The graphic below is from the FY 15 State Budget and is a representation of the funds flowing into the Oklahoma Educational Improvement Fund (1017 Fund). The 1017 Fund is 27% of the total General Fund Revenue, which makes the State Sales 9% of the total amount funded from State General Fund Revenue or 5% of the total State Funding including Local and County Funds.

Tobacco Tax, $504,231.00, 0%

Income Tax-Individual, $245,111,349.00, 33%

Business Activity Tax, $580,242.00, 0%

Income Tax-Corporate, $102,591,720.00, 14%Cigarette Tax,

$3,165,092.00, 0%

Sales Tax, $254,060,325.00, 34%

Use Tax, $25,582,754.00, 3%

Tribal Gaming, $123,596,000.00, 16%

FY 15 1017 Fund Certified Funds

Tobacco Tax Income Tax-Individual Business Activity Tax Income Tax-Corporate

Cigarette Tax Sales Tax Use Tax Tribal Gaming

1017 Fund Funding in FY 15 Tribal Gaming $ 123,596,000.00 16% Use Tax $ 25,582,754.00 3% Sales Tax $ 254,060,325.00 34% Cigarette Tax $ 3,165,092.00 0% Income Tax Corporate $ 102,591,720.00 14% Business Activity Tax $ 580,242.00 0% Income Tax Individual $ 245,111,349.00 32% Tobacco Tax $ 504,231.00 0% Total $ 755,191,713.00

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We included the 1017 Fund in the discussion this quarter for information purposes only. The overall effect of the income is significant in the stable funding of Common Education. The table below gives a description of the changes in the State Aid formula from FY 14 to FY 16. The growth in total chargeables and Ad Valorem Growth since FY 14 have helped to solidify the formula.

The table above is a listing of the changes in the State Aid Formula Factors since the start of FY 14. There are several interesting items to look at in this data set. All of the data for the following tables and graphs were taken from the State Aid Calculation Sheets. The Foundation Aid Factor has steadily risen over the past three fiscal years. During this same time period there has been a consistent increase in Chargeables as well. The anticipated increase in the percentage of Chargeables this year may not carry into FY 17 due to the decreased level of chargeable collection in FY 16 thus far.

Foundation Aid

Factor Incentive Aid Factor

11/6/2015 FY 16 Revised Initial $ 1,622.00 $ 72.88

9/11/2015 FY 16 Revised Initial $ 1,622.00 $ 72.88

7/6/2015 FY 16 Initial State Aid 1,622.00$ 72.77$

6/8/2015 FY 15 Final 1,609.00$ 73.34$

2/2/2015

FY 15 Mid Year

Adjusted with 11% 1,609.00$ 73.29$

1/29/2015

FY 15 Mid Year

Adjusted 1,609.00$ 73.26$

1/15/2015

FY 15 Mid Year

Adjusted 1,609.00$ 73.26$

8/11/2014 FY 15 Initial Adjusted 1,614.00$ 73.37$

7/18/2014 FY 15 Initial 1,612.00$ 73.26$

6/6/2014 FY 14 1,574.00$ 72.90$

12/31/2013 FY 14 Midyear 1,574.00$ 72.90$

9/6/2013 FY 14 Adjusted Initial 1,576.00$ 73.13$

7/17/2013 FY 14 Initial 1,576.00$ 73.13$

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It’s important to remember that the Valuation of a District’s value is utilized in more than one area of the formula. The Ad Valorem Chargeable is subtracted in the top portion of the formula and the Adjusted Valuation is factored in the bottom portion of the formula. These two computations drive the eventual State Aid that the District will receive. Over the past two years, the Chargeable Portion of the formula has paid 2% more of the total compensation to Districts each year, while the Foundation Aid has seen a reduction of 1% and the Salary and Incentive Aid has shown a 1% decline. One of the main components of calculating the Salary and Incentive Aid is the Adjusted Valuation of the District. This calculation was adjusted in FY 15 due to the interpretation of the State Aid Formula from 1992.

Total Chargeables, $1,050,248,492.76 ,

37%

Total Foundation Aid, $760,305,256.00 ,

27%

Total Incenti ve Aid, $1,022,479,649.00 ,

36%

FY 16 Funding Formula

Total Chargeables Total Foundation Aid Total Incenti ve Aid

Total Chargeables, $1,024,989,065.26 ,

36%

Total Foundation Aid, $791,127,157.00 , 27%


37%


Total Chargeables Total Foundation Aid Total Incenti ve Aid

Total Chargeables, $964,434,529.00 ,

35%

Total Foundation Aid, $775,276,408.00 ,

28%


37%


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The differences in the amount of funds that were allocated through the formula is due to the required 1.5% holdback between initial allocations and Mid-Term Allocations as well as money that was held out in December for the calculation mistake by the SDE. There is a total difference of 6.2% between the FY 15 Initial Allocation and the FY-15 11% adjusted Mid-Term. The money changes are as follows:

a) There was a $25,539,125.47 increase in the total State Dedicated funds (Chargeables) on

1/29/15 followed by a decrease of $8,833,636.12 on 2/2/15 due to the 11% Correction in Calculation

b) There was an increase in Adjusted Valuation of $1,234,946,550 Initial State Aid Calculation

and the Mid-Term Calculation of 1/29/15 followed by a decrease of $545,856,102 to accommodate the 11% Correction in Calculation on 2/2/2015.

a. Since the beginning of FY 14 the state of Oklahoma has seen a $2,278,539,796 gain

in the Ad Valorem Chargeable. b. At the beginning of FY 14 property in the state was valued at an adjusted valuation

of $26,990,469,454 adjusted valuation. c. Prior to Mid-Term of FY 15 the adjusted valuation was $29,269,009,500. This was

an increase of $2,278,539,796 or a 7.7% increase. d. The mistake in the calculation of the Valuation has been an ongoing issue since the

1990’s, this may or may not be taken to court to recover the monies by the Districts

that were adversely affected. This mistake resulted in approximately $18,000,000 leaving the formula at Mid-Term FY 15.

c) The total change in State Aid was $139,166,574.08 from 7/18/14 to 6/8/15 or 7.42%

change.

Number of Students Total Chargeables District Valuation

Total Foundation

Aid Total Incenti ve Aid

Total State Aid in

Formula

11/6/2015 FY 16 Revised Initial 1,088,632.55 1,050,248,492.76$ 28,714,371,908.00$ 760,305,256.00$ 1,022,479,649.00$ 1,808,643,731.00$

9/11/2015 FY 16 Revised Initial 1,088,632.55 1,050,248,492.76$ 28,714,371,908.00$ 760,305,256.00$ 1,022,479,649.00$ 1,808,662,500.00$

7/6/2015 FY 16 Initial State Aid 1,088,728.88 1,050,248,492.76$ 28,714,371,908.00$ 758,375,039.00$ 1,020,254,034.00$ 1,804,535,973.00$

6/8/2015 FY 15 Final 1,105,279.04 1,024,989,065.26$ 28,714,371,908.00$ 791,127,157.00$ 1,056,569,575.00$ 1,873,390,417.00$

2/2/2015

FY 15 Mid Year

Adjusted with 11% 1,105,252.89 1,024,997,271.01$ 28,714,371,908.00$ 791,065,618.00$ 1,055,434,362.00$ 1,872,282,437.00$

1/29/2015

FY 15 Mid Year

Adjusted 1,105,252.89 1,033,822,701.36$ 29,260,228,010.00$ 784,473,604.00$ 1,045,336,303.00$ 1,855,916,914.00$

1/15/2015

FY 15 Mid Year

Adjusted 1,104,221.31 1,033,960,131.67$ 29,269,009,500.00$ 782,709,500.00$ 1,043,661,801.00$ 1,852,438,034.00$

8/11/2014 FY 15 Initial Adjusted 1,075,133.91 1,008,421,292.70$ 28,025,281,460.00$ 762,844,849.00$ 1,025,039,628.00$ 1,844,317,542.00$

7/18/2014 FY 15 Initial 1,075,133.91 1,008,421,006.20$ 28,025,281,460.00$ 762,844,849.00$ 1,025,039,628.00$ 1,733,115,862.92$

6/6/2014 FY 14 1,088,587.43 964,434,529.00$ 28,025,281,460.00$ 775,276,408.00$ 1,034,479,371.00$ 1,835,981,870.00$

12/31/2013 FY 14 Midyear 1,088,759.91 965,036,988.66$ 28,062,386,387.00$ 744,944,456.00$ 1,033,988,747.00$ 1,835,325,802.00$

9/6/2013 FY 14 Adjusted Initial 1,057,983.92 932,874,422.84$ 26,990,469,454.00$ 757,057,271.00$ 1,013,834,359.00$ 1,807,525,105.00$

7/17/2013 FY 14 Initial 1,057,955.47 932,874,422.84$ 26,990,469,454.00$ 757,012,432.00$ 1,013,792,747.00$ 1,796,261,992.00$

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Petroleum Sector Production and Income

The above graph represents the overall volume of crude oil being produced over time in Oklahoma. According to the EIA on December 5, 2014 the United States had a 23.5 day supply of Crude Oil in reserve. EIA reported on November 20, 2015 the United States had a 30.5 day supply of Crude Oil in reserve. The last time the United States had over a 30 day supply of Crude Oil in reserve was from January 14, 1983 to June 3, 1983 with a return to being over the 30 day supply in November of 1983. The week ending August 14, 2015 (this is the latest volume report available) Oklahoma did show a 5.4% drop in production from the previous year.

The above graph is from Bloomberg Energy Markets. The closing price on 12/02/15 was a first sale price of $40.11, the December 1, 2014 first sale price was $69.00.

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The above graph is the Natural Gas price graph for the past year. This is from the Bloomberg Energy Market Index. The first sale price for NG on 1211/02/15 was $2.17, the 12/02/14 price was $3.87. EIA reported the volume of Natural Gas produced has continued to be over 200 million cubic feet per day for the past eighteen months. Injection into storage facilities has continued to grow and is at 3.5 billion cubic feet through 11/4/15. This is the highest stored volumes of Natural Gas since October of 2012.

December 2015 Oklahoma School Finance Financial Numbers

Education

Transcript of December 2015 Oklahoma School Finance Financial Numbers