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Chapter 4
Financial Management

This chapter reviews the financial management and purchasing functions of the Venus Independent School District (VISD) in the following sections:

  1. Organization and Management
  2. Planning and Budgeting
  3. Accounting and Payroll
  4. Tax Collections
  5. Purchasing Operations
  6. Contract Management
  7. Textbooks

Financial management supports a district’s instructional process by providing budgeting, purchasing, accounting and payroll services. Effective financial management ensures that internal controls are in place and operating as intended, technology is maximized to increase productivity and reports are generated to assist management in reaching goals. Multi-year forecasts and the evaluation of trends in key areas—such as enrollment, tax value, revenue, expenditures and fund balance—are essential in managing a district.


BACKGROUND

Districts have access to many tools for making sound financial decisions. The Texas Education Agency (TEA) Web site includes state revenue projection templates and historical data on students, staff and financial information via the Academic Excellence Indicator System (AEIS) and the Public Education Information Management System (PEIMS). The Texas Business and Education Coalition (TBEC), Texas Association of School Business Officials (TASBO) and TEA have developed a database called the Financial Excellence Indicator System of Texas--Information about Education Resources (FEISTIER). Available on a CD, these data can be purchased from TASBO. FEISTIER compiles data from PEIMS, AEIS and annual audit reports on districts throughout the state. It is a helpful tool for generating information on one district or comparing districts.

The 77th Legislature directed the commissioner of Education, in conjunction with the Comptroller’s office, to develop and implement a financial accountability rating system for school districts in the state. In response to this directive, TEA developed the Financial Integrity Rating System of Texas (FIRST), which will be implemented for the first time in 2002-03 using 2001-02 data. The rating system uses 21 indicators to rate the financial performance of school districts. TEA will require districts to hold public meetings to discuss financial ratings, just as it requires districts to do for student ratings. A worksheet to enable districts to calculate and monitor FIRST ratings is available on the TEA Regional Education Service Center XIII (Region 13) Web site, http://www.esc13.net/finance/downloads.html.

Strong financial management includes the use of available data and tools to develop and monitor budgets. Districts must plan the use of limited resources to maximize student achievement and productivity. The number of students enrolled and property value directly affects the amount of revenue a district receives. Revenue also directly affects the instructional process. It pays for salaries, employee benefits, supplies, staff development, student transportation, facility maintenance, safety and other items essential to district operations. Two major sources of revenue for districts are local taxes and state aid. Local tax effort directly impacts the amount of revenue from local sources and is a component in the calculation that determines the amount of state aid a district will receive.

Property value is a major component that districts use in revenue forecasting. In 2001-02, VISD had less property in the Business category and more property in the Land and Other categories than the state average. The Other category includes mobile homes. VISD has a large number of mobile homes within its boundaries. The district had more property value in the Other category than all of the peer districts, the TEA Regional Education Service Center XI (Region 11) average and the state average. Exhibit 4-1 shows the comparison of VISD’s property value to peer districts, Region 11 and the state. (VISD is part of Region 11.)

Exhibit 4-1
Property Values by Category as a Percentage of Total Property Value
VISD, Peer Districts, Region 11 and the State
2001-02
District Business Residential Land Oil and Gas Other
Dublin 24% 25.7% 50.1% 0% 0.2%
Godley 12.7% 50.6% 33% 0% 3.7%
Grandview 17.7% 37.6% 43.4% 0% 1.2%
Rio Vista 11.3% 41.5% 45.2% 0% 1.9%
Venus 23.7% 41.6% 20.9% 0% 13.8%
Region 11 36.5% 55% 6.7% 0.7% 1.1%
State 37.9% 50.3% 6.7% 4% 1%

Source: TEA, AEIS, 2001-02.
Note: Totals may not equal 100 percent due to rounding.

Tax revenue supports instruction and affects the amount of state aid the district will receive. In 2001-02, VISD had a lower maintenance and operations (M&O) tax rate than its peers, the Region 11 average and the state average. VISD had a lower property value per student than its peers, the Region 11 average and the state average. A lower property value affects the amount of tax revenue that can be generated to support instruction. Exhibit 4-2 compares VISD’s M&O tax rate and property value per student to its peer districts, regional averages and state averages.

Exhibit 4-2
M&O Tax Rates and Value per Student
VISD, Peer Districts, Region 11 and the State
2001-02
District M&O Tax Rate Value per Student
Dublin $1.34 $119,449
Godley $1.43 $95,598
Grandview $1.47 $106,232
Rio Vista $1.50 $94,034
Venus $1.20 $76,712
Region 11 Average $1.41 $254,903
State Average $1.39 $234,607

Source: TEA, AEIS, 2001-02.

The VISD board lowered the M&O tax rate from $1.47 per $100 taxable value to $1.20 per $100 taxable value for the 2001 tax year. During 2001-02, state funding decreased by $1.2 million, of which nearly $1.2 million was directly related to the reduction of the M&O tax rate. Local tax revenue decreased by $151,173 during the same period as a result. Board members said they were not informed of the financial impact of that decision on district revenue at the time. The board members accepted the former superintendent’s recommendation, assuming the superintendent had the expertise to make that recommendation.

VISD hired a new superintendent in July 2003. The superintendent is working with the board to increase the M&O tax rate to the levels acceptable by law. The district increased its M&O tax rate for 2002-03 to $1.35.

Exhibit 4-3 compares VISD’s tax revenue, as a percentage of the total revenue in the general fund, to the peer districts, the Region 11 average and the state average. VISD’s tax revenue percentage is lower than its peer districts, the Region 11 average and the state average.

Exhibit 4-3
Tax Revenue as a Percentage of General Fund Revenue
VISD, Peer Districts, Region 11 and the State
2001-02
District Tax Revenue
As a Percentage
Of General
Fund Revenue
Dublin 25%
Godley 19%
Grandview 20%
Rio Vista 18%
Venus 16%
Region 11 59%
State 50%

Source: TEA, AEIS, 2001-02.

Exhibit 4-4 shows VISD’s actual revenue by source, as a percentage of the total, for 1997-98 through 2001-02, and its budgeted revenue for 2002-03. The 2002-03 fiscal year ends August 31, 2003. VISD can still amend the 2002-03 budget.

Exhibit 4-4
VISD’s Revenue by Source
1997-98 through 2002-03
Source of Revenue 1997-98
Actual
1998-99
Actual
1999-2000
Actual
2000-01
Actual
2001-02
Actual
2002-03
Budget
Local property tax 9.4% 11.2% 12.2% 15.1% 15.8% 18.3%
Other local and intermediate 1.7% 2% 2.9% 3.6% 3.9% 1.5%
State 88.8% 86.8% 84.9% 81.4% 80.4% 80.2%
Federal 0.0% 0.04% 0.02% 0.01% 0.01% 0.02%
Total 100% 100% 100% 100% 100% 100%

Source: VISD, Audited Financial Reports, 1997-98 through 2001-02, and PEIMS, 2002-03.
Note: Totals may not add to 100 percent due to rounding.

VISD’s total tax rate did not increase between 1997-98 and 2001-02. During the same period, the number of students in average daily attendance increased by 42 percent. Exhibit 4-5 displays the changes in VISD taxes and student populations between 1997-98 and 2001-02. Total taxable property values increased by more than 91 percent during the same period; but total tax collections increased by only 78 percent. Since VISD lowered its M&O rate in 2001-02, its local tax effort for 2001-02 was a contributing factor in deficit spending of $2.6 million.

Exhibit 4-5
VISD’s Tax Rates, Assessed Property Values,
Student Average Daily Attendance and Value per Student
1997-98 through 2001-02
Category 1997-98 1998-99 1999-2000 2000-01 2001-02 Percent Change
M&O tax rate $0.93 $1.14 $1.37 $1.47 $1.20 29%
Interest and sinking tax rate $0.57 $0.36 $0.13 $0.03 $0.30 (47%)
Total tax rate $1.50 $1.50 $1.50 $1.50 $1.50 0%
Total taxable value $69,763,667 $80,009,000 $102,589,890 $125,245,229 $133,368,667 91%
Total tax collections $1,041,818 $1,140,455 $1,390,626 $1,713,097 $1,854,436 78%
Total students in average daily attendance 1,214 1,290 1,526 1,652 1,724 42%
Value per student in average daily attendance $57,466 $62,022 $67,228 $75,814 $77,360 35%

Source: TEA, PEIMS and VISD Audited Financial Reports, 1997-98 through 2001-02.

Exhibit 4-6 reflects the impact of the decision to lower the M&O tax rate by $0.27. The taxable value increased $8.1 million, tax revenue decreased $151,173 and state revenue decreased more than $1.2 million. If the tax rate remained the affected or increased, tax revenue would have increased. State aid would not have been negatively affected by the decreased tax collections.

Exhibit 4-6
Impact of Tax Rate Decrease on VISD Revenues
2000-01 and 2001-02
Fiscal Year 2000-01 2001-02 Difference
M&O Tax Rate per $100 Taxable Value $1.47 $1.20 ($0.27)
VISD Taxable Value $125,245,229 $133,368,667 $8,123,438
M&O Tax Revenue $1,651,274 $1,500,101 ($151,173)
General Fund State Revenue $8,900,645 $7,654,622 ($1,246,023)
Total Local Tax and State Revenue $10,551,919 $9,154,723 ($1,397,196)

Source: VISD, Audited Financial Reports, years ending August 31, 2001 and August 31, 2002.

VISD budgeted less than the state average in instruction and instructional-related services and more than the state average for student transportation, food service and co-curricular and extracurricular activities. Exhibit 4-7 compares VISD’s 2002-03 budgeted expenditures with the state average.

Exhibit 4-7
Comparison of Budgeted Functional Expenditures
VISD and State Average
2002-03
Function Venus State
Instruction (11, 95) 52.7% 50.8%
Instructional related services (12, 13) 1.7% 2.7%
Instructional leadership (21) 0% 1.2%
School leadership (23) 5.2% 5.3%
Support services – student (31, 32, 33) 2.7% 4.0%
Student transportation (34) 5.5% 2.6%
Food Service (35) 6.6% 4.9%
Co-curricular and extracurricular activities (36) 3.4% 2.3%
Central administration (41, 92) 3% 3.6%
Plant maintenance and operations (51) 9.9% 10.0%
Security and monitoring services (52) 0.1% 0.7%
Data processing services (53) 1.8% 1.2%
Other 7.4% 10.9%

Source: TEA, PEIMS, 2002-03.
Note: Totals may not add to 100 percent due to rounding.