2017 Summer UPDATE

CASH MANAGEMENT / SUMMER 2017

INDISPENSABLE TOOL for SCHOOL BUSINESS MANAGEMENT

Maximizing Your Resources: Investing in Other Districts Through Municipal Obligations Investing in a Rising Rate Environment | 14 Protecting Your Tax Base | 30

Cover Story

24

Debt 101: A Debt Issuance Overview | 34 Fund Balance Reality Check | 40

2017 REGIONAL

CONFERENCES SAVE THE DATE!

Illinois ASBO and the Illinois Association of School Personnel Administrators (IASPA) are excited to partner to bring you two full-day professional development opportunities this fall!

DECATUR

October 25, 2017

MT. VERNON October 26, 2017

Superintendents, business managers, human resources directors and office support staff can learn about a variety of school business, human resource and community engagement topics.

REGISTRATION OPENS IN AUGUST

For more details visit: www.iasbo.tools/Regional_Conferences

IASPA Illinois Association of School Personnel Administrators

INSIDE

Illinois Association of School Business Officials UPDATE Magazine / Summer 2017 / v.24 / i.04

CASH MANAGEMENT ISSUE

HUMAN RESOURCES / FALL 2017 OPERATIONS ISSUE / SUMMER 2014

INDISPENSABLE TOOL for SCHOOL BUSINESS MANAGEMENT

THE HUMAN ELEMENT CONNECTING BUSINESS AND PEOPLE

THE NEXT ISSUE: HUMAN RESOURCES Aligning People and Resources from a Business Perspective.

Maximizing Your Resources Whether you are on the borrower side, considering an investment for your portfolio, or perhaps somewhere in between, it is important to understand the business and legal considerations when investing in other districts through municipal obligations.

Cover Story by Mark E. Staehlin, Elizabeth M. Hennessy and Anjali Vij

24

LOOKING FOR PAST ISSUES? Visit ISSUU.com and search for Illinois ASBO.

A NEW MARKET REALITY: INVESTING IN A RISING RATE ENVIRONMENT For school business officials, rising interest rates represent an opportunity to generate greater interest income for their districts. But with interest rates having been so low for so long, rising market rates are unfamiliar and can present risks.

By Brian Hextell

14

www.iasbo.org

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PERSPECTIVE

FROM-THE-PODIUM Cash Management: Creativity Holds the Key. 07

FROM-THE-OFFICE All About the Money: Equity and Adequacy. 09

CASH IS NOT KING Often the collection of fees occurs outside the business office in the form of cash — increasing the risk of inaccuracy, error and even fraud. Implementing online systems can help district move away from cash for collecting fee revenues.

By Brittany M. Tjardes

20

FROM-THE-FIELD Partnering to Accomplish More with Less. 11

SCHOOL BUSINESS 101 How to Account for Early Taxes: From an Accounting and Communication Perspective. 19

Identifying which cases to defend and utilizing intergovernmental cooperation can help school business officials to successfully protect their tax base.

By Joshua Whitt and Brittany Flaherty Theis

30 The world of school finance is a dizzying combination of acronyms, legislative changes and financial juggling. Understanding and managing your district’s debt is no less challenging. See how a basic understanding of debt will impact your district.

By Justin Attaway, Elizabeth Hennessy and Anjali Vij

34

There is not a one-size-fits-all recommendation for the level of fund balance reserves a district should maintain, but there are several factors that can help determine an appropriate goal.

RESOURCES

By Michael Frances and Robert E. Lewis III

40 ON MY LIST The Bedrock of Business Success.

45

THE HIGH COST OF INEFFICIENCY Taxing districts such as schools, villages and park districts are footing the bill for cancellations and abatements administered by state and county offices, to the tune of $96 million a year.

By Mark W. Altmayer

42

The Final Word Tamara L. Mitchell

Asst. Supt./Business & Financial Services Joliet Public Elem. SD 86 Tamara believes the number one role of an SBO is safeguarding district assets. SBOs must ensure adequate cash on hand to meet the needs of the community, both for obligations and unforeseen emergencies.

Without sound cash management practices, it becomes more difficult to meet the needs of the school community.

46

www.iasbo.org

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THE

MAGA ZINE Illinois Association of School Business Officials

CALENDAR OF

Northern Illinois University, IA-103 108 Carroll Avenue DeKalb, IL 60115-2829 P: (815) 753-1276 / F: (815) 516-0184 / www.iasbo.org

EVENTS

UPDATE Editorial Advisory Board

Check out www.iasbo.org or the latest Calendar of Events included in the UPDATE mailing for full seminar listings including location and PDC sponsorship and register for professional development today.

July 2017

June June2017 2014

S 28 4 11 18 25 2

M 29 5 12 19 26 3

T 30 6 13 20 27 4

W T F S 31 1 2 3 7 8 9 10 14 15 16 17 21 22 23 24 28 29 30 1 5 6 7 8

S 25 2 9 16 23 30

M 26 3 10 17 24 31

T 27 4 11 18 25 1

W 28 5 12 19 26 2

T 29 6 13 20 27 3

F S 30 1 7 8 14 15 21 22 28 29 4 5

August 2017

September 2017

S 30 6 13 20 27 3

S 27 3 10 17 24 1

M T W T F S 31 1 2 3 4 5 7 8 9 10 11 12 14 15 16 17 18 19 21 22 23 24 25 26 28 29 30 31 1 2 4 5 6 7 8 9

Event

M 28 4 11 18 25 2

T 29 5 12 19 26 3

W 30 6 13 20 27 4

T F S 31 1 2 7 8 9 14 15 16 21 22 23 28 29 30 5 6 7

Date

Time

Location

6/6/17

8:00am

School District Auditing and Reporting Webinar

Online

6/14/17 6/22/17

12:00pm School District Auditing and Reporting Webinar

Online

7/18/17 7/19/17 7/20/17

9:00am

ISDLAF+ School Finance Seminar

Naperville East Peoria O'Fallon

7/18/17 7/19/17 7/20/17

9:00am

Seminar on School Finance - AAC #1062

Naperville East Peoria O'Fallon

7/27/17

1:30pm

PDC Networking Meeting

Schaumburg

7/27/17

3:30pm

New Connections Happy Hour

Schaumburg

8/3/17

7:30am

NextGen SBO Summit

Arlington Heights

9/7/17

10:00am President's Cup Gala

9/19/17

8:00am

SupportCon — Springfield

Springfield

9/22 - 25/17

8:00am

ASBO International Annual Meeting & Expo

Denver, CO

10/13/17

7:30am

TechCon

10/25/17

8:30am

Regional Conference — Decatur

10/26/17

8:30am

Regional Conference — Mt. Vernon

10/30-31/17

8:00am

Midwest Facility Masters Conference

11/19/17

8:00am

IASB/IASA/Illinois ASBO 85th Joint Annual Conference

12/1/17

7:30am

SupportCon — Downers Grove

6 |

UPDATE Magazine / Summer 2017

Wheaton

Naperville Decatur Mt. Vernon Wisconsin Dells, WI Chicago Downers Grove

PDC MEMBERS Patrick S. Browne Sustainability Catherine H. Chang Food Service Seth Chapman Budgeting & Financial Planning Yasmine Dada Principles of School Finance Kevin L. Dale Technology Eric DePorter Human Resource Management Jeff E. Feyerer Leadership Development Kenneth M. Florey Purchasing John A. Gibson Technology Anton Inglese Technology Ron Johnson Purchasing John E. Lavelle Risk Management Eric M. Miller Budgeting & Financial Planning Kristopher P. Monn Legal Issues Mary Werling Purchasing BOARD & EXTERNAL RELATIONS MEMBERS Jennifer J. Hermes, SFO President Stephen Chassee SAAC Chair AT-LARGE MEMBERS Theresa Gegen Illinois Association of School Boards STAFF MEMBERS Michael Jacoby Executive Director / CEO (815) 753-9366, mjacoby@iasbo.org Susan P. Bertrand Deputy Executive Director / COO (815) 753-9368, sbertrand@iasbo.org Rebekah L. Weidner Senior Copywriter (815) 753-9270, rweidner@iasbo.org Tammy Curry Senior Graphic Designer (815) 753-9393, tcurry@iasbo.org John Curry Graphic Designer (815) 753-7654, jcurry@iasbo.org Zack Hildebrand Membership & Marketing Coordinator (815) 753-9371, zhildebrand@iasbo.org

Illinois ASBO Board of Directors Jennifer J. Hermes, SFO President David H. Hill President-Elect Cathy L. Johnson Treasurer Susan L. Harkin Immediate Past President 2014–17 Board of Directors Barry Bolek, Dean T. Romano, Paul Starck-King 2015–18 Board of Directors Mark W. Altmayer, Julie-Ann C. Fuchs, Eric M. Miller 2016–19 Board of Directors Jan J. Bush, Julie A. Jilek, Bradley L. Shortridge

Illinois ASBO Board Liaisons

Stephen Chassee Service Associate Advisory Committee Chair Anne E. Noble Service Associate Advisory Committee Vice Chair Terrie S. Simmons ASBO International Liaison Deborah I. Vespa ISBE Board Liaison Perry Hill IASB Board Liaison Paul McMahon Regional Superintendent Liaison Calvin C. Jackson Legislative Liaison

Privacy Policy

All materials contained within this publication are protected by United States copyright law and may not be reproduced, distributed, displayed or published without the prior written permission of the Illinois Association of School Business Officials.

You may not alter or remove any trademark, copyright or other notice from copies of the content.

References, authorship or information provided by parties other than that which is owned by the Illinois Association of School Business Officials are offered as a service to readers. The editorial staff of the Illinois Association of School Business Officials was not involved in their production and is not responsible for their content.

PERSPECTIVE / Board President

FROM–THE–PODIUM Creativity Holds the Key Creativity and cash management? On the surface, it would seem that these two words do not belong together — especially in public education! Cash management and getting the most out of your district assets has always been important, however with the funding challenges currently facing public schools, creativity has also become important. It takes creativity to think a bit differently about processes and systems, and that is what is needed to maximize efficiency and further safeguard district funds.

At the same time, with our busy day to day work schedules, we can sometimes lose sight of why we do certain things. How many times have we heard the phrase “because we have always done it that way?” It is important to review the fundamentals, reestablish the reasons why we do what we do and then apply creative thinking to the process or system.

Jennifer J. Hermes, SFO ASST. SUPT./BUSINESS SERVICES, CSBO LAKE FOREST SD 67

SIMPLY SAYING

It takes creativity to think a bit differently about processes and systems, and that is what is needed to maximize efficiency and further safeguard district funds.

This UPDATE provides a wonderful blend of fundamentals, from Justin Attaway, Elizabeth Hennessy and Anjali Vij's Debt 101, to the innovative ideas as outlined in the article by Mark Staehlin, Elizabeth Hennessy and Anjali Vij, Maximizing Your Resources. It takes creativity to look beyond typical investment options while at the same time helping another district. Luckily, for Illinois ASBO members, we have incredibly talented and creative thinkers in our membership.

I encourage you to take advantage of this opportunity to sharpen your skills and learn from the experience of others.

As this is my last article as the President of Illinois ASBO, I want to take the opportunity to convey how incredibly honored I have been to serve you for the past year. I will never cease to be amazed at the commitment level and sharing nature of our members. The cornerstone of our association continues to be the rich professional development we are able to provide due to the generosity of our members. Thank you all for your commitment.

www.iasbo.org

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INOIS ILL

A IATION OC of SS

S OFFICIA ES L N

S

NEXT GENERATION

School Business Practices

L HOO BUS I SC

for SBOs OF ALL LEVELS Whether you are just getting started or a seasoned pro, get insights to guide you to the next level!

LOOHC UB S IS

IFFO SSE IC N A L

NILLI SIO S

This year, NextGen is expanding the learning and networking with tracks for both new and experienced school business professionals. Come ready to engage and leave inspired to take on the unique challenges of the upcoming school year.

A

SS of OC IATION

Thursday, August 3, 2017

Registration Now Open!

Visit www.iasbo.tools/2017NextGen to register

Special Thanks to Our NextGen Partners:

PERSPECTIVE / Executive Director

FROM–THE–OFFICE All About the Money “Money, money, money, money, MONEY!” I am aging myself, but maybe now you hear that classic song by the O’Jays ringing through your head? Well, it is one that haunts me as we attempt to push for equity and adequacy in this state. It is of vital importance to remind lawmakers and policy experts that many school districts are just barely getting by and hardly able to offer even basic educational programs for their students. This is beyond critical for many of Illinois’ children.

Michael A. Jacoby, Ed.D., CAE, SFO EXECUTIVE DIRECTOR/CEO ILLINOIS ASBO

SIMPLY SAYING

In this issue of the UPDATE, you will find some excellent ideas about how to survive and apply best practices for cash management in any environment.

Therefore, our efforts to establish a new funding formula for schools continues — regardless of how difficult it seems to turn this around. Some days we are encouraged that progress is being made and people are listening and joining our efforts. Other days it seems like an insurmountable mountain. As I write this in late April, we have been able to move the Evidence Based Model (EBM) forward in several meaningful ways. Bills have emerged in both the House and Senate that all contain a relatively pure EBM adequacy concept. The distribution side of the formula is a different story. Some attempted changes make the plan undesirable from an equity perspective and also violate our premise that school funding reform should mean that no district loses money in order to transition new dollars to the neediest districts.

But this dialogue is also taking place in a context where there is little hope for a balanced financial future for the State of Illinois. While we appreciate having a K-12 budget, what does it matter if there is no money to distribute to

school districts? It looks like we will end this year with only one Mandated Categorical (MCAT) payment. Of course, MCATs have been delayed by one or two payments for nearly a decade. It is interesting that we have become used to only getting two current distributions rather than all four!

What about an FY18 K-12 budget? The Statewide School Management Alliance is working on assessing which school districts are in such bad shape that opening or maintaining schools may be jeopardized by the lack of a budget. But any district that appreciates even a small share of revenue from the state will undoubtedly need to assess where it stands financially without such dollars.

The current state context makes this issue of the UPDATE extremely relevant. You will find some excellent ideas about how to survive and apply best practices for cash management in any environment. Read it. Digest it. Apply it. This is our hope as we develop each issue.

www.iasbo.org

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Summer is no time to stay cooped up in your office.

There's a PDC Networking Meeting and New Connections Happy Hour coming up. It's going to be a gas.

PDC Meeting and Happy Hour you say?

That's aces baby! I'm also going to bring a co-worker to show them how swell Illinois ASBO is.

You've got it, friend.

On July 27th, in Schaumburg.

See you there!

PDC Networking Meeting and New Connections Happy Hour Thursday, July 27, 2017 Renaissance Schaumburg Hotel & Convention Center Set yourself up for success by staying connected to your professional network all summer long!

• ENGAGE in Your Profession at the PDC Meeting.

• ENJOY a Relaxed Time to Network at the New Connections Happy Hour.

• Invite a Colleague Along to EXPERIENCE Illinois ASBO for the First Time!

Register at www.iasbo.tools/seminarevents

PERSPECTIVE / SAAC Chair

FROM–THE–FIELD Partnering to Accomplish More with Less The SBO has an almost impossible job: do more with less money. This can manifest itself in areas from contract negotiation, to creating a budget and levy for taxes, to capital projects and longrange planning. All of this amongst conflicting community expectations: some want the absolute best money can buy for their children and are willing to pay to get it, while others want property taxes frozen, or even reduced and have little concern over what is mandated by the state. This is why managing debt is one of the most important jobs an SBO has.

Stephen Chassee ASSOCIATE PRINCIPAL​ GREENASSOCIATES, INC.

SIMPLY SAYING

It is imperative to work with Service Associates to create a long term, sustainable plan to accomplish the goals of the district.

As debt is coming off the books, an SBO should not immediately assume that their situation will improve. This is the time to look at one, three, five and ten year plans, including projected demographics, programmatic needs and capital projects on the horizon. Investigate how those projects are going to affect your expenditures for utilities and personnel.

Talk to Service Associates to create long-range plans. Use their information and expertise to assist you in budgeting for future expenditures.

In many cases, SBOs manage debt that they did not create.

They may have more needs than they have funding to accomplish all of the district’s goals. In a tax-capped district where expenditures are higher than revenues, this can mean a referendum. Judging by the pass/fail numbers from the last few years, it may feel like an impossible task. To assist you, go to your Service Associates as much as possible for invaluable data to help your board better understand the district’s situation and hopefully gain 100% buy-in.

If a referendum does not pass, this is not necessarily an indictment on why you went to referendum, but rather the message presented to the community. It is up to the SBO to help remind the board why the referendum was so important. Hopefully it was a result of long-range planning and community engagement on the needs of the district. Those things did not change overnight. Rather than abandon the plan and change direction, regroup. Work with the district, the community and engage Service Associates in more discussions to help get the information to the public. The only thing worse than a referendum that does not pass, is changing the entire district direction without careful evaluation.

With harder times ahead, now more than ever it is imperative to work with Service Associates to create a long term, sustainable plan to accomplish the goals of the district.

www.iasbo.org

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CONTRIBUTORS

Mark W. Altmayer

Justin Attaway

Michael Frances

CFO/Treasurer Huntley CSD 158

Business Manager Skokie SD 69

Senior Analytics Advisor Forecast5 Analytics

Is a Certified Public Accountant and prior to joining the district, Mark spent approximately six years in public accounting followed by 13 years in a financial executive role working for large corporations. He is currently serving on the Illinois ASBO Board of Directors. maltmayer@district158.org

Has served as the Business Manager of Skokie-Morton Grove School District 69 since 2015. Prior to his current position, he served as Director of Operations for Glenview School District 34 and worked for the Illinois State Board of Education.

Has worked for or with school districts for 25 years and he currently provides financial projection and analytics services to schools in Illinois, Pennsylvania and California. He is a former CSBO for two suburban Chicago school districts.

attawayj@skokie69.net

mfrances@forecast5analytics.com

Elizabeth M. Hennessy

Brian Hextell

Robert E. Lewis III

Managing Director William Blair & Company, LLC

Senior Vice President PMA Financial Network, Inc.

Senior V.P./Managing Director PMA Securities, Inc.

Head of the Illinois school district finance team, Elizabeth has played an active role in innovative financing solutions for school districts, community colleges and other state and local governments in Illinois. She has worked in public finance for over 25 years. ehennessy@williamblair.com

Leads the Credit Risk Management Department, which determines the creditworthiness of investments made by public entity clients. Brian has spoken at school, city and other conferences on topics of investment policies, proper collateralization of deposits and credit analysis.

BHextell@pmanetwork.com

Has worked in public finance for 20 years with the last 11 years at PMA Securities, Inc. Robert provides financial advisory services to schools, community colleges and municipal clientele and is responsible for managing PMA’s Public Finance Department. rlewis@pmanetwork.com

Mark E. Staehlin

Brittany Flaherty Theis

Brittany M. Tjardes

Controller Comm. High Sch. Dist. 99

Attorney Whitt Law LLC

Dir./Business Services Lake Forest SD 67 & 115

Is a CPA and spent 13 years auditing schools and other governmental entities before becoming controller for CHSD 99 in 1994. Mark is an Illinois ASBO Past President and currently serves on the Cash Management PDC.

Has experience representing school districts, other taxing bodies and consortiums in property tax disputes before local boards of review and the Property Tax Appeal Board. She also advises school districts on education law and school finance matters. btheis@whittlaw.com

Prior to joining Lake Forest School Districts, Brittany was an auditor with Miller Cooper & Co., Ltd. Brittany received her CSBO Certification, Master of Accounting and Bachelor’s degree from Northern Illinois University and is a Certified Public Accountant. btjardes@lfschools.net

mstaehlin@csd99.org

Anjali Vij

Joshua S. Whitt

Partner Chapman and Cutler LLP

Partner Whitt Law LLC

As a partner in Chapman and Cutler’s Public Finance Group, Anjali serves as bond counsel to Illinois school districts, community colleges and other municipalities in transactions related to the financing and refinancing of capital improvement projects.

Has 13 years of experience representing school districts, other taxing bodies and consortiums in property tax assessment disputes before local review boards and the Property Tax Appeal Board. Joshua regularly provides counsel and litigation services to taxing bodies with complex properties within their jurisdictions. jwhitt@whitlaw.com

anjvij@chapman.com

www.iasbo.org

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A NEW MARKET

REALITY: Investing in a Rising Rate Environment

FOR SCHOOL

FEDERAL FUNDS RATE (FIGURE 1) SOURCE:Funds BLOOMBERG Federal Rate

BUSINESS

Target Rate

OFFICIALS,

rising interest rates represent an opportunity to generate greater interest income for their school districts. However, with interest rates having been so low for so long, rising market rates are unfamiliar and can present risks. The question becomes, “How should our district’s investment strategy change in a rising rate environment?” The answer begins with developing a plan and investing with purpose.

We are emerging from a long period of extraordinarily low interest rates. In December of 2008, the Federal Reserve’s Federal Open Market Committee reduced its benchmark interest rate to a historic low of between zero and a quarter percentage point.1 During this unprecedented period, many government investors found that a suitable investment plan was to leave much of their cash in accounts such as money market funds or checking accounts paying an acceptable earnings credit.

As interest rates rise, this short-term investment strategy may no longer be optimal for certain school districts. In December of 2015, the Federal Reserve increased interest rates a quarter of a percentage point due to sustained improvement in market and economic conditions. The Federal Reserve boosted rates another quarter of a point in December 2016 while also announcing plans to hike rates three more times in 2017, reflecting positive projections for the U.S. economy.

9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00

Federal Funds Rate The Effective Federal Funds Rate remains very low by historical standards, as can be Treasury seen in Figure 1. However, Two-Year the Fed’s target rate does not tell the entire story because markets are forward looking. Figure 2 shows that two-year Treasury rates began increasing well in advance of the Fed’s December 2015 rate hike. Furthermore, two-year Treasury rates have increased by more than the 0.50% that the Federal Reserve has raised rates since 2015.

Rising Treasury rates reflect the market’s expectations for future economic and market conditions.

Target Rat

19 9.00 19 8.00 7.00 Yield (%)19 19 6.00 19 1.405.00 01/02/1 20 1.204.00 01/02/1 20 1.003.00 01/02/1 20 0.802.00 01/02/1 20 0.601.00 01/02/1 01/02/1 20 0.400.00 20 0.20 20 0.00 20 20

TWO-YEAR TREASURY (FIGURE 2) SOURCE: BLOOMBERG Two-Year Treasury

1.40

Indicative Investment Rates

1.20 1.00 0.80 0.60 0.40 0.20 0.00

14 |

199 199 199 199 199 200 200 200 200 200 201 201 201 201

UPDATE Magazine / Summer 2017

Overnight 3 Months 6 months

9 Months

1 Year

18 Months 2 Years

Indicative Investment Rates

Yield (%) 1.40 1.20 1.00 1.40 0.80 1.20 0.60 1.00 0.40 0.80 0.20 0.60 0.00 0.40 0.20 0.00

01/02/ 01/02/ 01/02/ 01/02/ 02/17/ 01/02/ 01/02/ 02/17/

By Brian Hextell

ARTICLE

INVESTING WITH PURPOSE

For most school districts, the investment objective can generally be described as maximizing investment income while first investing in assets that protect principal and provide sufficient liquidity to meet cash expenditures.

This is the axiom: Safety, Liquidity and Yield.

SAFETY

Protection of principal is of primary concern to all school district investors. Discussing all facets of credit analysis and proper collateralization is a complex topic of its own and would require another article to explore in greater detail. For the purpose of this article, it should be emphasized that each investment vehicle carries unique risks that must be thoroughly understood and analyzed.

All investments should be aligned with state statute and your school district’s investment policy. This includes ensuring that all deposits are properly collateralized.

LIQUIDITY

Understanding your district’s liquidity needs is where planning becomes the priority. An investment plan begins with preparing a cash flow analysis. Such an analysis can be highly detailed or relatively simple. A cash flow analysis should map out such items as payroll and accounts payable dates and amounts and debt schedules.

A detailed, daily cash flow should incorporate specific information such as the accounts payable cycle, payroll cycle and summer payroll to ensure an accurate plan.

Analyzing historical cash flow data can help build a foundation from which to base investment decisions.

An effective analysis should isolate anomalies and identify trends. Combined with other district data, a cash flow analysis can provide a complete and reliable financial picture.

SENIOR VICE PRESIDENT PMA FINANCIAL NETWORK, INC.

Key characteristics of a cash flow investment plan: • Match all liabilities with an investment maturity.

• Extend investments to benefit from higher rates.

• Plan for cash shortfalls.

• Identify long-term investment potential.

• Maximize interest income.

SAMPLE CASH FLOW ANALYSIS (FIGURE 3)

The analysis or information presented here is based on hypothetical projections and/or past performance that have certain limitations. No representation is made that is accurate or complete or that any results will be achieved.

YIELD

Executing a successful investment plan requires diligence.

Simply identifying future liabilities does not result in higher interest income. The value of cash flow analysis is realized when appropriate investments are located and purchased with maturity dates matching the future liabilities, or expense dates.

Investors who, over the past decade, have become accustomed to holding available cash in short-term accounts will find that liability driven investing requires more time and work. The benefits, though, are easy to see.

www.iasbo.org

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2.00 1.00 0.00

2006 2008 2010 2012 2014 2016

BREAK-EVEN RATE

Investmen

Two-Year Treasury Yield (%) 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00

INDICATIVE INVESTMENT RATES (FIGURE 4) SOURCE: PMA FINANCIAL NETWORK, INC.

Indicative Investment Rates

1.40 1.20 1.00 0.80 0.60 0.40

01/02/12 01/02/13 01/02/14 01/02/15 01/02/16 01/02/17

The investor who sticks to his or her cash flow investment plan by investing to the expected liability date one year in the future will earn $92,000 of interest at current interest rates. The amount of interest earned by the investor who 1.40 02/17/17 1.20 chooses the six-month term is only $37,500. To break 1.00 even, the six-month rate will need to increase by 0.34% 0.80 02/17/14 0.60 to 1.09% in six months. Will this occur? Maybe. Can we 0.40 0.20 plan for this? No. 0.00

0.20 0.00

Overnight 3 Months 6 months

9 Months

1 Year

18 Months 2 Years

Figure 4 depicts the yield curve today and three years ago. After ensuring short-term liabilities can be met, investors can maximize interest earnings by investing to match liabilities further out the yield curve.

In the past, we have seen that rising interest rates can cause some investors to delay executing investments or invest for shorter terms than their cash flow analysis would indicate. Such investors may conclude that since rates are rising, they are better off waiting to invest until rates rise further. Figure 5 compares a one-year investment to two six-month investments.

1YR VS. 6MO INVESTMENT Investment Amount

1-YEAR RATE

(FIGURE 5)

$10,000,000 INCOME

6-MONTH RATE BREAK-EVEN RATE

Investment Ladder 16 |

UPDATE Magazine / Summer 2017

Attempts to time the market are frequently a losing effort because we live in a world full of uncertainty. However, if we identify an objective and gather and analyze data to formulate a plan, we can reduce investment risks.

Planning is not about predicting the future, but rather preparing for it.

INVESTMENT LADDER

Antoine de Saint Exupéry, a French writer and aviator said, “As for the future, your task is not to foresee it, but to enable it.” This quote represents the essence of a disciplined, laddered investment strategy. By investing to future expense dates, a multi-maturity investment strategy, or ladder,2 is created. This ladder contributes to investment diversification and also reduces reinvestment risk.

What about funds for which there is no known future liability? These are referred to as reserves. A laddered portfolio of evenly spaced bond maturities (every six months for example) is a compelling investment strategy for reserve funds as well.

Figure 6 depicts a three-year ladder for $6 million of $1.5M reserves. In this example, a $1 million investment matures $1M every six months from 0.5 years through three years. The yield $.5M to maturity increases with the time to maturity. Once the ladder is constructed, one investment will mature every six months. If in six months there is no need to spend the maturity amount and the funds remain reserves, the maturity proceeds may be invested to the end of the ladder. In a normal interest rate environment, this three-year investment should represent the highest yield

Amount Invested 1.40 1.20

01/02/12 01/02/13 01/02/14

0.60 0.40 0.20 0.00

01/02/16 01/02/17

ARTICLE / Investing in a Rising Rate Environment

Yield to Maturity Time to Maturity

INVESTMENT LADDER (FIGURE 6)

available between six-months and three years. The threeyear investment should not only provide the highest yield, it also protects the investor from a decline in interest rates.

Another benefit of a ladder is that it creates regular liquidity in the event of unforeseen expenses.

reduced periodic returns as a result of increases in interest rates. Interest rate risk should be measured and understood by the investor.

Overall, rising interest rates benefit school districts and other short-term investors through higher interest income potential. However, higher interest rates can also present risks. The strategy and investment products chosen can exacerbate or minimize the risks related to rising interest rates.

Duration is a measure of interest rate risk and it represents the approximate percentage change in price for a 100 basis point change in rates. For example, if a portfolio has a duration of two and a half years and interest rates increase by 1.00%, the portfolio is expected to decrease in value by 2.50%. Generally, bonds or portfolios of bonds with longer maturities have greater sensitivity to changes in interest rates. Extending investment maturities longer than your cash flow or investment objectives require can present risks in a rising interest rate environment.

TIMING THE MARKET

A NEW MARKET REALITY

POTENTIAL RISKS OF RISING INTEREST RATES

As previously discussed, attempting to time the market is a chief risk. A good adage to remember is time in the market is more important than timing the market. The premise is that staying fully invested should allow you to earn greater interest income. There is an opportunity cost to waiting to invest.

INTEREST RATE RISK

Marketable securities such as government bonds must be marked to market. When interest rates rise, bond prices fall, which can result in unrealized losses. Bond funds consisting of marketable securities can also endure Footnotes: 1. https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm 2. http://investinginbonds.com/learnmore.asp?catid=6&id=386

Market conditions have changed considerably over the last two years. We have moved from a period of historically low, stable interest rates to an environment marked by rising and more volatile interest rates. Professionals responsible for the investment of school district funds must adjust to this new market reality. An investment strategy predicated on cash flow analysis, creditworthy investments and a disciplined investment plan should result in higher interest income for your school district.

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Illinois ASBO’s Facilities Operations Program lays the groundwork for what a facility professional needs to know to succeed in their chosen field.

Take all four courses to complete the program or specialize in as few or as many areas as desired.

todial Operations

Maintenance Operations

ounds Operations

Facilities Management Custodial Operations

9/20/17

Essentials of Facilities Mngt.

Custodial Operations

Grounds Operations

Grounds Operations

1/17/18

Essentials of Grounds Op.

Maintenance Operations

10/11/17

Essentials of Maintenance Op. Maintenance Operations

Facilities Management

Custodial Operations Facilities Management

2/28/18

Maintenance Operations

Grounds Operations

Facilities Management

Essentials of Custodial Op.

PERSPECTIVE / On the Profession

SCHOOL BUSINESS 101 How does your district account for early taxes?

65 accounts for early taxes as the spring tax payment, and we’re on a cash “ District basis so our spring payments come mainly in March. Some roll into April, but they’re all considered in the current year. Right now we’re in Fiscal Year 16-17, so spring early payments would be considered part of 16-17 school year.”

DR. MARY B. BROWN Asst. Supt./Treasurer, CSBO, Evanston-Skokie CCSD 65

are in DuPage County so our taxes come in June. Our board of education has “ We chosen to book those early taxes in the current fiscal year. We do not defer that money.

I know districts do that from time to time. It’s a decision that obviously is going to require a lot of explanation to the community because your fund balance and your overall fund balance percentage will go down in that fiscal year until you’ve made that adjustment.”

WILLIAM R. FARLEY Asst. Supt./Business Operations, Comm. Unit Sch. Dist. 200

use modified accrual accounting, so if we get taxes in June we book it that year in “ We June. But then we do an accrual as of June 30th. A certain portion we recognize the prior year. A certain portion gets recognized in the next year. It doesn’t really matter how much gets paid; it’s based on what we levied and historical percentages of what we expected to receive over time.”

MICHAEL J. MCKENZIE Comptroller, Peoria SD 150

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CASH IS

NOT

KING REDUCING CASH TRANSACTIONS THROUGH

ONLINE FEE PAYMENT SYSTEMS

ARTICLE

While the majority of school revenues come from property tax dollars and state aid, districts often collect thousands in fee revenues throughout the school year. These fee revenues can include registration fees, charges for textbooks, supplies and technology devices, athletic fees, club participation fees, field trip charges, food service revenues, AP exam fees, student parking fees and even school dance ticket revenues. Most often the collection of these fees occurs outside the business office in the form of cash — increasing the risk of inaccuracy, error and even fraud. When it comes to collecting fee revenues, a district needs to recognize that cash is NOT king.

BENEFITS OF IMPLEMENTING

ONLINE SYSTEMS IMPROVE INTERNAL CONTROLS When fees are collected manually, there is a greater risk of inaccuracy and error. Staff can miscount receipts, record the incorrect amount, assign the wrong account number or even misplace cash receipts. Also, it is not uncommon for staff outside the business office to be unfamiliar with the concept of internal controls. The implementation of an online fee payment system allows for centralized collection of fee revenues. This reduces the number of cash transactions collected manually and mitigates the risk of inaccuracy and error. In addition, an online fee payment system allows the business office to assign the proper account codes, track and categorize fees collected and deposit them into the correct bank account.

INCREASE FLEXIBILITY AND EASE OF ACCESS The permission slip for a field trip or the registration form for an extra-curricular activity is often sent home via the student to be lost forever in their messy locker or unorganized backpack. By implementing an online fee payment system, parents no longer have to rely on their student to communicate essential information. Parents can visit the centralized online fee payment system to submit the necessary payment anytime of day. Further, if a district maintains a primary email address for all parents within

By Brittany M. Tjardes DIR./BUSINESS SERVICES LAKE FOREST SD 67 & 115

the district, an email blast with the link to the centralized online fee payment system can be sent out — increasing direct communications to parents and reducing the number of paper mailings. Finally, an online fee payment system allows the district to set and maintain clear deadlines. The district can add and remove items to the online fee payment system with great ease.

ACCESS TIMELY AND APPLICABLE REPORTS With the implementation of an online fee payment system, a district has access to reporting features that are beneficial to staff and parents. The district is able to monitor collection rates, pull customized reports, search transaction history and complete timely financial reconciliations. In addition, most online fee payment systems allow parents to access transaction history, electronic receipts and year-end tax statements. Finally, the user control features offered by an online fee payment system allow districts to maintain privacy and proper access controls. A district is able to maintain multiple user accounts with the proper permissions for stakeholders throughout the organization. For example, a teacher that is organizing a field trip can be set up to access registration and fee payment information related only to their applicable field trip.

IT IS NOT UNCOMMON FOR STAFF OUTSIDE THE BUSINESS OFFICE TO BE UNFAMILIAR WITH THE CONCEPT OF INTERNAL CONTROLS. www.iasbo.org

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STEPS TO REDUCING CASH TRANSACTIONS EVALUATE FEE COLLECTIONS. School districts collect thousands in fee revenues during the school year related to many different types of items and activities.

First, a district must evaluate all fee collections and determine which items or activities should be collected via an online fee payment system. It would be wise to start with a “small” item or activity. For example, at Lake Forest High School District 115, the Prom Planning Committee expressed interest in moving ticket sales online.

Recognizing that prom is a very large event at LFHS, we first chose to sell winter formal tickets online to test our online fee payment system features and processes as it relates to school dance ticket sales.

IDENTIFY INTERNAL STAKEHOLDERS. Once a district determines which items or activities should be added to an online fee payment system, all internal stakeholders involved in the process must be identified.

For example, if field trip fee collections are being added to the online fee payment system, be sure to communicate and listen to the applicable school principals, school secretaries and teachers. More often than not, these internal stakeholders have a wealth of knowledge on past practices and processes and great ideas and insight.

By communicating and listening to the applicable internal stakeholders, you will build consensus around the goal of reducing cash transactions.

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DETERMINE THE TOOL. Next, the district must select an online fee payment system. There are numerous electronic revenue collection tools on the market. It is beneficial to select a tool that is affiliated with school districts, customizable for various items or events, allows for proper internal control setup and meets the needs of students, staff and parents.

Based on my experience, school districts may already have access to an online fee payment tool through other software applications being used.

For example, Lake Forest was interested in a registration and invoicing software for enrichment and community education programs. In working with an online fee payment system provider, the district determined there was a registration and invoicing module available that met all the district needs by simply turning on the switch and setting up the program.

ORGANIZE THE PROCESS. With any change in process, organization is key. Be sure to outline each stakeholder’s responsibility as it related to the online fee payment process along with a concrete timeline for the implementation and launch.

Further, all stakeholders should be properly trained on the new fee collection process and feel confident when working with the online fee payment system.

ARTICLE / Online Fee Payment Systems

EDUCATE EXTERNAL STAKEHOLDERS. A district’s external stakeholders, students and parents need to be educated on what, when and why an item or activity is moving to the online fee payment system. Be sure to communicate early and often with these external stakeholders through newsletters, email blasts, social media posts and mailings. Further, all external stakeholders usually have the similar questions. Lake Forest School Districts found it helpful to publish a FAQ on process changes related to fee collections.

MONITOR THE PROCESS. Once a district has added the item or activity to the online fee payment system and cash receipts are flying in, the work is still far from done. Be sure to monitor and evaluate collections. For example, when Lake Forest opens a new item or event for online fee payments, the business office staff submit test purchases, monitor collections daily and run reports to evaluate the process. Further, it is important to communicate and listen to internal and external stakeholders through the process.

DEBRIEF ON THE PROCESS. Once the online fee payment window for a specific item or event is closed, it is key to debrief on the process. Meet with internal stakeholders to determine what worked and what did not work. It is also important to solicit feedback from external stakeholders as it relates to their online fee payment experience. Be sure to use this feedback to improve the online fee payment process the next time around, understanding there are always improvements to be made.

BY COMMUNICATING AND LISTENING TO INTERNAL STAKEHOLDERS, YOU WILL BUILD CONSENSUS AROUND THE GOAL OF REDUCING CASH TRANSACTIONS.

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ARTICLE

By Mark E. Staehlin

CONTROLLER COMM. HIGH SCH. DIST. 99

Elizabeth M. Hennessy

MANAGING DIRECTOR WILLIAM BLAIR & COMPANY, LLC

Anjali Vij

PARTNER CHAPMAN AND CUTLER LLP

MAXIMIZING

YOUR RESOURCES Investing in Other Districts

Through Municipal Obligations Considering the delays in funding from the State of Illinois and the uncertainty of state appropriations, some school districts may need to borrow money in the form of tax anticipation warrants or general obligation bonds (municipal obligations). Other school districts may be in a position to maximize investing opportunities through purchasing municipal obligations with higher yields than a traditional CD or US Treasury security.

Whether you are on the borrowing side or the investing side, it is important to understand the business considerations to your school district, as well as the legal considerations and process when buying municipal obligations.

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From the Borrower Perspective Lower Overall Cost: Municipal obligations can be issued and sold directly to another governmental unit in a private placement (as opposed to a public sale), whereby the purchaser intends to hold the municipal obligations to maturity with no intention to resell them.

From the issuer/borrower’s standpoint, the costs of issuing municipal obligations in a private placement are typically about half of that of a public sale.

Reduced Legal Fees: When considering a private placement, as with any financing, the borrower must assemble its team. Typically, team members include bond counsel, a placement agent and a municipal advisor.

There are no legal fees for disclosure counsel with regard to drafting an official statement, no underwriting fees and no bond rating fees, which are necessary costs of issuing municipal obligations in a public sale.

Issued on a Taxable Basis: When privately placing municipal obligations with a school district or municipal purchaser, the debt is issued on a taxable basis. This is because governmental units do not pay income taxes and therefore do not receive any benefit for tax-exemption.

However, even though the debt is issued on a taxable basis, the resulting interest rate is typically similar to that of a tax-exempt debt instrument.

Interest Rates May be Higher: Because private placements are not rated, however, the interest rate on a private placement may be higher than in a public sale with rated debt, especially if the underlying rating of the borrower is in the “Aa” category. However, when combining the interest rate and the costs of issuance to determine the all-in true interest cost of the transaction, the lower costs of issuance can make the total cost of a private placement less than the total cost for a similarly rated public sale, especially for smaller debt issues.

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Legal Requirements: Lastly, the borrowing school district must follow all of the legal requirements necessary to issue its municipal obligations in compliance with the provisions of the School Code and other applicable laws.

The borrowing school district levies taxes for the payment of general obligation bonds or covenants to set aside the property taxes of the particular fund against which tax anticipation warrants are borrowed and is legally obligated to repay the debt.

From the Purchaser Perspective Making the decision to invest in a particular municipal obligation requires consideration of several key factors. Delayed funding from the state has made analysis of liquidity and available reserves more critical than ever. Many school districts are striving to maintain higher cash reserves and to limit investments only to liquid funds, such as money market deposits. Those that do invest in municipal obligations tend to favor shorter-term instruments, such as tax anticipation warrants, rather than longer term bonds.

Make a “SLY” Decision: Remember the “SLY” acronym for making smart investment decisions; Safety, Liquidity and Yield, in that order, should be your main concerns.

Municipal obligations, particularly from public schools, have historically been among the safest investments.

Tax Anticipation Warrants typically have the shortest term of most municipal offerings. This shorter duration, and the fact they are backed by a specific tax levy, can make them a very safe investment.

ARTICLE / Maximizing Your Resources

Do Your Due Diligence: Once you have decided that you have excess funds to invest, you will need to do your own due diligence on the credit of the borrower. Common due diligence steps would be to contact the borrower, or their representative and request access to past financial statements, a current budget, a cash flow statement for the year and a projection for at least the next three years.

In rare cases, your analysis of the borrower’s financial condition may leave you concerned that the borrowing school district may not be able to turn over the proceeds of the tax extension used to secure the investment on the maturity date. If that were the case and you still wanted to proceed with the investment, you may request that the borrowing school district direct its county treasurer to segregate the taxes pledged to the repayment of the municipal obligations and pay them directly to you rather than to the borrower.

Contact the County Clerk: Tax extensions and collections vary from county to county. Contact the county clerk and confirm that there are no unusual circumstances that might disrupt the issuance of tax bills for the year. You should also contact the county treasurer to confirm there are no expected collection problems for the year.

Calculate the Yield: Calculating an acceptable yield for the municipal obligations can involve several considerations. First, consider the yields you are receiving for similar term investments in your current portfolio.

Then, consider market rates for other governmental securities with similar maturity ranges. Next, take into account any unusual costs specific to the investment you are considering, such as legal fees to review the pertinent documents.

Over the last few years when liquid investment rates were in the .25% range, a number of school districts found safe investments in the short-term tax anticipation market upwards of 1%. It may seem like a small margin, but the increase in income often has covered the salary of one or more teachers each year.

Understand the Required Documentation: The investing school district is required to sign a “sophisticated investor letter” as part of the closing process.

In that letter, the investing school district certifies that it: • Has knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of purchasing the debt and is able to bear such risks.

• Is acquiring the debt for its own account solely for investment purposes and not with any present intention of distributing or selling the debt.

If you are uncomfortable with any language in the letter, you should consult with your legal counsel before signing it.

At closing, the investing school district is the registered owner of the municipal obligations and holds the typewritten certificates, which evidence the obligation to repay the debt. Bond Counsel renders its customary opinion as to the validity and legally-binding nature of the municipal obligations.

Consider the Reward: Some business officials temper the need to maximize their investment yield with the thought that they are helping a fellow school district or municipal entity through tough times. Earning a fair rate on the investment while helping another, perhaps struggling, public entity avoid higher costs of issuance is a rewarding experience. Several business officials have indicated they focus on the municipal/school market for just that reason.

From the issuer/borrower’s standpoint, the costs of issuing municipal obligations in a private placement are typically about half of that of a public sale.

How the Process Works Finding Investors for Debt: A term sheet is used to disseminate financial information on the borrower to a broad group of potential investors. The term sheet summarizes the terms of the transaction, including the maturity, federal income tax status, authority and underlying rating. The term sheet may also include: • Key financial ratios and statistics such as equalized assessed value trends and collections.

• Largest taxpayers and tax rates by fund.

• Summary of financial history.

• Outstanding debt and debt ratios.

The placement agent can run a competitive sale process in order to determine the purchaser.

The investor bids a specific interest rate, or yield, for the investment. The investor’s bid will be compared to that of other bidders and the lowest net yield bid is generally awarded the investment.

Finding Debt for Purchase: The best way to find debt to purchase is to let your underwriter and/or municipal advisor know that you are in the market to purchase municipal obligations. Additionally, let your Illinois ASBO colleagues know that you are interested in such an investment. It would help to also let them know if you are only interested in shorter term (less than one year) or only longer-term investments. You may find the size or maturity of a proposed issue does not suit your portfolio needs. Often the borrower is willing to accept partial bids for only a portion of the total issue and/or may consider changing the proposed maturity so that it works better for you. It never hurts to ask.

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From a Legal Perspective Keep it Within the Fund: For a school district purchasing municipal obligations, the Investment of Municipal Funds Act (50 ILCS 340) (Municipal Funds Act) permits a school district to use money in its funds which are not immediately necessary for the particular purposes of the fund to purchase municipal obligations: Every county, park district, sanitary district, or other municipal corporation, holding in its treasury funds which are set aside for use for particular purposes... but which are not immediately necessary for those purposes, by ordinance, may use those funds, or any of them, in the purchase of tax anticipation warrants issued by the county, park district, sanitary district, or other municipal corporation possessing the funds against taxes levied by that county, park district, sanitary district, or other municipal corporation ... Likewise, every county, park district, sanitary district, or other municipal corporation, by resolution or ordinance may use the money in the specified funds in the purchase of municipal bonds issued by the county, park district, sanitary district, or other municipal corporation, possessing the funds and representing an obligation and pledging the credit of that county, park district, sanitary district, or other municipal corporation, or bonds and other interest bearing obligations... of the State of Illinois, or of any other state or of any political subdivision or agency of the State of Illinois or of any other state...

The municipal obligations may be purchased as an investment by a particular fund of the school district.

All of the interest received upon the purchased municipal obligations and all of the money received at maturity, must be credited to and placed in the particular fund holding the specified obligations as an investment.

ARTICLE / Maximizing Your Resources

Put it in Policy: Further, the Public Funds Investment Act (30 ILCS 235) (PFI Act) requires each school district to have a written investment policy, adopted by the board of education of the school district, for the investment of public funds. The PFI Act states: Investment of public funds by a public agency shall be governed by a written investment policy adopted by the public agency. The level of detail and complexity of the investment policy shall be appropriate to the nature of the funds, the purpose for the funds and the amount of the public funds within the investment portfolio. The policy shall address safety of principal, liquidity of funds and return on investment and shall require that the investment portfolio be structured in such manner as to provide sufficient liquidity to pay obligations as they come due.

Thus, the ability to purchase municipal obligations pursuant to the authority of the Municipal Funds Act must be specifically authorized in the school district’s investment policy.

Lastly, the PFI Act requires that the school district’s investment policy include a “prudent person rule” establishing the standard of care that must be maintained by the persons investing the public funds.

As such, the decision to invest the district’s funds in municipal obligations must be determined by the investment officer to be “prudent.”

The end result is that both entities are maximizing resources for the taxpayers, communities and students they serve.

A “Win-Win” Opportunity Making the move to add municipal obligations to your investment portfolio involves a few extra steps and may take up a bit more time than usual when choosing investments. School business officials that have invested time in this area, however, have found that seeing the municipal market from the “other side of the table” has helped them to more fully understand and appreciate this complex area.

Investing in other local public schools and municipalities provides many “win-win” opportunities — particularly when school districts investing in municipal obligations can improve their yield and at the same time create a market where school districts issuing debt can lower their costs of issuance. The end result is that both entities are maximizing resources for the taxpayers, communities and students they serve.

A United Front Protecting Your Tax Base Through

Intergovernmental Cooperation

By Joshua Whitt

ARTICLE

PARTNER WHITT LAW LLC

Brittany Flaherty Theis ATTORNEY WHITT LAW LLC

Many Illinois school districts enjoy a diverse tax base. A large commercial and industrial tax base provides significant property tax revenue for the benefit of both the school district and its residential taxpayers. However, commercial and industrial taxpayers are becoming more attentive, seeking property tax relief by filing assessment complaints with local boards of review and the Illinois Property Tax Appeal Board (PTAB). It helps their bottom line and, when searching for ways to reduce expenses, the property tax assessment is often an easy target.

Identifying which cases to defend and utilizing intergovernmental cooperation can help school business officials to successfully protect their tax base.

UNDERSTAND THE PROCESS: BOARDS OF REVIEW & PTAB Taxpayer Files Complaint Taxpayers dissatisfied with the assessment of their property have the right to file an assessment complaint with the board of review within thirty days after publication of assessments in the local newspaper, generally in the fall each year.

Notice to Taxing Bodies If the taxpayer seeks an assessment change of $100,000 or more, the board of review must provide notice and a copy of the complaint to all taxing bodies that derive property tax revenue from that taxpayer.

Evaluation of Exposure Upon receipt of such notice, it is incumbent upon the taxing body to examine the complaint and evaluate the potential exposure, or reduced taxes, that may result should the requested relief be granted.

In taxing districts governed by the Property Tax Extension Limitation Law (PTELL), a successful assessment complaint may not always result in reduced property tax revenues but may very well increase the aggregate tax rate paid by all taxpayers. For those taxing bodies not subject to PTELL, the impact upon property tax rates may not be significant but the revenue reduction may be substantial. While individuals

are allowed to represent themselves in assessment proceedings, corporations and taxing bodies are required to be represented by an attorney licensed to practice in Illinois.

Choose Your Battles Wisely Before intervening, an evaluation of the exposure in tax dollars or tax rate is prudent. While taxing bodies receive notice of all assessment complaints seeking a change of $100,000 or more, it is not uncommon for taxing bodies to set a higher threshold of $200,000, or even $300,000, before pursuing intervention.

Board of Review Hearing In due course, the local board of review will conduct a brief hearing, rule on the complaint and determine the assessment for the property, which will determine the tax bill to be paid.

By forming a united front, all participating taxing bodies can share in both the litigation expenses and the benefits to their bottom line.

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Appeals to PTAB Any party dissatisfied with that decision has the right, within 30 days, to file an appeal to the PTAB. Procedures before the PTAB are different from those before local boards of review. While boards of review promptly give taxing bodies notice upon the filing of a complaint, the PTAB gives no notice until the taxpayer has filed all of its documentary evidence in support of the appeal, which can be as many as two years after the board of review issued its decision and taxes were billed and paid.

Notice and Evaluation Once evidence is filed, the PTAB provides notice of the appeal to the local board of review, which in turn must give notice to all local taxing bodies that derive revenue from that taxpayer. If a taxing body receives notice of the filing of an assessment appeal with the PTAB, it is incumbent for that taxing body to promptly evaluate the case and determine whether intervention is necessary.

Intervention Any request to intervene must be filed with the PTAB within 60 days of the date of the board of review’s notice and be accompanied by a resolution adopted by the governing board authorizing the attorney to do so. While boards of review are charged with the obligation to review assessment complaints and determine the correct assessment, they rarely have a budget sufficient to defend their assessments in subsequent appeals to the PTAB.

Without intervention by local taxing bodies, the taxpayer’s appeal will often go unchallenged and an assessment reduction with corresponding refunds will result. Any assessment reduction from a complaint filed with the board of review or an appeal to the PTAB will impact all taxing bodies that derive revenue from that taxpayer, either through increased tax rates, reduced tax receipts or refunds.

A Lasting Impact While assessment complaints filed with the board of review have the potential to impact tax rates and taxes received for the current year, assessment appeals to the PTAB can linger for years and generate significant refunds years down the road.

GATHER YOUR TROOPS In many instances, a school district will partner with other interested taxing bodies to defend assessments within their jurisdictions. In virtually every instance, the school district receives the most tax revenue while other taxing bodies receive substantially less. Accordingly, it is not uncommon for each taxing body to pay its proportionate share of litigation expenses.

This is typically calculated by comparing each taxing body’s aggregate tax rate or taxes received from that particular taxpayer. Similarly, on matters pertaining to the direction of the proceedings and whether to make or accept settlement proposals, each taxing body typically has a proportionate vote according to the same proportionate share.

In other instances, the local municipality may spearhead the effort to defend assessments in its community. Commonly, the municipality will do so only so long as the local school district participates and, in those instances, it is not uncommon for the municipality and the school district to share expenses on a 50/50 basis. In at least one instance, the protection of the city’s tax base is of such importance that city officials take the lead, manage the proceedings and pay 50 percent of the expenses as a way to incentivize the local school district to participate and share equally in the expenses.

The Legal Case for Cooperation

The Illinois Constitution of 1970 gives school districts and units of local government the right to contract or otherwise associate among themselves to obtain or share services and to exercise or transfer any power or function in any manner not prohibited by law or by ordinance. Participating school districts and units of local government may also use their revenues and other resources to pay costs related to intergovernmental activities.1 32 |

UPDATE Magazine / Summer 2017

This authority is implemented through the Intergovernmental Cooperation Act, which provides, among other things, that any power which may be exercised by a public agency of the state (including school districts and units of local government) may be exercised jointly with any other public agency of the state, unless specifically and expressly prohibited by law.2

ARTICLE / Protecting Your Tax Base

DEFEND YOUR CASE TOGETHER When school districts and other taxing bodies partner together to defend assessment proceedings, it is important that they enter into an intergovernmental cooperation agreement establishing a consortium for that purpose and setting forth the rights and obligations of the participants.

Best Practices for Establishing Consortiums to Protect Assessments

1. Identify the property that is the subject matter of the proceedings, both by its common description and its permanent index number(s), or establish a threshold for intervention when multiple properties are involved.

2. Identify all taxing bodies that derive property tax revenue from that property.

3. Recite the importance for the taxing bodies to partner together through intergovernmental cooperation.

4. Reference the authority for the partnership found in Article VII, Section 10 of the Illinois Constitution of 1970, as well as the Intergovernmental Cooperation Act. 5. Create the consortium intended to defend the assessment proceedings and identify those taxing bodies that are members of the consortium, as well as the date when their governing boards openly voted to do so.

6. Make provision for other taxing bodies to become members of the consortium in the future should they wish to do so.

7. Provide that each member be responsible for its proportionate share of expenses unless, and until, the member withdraws from the consortium by an affirmative vote of its governing board at a meeting held in accordance with the Open Meetings Act and provides every other member with notice of its intent to withdraw at least 30 days prior to the effective date.

8. Identify one taxing body that will serve as agent for the consortium, commonly the school district. This agent is authorized to: • Execute engagement letters with attorneys and other professionals.

• Receive, process and pay invoices for services rendered and costs advanced.

• Allocate those costs between all consortium members in direct proportion that their property tax revenue received from the taxpayer bears to the total property tax revenue all consortium members receive from that taxpayer.

• Invoice each member its proportionate share to be paid by the member to the agent in the normal course of business, unless otherwise agreed.

9. Authorize the chief executive of the agent taxing body to receive day-to-day communications from, and provide direction to, the attorneys.

10. Provide that each member will have a weighted vote, equal to its proportionate share as calculated for cost-sharing purposes on those matters that require an affirmative vote of the consortium.

A UNITED FRONT Intergovernmental cooperation has been a successful tool for school districts acting in collaboration with counties, cities, community colleges, parks, library and fire protection districts, townships and road districts in assessment disputes involving shopping centers, factories, oil refineries and electric generating facilities. It results in unified representation to protect the tax base at a fraction of the cost for participating taxing bodies.

Footnotes: 1. Illinois Const., Art. VII, §10.

2. 5 ILCS 220/1, et seq. www.iasbo.org

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DEBT 101:

An Overview of Debt Issuance for Illinois School Districts

By Justin Attaway

ARTICLE

BUSINESS MANAGER SKOKIE SD 69

Elizabeth Hennessy

MANAGING DIRECTOR WILLIAM BLAIR & COMPANY, LLC

Anjali Vij

PARTNER CHAPMAN AND CUTLER LLP

The world of school finance is a dizzying combination of acronyms, legislative changes and financial juggling. Understanding and managing your district’s debt is no less challenging: What are the roles and responsibilities of each participant? What is a reasonable repayment structure? How can I ensure minimal impact on stakeholders? Get a basic understanding of debt and how it can impact your district.

WHO INVESTS IN MUNICIPAL BONDS? Investors purchase the bonds from the underwriter. Different investors have different preferences within the municipal market. Types of investors include: 1) retail and individual investors acting either directly with the underwriter or through a broker; 2) bond funds, such as managed closedend funds, open-ended mutual funds, money market

funds, bank personal trusts and unit investment trusts; and 3) institutional investors including commercial banks, corporations, property, casualty companies and other governmental entities. The principal characteristic of muni investors is that they are in a high tax bracket and can benefit from tax exemption.

PARTICIPANT'S ROLES Bond Counsel renders an opinion to bondholders that addresses two main legal issues: 1) that the bonds are valid and legally-binding obligations of the school district and 2) that interest on the bonds is exempt from federal income taxation under applicable tax laws.

Disclosure Counsel is retained by the school district to assist in the preparation of an official statement to be disseminated in connection with the sale of the bonds and help the school district fulfill its obligations under the Federal Securities law to disclose all material facts.

Underwriter: Sets bond prices and yields, provides the proceeds at closing and maintains the secondary market until bonds mature. The underwriter also coordinates and manages the financing through its various stages, prepares analyses and financing plans, evaluates financing options, helps develop debt structure, helps develop rating agency presentation, pre-markets the bonds to investors and analyzes and discusses the credit with investors in a negotiated bond offering.

Municipal Advisor: Acts in a fiduciary capacity to the school district, assists in developing the plan of finance, identifies financing solutions and alternatives, assists in the preparation of rating agency presentations, advises on the method of sale (negotiated, competitive or private placement), assists with the selection of an underwriter in a negotiated sale and takes bids on behalf of the school district in a competitive sale.

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BOND RATING

Most bond issues are rated by at least one of the three major rating agencies — Moody’s Investor Services, Standard and Poor’s and Fitch Rating Services. Investors use the bond ratings to analyze the degree of risk associated with the bonds.

High ratings reflect low risk and vice versa. There is an inverse relationship between the rating on a bond and the interest rate associated with that bond — the higher the rating the lower the interest rate due to the decreasing risk of default.

Below is a chart showing various rating categories: INVESTMENT GRADE Moody's / S&P / Fitch / Kroll Aaa/AAA/AAA/AAA Aa1/AA+/AA+/AA Aa2/AA/AA/A Aa3/AA-AA-/A A1/A+/A+/A A2/A/A/A A3/A-/A-/A Baa1/BBB+/BBB+/BBB Baa2/BBB/BBB/BBB Baa3/BBB-/BBB-/BBB

Highest Quality

Very Strong Capacity

Strong Capacity

Adequate

NON-INVESTMENT GRADE Moody's / S&P / Fitch / Kroll Ba1/BB+/BB+/BB Ba2/BB/BB/BB Ba3/BB-/BB-/BB Ba1/B+/B+/B Ba2/B/B/B Ba3/B-/B-/B Caa1/CCC+/CCC/CCC Caa2/CCC/CCC/CCC Caa3/CCC-/CCC/CCC Ca/CC/CCC/D -/D/DDD/D -/D/DD/D -/D/D/D

Non-Investment Grade Speculative Highly Speculative

Substantial Risk

Default

Bond insurance is a legal commitment to make payments on bond debt service in the event of default by the school district. The bond issue takes on the rating of the bond insurance company, improving the credit rating of the issue; therefore, higher credit = lower interest cost. School district issuers pay an insurance premium to obtain insurance coverage on the issue. The cost of the premium is typically outweighed by the interest cost savings.

INTEREST RATE MODE

Interest rates on municipal bonds can be variable or fixed. Most Illinois school districts issue fixed rate debt because the interest cost is known; the payments are fixed and set at the time of issuance. Interest on bonds is paid semi-annually.

The interest rate on variable rate debt is initially set at issuance and adjusts periodically until maturity. Interest is paid monthly, quarterly or semi-annually. Zero coupon or capital appreciation bonds (CABs) pay compounded interest at maturity. These bonds are purchased at a deep discount and mature at par.

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ARTICLE / DEBT 101

REPAYMENT TERM

A fundamental tenet of public finance is that the debt maturity approximately equates to the useful life of the project being financed. Usually a single bond issue will consist of a series of bonds with different maturities. A good rule of thumb is to keep the average life of the debt obligation equal to or less than the asset being financed. Illinois law for school districts restricts the repayment period to 20 years for most types of debt. Alternate revenue bonds may be repaid over up to 40 years. The Internal Revenue Service restricts the repayment of debt obligations to 120% of the average life of the asset being financed. For example, a tax-exempt bond issued to fund computer technology could not be amortized over 20 years because the useful life of that particular asset is only three to five years.

DEBT LIMITATIONS

Illinois school districts are restricted to a debt limit by statute. K-12 or unit school districts are subject to a debt limit of 13.8% of the most recent certified equalized assessed valuation (EAV). Single districts such as K-8 elementary districts and high school districts are subject to a debt limit of 6.9% of EAV. Direct debt, including general obligation bonds, is often used to calculate the following ratios: debt per capita, debt to personal income, debt to taxable equalized assessed value or full market value and debt service payments as a percentage of operating fund expenditures. Bond rating agencies often look at these ratios when setting a bond rating.

DEBT REPAYMENT STRUCTURE

When considering debt repayment structures, many school districts focus on the impact to the taxpayer. Once the repayment term is determined, the school district must then decide on the debt structure, such as level debt service (like a home mortgage), level principal repayment (required for certain bonds issued by the State of Illinois), deferred debt service (sometimes used in growing areas) or balloon payments. Another aspect of the debt structure is the redemption feature. Unlike a home mortgage, most bonds cannot be refinanced at any time. Typically, the optional redemption date is eight to ten years after issuance and at a price of par or 100%.

It is important to remember that an option to redeem the bonds prior to maturity is a benefit to the school district issuer and should be included in all issues of debt that have a maturity longer than 10 years. Tax-exempt bonds may be refunded only one time in advance of the call date on a tax-exempt basis. Therefore, a careful analysis of the purpose for either interest savings or debt restructuring purposes and any future restrictions must be reviewed prior to refunding bonds. Another structuring consideration is whether to capitalize interest, whereby a portion of the bond proceeds is used to pay interest on the bonds throughout the project construction period. Debt restructuring and capitalized interest can minimize the impact on the taxpayer initially but will usually cost more over time.

GENERAL OBLIGATION BONDS

General obligation bonds are backed by a separate property tax levy. This tax may be unlimited (as to rate and amount) or limited (as to amount) depending on whether the school district is subject to the Property Tax Extension Limitation Law (PTELL) and whether the bond issue has been approved by voters. The security for general obligation bonds, whether limited or unlimited, is based on the general creditworthiness and taxing power of the school district issuing the bonds.

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DEBT SERVICE EXTENSION BASE

School districts under PTELL may issue general obligation bonds without referendum if the amount levied to pay principal and interest on those bonds does not exceed the Debt Service Extension Base (DSEB). The DSEB of the school district is the amount of taxes levied by the district to pay non-referendum bonds in either the 1994 levy year (Cook and the collar counties) or the year that PTELL was approved by voters in the county, increased each year (since 2009) by the lesser of 5% or the percentage increase in the Consumer Price Index. Bonds payable from the DSEB are referred to as limited bonds.

LONG TERM DEBT

• SCHOOL BUILDING BONDS are issued to pay the cost of acquiring or improving school sites and building, equipping, altering, repairing and reconstructing new and existing school buildings and additions. These bonds must be approved by a referendum held at a regularly scheduled election and are secured by the school district’s bond and interest tax levy (unlimited).

• WORKING CASH FUND BONDS are issued to establish or increase the school district’s working cash fund. The amount that can be issued is limited by a statutory formula. Prior to issuance, these bonds are subject to a 30-day petition period and public hearing.

After closing, the bond proceeds are deposited to the working cash fund and may be used for operational expenses or for capital projects after proper abatement. Working cash fund bonds are secured by the school district’s bond and interest levy.

• LIFE SAFETY BONDS are issued to make alterations or repairs to school buildings when the projects are related to student safety or fire prevention. The project descriptions and cost estimates must be drafted by an architect/engineer and must be approved by the Regional Office of Education and the Illinois State Board of Education. Life safety bonds require a public hearing prior to issuance, but do not require a petition period. Life safety bonds are secured by the school district’s bond and interest levy.

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• DEBT CERTIFICATES may be issued solely for capital improvement and are paid from the operating funds of the district. No public hearing nor a petition period is required to issue debt certificates.

• FUNDING BONDS are issued to pay claims against a district. Funding bonds are often issued to pay debt certificates for capital improvement projects and are a reasonable alternative if a district is unable to issue working cash bonds. Funding bonds require both a public hearing and a 30-day petition period and are repaid through the bond and interest levy.

• REFUNDING BONDS are issued to refinance existing debt obligations and can be used to extend the payment structure of existing bonds or to reduce the bond and interest tax extension.

• ALTERNATE REVENUE BONDS may also be issued for capital improvement purposes. These bonds are secured by pledging a revenue stream as the primary source of repayment, but also providing for the extension of property taxes to pay debt service if the pledged revenue stream is unavailable. Unrestricted revenues such as General State Aid, Corporate and Personal Property Replacement Taxes or property tax levy related to the project being funded (i.e: O&M Fund revenues) are typically pledged to secure the alternate revenue bonds. County School Facility Occupation Taxes may also be pledged to the repayment of alternate revenue bonds.

ARTICLE / DEBT 101

A CREATIVE FINANCING STRATEGY During summer 2016, Skokie-Morton Grove School District 69 started exploring options for long-term debt to fund a large construction project. The district was well below its statutory debt limit, but declining EAV over the previous years resulted in the working cash fund bonding limit falling below the necessary funding level. School District 69 instead opted to issue $10 million in debt certificates with an interest rate of 1.0% that were redeemable at any time. With a claim established, School District 69 was able to move forward with a public hearing and petition period to issue $10 million in funding bonds to repay the debt certificates after accruing only a few months of interest.

SHORT TERM DEBT

School districts may issue tax anticipation warrants (Warrants) in order to meet short-term cash flow needs, pending the receipt of property tax collections. Warrants are issued in anticipation of taxes levied but not yet collected. They are payable solely from the taxes levied for the particular fund involved and may be issued in an amount up to 85% of the total amount of taxes levied for that particular fund. In lieu of issuing warrants, a school district may establish a line of credit with a bank or other financial institution. Warrants do not count against the debt limit of a school district.

As a tax-capped school district, the funding bonds were issued as limited bonds payable from School District 69’s DSEB. Although the process was slightly longer than a typical working cash fund bond issue, utilizing both debt certificates and funding bonds allowed School District 69 to issue the necessary amount of debt at a reasonable interest rate while maintaining the desired flexibility in the repayment schedule. This strategy also preserved working cash fund bonding authority for future projects.

The amount of warrants that may be issued on a tax-exempt basis is limited by federal arbitrage regulations, which require that school districts project cash flow deficits to prove that the borrowing is necessary.

Alternatively, warrants can be issued on a taxable basis, resulting in a higher interest rate, but not regaining the cash flow analysis.

PRIMARY AND SECONDARY MARKET DISCLOSURE

The disclosure of information in the securities market is governed by federal regulations that are designed to protect investors. In a public offering of bonds with an aggregate principal amount of $1,000,000 or more, the underwriter is required to obtain, review and distribute to investors copies of the school district’s disclosure document, called an official statement. The official statement describes the security and details of the bond issue and the school district’s financial, economic and demographic position.

School districts and their officials are subject to general antifraud rules that prohibit making misleading statements or omitting important facts in the official statement.

Federal regulations also require school districts to provide continuing disclosure to the investment community when issuing more than $1,000,000 in bonds in a public offering.

At the bond closing, the school district enters into a continuing disclosure undertaking (CDU), whereby the district agrees to provide annual financial information and audited financial statements to the Municipal Securities Rulemaking Board (MSRB) through its Electronic Municipal Market Access (EMMA) system for municipal securities disclosure, until the bonds mature. Generally, the CDU requires the filing of annual financial information and audited financial statements within 210 days after the end of each fiscal year. In addition, school districts must file notice of the occurrence of certain events, called reportable events, on EMMA within 10 days of the event occurring. The most common reportable events include payment-related delinquencies, bond calls, defeasances and rating changes.

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FUND BALANCE<<< >>>REALITY CHECK

How can you ensure your district is on secure footing? With continual uncertainty from the State of Illinois, including delayed categorical payments, GSA proration and the potential for a property tax freeze and/or pension shift, it is imperative that school districts maintain an adequate fund balance to provide cash flow for both unforeseen and continual needs. There is not a one size fits all recommendation for the level of fund balance reserves a district should maintain, but there are several factors that can help determine an appropriate goal. >>>FACTORS THAT IMPACT YOUR FUND BALANCE<<< Determining and developing an appropriate fund balance for your district is contingent on several factors including:

1. State of Illinois dependence.

2. Cash versus accrual accounting.

5. District deferment of early taxes to the next fiscal year.

6. Ability to borrow on a non-referendum basis.

3. First property tax distribution date. 7. County clerk reliability for property tax distribution 4. Capital need.

(watch out for the dreaded county clerk software update).

ARTICLE

By Michael Frances

SENIOR ANALYTICS ADVISOR FORECAST5 ANALYTICS

Robert E. Lewis III

SENIOR V.P./MANAGING DIRECTOR PMA SECURITIES, INC.

>>>DETERMINING FUND BALANCE ADEQUACY<<< Fund balance adequacy is typically measured by dividing the operating fund balances by operating fund revenues or expenses as of the fiscal year end. The data point for the denominator is not significantly important for districts with balanced or near balanced budgets, but the Illinois State Board of Education (ISBE) and the major rating agencies use revenue. Caution is advised if the Tort Fund and IMRF/ SS Fund are included in the calculation since significant balances in these restricted funds could overstate the financial flexibility of the district. A district should also compare this calculation to cash balances for these same funds at their low point since a significant difference could be observed depending on the factors listed on the previous page, particularly factors two, three and five. >>>BEGIN WITH A GOAL IN MIND<<< What is the best way to determine the amount of fund balance to maintain? There are several third party grading options to look at when assessing your district’s fund balance goals.

S&P • Strong grade for operating fund balances > 15%.

• Measures operating fund balances including the Educational Fund and the Operations and Maintenance Fund with acknowledgement of the Working Cash Fund.

Moody’s • Strong grade for operating fund balances > 25%.

• Includes all three of the aforementioned funds as well as the Transportation Fund, Debt Service Fund and the IMRF/SS Fund.

ISBE • ISBE only gives their highest Financial Profile Scores to districts with a fund balance > 25% of the operating funds fund balance as a percent of revenues.

In light of these third party opinions, most school districts begin with a goal to maintain a fund balance of at least 25%. However, many school districts that have balances in excess of this amount or have the ability to generate operational surpluses strive to maintain a higher operating fund balance percentage due to the uncertainty of the state and other factors.

>>>E STABLISH A FUND BALANCE POLICY<<< Once a fund balance goal is established, it is a best practice to memorialize it in a fund balance policy. While some schools choose to maintain the fund balance objective as either an administrative or informal board goal, the major rating agencies prefer a policy. Having a formal policy helps to maintain continuity as administrations and boards change over time and the adherence to the policy reduces the likelihood of prolonged structural imbalance.

Setting a range for a minimum fund balance goal is preferable to a single number since annual operational variations and uncertainties could cause a district to become non-compliant with its policy. Some school districts have even established a maximum operational fund balance goal. Amounts in excess of the requirement could be designated to debt reduction or the capital improvement fund. The latter is especially important for a district that does not have access to non-referendum bonds to address unforeseen capital needs or life safety survey violations. >>>EDUCATE YOUR STAKEHOLDERS<<< For many districts, implementation of a fund balance policy will require the board and the district’s stakeholders to have a clear understanding of the difference between cash flow low point and fund balance. This understanding is necessary due to differences in the accounting and timing of tax receipts which could cause a district with what appears to be a solid fund balance to still require the issuance of tax anticipation warrants.

Lastly, a fund balance policy should clearly state its objective for the benefit of the district’s stakeholders including students, taxpayers, bond investors and rating agencies. The policy should seek to secure community understanding and support of the fiscal requirements needed to provide an adequate financial support base for the programs and services identified by the community as necessary for a quality educational experience.

A fund balance policy should clearly state its objective for the benefit of the district’s stakeholders including students, taxpayers, bond investors and rating agencies. www.iasbo.org

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ERROR

TERROR

TAXING BODIES ARE PAYING THE PRICE FOR STATE AND COUNTY ERRORS AND ABATEMENTS

By Mark W. Altmayer

ARTICLE

At the time of this writing, Springfield is on the verge of passing a two-year property tax extension limitation at 0% (property tax freeze). Identifying revenue opportunities and potential favorable and proper legislation has never been more critical for taxing bodies.

While school districts continue to be increasingly fiscally responsible, balancing the budget today has never been more challenging. Illinois continues to proliferate the unknown. Meanwhile, every business official is looking for creative ways to reduce expenses and maximize revenues.

Taxing districts such as schools, villages and park districts are footing the bill for cancellations and abatements administered by state and county offices.

These adjustments, made after a taxing body’s levy is approved and tax bills are sent, are preventing Illinois taxing bodies from receiving 100% of their publicly approved levy extensions, to the tune of about $96 million a year.

These cancellations and abatements are typically the result of: • Individuals not filing exemption paperwork with the state in a timely manner.

• Challenges on property assessments going to the Property Tax Appeal Board (PTAB).

They lead to abatements or certificates of error being issued by the County Treasurer’s Office, with the adjustment losses being passed on to taxing bodies.

For Huntley 158, the percentage of this loss may seem small (0.04% of the 2013 tax levy and 0.026% of the 2014 levy). But given our approximately $56 million annual extension, those percentages add up to real dollars (almost $500,000) over those two years. For Huntley 158, that loss would cover the annual operational spending for about 55 students, or roughly two entire classrooms. St. Charles District 303 lost out on about $850,000 from their 2014 tax levy alone.

CFO/TREASURER HUNTLEY CSD 158

Let’s dig a little more into the details of these adjustments, how they affect future-year extensions and how we see these adjustments as completely inconsistent with the existing Property Tax Extension Limitation Law (PTELL).

CANCELLATIONS

Cancellations comprise primarily: • Residents not receiving their exemptions prior to tax bills being generated.

• The issuance of Certificates of Error from the Assessor’s Office and Board of Review associated with errors in assessment, such as incorrect square footage.

EXEMPTIONS

Taxpayers outside of Cook County have until October 1 (approximately one year) to file for an exemption for the previous tax year (after both property tax payments are due in June and September). Thus, a resident who failed/ forgot to complete a homeowner, senior citizen or Veterans exemption can do so as late as October 1 and still receive a corrected tax bill and/or refund. Cook County taxpayers have up to three years to file for an exemption from a previous tax year.

The difference between the original and the corrected tax bill is the cancellation amount, resulting in lost revenue for the taxing body. Does this seem right? If the exemption had been filed in a timely manner, prior to the creation of tax bills, the extension would have been spread properly among taxpayers and the taxing body would not have lost this revenue.

For the 2014 Levy Year, the Illinois Department of Revenue reported million in Certificates of Errors. www.iasbo.org

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ASSESSMENT ERRORS

A resident who reviews his or her tax bill and finds an error such as grossly overstated square footage resulting in an inflated assessed value can receive a Certificate of Error. The difference between the original tax bill and the corrected version is the cancellation amount, resulting in lost revenue for the taxing body. Does this seem reasonable?

ABATEMENTS

Abatements primarily relate to revised assessments or PTAB reductions from the state, resulting in the Treasurer’s Office issuing refunds for prior years’ taxes.

If a taxpayer is not satisfied with an assessment result by the Board of Review, the taxpayer can appeal to PTAB. More importantly, while assessment reductions made by the Board of Review can be spread properly through the taxpaying public, reductions by PTAB cannot. Thus, inefficiencies at the Board of Review level can lead to a larger number of PTAB cases and greater losses in revenue for taxing bodies.

Huntley 158 is located in two counties, Kane County and McHenry County. A possible example of inefficiencies can be outlined by comparing these two counties total abatements in a levy year. Per the Illinois Department of Revenue, McHenry County abatements in levy year 2014 were $14,411 or .0017% of the total taxes billed, one of the lowest in the state. Kane County abatements, on the other hand, were $2.779 million or .222% for the same levy year.

A LEGAL REMEDY?

A possible remedy is to have the property tax code be consistently applied and all issuances of refunds (PTAB adjustments and Certificates of Error) be consistent with that of the PTELL Public Act 95-404.

This Act outlines that when a taxing district falls within two or more counties and estimated equalized assessed valuation (EAV) were used to extend taxes in the prior year, then the prior year extension is “reset” to what it would have been if actual values had been used. The “reset” is completed through a prior year adjustment, the purpose of which is to ensure taxing districts do not lose revenue based on estimated EAV. Thus, given the high propensity of cancellations and abatements, one could argue that actual EAV is not used. With numerous property owners having errors in assessments, PTAB adjustments and exemptions filed after bills are created, there is strong evidence that the reset practice more closely reflects estimated values than the actual values the law intends.

We must urge legislators that all corrections of errors and changes in assessed values should be added back as a prior year adjustment and be included as part of the “reset” process.

Action must be taken to correct these problems, which result in taxing bodies losing revenue annually as a result of errors, omissions and revised estimates in EAV, as well as inefficiencies that occur at the county level. We must ensure that taxing districts will receive the tax revenues that have been approved by their publics and in accordance with PTELL.

The chart above summarizes the total abatements for each county in Illinois. With Lake County at $5.03M, Kane at $2.78M, Will at $7.21M and all other counties at approximately $3.14M – this is staggering data!

RESOURCES The Bedrock of Business Success Author, business leader and Illinois ASBO Leadership Day keynote speaker John Spence brings more than 20 years of business learning and experience to the table as he explains his six principles to lasting business success in Awesomely Simple. The six principles are as follows: 1. Vivid Vision 2. Best People 3. Robust Communication 4. Sense of Urgency 5. Disciplined Execution 6. Extreme Customer Focus All of these principles, when executed, can make a positive impact on any business, including the school business office.

Lessons from Other Businesses Spence does not deliver business principles in a bubble. Throughout the book you will come across case studies to help highlight how each principle can be applied and the impact they can make when executed effectively.

These real-life examples help answer questions such as: how did other leaders communicate their vision to their staff?

How can I ensure that I hire employees that will be an asset to my business office? How can I execute my districtâ&#x20AC;&#x2122;s vision in light of the many obstacles before me? They help bring the bookâ&#x20AC;&#x2122;s principles to life and help you to apply them to your unique situation.

Application vs. Knowledge Awesomely Simple does not just give the reader a bunch of business principles and leave it to them to figure out how they should be implemented, but makes a point to show how these strategies can be implemented right now. The conclusion seeks to close the gap between knowledge and action to help turn these ideas into positive action for your district.

This book is meant to be used as a tool that provides more value the more it is used. There are questions at the end of each chapter that will help you assess your business office.

If completed with care, these assessments will help you identify strengths and areas in your business office where improvement is needed.

Successful people willingly do what unsuccessful people are unwilling to do.

On My List Awesomely Simple: Essential Business Strategies for Turning Ideas into Action

By John Spence

Overview: Author John Spence is a world renowned business expert and self-diagnosed business addict. He has read two business books per week for 20 years and has helped run all types of businesses, from mom-and-pops and tech start-ups to non-profits and big, global firms.

In Awesomely Simple, Spence reveals six principles that form the bedrock of business success and helps the reader to implement them.

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THE FINAL WORD SPEAKING UP ABOUT CASH MANAGEMENT TAMARA L. MITCHELL Asst. Supt./Business & Financial Services Joliet Public Elem. SD 86

I believe my role as a business official is to manage and safeguard district assets.

One key component is sound cash management practices that ensure maximum investment returns while maintaining adequate liquidity. Absent sufficient liquidity, the quality of education may be negatively impacted as it becomes more difficult to meet the needs of the school community.

A school district cannot succeed without adequate cash.

SBOs must ensure adequate cash on hand to meet the needs of the community, both for obligations and unforeseen emergencies. Further complicating matters is the uncertainty of some state revenues. SBOs must not only know their districtâ&#x20AC;&#x2122;s cash position, but also be aware of how delays in state revenues may impact the districtâ&#x20AC;&#x2122;s ability to meet its obligations. SBOs face the challenge of anticipating cash flow needs while determining if alternate funding methods (i.e., short-term borrowing) must be pursued.

Many unknowns could have a big impact on cash management.

The unknowns of funding formula change, pension reform and property tax legislation will likely remain at the forefront of discussion until legislation is passed. A pension cost shift, no matter how gradual, will have a definite impact. The same is true of a property tax freeze. It is vital for SBOs to not only stay current on this legislation, but to also cost out the impact of each issue on their district.

Maintaining up-to-date cash flow statements is key.

If a district is not currently adhering to this practice, implementing a 12-month cash flow is a great start. The further out the projection, the less accurate it becomes, but 24 to 36 month cash flows definitely help SBOs to stay on track and greatly assist with budget planning.

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Register Now! 2017

ASBO International’s Annual Meeting & Expo is the premier professional event in school business, where you’ll gain a broadened perspective on your toughest challenges and discover practical and proven solutions from your colleagues.

Save $100 when you register by July 28! asbointl.org/Register

“ASBO International's Annual Meeting & Expo is refreshing and always opens up the mindset to new potentials while also confirming best practices!”

Arnett Harvey, Chief Operating Officer, Cahokia CUSD 187, Cahokia, IL

Considering the range of work they perform and the constantly shifting educational environment, your support staff needs continual professional development in order to keep up.

SupportCon is designed specifically to meet these needs. Join us at one of two locations this fall!

SPRINGFIELD

Tuesday, September 19, 2017

DOWNERS GROVE

Friday, December 1, 2017

Visit www.iasbo.tools/supportcon2017 for details.