Current through Register Vol. 54, No. 44, November 2, 2024
Following are the guidelines of the Early Warning
System.
I.
Level 1
Analysis-Early Warning System Components
The Department will consider Budget and Other Financial Data,
Additional Data relevant to financial condition, including Fiscal Measures and
Socioeconomic Data, Act 47 Status of the host municipality, and Factors for
Financial Recovery Status as part of the early warning system.
The variables below were tested for validity and reliability
by applying an examination of the criteria to school districts across the
Commonwealth. The Department will continuously monitor the variables to assure
their effectiveness.
A.
Budget
and other financial data
Components in this level will be calculated from the most
recent school district-reported data submitted to the Pennsylvania Department
of Education on the Annual Financial Report. The Department will analyze and
compile and review this data to identify trends which may indicate challenging
financial circumstances and/or a troubling financial outlook for a school
district.
The following components will be considered in this initial
analysis: Fund Balance Ratio, Borrowing Base Capacity, and Debt Ratio. A Basic
Education Funding advance or a bond intercept payment may also be considered in
the initial analysis.
1.
Fund
Balance Ratio. Fund balance ratio indicates how much cash the school
district has on hand in the event that an unanticipated need arises. A higher
fund balance ratio indicates a greater ability to meet fiscal obligations. The
fund balance ratio will be calculated by: a school district's total assets
minus its total liabilities divided by the total general fund
expenditures.
2.
Borrowing
Base Capacity Available. Borrowing base capacity indicates to what
extent a school district, according to law, can incur additional debt. A higher
borrowing base capacity available indicates a greater ability to borrow more
money. The borrowing base capacity will be calculated by: a school district's
total debt that can be incurred minus the total outstanding debt, divided by
the total amount of debt that can be incurred, according to the Local
Government Unit Debt Act (LGUDA).
3.
Debt Ratio. Debt ratio can be used to determine the school
district's ability to be approved to add additional debt. A lower debt ratio
indicates increased ability to incur more debt. Debt ratio will be calculated
by: a school district's total debt service payments divided by total
expenditures (for all funds). A three-year average will be used.
4.
Advance BEF/Basic Education
Funding. BEF allocation payment made, pursuant to School Code section
2517(e), in advance of the dates set forth in section 2517(c) may indicate a
decreased ability to meet fiscal obligations. Basic Education Funding advances
may be a warning sign that a school district is experiencing difficulty
managing its cash flow.
5.
Bond Intercept. An agreement entered into between a school
district, the Department of Education and a bond trustee to have the Department
make bond payments directly to a trustee via deduction from the school
district's subsidies. Bond intercept payments may indicate decreased ability to
meet fiscal obligations.
B.
Additional data relevant to
financial condition1.
Fiscal
measures and socioeconomic data. The following other fiscal and
socioeconomic components will be analyzed: Market Value/MV/Personal Income (PI)
Aid Ratio, Equalized Mills and School Tax Ratio.
a.
Market Value (MV)/Personal Income
(PI) Aid Ratio. A school district's combined market value (MV) and
personal income (PI) wealth for each resident student as compared to the state
average. The lower the MV/PI Aid Ratio, the less dependent the school district
is on state funding. Market value/personal income aid ratio demonstrates the
financial "wealth" of a school district.
b.
Equalized Mills. A school
district's total taxes collected divided by its taxable market value as
certified by the State Tax Equalization Board. A higher equalized mills ranking
indicates a greater taxation effort on the part of taxpayers when compared to
other school districts. High equalized mills indicate a decreased ability to
raise additional funds via taxes. Equalized mills compare the property tax
burden in the school district against all other school districts in
Pennsylvania. This indicator shows, in relative terms, how this school
district's tax burden is ranked based on property values.
c.
School Tax Ratio. A
school district's total taxes collected divided by the personal income of its
resident taxpayers. A higher school tax ratio indicates a greater taxation
effort on the part of taxpayers when compared to other school districts. High
school tax ratio indicates a decreased ability to raise additional funds via
taxes. School tax ratio compares the personal income tax burden in the school
district against all other school districts in Pennsylvania. This indicator
puts, in relative terms, how this school district's tax burden is ranked based
on personal income.
2.
Act 47 status. The Department will also consider whether any
political subdivision located within the school district is declared as
financially distressed by the Pennsylvania Department of Community and Economic
Development under the Financially Distressed Municipalities Act (Act of 1987,
P. L. 246, No. 47), also known as Act 47.
3.
Factors for financial recovery
status. The Department may include in its analysis of early warning
system components the factors the Secretary may consider in determining whether
to issue a declaration that a school district is in financial recovery status
pursuant to section 621-A(a)(2)(l) of the School District Financial Recovery
Act.
II.
Level 2 Analysis-School district-provided current financial
data
A. Upon completion of the Level
1 analysis, the Department will determine if a school district may be
experiencing financial difficulty. Affected school districts will be contacted
by the Department and will be asked to provide additional, current information
about their financial status. The Department may require information including,
but not limited to:
1. Current
Budget
2. Cash Flow
analysis
3. Fund balances
4. Status of audits
Per the timeline in Act 141, a school district will have 15
days to respond to the Department's request.
B. Upon receipt of the additional financial
data, the Department will, working directly with the school district, ensure
the accuracy and timeliness of the data, analyze the data, and share the
results of the analysis with the school district superintendent.
C. As part of the information gathering
process, the Department may consult with and interview school district
officials as needed.
III.
Level 3 Analysis-Determination of Financial Watch Status
A. Based on the Department's analysis of
Level 1 and Level 2 information, the Department may decide to monitor the
school district or designate the school district as being in financial watch
status.
B.
Notification-The Department will notify the school district,
including the superintendent, Board President and Solicitor, if the school
district is designated as being in financial watch status.
C.
Technical Assistance-The
Department will provide technical assistance to any school district designated
as being in financial watch status.
