Vermilion Local Schools forecast

The Vermilion Local School District is doing just fine financially, but Treasurer Justin Klingshirn said the district will have to proceed with caution down the road, as with nothing done, the district will start to spend more cash that it receives in 2025. Klingshirn presented the Vermilion Board of Education with the district’s annual Five-Year Forecast on Wednesday, Nov. 10. Klingshirn went through the district’s various funds, saying the purpose of the forecast is to engage the board of education and the community in long-range planning and discussions of financial issues facing the school district. The forecast also serves as a basis for determining the school district’s ability to sign contracts associated with continued operations, and also provides a method for the Department of Education and Auditor of State to identify school districts with potential financial problems.

                In Vermilion, local property taxes account for 77.5 percent of the district’s revenue. Klingshirn said property values have been increasing an average of 1.5 percent between 2013 and 2018, however, the last two years have averaged 4.4 percent. “Property tax collection rates have historically been strong and in this forecast, continue to be strong,” he said.  HB 920 prohibits tax collection to grow with residential property values. Klingshirn said local property values dropped in 2010 and 2011, and they did not return to the 2010 values until 2018. “The district values have been taking off the last three years.”

                Klingshirn illustrated in a graph the district’s property tax collections being stagnant with the elimination of the tangible personal property tax in 2011. He said in the last ten years, the district has collected roughly $17 million. Klingshirn said in the last four years, the district has been above that marker, and he sees that trend continuing.

                State revenue accounts for 18.2 percent of the district’s revenue. Klingshirn said beginning in FY 22, Ohio adopted the Fair School Funding Plan (FSFP). Funding is driven by a base cost methodology that incorporates the four components identified as necessary to the education process: direct classroom instruction; buildings, leadership and operations; instructional and student support; and district leadership and accountability. He said they determine the ability of the public to pay, and they must pay that difference. Klingshirn said there is a part of the budget called Student Wellness and Success Fund brought in by Gov. Mike Dewine this year. He said historically, this was outside the forecast. Klingshirn said he had to create a fund to deal with this, and now they’ve brought it into the general fund. As a result, Vermilion is receiving less state aid than it has been. He said the ODE is working on correcting state foundation reports. He said as more information becomes available, the forecast may change. He said until he hears anything, he put a modest increase of one percent in the budget. He said urban schools are gaining a lot of money, and rural schools “are pretty much sticking with the status quo.”

                All other revenues are forecasted to account for 4.3 percent of the district’s revenue. Klingshirn said these other revenues relate to transportation, interest on investments, other revenue, sale of assets, payments in lieu of taxes, and Medicaid reimbursements. This line item is estimated to remain flat over the course of the forecasted period.

                Klingshirn said one big change that has happened in that the district’s effective millage is now at the lowest point possible. “So right now, Vermilion Local Schools is taxing its citizens the lowest amount according to the Ohio Constitution.” Per House Bill 920, it cannot go lower than 20 mills.

                On the expenditures side, personnel services are the largest source of the district’s expenditures at 52.5 percent. These consist of employees, salaries, and wages, including extended time, severance pay, supplemental contacts and overtime. Klingshirn said these have remained fairly flat despite historical negotiated increases due to attrition, however, are anticipated to increase an average of 2.37 percent each forecasted year. Personnel services grew 8.6 percent the previous five years, and in the next five years, he is anticipating 9.9 percent growth. “Our personnel services has been the highest it’s been in the last ten years, assuming staffing levels stay consistent.

                Employee retirement/insurance benefits total 20.4 percent of the budget and is forecasted to increase over the next five years. This source of expenditures consists of retirement for all employees, workers compensation, early retirement incentives, Medicare, unemployment, and all health-related insurances. The district is estimating an annual increase of 4.0 percent. He said health costs have increased six percent the last two years. He said this will continue to increase as these costs have, and due to the board-paid portion of the pensions. Negotiated salary increases will also drive these up.

                Purchased services account for 14.4 percent of the forecasted district’s expenditures, and Klingshirn said this includes tuition paid to external providers, utilities, and services performed by outside vendors. He said the Fair School Funding Plan has eliminated the expenditures related to open enrollment, community schools and scholarships however, the ODE has not yet been able to correct the school funding formula to address these changes. He said until this formula is corrected, the district will continue to see expenditures related to this. He said he hopes by this time next year it will be corrected.

                Klingshirn said the forecast is exactly that, and the district has the ability to change the trend. He said the forecast makes no assumptions about staffing, levies, etc. “The forecast is just showing the trend as it sits right now.” Board member Chris Habermehl asked why such a drop in FY 2024. Klingshirn said because of continued costs of personnel and services. He said the district has not spent more than it brought in since 2017. He said the forecast shows what would happen if the district continued with its current operations today and made no adjustments, it would spend more than it brought in by FY 2025. He added that health benefits and retirement are driving up the district’s expenditures.

                Changes to school requirements and what/how the district reports to state agencies has seen an increase over the years. “We have more and more and more reporting requirements, more things to keep track of,” said Klingshirn. “Because of that, it is creating jobs to keep up with the demand of things. “The district will need to keep an eye on staffing levels particularly in years 2025 and beyond. Overall, the district is in good financial standing and will continue to do so throughout the forecast.”