001All right. The study session is called to order at 5.03 p.m. Item 1.2 is budget special revenue, debt service, and internal service revenue. Turn over to CFO Chris Herman. Okay, great. Members of the board, President, well, President Walsh will be here shortly, Superintendent Tenius, colleagues, and all the folks watching online in the audience. Tonight we have... a handful of funds to go through on the revenue side for assumptions for next year's budget. And I'm just going to keep going and we'll get caught up with the slides here whenever they're ready. You know, we always start by showing what our budget annual report is. I think, again, just to remind our community, if you have questions about last year's budget, that's the place to start. We go through a lot of details explaining, you know, the
002process and how all the financials work. Really, that's our commitment to transparency and accountability. We'll look at a slide for the timeline here shortly. Again, just to remind our board that there's lots of activities that are being worked on right now in the month of April, which is why we bring things to the board as soon as we know when they're available. But sometimes that takes several months for all the pieces to come into place. So, you know, we'll make sure as we walk through all these things to highlight what's different, if that happens from what we originally estimate. And then bringing everything back to the board at the end of June, ultimately that we can have an election or a board vote on the adopted budget in July. I won't go through this slide
003in detail. Again, I like to show these for those who may not have seen all the presentations throughout the spring, but it really explains that, again, we're following the same format and categorization of funds in these spring sessions that's defined by the USFR, which aligns with the reporting structures that are used for. government institutions and other GASB regulations and content. So tonight's presentation, we're really going to focus on revenue assumptions for three different fund types, special revenue funds. debt service, and internal service funds. And although there are multiple funds and individual funds that fall under these categories, just to kind of give you some context, they're relatively small when it compares to the general fund, which we talked about in our last study session. That general fund makes up about 60% of all the revenue
004in next year's budget for all governmental funds. But by comparison, special revenue funds that we'll talk about tonight make up about 21 percent of all revenues in that governmental fund category. Debt service makes up about 12 percent. And again, we'll talk more details about what those different areas mean as we unwrap the presentation. So we'll also cover internal service funds, which are part of the proprietary funds category. But these amounts aren't included in that governmental funds category. Typically, proprietary funds are not shown or included in the consolidated financial statements for our district because the principal operating revenues for. proprietary funds are typically charges for things like health benefits or other charges to district departments for goods or services. And what this means is that the revenues and expenditures related to internal service funds, they've already
005been accounted for in the other governmental funds groupings. Later in the spring, when we are aggregating the total district revenues and expenditures, we'll only talk about governmental funds because that will be shown in the financial summaries because that prevents the duplication of revenues and expenditures. And this practice also mirrors the methodology used in developing the financial statements for the district's annual comprehensive financial report. So first we'll start by covering the special revenue funds. The definition for this category are funds that account for and report the proceeds of revenue sources that may be restricted or committed to expenditures for very specific purposes. And the 15 funds that are included in the special revenue funds type are shown on this slide as well as the next slide along with a brief description. And they include things like
006auxiliary operations, civic center, classroom site fund. Community school, which is a combination of our community ed programs, plus preschool tuition funds, extracurricular activities fees and tax credits, federal projects, fingerprints, food service, gifts and donations that are not capital in nature, grants and gifts to teachers, instructional improvement, state projects, structured English immersion, student activities, and finally textbook funds. The largest funds in next year's budget within the special revenue fund type are the classroom site fund, community school, food service, and federal projects. And those four individual funds make up almost 85% of the budgeted revenues within this category. So later in this presentation, you'll see that the total projected revenues for each individual fund, but in the next several slides, we'll cover the revenue assumptions for some of these larger individual funds or areas of focus in
007more detail. So we'll start first with the classroom site fund. It's the largest fund within the special revenue fund type and would be synonymous with Proposition 301. Prop 301 was created as a result of ARS 15-977 and receives funding from a 0.6% state sales tax. Prop 301 was originally set to expire in fiscal year 21, but was extended by the legislature for another 20 years. So that funding is now extended until June 30th of 2041. This funding is based on a per pupil amount that is provided by the state at the end of March. This per pupil amount will fluctuate every year depending on the amount of sales tax that's collected across the state and then is multiplied by the prior year 100th day weighted group A student counts in order to calculate and determine
008Kyrene's allocation amount for the upcoming year. So on a per pupil basis, the classroom site fund for next year is going to be $842 per pupil, and that compares to $792 last year, and that equates to just over $12.1 million in revenue in next year's budget. Some board members may remember that the legislation... for Prop 301 was changed in the spring of 2021 and now provides more flexibility for how this money could be spent. Prior to that legislation change, only function 1,000 expenditures, which relate to expenditures that are just classroom instructional areas, they were eligible to receive any funding from Prop 301, but now the eligibility has been expanded and that now includes function 2,100 expenditures as well. And those are areas that support student services. That would be groups such as counselors, behavior intervention
009teachers, academic behavioral specialists, and groups like that. Additional legislative changes also remove the requirement to have three separate funds within the classroom site fund to report the revenues and expenditures. However, there is still a specific and limited list of allowed uses for how classroom site funding... fund money could be spent. And that includes things like class lives reduction, teacher compensation, which allows for both base pay and performance pay components, assessment intervention programs, teacher development, dropout prevention programs, or teacher liability insurance premiums. So for Kyrene, the largest areas where our classroom site funding is spent would be in teacher-based salaries, teacher performance pay, and then also to support academic intervention. So the next fund would be community school. That's the second largest fund within the special revenue fund type. And about 95% of that amount comes
010from Kyrene's community educational programs. And these programs include areas such as kids club, before and after school programs, preschool, summer programs, and youth enrichment programs. And this slide shows the overall financial impact of these programs in terms of both revenue and net income. And although the intent of tonight's presentation is just to focus on the revenues, we do have some preliminary expenditure projections for next year's community education budget. However, when you look at the revenue amounts generated by community education, those amounts can be misleading if you don't also include the expenditures, as there are significant costs associated with running those programs. On this slide, I'm showing both revenue and overall net profit or net loss associated with our community education programs, really in order to show the net impact on our overall budget. Kyrene operates
011one of the largest community educational programs in the state. We serve thousands of students each year. And prior to COVID, these programs generated somewhere between two and a half and three million dollars of profit every year. And that's really important to understand from a budget perspective, because any income generated through those community education programs would have been reinvested, committed. or used to cover any recurring and ongoing operational expenditures in the district's overall budget. You can see in years, fiscal year 20 and fiscal year 21, there was a dramatic impact from COVID-19. And you can see the impact it had on our community education programs and consequently that financial burden that was also placed on the overall district budget during that time. Because there was actually that loss of $300,000 and $700,000 during those years. And
012that was a large financial swing between what we normally would generate in profits. and create a situation where achieving a balanced budget was very difficult to do during those years. Kyrene was able to do that, but it did mean that other operational funds like M&O had to be used or redirected in order to address that budget gap. When you look at the post-COVID years, those profitability results have typically been lower than pre-COVID years, mostly due to rising costs to administer those programs. Most of the costs for community ed is in the personnel costs. Those have been rising. And also, there's also been general lower enrollment in those programs as Kyrene's overall enrollment has declined as well. Going forward, we would expect that the 2025-26 revenue and profit amounts to be sustainable and achievable. And again,
013that money would be committed in our budget to cover ongoing expenses across the district. That amount would be slightly lower than the current 2024-25 budget year that you see shown as staffing shortages were experienced during the first part of this year. And that led to lower expenses and consequently a higher profit amount that really would not be. repeatable or we would like to have the staff in place going forward. So although we still experience some difficulties in hiring staff to run all of our community education programs, we are definitely better staff today than when we were earlier in the year, and that should help us going into next year. The next group on this slide provides more information about federal projects, which would be the grouping of funds used to account for the revenues and
014expenditures that are involved with federally funded areas. So federal projects include areas such as title funding, and that includes several different types of title funds that you can see listed. Also IDEA Part B, E-rate is included as well in the federal projects, as well as ESSER grants. I'm not going to read what's listed on this slide, but it does describe what's allowed according to federal law and any other requirements. Any amounts that we have for 2025-26 would only be estimates at this point because we typically don't know our full allocations until later in the year, whether that be summertime or sometimes even into the fall. The acronym ESSER that I just mentioned that you see as the last bullet on this slide, it stands for the Elementary and Secondary School Emergency Relief Fund. And that
015represents federal funding that was generated from the passage of three federal stimulus bills that were designed to mitigate the impact of the coronavirus pandemic. But those grants, you'll see it in the history, but they all expired in September of 2024. So I do want to talk a little bit about athletics. It's another area that's highlighted, and it's included in the Auxiliary Operations Fund. And although it's not one of the largest funds in the special revenue funds type, it's definitely an important part of our middle school activities. So I do want to talk a little bit about the financial investment that Kyrene makes in this area. Last year, Kyrene did a board presentation on athletics and discussed the financial impact. it had on the overall budget. And typically, the costs that are associated with running, officiating,
016staffing, and administering our athletics program. And typically, those costs are higher than the amount of revenue that's collected in the form of participation fees. So what we would see next year would be no different than that. You can see on this table that the estimated revenues for next year are expected to be a little bit lower than the prior year at about $623,000. And that's really because we haven't been able to fill all of our teams across the middle schools. But the estimated expenditures are almost $900,000 next year, which means that the overall loss is expected to be somewhere around $250,000. Because the athletics program is not self-funding from a financial perspective, it does mean the district must make an additional investment of M&O and other operating dollars in order to make up that difference.
017So state projects is another category that's... about 9% of our overall special revenue funds. And there really are three individual funds included that have some substance in next year's budget. First is the Safe School Grant. Second is the Safe School Mini Grant. And then the third would be the First Things First Grant. The Safe School Grant provides funding across Arizona for counselors, social workers, or school resource officers. And funding for this grant is based on a three-year cycle. which means that you have to reapply for the grant every three years and our current 2024-25 year represents year two of that grant cycle. So this means that Kyrene would receive funding next year from this grant for nine full-time counselors and six SRO officers at each of our middle schools. The Safe School mini grant was
018awarded to Kyrene starting January 3rd of this year, and that funding will continue through the end of the 2025-26 year. This grant provides funding for full-time counselors for the remaining 16 schools across Kyrene, so these grants cover the cost of a full-time counselor at all 25 school sites. The next application cycle for these Safe School Grants would begin around March or April of 2026, and Kyrene would apply again for those funds in order to seek funding for SRO officers and counselors across our entire district. The amount for First Things First is a relatively small grant in this category. That $56,000 amount that's listed provides support for areas impacting early childhood programs as well as their families. So if you're ready for all the revenue numbers, that time has arrived. So on this slide, you can
019see all the total projected revenues for next year's budget compared against two years of actual amounts as well as last year's adopted budget. And it's important, again, to mention that the amounts for fiscal year 26 are still estimates at this point, and they could change over the next few months depending on information that comes in. If any adjustments are made in the coming months, we will definitely identify those changes when we show the consolidated revenues and expenditures later in June. You can see the relative size of each fund category as a percentage of the total fiscal year 26 budget on the right-hand side of this table. It's important to understand that for many of these funds, the revenue amounts that are listed, they really don't represent what's available to spend by the district in the
020form of discretionary money because there are also operating expenditures that must be covered for some of these funds as well. So an asterisk on this table represents where there are significant expenditures associated with administering these programs or the activities within that individual fund. And in many cases, the revenue amounts are almost equal to or just enough to cover those expenditures. In other words, for fiscal year 26, if you looked at all the items that have an asterisk, it's almost $19 million. And so that does not mean Kyrene has $19 million available to spend however it chooses because direct program costs in those same categories will mostly offset that revenue amount. The total special revenue funds are anticipated to be essentially flat with last year's. total at around $40 million. However, there are some changes between
021individual funds that I just want to highlight. There's about a $1.7 million drop in federal projects year to year. That's mostly because there was a $1.1 million amount in last year's budget for E-rate reimbursements for technology projects, and we don't expect to have any reimbursements coming in the 25-26 year. The other big source of the difference is that the title IDEA Title VI B amount is about $400,000 less than last year's budget on this slide because we don't know what our full allocations are for next year. And we'll adjust that once we have the final numbers. And as a side note, if you're comparing back in previous years in this category, you'll note that some of the larger numbers in fiscal year 23 and 24. would relate to one-time grants that were about $6.2 million
022in fiscal year 23 and about $6.7 million in fiscal year 24. And those were related to mitigating the impact from the COVID pandemic. So even though we're still not receiving any ESSER funds or coronavirus funds similar to that, they do show up when you look backwards in history. So it's always important to know what those big changes were caused by. The next thing that I wanted to mention was food service revenues. Those are expected to be about $350,000 lower than last year's adopted budget. Kyrene outsources the activities related to school cafeteria operations to a third-party vendor, and our contract has a fixed price associated with each meal served. So any revenue or expenditures that are generated from food service would be variable based on the number of meals served during that school year. And although
023it's the same number as last year's budget, I do want to point out that the budgeted revenue for the Structured English Immersion Grant, it's not known at this time. This is a competitive grant, and awards are typically not known until the June or July timeframe. So if a different amount is awarded, we'll adjust upwards or downwards that amount before that budget is adopted. There's a small decrease of $125,000 shown for student activities and a $75,000 decrease in tax credits. And those changes have been budgeted at a lower rate for next year to better align to historical and actual amounts that we've seen over the last couple of years. So all the other revenue projections that you would see for the remaining funds on that list would be expected to be very similar to previous years.
024So now we're going to... move out of the special revenue funds and talk a little bit about debt service. And debt service is its own fund type and accounts for and reports financial resources that may be restricted, committed, or assigned to expenditures for bond-related principal and interest. There's only one fund included in this fund type, and that's also called the debt service fund. And revenues from this fund can only be used to pay principal and interest on bonds. and they cannot be used for any other purpose. These revenue amounts come from secondary property taxes that are applied against household assessed values across the district, and those funds would be collected by Maricopa County whenever property tax payments are made in the fall and the spring. So we're not able to use those funds for anything
025across the district. They just have to be used to pay back principal and interest for any outstanding debt. And so next year, the debt service revenue that's expected to be collected is about $26.2 million. The next group to talk about would be internal service funds, and those internal service funds would be part of the proprietary funds category, which account for activities that provide goods or services to other funds, departments, component units, or other governmental entities that are on a cost reimbursement basis. So that typically includes things like our internal service fund which relates to Kyrene's print shop activities, self-insurance or workers comp expenses, intergovernmental agreements, and those represent activities related to our shared legal agreements as well as the self-insurance Kyrene employee benefits benefits trust. So Out of all those groups, the KEBT or the
026Employee Benefits Trust is by far the largest in this group and makes up about 85% of that total internal service revenue amount, which you'll see represented in this next table. So showing all the projected revenues for next year's budget for these areas compared again to previous years as well as last year's adopted budget. And as I mentioned earlier, these amounts are not part of the governmental funds category, and so they're typically not included in the consolidated financial schedules because the revenue and expenditures have already been accounted for in other governmental funds. However, in the interest of transparency, we wanted to show the projected amounts for next year. And again, an asterisk on this slide would represent significant or areas that would have significant direct expenditures associated with each of these funds. So the revenues that
027you might see here would be needed to offset any expenditures that are required to administer those programs and activities. And like we discussed with special revenue funds, those amounts for revenue don't represent what we have available to spend on a discretionary basis. And in many cases, especially like KEBT, you'll see the revenue amounts are almost equal to the expenditures when we bring all that information back in June. So I mentioned earlier the KUBT fund is the largest fund in this group, and it has an estimated revenue of about $13.6 million in total contributions for the year, and about 80% of that number comes from the district versus about 20% comes from employees. And these revenues reflect the same premium assumptions that were provided to the board earlier in the spring regarding our upcoming fiscal year
02826 contribution rates. So in addition to the medical and pharmacy costs that are covered under KEBT, this also includes things that we would talk or refer to as pass-through amounts, which means it includes areas like dental or vision, insurance coverages for other areas. benefits are referred to as pass-through because the costs are paid entirely by employees, but Kyrene acts as the agent to collect the employee contributions and subsequently pays for those expenses. So in this manner, the district is really operating as a pass-through entity and experiences no financial impact from those activities. You can see the continued downward trend in KBT amounts over the last four years, which really is a reflection of the lower health care costs our plan has experienced recently and due to this redesign that we've made to our plan. And
029you can see next year it's continued to be at that same level. And given the financial challenges that were faced by KEBT fund balances about five years ago, it's extremely encouraging to see a dramatic reversal in our medical expenses, which has led to much greater financial stability for that trust. The internal service funds that are listed represent revenues that are generated from the district's print shop activities and operations, and they're expected to be just slightly lower than last year's budget. And I also want to point out that what I've done is consolidate the revenue in the print shop for both internal and external customers because that allows it to be much simpler and easier to make prior comparisons. The self-insurance workers' comp fund that's listed is used to pay for the district's workers' comp insurance.
030That amount of $605,000 is an estimate for next year's annual workers' compensation insurance bill, and that would be funded by payroll deposits that are made during the upcoming year. Typically, we don't receive our workers' compensation insurance amounts until June, so that's a pretty good estimate of what we paid last year, plus adjustments that we think could be made. But again, we'll make any adjustments. to that number once we receive our exact amount from the trust. And finally, the intergovernmental agreements that are listed reflect shared legal costs with Tempe Union. That entire amount is shown here because Kyrene pays for the expenditures for that group up front, and then we bill half of it back to Tempe Union later in the year for their 50 percent share. That's a lot of numbers. It's a lot of
031funds. But I am happy to answer any questions that you might have. Thank you, Mr. Herman. Board members, any comments or questions for our presenter? Member Davis. Thank you. Thanks for a very clear report again. Appreciate it. Am I correct in understanding that sports are self-funding? Is that what you said? Yeah, I think. When you look back, I'll just back up here. The revenue that we receive for athletics comes from the participation fees that we charge. That's not enough to cover the cost to run those same activities. So when we talk about whether or not it's self-funded, it means basically are we generating income to pay for those expenses or would it come from an M&O budget or state funding, basically. Community ed is self-funded because the money it makes pays for all of its
032expenses and generates a profit, but athletics does not generate a profit. So they are both self-funding in the sense of generating revenue, but... In this case, athletics has always had higher expenses to run those programs than what the fees are that are charged for participation. How are the monies that are given to the school, I forgot the name of the program, tax credits. I know sometimes those are specifically sent to help a sports team, for instance. Correct. Where do they fall in terms of bookkeeping? Correct. That's a great question. So tax credits can show up in two different places. One area that we're talking about with athletics would be auxiliary operations. So any tax credits that would be given for sports-related areas would show up in the auxiliary operations line. Any other tax credits for
033non-athletic programs would show up in the activity fees tax credit line. So there's really two different lines where those need to be recorded. So we're instructed to record any athletic-related tax credits in auxiliary operations, and then anything that's non-athletic-related would be in that activities fees tax credit category. Okay. And structured English immersion. That's under, there's a special fund for that? Yes. So that's a grant we receive. It's a competitive grant. I think it's the state of Arizona, I believe. Yeah, it's a state grant. We apply for that. We're applying soon. The grant usually isn't revealed until June or July. So that would be used to help. for instruction and some of the programs related to English learners, I believe, is the application of that project. It's really intended to help supplement what we get with
034Title III. Title III federal funding around structured English immersion, ELL, is pretty low. And so the state... Oh, I don't remember exactly how many years ago, but it's been quite a few years now, at least four or five, maybe six, that we've been receiving funds from the state grant. But it fluctuates every year, and there is no guarantee because, again, it's competitive. So if more people put in for it, you're competing against more districts. Okay. Thank you. Thank you, Member Davis. Any other questions? Mr. Herman, thank you, as always, for the presentation. Very healthy. Thank you. All right, board members, we will take a recess until 6 p.m., where we will start our regular meeting.