Financial Planning:

1
Financial Planning Current Trends and
Strategies Wednesday, March 18, 2009 1000 to
200 Hogan Center, Holy Cross
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AGENDA

• Welcome Introductions (5 minutes)
• Charter School Funding (60 minutes)
• Case Studies (70 minutes)
• Gather Lunch (15 minutes)
• Lunch Presentation - ARRA (20 minutes)
• Table Discussions (60 minutes)
• Wrap Up (10 minutes)

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Presenters

• Charter School Funding
• Cliff Chuang, Coordinator Research and Finance,
  DESE
• Hadley Cabral, Office of School Finance, DESE
• Case Studies
• Mike ODonnell, Business Manager, Prospect Hill
  Academy
• Marti Mellor, Business Manager, Berkshire Arts
  Technology
• Jug Chokshi, CFO, Neighborhood House
• American Recovery Reinvestment Act
• Robert Seega, VP Investment Banking, Mass
  Development
• Table Discussions
• Rich Dragon, Controller, MATCH
• Brian Anderson, Program Manager, MCCPSE

4
Case Studies Setting the Stage

• Goals
• Share and Learn
• Validate Practice
• Introduce Topics for Table Discussions
• Perspective on 3 issues
• Per Pupil Revenue
• Salaries
• Frequency budget revisited

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Case Studies Setting the Stage
Who is in the Room?
QuickBooks Used by 35 of 40 schools
6
Case Studies
Budget Process and Tools (20 minutes) - Step
by step process - Timeline - Tools Michael
ODonnell Business Manager Prospect Hill Academy
Charter School
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Process and Tools
Is creating good budgets an Art or a Science?
a bit of each, hence
Process
Tools
and
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Timing at PHA
Feb Mar Apr May Jun
Jul Aug
New hiring
Budget published in Annual Report
Requests due to Business Manager
Draft due to Head of School
Board Approval
Proposal To Board Finance Committee
Offer letters out
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The Basics
Budgeting 101
Tuition revenue Grants Fees and other
revenue Total Revenue

• In the simplest terms, a budget is projected
  revenues minus projected expenses
• The art of projecting well is understanding
  drivers and variables
• The science is using good tools to create a
  sound document

Instructional expenses Administrative
costs Occupancy costs Benefits expenses
Total expenses
Surplus/deficit
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Process
Three steps before you crunch numbers
Identify Priorities
Create Template
Identify Drivers

• Schools mission
• Strategic priorities
• Values vision
• Major initiatives
• Stakeholders (more on this from Jug)

• Spreadsheet
• Supporting data
• Historical numbers
• Prior budgets
• Scenarios (more on this from Marti)

• Enrollment
• Per-pupil funding
• Staffing structure
• New positions
• Compensation
• Significant costs

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More Basics
Budgeting 201

• Choose a budget method (zero-based, relative to
  previous years, etc.)
• Use formulas in your spreadsheet
• Rely on historical trends
• Plug in fixed costs
• For variable costs, use logical drivers (per
  student, per employee, per square foot,
  percentage of revenue)
• Use common sizing as a reasonableness check

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Process and Tools
Budget Spreadsheet
Historical Data
Isolate drivers
Supporting Worksheets
Last Years Budget

• Three years of actuals
• Export from QuickBooks

• students
• Per-pupil rate
• Inflators
• Key variables
• One cell each in your spreadsheet

• I have six worksheets that roll up to my budget
  spreadsheet (salaries, rent, etc.)

• Review last years budget and Budget vs. Actual
• If youre new, benchmark

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Key Themes
Per-pupil revenue rates

• What does the DESE website say?
• What do you hear from sending districts?
• What has your historical rate been?
• Understand the formula
• Budget conservatively a pleasant surprise is
  better than an adverse one
• I produced two rate cut scenarios - a better
  and a worse percentage cut each rate is a
  separate cell in my spreadsheet so I can vary it
  instantly

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Key Themes
Projecting salaries

• What are the drivers and what are you committed
  to?
• Are you growing and how much can you afford?
• What is your belt-tightening philosophy?
• PHA has a multi-year salary schedule that we plan
  to honor
• Paid extras are on the table to be potentially
  cut
• My spreadsheet links to the salary scale and
  every new hire rolls up to the budget impact is
  automatically calculated

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Tools
HO
Collapsible format
Historical data
Previous budget
Recent data
Formula driven
Variables easy to change
Common size ratios
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Last Step
Review it one more time

• Does it balance?
• Does it align with school mission, strategy, and
  values?
• Did you comply with any board-imposed
  requirements such as surplus, amount in
  contingency, etc.?
• Are proposed spending patterns and ratios
  consistent?
• Is the cost, or savings, of any significant
  initiative or change reasonably included?

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Key Themes
Revisiting the budget

• Budgets are a projection subject to expected
  variances
• Agree on a tolerance by line item or category
• Incorporate scenarios if applicable
• Report periodically so there are no surprises
  mid-year or at year-end
• Practice your financial fire-drill
• PHA reports monthly and is prepared to submit a
  revised budget in December if warranted

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Case Studies
Scenario Planning (20 minutes) - Multi-year
forecasts - Cash Flow Analysis Marti
Mellor Business Manager Berkshire Arts
Technology Charter School
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Multi-year Budgets
Setting Parameters

• Bases Last Year Actual Current Year Budget
• Projections Next 5 years
• Assign Standard Changes to
• Variable Expenses
• Salaries
• Projecting Enrollment
• Tuition

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Setting Parameters
HO
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Multi-year Budgets
Comprehensive Process

• Carry forward your standard percent changes
• Creating an Audit Trail
• Use Formulas throughout
• Cross check Formulas
• Isolate Non-cash Expenses

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Using Formulas
HO
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Example Benefits w/ Edit Check
HO
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Cash Flow Analysis
From Net Income to Net Cash

• Isolate Non-cash Expenses
• Reflect Capital Outlays
• Reflect Principal Payments on Loans
• Estimate Cash Position over 5 years

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Cash Flow Analysis
HO
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Case Studies
Staff Board Involvement (20 minutes) -
Budget Process Standard Reports - Scenario
Sensitivity Analysis - Five-Year Forecasts -
Staff Board Involvement Jug Chokshi CFO Neighbo
rhood House Charter School
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Background

• 400 students (K1-8)
• 75,000 sq. ft. facility
• Approx. 75 staff
• School Foundation 501c3 (BOTH!)
• Budget Philosophy

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Standard Report
HO
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Standard Report

• Standard Report
• Projections !!
• Summary (and consolidated)
• Cash
• Other Critical Items
• Scenario Analysis
• Five Year Outlook

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Scenario Analysis
HO
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Five Year Outlook
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Critical Significant Numbers

• Per Pupil Revenue Be Conservative!
• Private Funding Whats Achievable
• Salaries Comparisons and Multi-year commitments
• Other Debt, Capital, etc.

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Board Staff Involvement
HO
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Board Staff Involvement

• Who is Involved in the Process?
• Board (School Foundation)
• School Leaders
• Staff
• Others (Lenders et al)

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Board Staff Involvement

• Board (School Foundation)
• Do they understand?
• the numbers?
• the impact of decisions on the numbers
  (per-pupil, salaries, capital, investments, etc)?
• the debt structure?

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Board Staff Involvement

• School Leaders (and department managers)
• Do they understand?
• the financial situation, generally?
• their own budgets and the impact of their
  decisions?

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Board Staff Involvement

• Staff
• Do they understand?
• the financial situation, generally?
• the compensation philosophy of your school?
• the decisions that impact them?

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Board Staff Involvement

• All Staff Meetings (TRANSPARENCY!!)
• October (things are bad)
• November (were making cuts 200k)
• Impact on the school, on them and the kids?
• January (what we know and what we dont)
• Per-pupil, best and worst case scenarios, choices
  that we may have to make, INPUT!!
• April May Quality of Life Committee
• Salaries and INPUT!!

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Board Staff Involvement

• QUESTIONS?

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New Charter School Financing Opportunities under
the American Recovery and Reinvestment Tax Act of
2009

• March 18, 2009

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AGENDA

• MassDevelopment
• American Recovery and Reinvestment Tax Act of
  2009 (ARRA)
• New and Expanded Programs Under the ARRA
• Qualified Zone Academy Bonds (QZABs)
• New Markets Tax Credits
• Qualified School Construction Bonds
• Current market for Traditional Financing Methods
• Tax-Exempt Bonds
• Loan guarantees

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MassDevelopment

• Self-supported quasi-public finance and
  development agency
• Formed in 1995 by merger of Government Land Bank
  and Massachusetts Industrial Finance Agency
• Serving businesses, nonprofits, and
  municipalities
• Primary tools
• Tax-exempt bonds
• Loans and guarantees
• Planning and development services
• Served as a lender and bond issuer to charter
  schools since 1995.

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American Recovery and Reinvestment Tax Act of
2009 (ARRA)

• Effective February 17, 2009
• Provisions that
• Modify rules for certain classes of tax exempt
  bonds
• Add new classes of tax exempt bonds
• Add new classes of tax credit bonds
• Enhance the marketability of taxable bonds

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Qualified Zone Academy Bonds (QZAB)

• Massachusetts Department of Elementary and
  Secondary Education has 13,000,000 million
  available expiring 12/11
• 1.5M expiring 12/31/09
• 6.0M expiring 12/31/10
• New ARRA Act includes additional annual
  allocations of 1.4 billion nationally for 2009
  and 2010 Mass numbers not known yet
• Could be 18M per year, expiring in 2011 and
  2012, respectively
• A QZAB is a 15 or 16 year zero interest bond. A
  tax credit is paid to the investor.
• Main Eligibility Requirements
• Must be located in an Empowerment Zone or have at
  least 35 percent of the schools students who are
  eligible for free or reduced-price lunch.
• Must have a private contribution equal to 10 of
  the QZAB.
• Can only be used for renovation projects (no new
  construction)

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New Market Tax Credit Program

• Why New Markets? They are complicated
  transactions but if receive an allocation, its
  like getting an equity contribution to your
  project of ranging from 20 - 30 of allocation
  amount.
• In 2008, the following organizations received
  awards that can be used in Massachusetts. Note
  that most are already utilized but there are some
  small pockets of funds left. Go to
  www.cdifund.gov for more information on the
  awards.
• Al Wainwright LLC (25 million)
• Banc of America CDE, LLC (85 million)
• Coastal Enterprises, Inc. (112 million)
• Local Initiatives Support Corporation (80
  million)
• Low Income Investment Fund (50 million)
• MassDevelopment New Markets LLC (30 million)
• MHIC NE New Markets CDE I LLC (105 million)
• Nonprofit Finance Fund (50 million)
• Urban Action Community Development (50 million)
• Next round applications are due 4/8/09 with over
  3.5 billion available nationally. If you have a
  project that will be shovel ready in the next
  year, you may want to try to get on an
  applicants list.
• ARRA increases 2008 and 2009 national allocations
  by 1.5 billion.
• Qualifications Must be in a federally
  designated zone (highly distressed) and serve a
  low income population.

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Qualified School Construction Bonds

• New ARRA Act allocates of 11 billion nationally
  for 2009 and 2010 Mass numbers not known yet.
• State allocations based on relative amounts of
  Section 1124 federal aid received for schools.
  60 of funds will go to state and 40 directly to
  the largest school districts.
• Unsure yet as to how Commonwealth will allocate
  the funds but charter schools are eligible under
  the definitions of the bonds.
• The bond is similar to a QZAB. It is a 15 or 16
  year zero interest bond with a tax credit paid
  to the investor.
• Main Eligibility Requirements
• Public school
• Can be used for acquisition of land and
  construction and/or repair or renovation to
  public school facilities
• No other guidance given

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Tax Exempt Bond Financing

• Fixed Rate Public Bond Offering
• Long term fixed rate bond issued to Wall Street.
• Market is non-existent or at very high rates
• Variable Rate Public Market Bond Offering
• 30 year floating rate bond issued to Wall Street
  secured by a Letter of Credit (LOC). Option to
  rate lock through a swap.
• Market still viable but LOCs harder to get and
  have higher fees.
• Tax-exempt loan by a bank (also called a direct
  purchase bond)
• 60 banks buy MassDevelopment bonds as direct
  purchases and most are still buying at good rates
  (4.5 to 5.5)
• Fixed and floating rates, 20-30 year
  amortizations

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Massachusetts Charter School Guarantee Fund

• Fund currently sized at approximately 17 million
  with about 5 million available.
• Facilities Owned by Charter Schools
• Amount Lower of 50 of the debt or 3,000,000
• Amortization Guaranty reduces dollar for dollar
  with principal payments
• Facilities Leased by a Charter School
• Amount Lesser of 90 of project cost or
  1,000,000
• Term No longer than the renewal date of the
  charter
• Amortization Guaranty reduces dollar for dollar
  with principal payments

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Robert Seega, Vice President 89 Shrewsbury
Street Worcester, MA 01604 508-363-2799 rseega_at_mas
sdevelopment.com
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Table Discussions

• Process
• Facilitation
• Topics
• Reporting Out

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Wrap Up

• Evaluation
• Future Meetings and Topics