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Chapter 3
FINANCIAL MANAGEMENT

This chapter examines the financial management functions of the Water Valley Independent School District (WVISD) in six subsections:

A. Fiscal Operations
B. Budget
C. Risk Management
D. Cash and Investments
E. Fixed Assets
F. Purchasing

Financial management in school districts involves effective planning, budgeting and managing and the district's ability to maximize resources. A district's ability to perform these tasks affects its relationships with its employees, vendors, funding agencies and the local community. Financial management is most effective when resources are spent based on the district's established priorities, when internal controls are in place and operate as intended, when financial information is provided in a timely way and in useful formats and when staff resources and technology are allocated efficiently to maximize results.

BACKGROUND

Texas law requires school districts to conduct school programs in accordance with the state constitution. The Texas Education Code (TEC) describes specific district requirements and authorizes Texas Education Agency (TEA) to establish standards for all school districts.

The state's contribution to public education is appropriated to school districts through three tiers of funding. Tier I funding is designed so that school districts and the state share in the basic cost of education. Funding allotments under the Tier I formula are based on weighted students in average daily attendance (WADA). WADA is a measure of special needs such as special education, compensatory education, bilingual education and gifted and talented programs. Tier I formulas also provide partial funding for school transportation. The state adjusts Tier I allotments based on the individual district's property tax base. Therefore, a district's property wealth factors significantly into the state funding formula.

Tier II funding rewards the local tax efforts made by a district by guaranteeing that tax effort in the current year will yield a minimum amount of money per WADA beyond the required local share in Tier I.

Texas Senate Bill 4 of 1999 added a new component to the education funding formula. Tier III funding allows local school districts to receive partial state funding for debt service requirements on previously issued bonds.

The Texas Constitution authorizes local governments, including school districts, to levy property taxes. School property taxes represent almost 60 percent of total property taxes levied in the state. Property taxes levied by school districts are important because they can significantly impact the amount of funding the state provides to individual districts. School districts levy two categories of property levies. The maintenance and operations (M&O) portion is used to cover routine operating costs of education, while the interest and sinking (I&S) portion is used for debt service to finance building programs.

WVISD receives revenue from local, state and federal sources. On average, Texas school districts receive about 51.2 percent of their revenues from local property taxes, 44.3 percent from the state, and 3.5 percent from federal sources. The amount of state revenue the state sends to each district is proportional, based upon a district's property values. Districts with greater property wealth per pupil receive less from the state because they can generate more property taxes, while districts with lower property value per pupil receive more from the state.

Texas has a court-approved school finance system to equalize property wealth among school districts. The system requires wealthy districts to pay into a pool that, together with additional state funds, subsidizes poorer districts. Property rich districts purchase WADA from the poorer districts to equalize their own per student property values. WVISD sells WADA to Austin ISD. By selling WADA, WVISD increases its local revenue by the net difference between their per student cost and the per student cost of the wealthy district.

The Tom Green County tax assessor collects property taxes on behalf of the district and deposits them directly into the district's local maintenance account at Crockett National Bank, N.A. The county tax assessor also follows up on delinquent taxes for the district. During the previous tax year the district collected just over 98 percent of taxes due.

The district's adopted total tax rate has increased 7.9 percent from $1.39 in 1997-98 to $1.50 in
2000-01 (Exhibit 3-1).

Exhibit 3-1
Water Valley Adopted Tax Rates
1997-98 through 2000-01
1997-98 1998-99 1999-2000 2000-01 Percent Change
over Period
$1.390 $1.456 $1.470 $1.500 7.9%
Source: TEA, AEIS, 1997-98 through 2001-01 and Tom Green County Appraisal District.

Property value per enrolled student has decreased in every peer district including WVISD for the past two years. During this period property value per student in WVISD decreased 10.7 percent. Exhibit 3-2 compares the property value per student of WVISD to its peer districts from 1998-99 to 1999-2000, the last year that peer data was available.

Exhibit 3-2
Property Value Per Pupil
WVISD and Peer Districts
1998-99 through 1999-2000
District 1998-99 1999-2000 Percent Change
over Period
Eden $237,250 $231,983 (2.2%)
Veribest $237,261 $213,249 (10.1%)
Water Valley $170,287 $152,102 (10.7%)
North Zulch $119,139 $116,238 (2.4%)
Bronte $151,741 $95,477 (37.1%)
State $190,769 $198,090 3.8%
Source: TEA, AEIS, 1998-99 and 1999-2000.

WVISD and its peer districts receive the second highest percentage of their revenues from state sources (Exhibit 3-3). WVISD receives 67.2 percent of its revenue from the state, significantly higher than the state average.

Exhibit 3-3
WVISD, State and Peer District Revenue Sources
as a Percentage of Total Revenues
2000-01
District Local/Other
Revenue		 Percent
Local 		State
Revenue		 Percent
State		 Federal
Revenue		 Percent
Federal
Bronte $940,300 21.9% $3,150,153 73.4% $198,500 4.6%
Eden $1,436,149 48.2% $1,455,580 48.8% $89,500 3.0%
North Zulch $780,608 31.7% $1,629,861 66.1% $55,300 2.2%
Veribest $759,277 34.4% $1,390,800 63.1% $54,010 2.5%
Water Valley $884,991 30.7% $1,934,414 67.2% $59,000 2.0%
State $13,858,297,539 53.1% $11,377,498,894 43.6% $884,281,086 3.4%
Source: TEA, PEIMS 2000-01.

The General Revenue Fund covers most of the district's funding needs, other than special funds such as special education and Food Services. Since 1997-98, WVISD's general revenue has decreased from all sources by 1.7 percent (Exhibit 3-4).

Exhibit 3-4
WVISD General Fund Revenue Sources
1997-98 through 2000-01
Revenue
Source		 1997-98
(Actual)		 1998-99
(Actual)		 1999-2000
(Actual)		 2000-01
(Budget)		 Percent Change
over Period
Local and Intermediate $1,228,856 $1,118,488 $1,096,689 $854,991 (30.4%)
State $1,608,802 $1,661,454 $1,752,321 $1,930,014 20.0%
Federal $0 $0 $5,777 $4,000 (29.4%)
Total $2,837,658 $2,779,942 $2,854,787 $2,789,005 (1.7%)
Source: TEA, PEIMS, 1997-98 through 2000-01.
*Percent change between 1999-2000 and 2000-01 only.

The Public Education Information Management System (PEIMS) data reports the state revenues received after all adjustments, some of which have skewed the state revenues. For example, in fiscal 2000, the district received approximately $117,000 for pay raises. This masks the effect the drop in enrollment has had on the state revenues.