These revenues are generated by local property taxes, which are collected in the fall and distributed to school districts by the County Collector. Legal Debt Margin $80,666,787 47% General Obligation Bonds Outstanding less Cash Available in Debt Service Fund $89,769,270 53% Legal Debt Margin 34

The Board of Education must set aside money to pay District bills for the balance of the fiscal year (January-June) and for the first six months of the next fiscal year (July-December). As a budget for the following year is being created in the winter months, the Board must work with the actual amount of tax revenue received in January and estimate the amount that will be collected some 11-12 months later.

The Board must, therefore, project its expenses far into the future. For example, when an official tax levy is established in September of one year, the taxes are not actually received by the District for six months, but must support the District until taxes are distributed again some 18 months later! Put graphically, here are the ABC’s of school taxes:

A B C D July 2019 December 2019 January 2020 January 2020-December 2020 Begin Fiscal Year September 2019 tax levy set Taxes collected by County Collector District receives local taxes (79% of total income) District operates on taxes collected and fund balances 18 Months -----------------------------------------------------------------------------------------------------------→

If tax receipts in January are lower than estimated, it will be more difficult for the District to pay all of its operating expenses for the next 12 months. If new families move into Clayton over the summer months and additional children appear at school in September, additional faculty may have to be hired. If unexpected building repairs are needed, scheduled maintenance may have to be delayed.

In setting a tax levy that will provide the money to support the budget, the District takes several steps.

• First, financial planning is of prime importance. Annual costs for teachers’ salaries, building operations, and instructional materials are carefully analyzed. The District’s Chief Financial Officer carefully monitors projected increases in assessed valuation, the rate of tax collection, and political actions that may have an impact upon the District’s financial future.

• Second, in building the budget, the Board sets aside contingency monies in each of the three operational funds: Special Revenue, General, and Capital Projects. (As stated earlier, the Debt Service Fund is predictable.) For example, the District could experience unpredicted increases in enrollment that would make it necessary to hire additional teaching staff and purchase additional instructional supplies. Contingency money could be used to meet these unanticipated expenditures.

• Third, fund balances—money from each fund not spent during a budget year—is placed in a reserve fund. The Board may draw upon this fund—just as a citizen will draw upon a savings account—when the need arises. Because this money has been collected through a voter-approved tax levy or represents other money, such as interest income derived from invested tax revenue, no additional vote need be taken in order to use it.

For Clayton, fund balances serve another important purpose. Since the District receives most of its tax revenue in late December and early January, but the fiscal year ends June 30, money must be set aside in the reserve fund to meet District expenses—such as payroll—from July through December. Experience has shown that a minimum fund balance of 18 percent of the expenditure budget must be maintained to prevent the necessity of borrowing money to meet District expenses during the fall months. 35