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Home My WebLink AboutMeeting handoutMEMORANDUM Date: September 8, 2011 TO: Honorable President and Board of Trustees FROM: Tom Brymer, Superintendent SUBJECT: Follow -up Report and Analysis on BOT Request for Phased Approach to Facility Improvements SECTION ONE: INTRODUCTION AND REPORT PURPOSE The Town Council /Board of Trustees has directed that Staff review and explore again a phased approach to Westlake Academy facility improvements. The purpose of this seven (7) section report is to address that direction to Staff and report on our findings. SECTION TWO: CHRONOLOGY OF RECENT MAJOR DECISIONS AND EVENTS LEADING TO PRESENT SITUATION • June 2010 BOT Budget Retreat- set class size at target of twenty (20) students per section for the 2010 -11 school year; total K -12 enrollment that school year was 530. • 2010 -11 School Year- implemented Phase 1 of block schedule for secondary grades. • 2011 -12 School Year- implemented Phase 2 of block schedule for secondary grades adding approximately 100 students to allow for additional secondary course offerings and teachers; total K -12 enrollment is now approximately 620 students. • March 10, 2011 Board Workshop- Peter Hayes of Project Management Services presented a plan to the Board to increase school enrollment to approximately 1,200 and add $14.4 million in improvements. Hayes also presented options for 1 doing this over time, although they were not his preferred option. Board agreed to discuss this further at a future planning retreat. • March 10, 2011 Board Workshop- Staff presented Board with financial forecasts based on various levels of State reductions in public education funding. • April 4, 2011 Board Workshop- Staff reviewed latest information on proposed State funding reductions for next biennium. Board direction was to keep class size at twenty (20) students per section for FY 2011 -12. • June 2011- State of Texas reduced public education funding for Westlake Academy approximately 5% in FY11 -12 and 8% in FY 12 -13. • June 9, 2011 Board Budget Retreat- draft budget for FY 11 -12 reviewed based on this reduced State funding, twenty (20) students per section, as well as further implementation of additional secondary course offerings via expanded block scheduling. • August 12, 2011 Town Council Budget Retreat- reviewed Five Year CIP again; Town Council asked for another Council /BOT discussion of a phased approach on WA facilities needs. SECTION THREE: PRESENT SITUATION Westlake Academy's operating budget financial forecast is set out -on Page 7 of its Adopted FY 11 -12 Budget which states: "The current financial forecast predicts full use of the Academy's fund balance by FY 14115. Unless revenues increase or operating costs are reduced, Westlake Academy's estimated FY 11 -12 General Fund Balance of $ 653,318 will drop below the 45 operating day threshold established by policy in FY 12 -13." Revenues, Expenditures & Fund Balance — General Fund Summary M 56 C O SS 54 53 $2 51 WA Programme Growth (Revenue, Expenditure, Fund Balance) iU X r 3 g a C2 2 O D s Z 2 -4 50 c fY03104 FY 04105 FY 05/06 FY06(07 FY 07/08 FY08109 FY 09;10 FY 10 111 FY 11/12 fY 11/13 fY 13114 FY 1.1115 m.c Aevrrwes 1.09M 1.83M 2.41M 2.88M 3.17M 3.66M 4.28%7 4.59M 5.24M 5.19M 5.19M 519M �hpendawvs LOW 1.61M 211M 2.6214 3.23M 3.71M 3.92M 4.61M 5.33M 5,44M 5.54M 5.65M —fund BaKuxe 12K 232K 428Y, 692K 634K 505K 754K 653K 653K 383K 78K - 454682 Historically, revenues and expenditures have increased at relatively the some rate which has dictated the need for a higher fund balance in order to sustain the 45 -day minimum requirement established by Board policy. This financial trend is a result of several factors impacting both revenues and expenses including: • Reduction of State funding in FY 11 -12 and FY 12 -13 • Over FY 2010 -11 and FY 2011 -12, placing the Academy on full cost of service for its operational costs (note: debt service is still charged to the Town debt service fund, not the Academy's budget). • Increasing revenues by raising class size to twenty (20) per section and adding 100 students to increase class offerings in secondary. • Increasing expenses by adding teachers and portable buildings to serve these new students • Capping (at least in theory) class size at twenty (20) students per section Although the forecast for the Academy's operating budget is not positive, it should be noted that without the increase of class size to twenty (20) and the addition of students for new secondary class offerings, the forecast would look even worse. 9 It is also important to look at a comprehensive financial forecast for the entire Town government, including Westlake Academy. TOWN OF WESTLAKE FIVE YEAR FORECAST All Municipal Funds this section updated 09/06/11 REVISION 4 lion forula vision formula vislon formula DESCRIPTION vI ACTUAL ESTIMATED I PROPOSED PROJECTION FY 09 -10 FY 10 -11 FY 11 -12 FY 12 -13 1 FY 13 -14 1 FY 14.15 1 FY 15 -16 GENERAL FUND tt Pro pe rty Tax 3% - 1,327,901 1,156,842 1,191,547 1,227,294 1,264,112 1,302,036 Sales Tax -GEN (on- going) 5% 1,187,474 1,577,000 1,350,000 1,390,500 1,432,215 1,475,181 1,519,437 Sales Tax - PTR(on- going) 5% - - 675,000 695,250 716,108 737,591 759,718 Sales Tax (one-time) 409,721 145,000 37,500 37,500 37,500 37,500 37,500 Beverage Tax 2% 17,902 17,750 17,750 18,105 18,467 18,836 19,213 Franchise Fees 2% 603,233 583,650 582,550 594,201 606,085 618,207 630,571 Permits and Fees 2% 1,738,536 463,150 472,090 481,532 491,162 500,986 511,005 Fines & Forfeitures 2% 647,171 598,990 536,611 547,343 558,290 569,456 580,845 Interest 2% 24,166 9,345 15,035 15,336 15,642 15,955 16,274 Misc Income 2% 114,915 80,034 62,700 63,954 65,233 65,538 67,869 Contributions 0% 189,097 175,000 302,900 - - - - Transfer In - OF 500 Impact - 133,000 30,000 30,900 31,827 32,782 33,765 Transfer In - PTR 260 - 899,270 - - - - - Transferin -A &5411 - 4,473 - - - - - Transfer In - VA 220 Dept 22 - - 8,350 8,351 8,602 8,860 9,125 Transfer In - VA 220 Payroll - 174,971 254,370 271,443 284,399 298,225 312,996 Transfer In - OF 500 Payroll 227,292 251,694 266,768 279,501 293,089 307,605 Total Revenues & Transfers In 4,932,215 6,416,826 5,753,392 5,612,730 5,772,325 5,937,318 6,107,959 Payroll Salaries 3% (1,454,868) (1,880,738) (1,993,764) (2,053,577) (2,115,184) (2,178,640) (2,243,999) Payroll M /D /L Insurance 10% (151,887) (256,829) (293,871) (323,258) (355,584) (391,142) (430,257) Payroll Taxes /Benefits 10% (239,911) (353,327) (339,407) (373,348) (410,682) (451,751) (496,926) Expenditures 3% (1,939,471) (1,996,415) (2,182,621) (2,483,100) (2,557,593) (2,634,321) (2,713,350) Transfer Out- ED 210 (35,758) (35,758) (35,758) (35,758) (35,758) (35,758) (35,758) Transfer Out -CP410 (49,301) (2,085,000) - - - - - TransferOut - FM 252 - (1,875) - - - - - TransferOut - VE 257 (5,000) (66,407) - - - - - TransferOut - GMR 600 - (500,000) (530,000) (200,000) (200,000) (200,000) (200,000) Transfer Out - DSF (601,178) (591,887) (574,221) (553,143) (530,438) Total Ex enditures & Transfers Out 3876199 7 176 349 5 976 99 6,060 928 6,249,022 6444 755 6,650 727 Beginning Fund Balance • 2,675,312 3,731,332 2,971,808 2,748,600 2,300,402 1,823,705 1,316,268 Ending Fund Balance 3,731,332 2,971,808 2,748,600 2,300,402 1,823,705 1,316,268 773,500 Committed Funds 214,751 414,977 256,939 262,078 267,319 272,666 278,119 Unassigned Ending Balance (projected) 3,516,581 2,556,831 2,491,661 2,038,325 1,556,386 1,043,602 495,381 Operating Days 339 228 185 141 104 68 31 100 vision sum.rnary link 1.056;020 (679,274) (223107) variance (80,250) Fund Balance at90operating Days 896,116 1,043,132 1,113,483 1,210,691 1,253,456 1,298,148 1,344,890 Additional Funds needed for90days Opc Fund Balance at30 %of Expenditures 1,090,275 1,269,144 1,354,738 1,473,007 1,525,038 1,579,413 1,636,282 Additional Funds Needed for30%of Expe a1 One can see the positive impact that the Academy's transfer has on the Town's total fund balance in the FY 11 -12 proposed budget by reimbursing its indirect costs and absorbing the direct costs. However, in FY 12 -13 the Academy no longer has the ability to pay these costs to the municipal General Fund. Ceasing these payments will mean a reduction in the General Fund's fund balance that by the close of FY 14 -15 dips below the desired 90 operating days. This can be mitigated somewhat by the General Fund not transferring funds to the General Maintenance & Replacement Fund, however, other needs are not met if this transfer does not occur. And again, this would also mean the Academy is not paying its full operating costs, something the Board /Council would have to determine whether or not it is comfortable with that decision. While eliminating the indirect costs contribution by the Academy to the Town would help the Academy's financial position in FY 13 -14, there would still be no funding available for campus facilities. This points toward a key opportunity for addressing the school's financial future, including its facility needs. We begin with an analysis of the dynamics between the school's current costs, enrollment, and facilities and how they work together to impact this financial future. It begins with asking the right questions. SECTION FOUR: INQUIRY BASED PRESENT SITUATION ANALYSIS Question: Can decisions related to the best course of action for Westlake Academy facilities be separated from the school's vision, mission, and values? Answer: No. As Stephen Covey accurately observes, for a person or organization to be effective, they must "begin with the end in mind ". For Westlake Academy, the school's vision is that end: "Westlake Academy inspires students to achieve their highest individual potential in a nurturing environment that fosters the traits found in the IB learner profile." The school's mission helps guide us toward the ends identified in our vision: "Westlake Academy is an IB World School whose mission is to provide students with an internationally minded education of the highest quality so they are well - balanced and respectful life -long learners." Additionally, the vision and mission statements for Westlake Academy are directed toward achieving five (5) outcomes. They are: ➢ High Student Achievement ➢ Strong Parent & Community Connections ➢ Financial Stewardship & Sustainability ➢ Student Engagement - Extracurricular Activities ➢ Effective Educators & Staff Certainly a strong case can be made that addressing the Academy's financial success, including its facility needs, affect at least three, if not all, of these desired outcomes for our strategic plan. ➢ Question: How does the Academy's vision determine decisions related to enrollment and facilities? Answer: The vision is physically represented by the school's desired size and educational programs which in turn drive facility needs (note: there are many non - physical representations of achieving the vision including: the school's culture, how well prepared our students are for graduation, our students reflecting the attributes of the IB learner profile, etc). ➢ Question: Once the school's vision expressed as desired size and educational programs are identified, where does financial analysis come into play regarding the school's financial feasibility and sustainability? ➢ Answer: Financial analysis of the vision's feasibility, expressed through the school's desired sizes and educational programs offerings, determines whether the vision is attainable utilizing current financial resources. If additional resources are necessary to attain the vision, it identifies them and specifies which are affordable and which ones are not. Z ➢ Question: Can financial feasibility and sustainability impact the determination of what the vision will be? ➢ Answer: Yes, to the extent that student enrollment drives both a.) operating and capital costs and b.) impacts economies of scale (i.e. more students generates additional cost, but additional revenue can help improve cost efficiencies). This in turn affects total cost which helps the Board determine if the vision is financially attainable or if modifications to the vision are necessary. ➢ Question: Does this mean that decisions related to class size and an overall school enrollment number has multiple, intertwined impacts and effects? ➢ Answer: Yes, it is a fluid relationship that is difficult, and likely not practical to try to dissect. Class size and overall school enrollment affects revenue available to cover operating costs, but it also affects revenue available for new facilities and new educational programs. Additionally, enrollment and class size can affect demand for new facilities. Too few students create cost inefficiencies (i.e. not enough dollars to pay for fixed costs that have to be incurred for a K -12 school of any size). Conversely, too many students can create too high a demand on existing facilities requiring a large increment of new facilities and classes without adequate dollars to pay for them. ➢ Question: This interrelationship of class size, student enrollment, facilities needs, and educational quality impacting the vision, while needing to be financially sustainable, is it a delicate balance? ➢ Answer: Yes, it is a delicate balance, one that requires finding the "sweet spot" of attaining the vision, while being financially sustainable over the long term. Other intangible, but vital, factors come into play as well such as the type of school culture desired. ➢ Question: Is what Westlake Academy doing today, in terms of its operations and levels of educational services financially sustainable? Answer: No. As shown above in Section 3 of this report, even with no new facilities added, our present level of service will utilize Westlake Academy's fund balance to the point where we are below the Board's financial policy of 45 days 7 operating income for fund balance. This is also a TEA guideline which, if we do not adhere to it, can lead them to coming into the situation from a regulatory standpoint, a non - desired outcome. ➢ Question: Although what we are doing today is not financially sustainable, are there still facility needs that must be addressed? ➢ Answer: Yes. The recent accreditation visit by the IB MYP evaluation team called to our attention the need today for a secondary grades' media center. For FY 11 -12, three (3) portable buildings have been leased at a cost of $23,940 to provide additional secondary grades' class room space. At this time there is no funding in place these portable buildings with permanent buildings. Gymnasium space is also at a premium today since it serves a K -12 student population. ➢ Question: As far as the school's present level of service not being sustainable, and assuming we do not address current or future facility needs, what are our choices if we stay the current course? ➢ Answer: Because we are at capacity (based on the Board's decision to cap class size at 20), student enrollment growth is not possible to generate new revenue. Thus, increased private donations (Blacksmith,) or reducing costs (likely this would mean decreasing levels of service, i.e. reducing staffing through course selection reduction) or increasing class size to 22 would be the only alternatives in that situation. It could also be addressed through a combination of these tactics. ➢ Question: What can be done to achieve financial sustainability for Westlake Academy and reach our vision? ➢ Answer: Identify options and select a course of action that balances and aligns the key factors that impact vision attainment (class size, student enrollment, education program quality, and facilities needs) in a manner that the Board determines is the best way forward to reach our vision. SECTION FIVE: BRINGING OPTIONS INTO ALIGNMENT WITH THE VISION On that note, the purpose then becomes is to identify options that are in the "sweet spot" of attaining the vision, while being financially sustainable over the long term. Other intangible, but vital, factors come into play as well in terms of school size and the type of school culture desired. The following options are not listed in any priority order. Option 1. • Description: Maintain current school size and facilities (i.e. no replacement plans for portable buildings now in use) • Facilities added: None • Required enrollment: 620 (note: current capacity if class size remains at target of 20) • Years enrollment is added: Not applicable • Capital cost: None • Cash flows? No (see financial forecast above) • Attains Vision? Unlikely. To attain our vision in a financially sustainable manner under this option will require a class size increase, or a cost of services reduction (i.e. reduce staffing through reduction in course offerings), or an infusion of revenue from private sources, or increased State funding, or a combination of these things. Option II. (Haves Report Options 1 -A, 1 -13, 2 -A, & 2 -13) • Description: Full facilities built all at one time per Hayes Report (note: these Hayes Report options vary depending if sixth grade is in the middle school building or the primary school building due to differences in enrollment between PYP and MYP. If in MYP, enrollment is 25 per class). • Facilities added: High school bldg, middle school bldg, media center, cafetorium /multi - purpose bldg, existing kitchen renov.(note: Hayes Option 1 -13 also includes a PYP bldg addn due to five sections in each PYP grade) • Capital cost: $13 -13.2 million per Hayes Report • Required enrollment: 1,242 to 1,396 (depending on selected option) I • Sections added: 19 — 25 (22 per PYP Class, 25 per Secondary grades class, except G6 is in Primary under 1 -B and in Secondary in 1 -A) + Years enrollment is added: the year following construction completion • Cash flows? All options here cash flow positively (assuming a 3% State funding increase in FY15 -16) except Hayes 1 -13 (which also includes a PYP bldg addn) • Attains Vision? Yes, including Strategic Plan desired outcomes, as long as new student on- boarding/ acculturation and new teacher recruitment processes are properly managed. Option III. (Hayes Report Options 3 and 4) • Description: Full facilities built in 2 phases per Hayes Report • Facilities added: • Phase 1: High school bldg, media center, cafetorium /multi- purpose bldg, existing kitchen renovation. • Phase 2: Middle school bldg, PYP addition Note: the difference in Hayes Report Options 3 and 4 is that Option 4 includes a PYP addition, while Option 3 does not. • Capital Cost: $13 -14.4 million per Hayes Report • Required enrollment: 1,262 to 1,394 (depending on selected option) • Sections added: 19 — 25 (note: 22 per PYP Class, 25 per Secondary class G6 -10; under both variations of this option, sixth grade is moved into MYP) • Years enrollment is added: both options use the time frame of building during one school year, populating the buildings the next school year • Cash flows? All options here cash flow positively (assuming a 3% State funding increase in FY15 -16). • Attains Vision? Yes, including Strategic Plan desired outcomes, as long as new student on- boarding /acculturation and new teacher recruitment processes are properly managed. 10 Option IV. (Staff Identified Facility Phasing Plan) • Description: Build only certain facilities identified in the Hayes Report in 4 phases • Facilities added: Phase 1: Build cafetorium /multi - purpose bldg, install 12 portable buildings for Secondary Phase 2: Build Secondary bldg containing media center room Phase 3: Build Secondary High School Building, Phase 4: Performing arts center (timing and cost to be determined based on fund raising success) • Capital Cost: $11.7 million ($1.6 for cafetorium, $4.7 million for MYP bldg, $5.4 million for HS bldg) • Set -up Cost: Estimated @ $300,000- 400,000 depending on location on campus (note: cost based on set -up costs for current portables of approximately $35,000 per building) • Operating Cost $115,200 (for MYP portables) • Required enrollment: 1,228-1,260 • Sections added: 17 initially, 19 when fully matured • Years enrollment is added: • Build cafetorium /multi - purpose bldg in Year 1, utilize in Year 2 • Add enrollment of 410 in Year 2 to populate 12 additional portables acquired before Year 1 • Build Secondary bldg's when the Academy's fund balance accumulates enough cash from the increased student enrollment in MYP grades, and later, construct the high school building. • Cash flows? Yes, this option cash flows and postpones capital outlay for several years, building fund balance and providing a funding source for future facility needs. • Attains Vision? Yes, including Strategic Plan desired outcomes, as long as new student on- boarding /acculturation and new teacher recruitment processes are properly managed. Additional detail on execution of Option IV from an educator's perspective is as follows: 11 Staff Identified Facilities Option IV Plan Based on a 4 or 5 Section Model Proposed Multi Benefit to Students Purpose Hall- Warming • A 4th (or 51h) section model with existing facilities will not allow PE Kitchen - *Pod B to be taught in one Gym • A 4 or 5 section model does not have enough dining hall space • Increased space for after - school activities and events Position portables for Benefit to Students phased enrolment of a • Portables during this phased entry accommodate Music and Art 4th section of Middle classrooms. Art and all its mediums continue from 7 -9 and Music school (100 students) (jazz, rock, choir and band) continues from 7 -10 with the and DP students development of a DP program. • Establish a double classroom portable for a Media Center that would provide a needed space for research by students and technology equipment. Build a Middle School This would be a separate building phase and Middle school students would at the same time as occupy in the following year entry of 4th section of Middle School Establish a 4t Grade 6 Benefit for Students to enter Middle • Primary students would be in one building and moved from School. This would portables mean *Pod F would not have to be built for Primary. All specialist classes (Spanish, Music, Art) would occupy current classroom space in the two main buildings Build on to Arts and Benefit for Students Science building a • Students would have a state of the art technology and research secondary Media area Center • Technology classes are expanded and no longer a semester course Seek funding to build Benefit for Students a Performing Arts • The existing Performance Hall is inadequate to serve current Center. This can be numbers of students built at any time. • A performing Arts Center creates within a school develops the creative talents of students • Establish main auditorium to house up to 800 (sufficient for each IB 12 Option V. • Description: Use a capital campaign (donations) to construct cafetorium /multi- purpose bldg, use portable building for a Media Center • Facilities added: cafetorium /multi - purpose bldg, • Capital cost: $1,627,656 per Hayes Report • Operating cost: Approximately $22,000 per year • Required enrollment: Current enrollment (no students added) • Sections added: None • Years enrollment is added: Not applicable • Cash flows? Capital costs for the cafetorium /multi - purpose would be covered if a capital campaign raises all construction costs (i.e. no public funds, municipal or State, involved). Leasing another portable for a Media Center for secondary grades raises operating costs slightly. • Attains Vision? Unlikely since remaining facility needs are not addressed and it adds operating cost with no new revenues to cover them. SECTION SIX: DISCUSSION AND RECOMMENDATION Option I does not resolve the immediate issues Westlake Academy is currently facing, both in terms of having current operating revenues cover current operating expenses or providing us the ability to address facility needs. Even if the Academy reverts to not paying its full operating costs, this is only a short term "fix ", and does not address the need for even minimal facility improvements. Since it is not sustainable, we will not achieve our vision with this option. 13 section and parent meetings • Assemblies for each section would be established without physical constraints • Create within the structure music suites and radio and N studios • Opportunities for dramatic and musical performances by students * Pod areas and 4th section expansion taken from are taken from Facilities Planning- Growth Model Options, March 2011 Option V. • Description: Use a capital campaign (donations) to construct cafetorium /multi- purpose bldg, use portable building for a Media Center • Facilities added: cafetorium /multi - purpose bldg, • Capital cost: $1,627,656 per Hayes Report • Operating cost: Approximately $22,000 per year • Required enrollment: Current enrollment (no students added) • Sections added: None • Years enrollment is added: Not applicable • Cash flows? Capital costs for the cafetorium /multi - purpose would be covered if a capital campaign raises all construction costs (i.e. no public funds, municipal or State, involved). Leasing another portable for a Media Center for secondary grades raises operating costs slightly. • Attains Vision? Unlikely since remaining facility needs are not addressed and it adds operating cost with no new revenues to cover them. SECTION SIX: DISCUSSION AND RECOMMENDATION Option I does not resolve the immediate issues Westlake Academy is currently facing, both in terms of having current operating revenues cover current operating expenses or providing us the ability to address facility needs. Even if the Academy reverts to not paying its full operating costs, this is only a short term "fix ", and does not address the need for even minimal facility improvements. Since it is not sustainable, we will not achieve our vision with this option. 13 Both Options II and III offer the opportunity to address our immediate and long -term facility needs comprehensively, but have the highest capital costs. Only the hybrid 1 -13 contained in Option II does not cash flow. The choices contained in Options II and III cash flow by increasing the school's enrollment substantially. Utilizing these options we can address our long -term financial sustainability, add new facilities, as well as attain our vision, as long as new student on- boarding /acculturation and new teacher recruitment processes are properly managed. Option IV has lower capital costs due to its phasing and it does not provide for a new PYP building addition as does Options II and III. This option allows the Academy to build the facilities as cash accumulates from the additional students being served in the portable buildings. Construction timelines will depend upon the desired ratio of cash vs. debt to fund the middle school and high school buildings. Option IV constructs on a facilities phased basis; first the cafetorium /multi- purpose building for PYP which takes overcrowding pressures off our existing gymnasium. Later, a Secondary building is constructed (with a media center in it) that is populated by new students brought in at Year 2 and will use the additional portable buildings during this interim period. It also provides for a media center needed for the secondary grades. It does require moving Grade 6 into the MYP, as do Options II and III. Also like Options II and III, this option requires 22 students per class in PYP (K -G5) and 25 students per class in Secondary (G6- 10 ). Based on the set -up costs for our existing three (3) portable buildings, set -up costs for this many additional portable buildings could range from $300,000- 400,000, funding that is currently not available. Option V involves no public funding, i.e. it is totally dependent on donations via a capital campaign to raise just over $1.6 million to construct a cafetorium /multi -use building. This building would serve PYP students and takes usage pressure off the current gymnasium. It also meets a need cited in the IB MYP evaluation team's report for a Media Center for the secondary grades by utilizing a portable building for that use. However, it adds some operating cost and does nothing to create additional revenues to meet the current problem of the school's operating revenues being less than its operating expenditures. For those reasons, it is unlikely that this option can help us attain the Board's vision for the Academy. Perhaps a "hybrid" of Options I and V could be created whereby the payment of direct and indirect operating costs now paid by the 14 Academy revert back to the municipal budget, but at best this would only give us time and not deal with other campus facility needs beyond a new cafetorium /multi -use building. It should also be noted that construction costs used from Peter Mayes' report would need to be adjusted upward if phased options are used due to increased mobilization costs and probable construction cost increases in future years beyond 2011 -12. Each option has varying degrees of risk and the risks are somewhat different, depending on the option. Regarding populating the school under Options II, III, and IV, we have historically been able to add enrollment from our extensive waiting list. While we have no reason to believe our waiting list will diminish, for the options that add students, it may be prudent to allocate resources for marketing to new students (note: many schools currently market to our students by making Open Records requests for our enrollment of students by home school district). Maintaining the status quo (Option 1) is not a choice unless: • we receive significantly increased private donations (Blacksmith,) • or reduce costs (likely this would mean decreasing levels of service, i.e. reducing staffing through course selection reduction) • or increase class size to 22 or higher. • or it could also be addressed through a combination of these tactics. It is recommended that the Board pursue Option II for the reasons mentioned above. They are: • It allows for vision attainment via our Strategic Plan's desired outcomes • It addresses the Academy's long -term financial sustainability • It provides for current and future facility needs for the school • Its relatively short time horizon minimizes many of the risks related to a capital project i.e. increases in the cost of construction and debt issuance. 15 The following matrix supports this recommendation: Attains Vision & Mission Option �} Option Option Option Option , Facility Aesthetics Educational Programming �} High Student Achievement Strong Parent & Community Connections Financial Stewardship & Sustainability} Student Engagement & Extracurricular Activities ter: jj' Effective Educators & Staff E;'£ ? - Increased Student Population V/ v/ V/ Capital Costs V/ V/ Meets Facility Needs V/ V/ Level of Risk High Moderate Moderate to High Low to Moderate High The matrix above provides a visual representation of the potentially positive and negative impacts of each of the options presented. Based upon the potential impacts to the Academy and weighing the pros and cons of each, we determined that Option 11 is the most likely to meet the criteria outlined for the long -term success of the Academy. Option I, while the most easily accomplished, carries the greatest risk to the Academy. Option I does not allow the Academy to fulfill its mission and vision due to lack of current facilities and on -going operating expenditures exceeding revenues. In addition, the educational programming is less than desired for an IBO World School. Option II and III are similar and were presented to the Board in March 2011 by Peter Hayes of Project Management Services, Inc. These options have been termed the "Hayes Plan" and are fairly aggressive in growing the Academy facility's and student population. Option 11 is has moderately risk due to the potential issue of fully filling the upper grades, but this can be mitigated through a properly executed student marketing program in the year leading up to the completion of facilities. 16 The primary difference between Option II and III is the phased approach to completing the construction of new facilities in Option III. Option III has slightly more risk due to the carrying cost (debt service) of facilities that are already completed, but underutilized (classrooms without students) for the first year. In addition, because Option III phases construction, there is a risk of escalation in construction costs and interest rates which could impact the final capital cost of the projects. Option IV is an approach that blends some of the "Hayes Plan" approach with a revised incremental approach to building new facilities. From the standpoint of spending "new dollars" for capital costs, this option has the lowest level of risk, although because it phases construction over time, construction costs and interest rates could escalate during that period. This is because this option focuses on "paying as we go" by using portable buildings to provide low -cost facilities for new students, thus allowing the Academy's fund balance to increase over time prior to facility construction. It also should be noted that Option IV requires a significant up -front expenditure for portable building set -up costs for which presently no funding exists. Option V is similar to Option I and carries a great risk of financial distress. This is due to the fact, that while this option provides for some facility needs (cafetorium /multi -use building), it nothing to address the underlying financial problem of on -going operating expenditures exceeding revenues. An important part of the Board's discussion of these options will be policy decisions related to mixture of funding sources. If an option is selected where enrollment increases cannot totally cover increased costs for these facilities, then the Board /Council will likely need to entertain discussions of engaging the Foundation in a capital campaign to cover all or a portion of the capital cost for the Board /Council selected option. Additionally, the Board would need to determine what it feels comfortable with in terms of the amount, if any, of Town participation in these capital costs (i.e. bonded indebtedness). As mentioned at the May planning retreat, the Town Council's financial policy related to debt issuance does not require that a bond election be held for issuance of debt. Debt issued to date for Westlake Academy has been done with both 17 Certificates of Obligation (which do not require an election), and General Obligation bonds (which do require an election and passage in order to issue). A recent example of this discussion was the decision by the Town Council to use a blend of funding for the Academy's newest building, the Sam and Margaret Lee Arts & Sciences Building. This $5.2 million building had $2.5 million of Town participation in the form of general obligation bonds, with the remainder being raised by the WA Foundation as well as donations from a local business, Mrs. Lee, and the Texas Student Housing Authority. This $2.5 million of G.O. bonds was taken, as required by law, to Westlake voters in 2007 for approval for issuance. Finally, by examining our class size growth history, one can see that we have addressed our financial situation historically through enrollment growth. However, that avenue of addressing the revenue side of the equation stops in FY 11 -12 due to reaching capacity per the Board's decision to cap class size at twenty (20). The table below shows how the Academy's number of students per class has increased gradually over time to address financial constraints. It can be argued that this has been a reactive approach in the sense that it shows that the earlier a school begins its capital improvement planning as its enrollment grows, the better prepared it will be to meet future facility needs. Westlake Academy Enrollment by Grade 2003 to Present 2003 -04 34 33 34 -, 31�3-4�, 33 2004 -05 26 34 34 34 33 ,32 7' -,34 2005 -06 35 30 36 40 39 34 � �4 -,36 2006 -07 30 36 37 34 33 38 34`-,34 30 2007 -08 26 33 31 37 34 32 37 36'32 `' 35 32 2008 -09 30 31 36 35 36 36 36 39 36. -33 35 30 2009 -10 36 39 37 39 44 39 41 41 39 3935 ��.36 2010 -11 37 40 40 40 40 60 39 40 40 39 40 x,31\ 2011 -12 38 41 40 44 42 43 60 60 60 61 55 47 18 24 fiU101 264 329 343 365 413 489 32 518 30'-- 621 SECTION 7: CLOSING COMMENTS If the Board determines that it wishes to continue to pursue a phased approach for addressing Academy facility needs, Option IV is recommended, however, we will have to identify a funding source or sources for the portable building set -up costs. If Option IV becomes the Board's preferred option, Staff will need to do additional "drill down" analysis on building placement and cost estimating on portable building set -up costs. While there are challenges noted in this report, they can be just as easily converted into opportunities for moving Westlake Academy towards its vision. We will review this report with the Board at its next workshop as requested and pursue any direction the Board wishes to give Staff regarding this matter. Attachments: 1. Detailed Five (5) Year Financial Forecast for Westlake Academy 2. New Facilities Site Plan from Project Management Services Report (Hayes Report), March 2011 19 Five Year Financial Forecast - FY 2011 -12 thru FY 2015 -16 Audited Estimated Proposed Projected Projected Projected Projected FY09 /10 FY 10 /11 FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16 GENERAL FUND BEG. BALANCE $ 504,653 $ 767,490 $ 760,220 $ 657,002 $ 397,690 $ 32,810 $ (439,844) REVENUES Local Revenues WAF Salary Reimbursernent 59,056 64,858 31,662 32,295 32,941 33,600 34,272 Other Local Revenue 42,287 4,316 15,000 15,450 15,914 16,391 16,883 WAFBlacksinith 431,409 530,000 627,000 630,000 629,000 628,000 625,000 Interest Earned 908 1,700 1,500 1,520 1,314 795 66 Food Services - 3,000 3,000 3,090 3,183 3,278 3,377 Donations 10,500 38,950 - - - - - Athletic Activities 67,200 20,036 37,980 37,800 37,740 37,680 37,500 Transportation /Parking - 7,106 37,840 38,597 39,369 40,156 40,959 Total Local Revenues 611,360 669,967 753,982 758,752 759,460 759,901 758,056 State ReNenue TEA -FSP Funds 3,485,909 3,748,836 4,281,649 4,200,605 4,193,937 4,187,270 4,292,285 TRS On- behalE'Medicare Part B 183,454 171,301 208,4371 230,851 235,468 240,178 244,981 Total State Revenues 3,669,363 3,920,137 4,490,0861 4,431,456 4,429,406 4,427,447 4,537,266 TOTAL REVENUES 4,280,723 4,590,104 5,244,068 5,190,209 5,188,866 5,187,348 5,295,322 EXPENDITURES Object Code 61XX - Salaries 2,951,964 3,337,074 3,772,080 3,847,521 3,924,472 4,002,961 4,083,020 Object Code 62XX - Prof. Contracted Services 480,955 739,694 962,025 981,266 1,000,891 1,020,909 1,041,327 Object Code 63XX - Supplies & Materials 244,945 283,805 258,447 262,324 266,259 270,252 274,306 Object Code 64XX- Other Operating Costs 198,527 249,489 341,894 345,313 348,766 352,254 355,776 Object Code 65XX - Debt Service 41,495 - - - - - - Object Code 66XX - Capital Assets - - - - - - - TOTAL EXPENDITURES 3,917,886 4,610,062 5,334,446 1 5,436,424 5,540,387 5,646,376 5,754,430 OTHER RESOURCES /USES Other Resources - 654,042 36,967 37,706 38,460 39,230 40,014 Other Uses 100,000 641,354 49,807 50,803 51,819 52,856 53,913 Excess Revenues Owr(Under) Expenditures 262,837 (7,270) (103,218) (259,312) (364,880) (472,654) (473,006) GENERAL FUND ENDING BALANCE 767,490 760,220 657,002 397,690 32,810 (439,844) (912,851) Assigned - Technology /FFE - 100,000 - - - - - Assigned - Uniforrn/Equipment Replacement 13.718 7,366 3,684 14,838 14,838 14,838 14,838 Assigned - Facility Maintenance /FFE - - - - - - - ENDING FUND BALANCE (Unassigned) 753,772 652,854 653,318 1 382,852 17,972 (454,682) (927,689) # of0perating Days (365) 70 52 1 451 26 1 (29) (59) 20