Pennsylvania Code › Title 22 - EDUCATION › Part XXII - Early Warning system › Chapter 731 - EARLY WARNING SYSTEM-STATEMENT OF POLICY › Section 731.2 - Early Warning System

Current through Register Vol. 54, No. 28, July 13, 2024
Following are the guidelines of the Early Warning
				  System.
I.
Level 1
				Analysis-Early Warning System Components
The Department will consider Budget and Other Financial Data,
				  Additional Data relevant to financial condition, including Fiscal Measures and
				  Socioeconomic Data, Act 47 Status of the host municipality, and Factors for
				  Financial Recovery Status as part of the early warning system.
The variables below were tested for validity and reliability
				  by applying an examination of the criteria to school districts across the
				  Commonwealth. The Department will continuously monitor the variables to assure
				  their effectiveness.
A.
Budget
				and other financial data
Components in this level will be calculated from the most
				  recent school district-reported data submitted to the Pennsylvania Department
				  of Education on the Annual Financial Report. The Department will analyze and
				  compile and review this data to identify trends which may indicate challenging
				  financial circumstances and/or a troubling financial outlook for a school
				  district.
The following components will be considered in this initial
				  analysis: Fund Balance Ratio, Borrowing Base Capacity, and Debt Ratio. A Basic
				  Education Funding advance or a bond intercept payment may also be considered in
				  the initial analysis.
1.
Fund
				Balance Ratio.
Fund balance ratio indicates how much cash the school
				district has on hand in the event that an unanticipated need arises. A higher
				fund balance ratio indicates a greater ability to meet fiscal obligations. The
				fund balance ratio will be calculated by: a school district's total assets
				minus its total liabilities divided by the total general fund
				expenditures.
2.
Borrowing
				Base Capacity Available.
Borrowing base capacity indicates to what
				extent a school district, according to law, can incur additional debt. A higher
				borrowing base capacity available indicates a greater ability to borrow more
				money. The borrowing base capacity will be calculated by: a school district's
				total debt that can be incurred minus the total outstanding debt, divided by
				the total amount of debt that can be incurred, according to the Local
				Government Unit Debt Act (LGUDA).
3.
Debt Ratio.
Debt ratio can be used to determine the school
				district's ability to be approved to add additional debt. A lower debt ratio
				indicates increased ability to incur more debt. Debt ratio will be calculated
				by: a school district's total debt service payments divided by total
				expenditures (for all funds). A three-year average will be used.
4.
Advance BEF/Basic Education
				Funding.
BEF allocation payment made, pursuant to School Code section
				2517(e), in advance of the dates set forth in section 2517(c) may indicate a
				decreased ability to meet fiscal obligations. Basic Education Funding advances
				may be a warning sign that a school district is experiencing difficulty
				managing its cash flow.
5.
Bond Intercept.
An agreement entered into between a school
				district, the Department of Education and a bond trustee to have the Department
				make bond payments directly to a trustee via deduction from the school
				district's subsidies. Bond intercept payments may indicate decreased ability to
				meet fiscal obligations.