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The District 65 School Board unanimously approved a tentative budget for its fiscal year ending June 30, 2009 (FY 09) at its Aug. 18 meeting that pegs operating expenses at $90.8 million and total expenses at $115.9 million.
On a big-picture basis, the operating budget is balanced; and no cuts are projected. Key assumptions include that the District’s student enrollment will remain stable at 6,101 students, that the District will add ten new teaching positions, and that the District’s program offerings will remain stable.
Two wild cards are that the District’s property tax collections are based on estimates, and the tentative budget does not reflect final salary increases negotiated or being negotiated between the School Board and the District Educator’s Council (the teachers’ union) and other employee groups. Kathy Zalewski, District 65 comptroller, said if these numbers firm up before the development of a final budget, they will be reflected in the final budget.
The Board will hold a public hearing on the tentative budget on Sept. 22, and it is scheduled to adopt a final budget that same evening.
The Operating Budget
Operating revenues are projected to grow at a slower pace than operating expenses, but the budget is balanced. Operating revenues are projected at $91 million, up $1.3 million, or 1.4 percent over the prior year. Operating expenses are projected at $90.8 million, up $2.1 million or 2.3 percent over the prior year. The tentative budget shows a surplus of about $200,000.
Property Taxes: On the revenue side, the District increased property taxes by 2.5 percent, the maximum allowed under state property tax caps, in its December 2007 tax levy. In addition, the District plans to increase property taxes by 4.1%, the maximum allowed under state property tax caps, in its December 2008 levy, Dr. Mary Brown, chief financial officer, told the RoundTable.
Despite these increases, Dr. Brown said the District is projecting that the property tax revenues it collects for operations in FY 09 will be $67 million, down by 1.1 percent from the prior year. The projected decrease is caused by the way installment payments are calculated by Cook County and how the installments match up in the District’s fiscal years.
Dr. Brown said the installment payments made in the fall of 2007 and the spring of 2008 (the two payments made in fiscal year ending June 30, 2008) were each unusually high and resulted in a 7.2 percent increase in tax revenues collected in that year. The total payments in FY 09 will be lower by comparison, said Dr. Brown. (See sidebar.)
Property taxes make up about 75 percent of the District’s operating revenues. State and federal grants, which account for 18 percent of the District’s operating revenues, are expected to be about $17.3 million, about 15 percent more than last year. A substantial part of the increase is due to receiving $1 million in late payments that were due last year, in this fiscal year.
Salaries: On the expense side, salaries are pegged at $62.3 million, up 4.4 percent over last year. Employee benefits are projected to increase to $10.7 million, a 5.2 percent increase. Salaries and benefits, together, account for 80 percent of the District’s operating expenses.
Ms. Zalewski, said the tentative budget assumes that teacher salaries will increase by 3.7 percent (2 percent on the base and 1.7 percent for the step). While a tentative agreement containing a new salary structure has been reached between the negotiators for DEC and the School Board, the terms of the agreement have not been publicly disclosed. A School Board letter dated June 10, however, said the Board had offered teachers on average a 5.7 percent salary increase (3 percent on the base, and 2.7 percent for the step).
If the tentative agreement with DEC is approved before the development of the final budget, Ms. Zalewski said the new salary structure will be incorporated into the final budget. The tentative agreement will not be presented to members of DEC until Aug. 28, and under DEC’s by-laws teachers may not vote on the agreement until Aug. 31. It is anticipated that the School Board would vote on the agreement after that.
If the salary structure with DEC is in line with the Board’s June 10 letter, teachers’ salaries may be 2% higher than assumed in the tentative budget. Ms. Zalewski said expenses could be reduced in other areas to accommodate an increase in salaries and keep the budget balanced.
Cash Balances: The District is reporting on an unaudited basis that it finished the 2007-08 school year with an operating surplus of $989,437. At fiscal year ending June 30, 2008, the District had a cash balance of about $20.5 million in its operating funds (which includes $11.4 million in the working cash fund). The cash reserves in the District’s operating funds are equivalent to about 82 days operating expenses.
The tentative budget projects capital expenditures of about $16 million:
$10.3 million is allocated to make capital improvements to the District’s school buildings. These expenditures are being funded with the proceeds of bonds issued last year.
$3.4 million is allocated to replace aging computer equipment and purchase additional enhancements. These expenditures are also being funded with the proceeds of bonds issued last year. Technology purchases have been transferred from the operating fund to a capital fund so they can be funded with the proceeds of bonds and not be subject to state property tax caps.
$1 million is allocated to improve air quality in the schools. This is being funded by a state grant.
$1.3 million will be spent on life/safety projects, incurred to keep school buildings safe and in compliance with safety and accessibility codes. This is being funded by about $400,000 in property taxes and the cash balance in the fund.
The budget also projects the District will pay about $9 million in debt service, which will be funded through property taxes. As of June 30, 2008 the District had outstanding debt of $37.8 million.
Expenditures by Function
Under the tentative budget, the District’s total expenses for FY 09, including both operating and capital expenses, are projected to be $115.9 million. A little less that one-half of that amount is devoted to instruction. A budget summary prepared by Ms. Zalewski states that the $115.9 million will be spent as follows:
$48.7 million, or 42%, will be spent on instruction, which includes general K-8 instruction, special education, bilingual education and remedial education.
$19.3 million, or 17%, will be spent on support services, which includes social work, psychological and speech services, food and transportation services, staff development, curriculum improvement and education media services.
$11.4 million, or 10%, will be spent on site improvement.
$9 million, or 7%, will be spent on administration, which includes administrators, principals, assistant principals, secretaries, business services, human resource services, research and data processing.
$9.8 million, or 8%, will be spent on facilities services, which includes building operation and maintenance services.
$9 million, or 8%, will be spent on debt service.
$2.9 million, or 3%, will be spent on community services, which includes community childcare and before- and after-school childcare services.
$5.9 million will be spent on other miscellaneous items.
Kathy Zalewski, comptroller for School District 65, reported at the Board’s Finance Committee meeting on Aug. 11 that Moody’s had increased School District 65’s bond rating for the second time in two years, this time to Aa2.
Dr. Mary Brown, chief financial officer, told the RoundTable this enhanced rating will enable the District to borrow at lower interest rates. She said that the District will save about $800,000 in interest costs in connection with a recent issuance of $9.97 million in bonds which are payable over five years.
Mismatch in D65â³ Tax-Levy Years and Its Fiscal Years
In its December 2007 tax levy, School District 65 increased the tax on the tax cap amount by 2.5% (the maximum amount allowed under state property tax caps), included a tax on new property (which is estimated in the levy and is not subject to the tax caps), and included a tax for debt service (which is not subject to tax caps). The amount of the levy which is allowed is paid in calendar year 2008.
The 2008 spring installment (which was paid in District 65’s fiscal year ending June 30, 2008, FY 08) was calculated by dividing the levy allowed for calendar year 2007 by two. The 2008 fall installment (which will be paid in District 65’s fiscal year ending June 30, 2009, FY 09) is the difference between the 2008 spring installment and the levy allowed for calendar year 2008. The spring 2009 installment (which will be paid in FY 09) will be one-half of the levy allowed for calendar year 2008.
The amounts of the 2008 fall installment and the 2009 spring installment thus depend on the amount of the levy allowed for calendar year 2008. The amount of the levy allowed for calendar year 2008 has not yet been determined and requires an application of tax caps and a determination of the assessed value of new property added to the tax rolls. Bill Vaselopulos, director of the Cook County Clerk’s Tax Extension Department, told the RoundTable the determination would not be made until after Labor Day.
Thus, in preparing District 65’s tentative budget for FY ’09, chief financial officer Mary Brown said she estimated the levy allowed for calendar year 2008, and, in turn, estimated the 2008 fall installment and the 2009 spring installment, which are the two tax payments which will be received by the District in FY 09. Those numbers could change after the Cook County makes its determination of the levy allowed for FY 09.
The District will not receive the benefit of a 4.1% tax increase levied in December 2008 until the installments are paid in the fall of 2009 and the spring of 2010, which are both in its fiscal year ending June 30, 2010.