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School District 65 is projecting a slight surplus for fiscal year ending June 30, 2010, and then deficits of $0.8 million, $3.4 million, $6.9 million, $9.1 million and $10.9 million, a cumulative total of $31.2 million, over the next five years, Kathy Zalewski, comptroller for the District, reported to the Board’s Finance Committee on Feb. 8. The projections are the result of collaboration between the District’s business office and PMA, the District’s financial advisers, said Ms. Zalewski.
A reduced revenue stream, coupled with steadily growing expenses for salaries and benefits are the key drivers of the deficits. The projections assume stable enrollment and staffing, and thus do not build in amounts for additional teachers to accommodate increased student enrollment.
On the revenue side, the District is projecting it will receive $76.6 million in property tax revenues in fiscal year 2010-11, a 7.2% increase over the prior year. The increase is due to the retirement of the Downtown II TIF district. After that, the District is projecting its property tax revenues will increase an average of about 2.5% each year over the next four years.
Ms. Zalewski said other revenues, including the corporate personal property replacement tax, interest income, TIF revenues shared by the City with the school districts, and State categorical aid are projected to be lower in 2010-11 because of the economic downturn. Federal stimulus funds, amounting to $800,000, will expire in 2011-12.
On the expense side, increases in salaries and benefits, which together comprise about 82% of the operating budget, are a driving force in the projected deficits. Ms. Zalewski said the projected increases in salaries for the next two years are based on the four-year collective bargaining agreements entered into in 2008. Salary expenses for those two years are projected to increase by 4.3% and 4.7%, and in the three following years they are projected to increase by 3.9%, 3.8%, and 3.6%.
In projecting the cost of benefits, Ms. Zalewski said the cost of medical insurance was expected to increase 8% per year, and other benefits by 5% per year. By 2014-15, the cost of benefits is projected to be $17.3 million, or about 15% of all operating expenses.
The District’s Finance Committee has been reviewing information during the last six months concerning the District’s funding sources and the net cost of programs, non-personnel expenses, transportation and building expenses, and early childhood, reading and special education programs and expenses. The Committee is scheduled to review class size and staffing in March.
Finance Committee Chair Katie Bailey told the RoundTable the Committee was conducting these reviews so it would have a deeper understanding of the District’s programs and expenses. “We have to make some tough decisions,” she said, “and we have to understand all the programs and understand the impact any budget cuts will have on the programs. … We need to be good financial stewards.”
She said the Finance Committee and the Board will address the projected deficit of $800,000 for the 2010-11 school year and make decisions that will help reduce the projected deficits in subsequent years. Starting in September, the committee will begin discussing possible program adjustments to address the larger deficits projected for subsequent years.