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School District 65 released financial projections at a Board Finance Committee meeting on Feb. 14 that project an operating surplus of $1.2 million for school year 2010-11, and then a cumulative operating deficit of $30 million over the next five years.
Kathy Zalewski, the District’s comptroller, summarized some of the key assumptions that were used in preparing the projections. On the revenue side, the main driver is property taxes, which account for about 80% of the District’s revenues.
The District assumes it will increase property taxes by the maximum amount allowed under State property tax caps, which generally limit increases to the amount of the increase in the Consumer Price Index or 5%, whichever is less. For purposes of the projections, Ms. Zalewski said the District used an actual CPI of 1.5% for the 2011 levy year, and assumed the CPI would be 2.5% for subsequent years.
On the expense side, salaries and benefits account for approximately 83% of all operating expenses. Ms. Zalewski said that the projected cost of salaries for fiscal year 2012 was pegged to the union contracts which expire at the end of 2012, and that the total cost of salaries was projected to increase by 5% for fiscal year 2013 (due in part to hiring additional teachers to accommodate increased student enrollment), by 2% in fiscal year 2014, and 4% after that.
Employee benefits are projected to increase by 15% in fiscal year 2012 and 10% after that.
On a year by year basis, the District is projecting a surplus of $181,398 in school year 2011-12 (fiscal year 2012), and then deficits of $5.8 million, $6 million, $8.4 million, and $10 million.
Superintendent Hardy Murphy said the District could consider addressing the deficits in the negotiations for new contracts with teachers and other employees, through a reduction in staff, by providing retirement incentives to induce teachers receiving higher salaries to retire, and cutting expenses for supplies and purchased services.
He also said the projected deficits would be reduced if the CPI exceeded the assumed rate of 2.5%. Mary Brown, chief financial officer, said an increase of 1% in the CPI would allow the District to increase property tax revenues by $800,000. Because of the way tax caps work, an increase in property taxes in one year will carry through to subsequent years as well.
Dr. Murphy said the administration would be watching state and federal funding levels and studying budget issues to stay on top of the situation.
Finance Committee Chair Katie Bailey noted that the District was projected to have a surplus for the 2011-12 school year, but added, “Beginning next year, we’ll have to make hard choices again.”
Ms. Zalewski said the projections were prepared by the District’s Business Office in collaboration with PMA Financial Network, Inc., the District’s financial advisers.