At a Finance Committee meeting on Feb. 13, District 65 administrators presented financial projections dated Feb. 10, 2012, that show a very different picture than those prepared six months ago on Sept. 14, 2011. Six months ago the District was projecting deficits for the next four years of $3.3 million, $4.1 million, $6.4 million, and $8.7 million.

Now, the District is projecting surpluses for the next three years of $329,000, $1.1 million, and $34,000, respectively, and then deficits for the following two years of $2.7 million and $3.9 million. The accompanying chart compares the projections.

Part of the difference in the projections is due to changes that allow the District to increase property tax revenues for 2013-14 and subsequent years. The vast majority of the difference, however, is due to a reduction in expenses for salary, supplies and purchased services.

The budget reductions do not contemplate any systematic reductions in teachers, said Superintendent Hardy Murphy. School Board members asked for a written breakdown of the expense reductions.

The latest projections do not take into account the cost to operate the proposed new school that is the subject of the March 20 referendum. A middle-of-the-road estimate of the cost to operate that school, including certain educational enhancements, is about $1.5 million annually. If the new school is approved in the referendum, the earliest it could be opened is for the 2013-14 school year. (See sidebar.)

Property Tax Revenues

Under state property tax caps, school districts may increase property taxes by the increase in the Consumer Price Index (CPI) or 5%, whichever is less. For purposes of projecting property tax revenues, the District assumes the CPI will be 2.5.

The CPI for 2011, which became available in January, was 3 percent, or 0.5% higher than the amount assumed when property tax revenues were projected in September. This 0.5% increases projected property tax revenues by about $600,000 for 2013-14 and each subsequent year.

The CPI for 2012 and beyond is not known. If it is higher than 2.5%, it will increase property tax revenues and reduce the projected deficits. Conversely, if it is lower, projected deficits will increase.

Salary Expenses

The salary expenses projected on Feb. 10 for the school year 2012-13 are $3 million lower than projected on Sept. 14, 2011. They are $3.5 million lower for 2013-14, $3.9 million lower for 2013-14, and $4.3 million lower for 2014-15.

Both sets of projections assumed that the salary rate structure (e.g., base salary, step increases, and track movements) would increase approximately 3.7% per year. The reductions in the salary expense are thus not due to a change in the assumptions about the salary structure.

The $3 million reduction for 2012-13 is due in part to a high number of teachers – 28 so far – electing to take early retirement, said Dr. Murphy. The early retirements enable the District to replace senior teachers with less experienced teachers at lower salary levels.

The vast majority of the reduction, however, is due to “staff efficiencies,” such as “attrition savings (positions which will be filled with existing staff or not replaced)” and “program redesign.”

The proposed reductions impact non-teaching personnel. Kathy Zalewski, comptroller, said there would be the same number of teachers next year as this year.

Dr. Murphy listed 31 positions that would be eliminated next year to achieve the $3 million in savings for 2012-13: certified staff (2 positions); reductions due to program design (8); non-certified support staff (3.5); central office administration (3); instructional support aides for students with an IEP (10); dual-language support aides (6); technical support (0.5); and building administration (1).

If a position is permanently eliminated, the cost savings will benefit not only the year in which the position is eliminated, but all subsequent years.

Board member Richard Rykhus requested that the administration provide a written list showing how the $3 million in salary expense reductions would be achieved. He said he wanted to see what the impact would be on the classroom and wanted to make sure the District was making good choices in terms of how the proposed cuts might impact instructional quality.

Tracy Quattrocki said the administration appeared to be suggesting cuts of one-half or the teacher aides assigned to the Two-Way Immersion program. “These are the kinds of issues we would like fleshed out,” she said. “You’re making choices we should be aware of.”

Citing projected increases in student enrollment, Ms. Quattrocki asked if there were changes in teacher/student ratios. Lora Taira, chief information officer, said, “No.”

Board President Katie Bailey summed up that Board members would like to see a breakdown of the proposed cuts so they could understand where the proposed cuts are being made. She added, “we want the public to understand we’re going to make some choices.”

Dr. Murphy administrators would provide a detailed list. He added that some of the information may need to be presented in executive session if it would disclose information about an individual employee. “We are committed to trying to make this happen without this having a significant impact on the instructional model,” he said.

The teachers’ contract and the contracts for other employee groups expire in August and a new contract has not yet been negotiated. The salary rate structure is thus based on an assumption for all periods covered by the projections, said Dr. Brown.

Non-Personnel Expenses

The District is also projecting to reduce non-personnel expenditures by a total of $1.5 million in 2012-13, $2.4 million in 2013-14, $3.2 million in 2014-15, $1.7 million in 2015-16, and $1.8 million in 2016-17. These include reductions in purchased services, supplies, capital outlay and other objects.

The vast majority of the non-personnel expenses are in the categories of purchased services and supplies.

The administration did not provide a breakdown of the proposed cuts, but said the reductions

include, “in-service, consultants, professional development, buildings and grounds purchased services, temporary services, legal services, furniture, vehicles, software, office supplies, computer supplies and meeting supplies.”

The Timing

Last September the District convened an Ad Hoc Citizens Budget Committee to provide recommendations on how to address the projected deficits. The Committee presented its report in December. Shortly after that the School Board considered whether to place a referendum on the ballot asking the community to approve an increase in property taxes to address the projected deficits. The Board decided to defer doing so.

Ms. Quattrocki asked if the budget revisions could have been presented earlier in the process. Dr. Murphy said the administration did not know until recently that 28 teachers would elect to take early retirement, and added that administrators were focused on numerous other tasks in the fall. “By the time we were able to sit down and really struggle with this budget we were able to come up with these solutions,” he said.

The Incremental Cost to Operate the Proposed New School

District 65 administrators have estimated the “”incremental cost”” to operate the proposed new school using three different models. The “”incremental cost”” is the additional amount it will cost the District to educate students at the new school, rather than to educate them at existing schools. A key issue is how many teachers can be shifted from existing schools to the new school.

Under a “”best case”” scenario, the District projects the net incremental operating cost would be $684,000 per year. Using more conservative assumptions the incremental cost would be $1 million. Under a “”fail safe”” model, the incremental cost would be $2 million.

These estimates do not include any program enhancements discussed by the New School Academic Committee, such as the cost to provide an extended day, an extended year, and a “”community school”” model. The estimated cost of these programmatic enhancements is $460,000 annually, which might be reduced if the cost is shared by community partners.

A middle-of-the-road estimate of the cost to operate the new school, with program enhancements, is approximately $1.5 million.