On Sept. 24, the District 65 School Board unanimously adopted a balanced budget for the District’s fiscal year ending June 30, 2013 (FY ’13), ending a process that began a year ago to find ways to balance this year’s budget and to address mounting operating deficits that were then projected to grow from $3.6 million in 2012-13 to $8.7 million in 2015-16.
In the FY’13 budget, operating revenues are projected at $102.2 million, down 4% from the prior year. Operating expenses are pegged at $101.8 million, down 5% from the prior year. The budget projects an operating surplus of $399,423, said Kathy Zalewski, comptroller for the District.
On a going forward basis, the District is currently projecting that it will operate with balanced budgets through 2015-16, said Ms. Zalewski.
This is a major change from one year ago when the District convened a Citizens Task Force to recommend ways to address the projected deficits. The School Board and Finance Committee have held numerous meetings since February to discuss deficit reduction strategies proposed by the administration, some of which tracked ideas suggested by the Task Force.
FY ’13 Operating Budget
Revenues: On the revenue side, the District is projecting that the property tax revenues it collects for operations in FY ’13 will be $77.9 million, down $4.4 million, or 5.4 percent, from the prior year. Property taxes make up about 76 percent of the District’s operating expenses.
The decline in property tax revenues in FY ’13 is attributable in large part to two factors: 1) the method used by the Cook County Collector to calculate the first and second installments of property taxes, which the District collects in different fiscal years, and 2) the District’s December 2011 levy for property taxes for operations was subject to a tax cap of 1.5 percent.
State and federal grants, which account for 18 percent of the District’s operating revenues, are expected to be about $18.6 million, about $554,000 less than last year. Local revenues are expected to be $518,000 more than last year, primarily due to a TIF payment from the City in the amount of $376,000 and the first installment ($100,000) of a new five-year Child and Parent Center grant.
Expenses: On the expense side, salaries are pegged at $71.9 million, down $340,000, or 0.5%, from last year. The salary expense takes into account:
• The elimination of 36.5 staff positions (including administrators, five fine-arts and physical education teachers, teacher aides, instructional coaches, custodians and other staff),
• The addition of 16 teachers in the last few months. Seven were added due to increased enrollment and to add back a fine arts teacher. Nine were added pursuant to the new contract with the District Educators Council (DEC, the teachers union), to provide additional planning time at the K-5 levels, additional planning and collaboration time at the middle schools, and a drama teacher.
• Under the new contract with DEC, compensation increases at the rate of 3.3% rather than the 3.8% assumed in the tentative budget, which results in a savings of about $250,000, said Ms. Zalewski.
• The replacement of 51 persons who are retiring with persons at lower salary levels. The number includes 34 teachers.
Expenses for employee benefits, purchased services and supplies are all budgeted at lower levels than last year. About $1.5 million is due to cut-backs in spending. A large part of the reduction, however, is due to the District’s prepaying about $1.75 million in insurance costs, said Ms. Zalewski. This had the effect of increasing expenses by about $1.75 million in FY ’12 and reducing them by that amount in FY ’13.
FY’12 Surplus/Cash Balances
The District is reporting on an unaudited basis that it will finish the year ending June 30, 2012, with an operating surplus of about $148,557. The surplus would have been larger, but administrators decided to prepay $1.75 million in expenses in FY ’12 that are attributable to FY ’13.
The cash balance in the District’s operating funds at June 30, 2012, was $20.6 million, or about 72 days of operating expenses.
Improved Financial Projections
On Sept. 24, Ms. Zalewski presented financial projections, which show an operating surplus (after prepayments are made) in the amount of $1.2 million in 2013-14, $736,382 in 2014-15, and $15,802 in 2015-16, and then a deficit of $3 million in 2016-17.
The projections show a much better financial outlook than was projected one year ago. Some factors that contribute to the improved outlook are:
• A significant portion of the reduction is due to the net reduction of about 20 staff positions for FY ’13 and subsequent years.
• In addition, Mary Brown, chief financial officer, told the RoundTable that the rate of compensation negotiated under the DEC contract is lower than assumed in the previous projections. Over the term of the four-year contract, she said, the overall increase in the rate of compensation is about 4.5%, or $2.2 million, less than assumed in the projections one year ago. This is after taking into account the nine additional teaching positions required in the DEC contract.
• Superintendent Hardy Murphy said that 34 teachers retired at the end of the last school year, and the difference between the salary of those retiring teachers and that of new teachers is about $50,000, or about $1.5 million a year, the full effect of which will be felt beginning next year. “Just that alone changes the financial picture,” he said.
“These updated financial projections are extremely favorable,” said Dr. Brown. “We were able to settle our DEC contract. We were able to offer new services and programs to students in our buildings. And we were able to do more with prepayments.”
Dr. Murphy said the changes “have left us in a more favorable budget position than what we had at the close of last year.
“We just have to keep our fingers crossed with what the State’s going to do with pensions,” he added.
One significant uncertainty that may affect future budgets is whether the state legislature will shift a part of teacher-pension costs to school districts throughout the State. If the cost-shift is made and phased in over five years, District administrators estimated it will add about $600,000 in expenses in 2012-13, and then $1.2 million, $1.8 million, $2.4 million and $3 million over the subsequent four years.