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On April 21, the Finance Committee of the District 65 School Board, joined by three other Board members, discussed some positive developments that may substantially benefit the District’s budget going forward. The Committee also discussed the possibility and timing of a referendum to increase the District’s operating revenues and the District’s bonding authority for capital projects.
The Projected Deficits
On Feb. 10, District 65 administrators presented projections that show a surplus of about $17,000 in 2014-15 (FY’15) and then deficits of $4.7 million in FY’16, $6.9 million in FY’17, $8.7 million in FY’18 and $11 million in FY’19.
The vast bulk of the increase in the projected deficits is due to two factors: first, a reduction in projected property tax revenues; and second, a substantial increase in projected expenses for employee benefits, which include health insurance and anticipated pension costs.
After the projections were issued, the District received a quote from its insurance broker that would reduce the health insurance premium projected for next year by 4%, Kathy Zalewski, comptroller, told the Committee.
In addition, Ms. Zalewski said, the District is exploring obtaining health insurance through a cooperative that includes about 50 school districts. While the District is still in discussions with the cooperative, Ms. Zalewski said, they anticipate that the premium will be about 6% lower than that projected for next year. In addition, because the insurance would be issued through a cooperative, the District would not be required to pay an annual fee of about $360,000 under the Affordable Care Act.
If insurance is obtained through the cooperative, the savings in FY ’15 would be approximately $700,000, said Ms. Zalewski, and the savings would increase each subsequent year due to a lower projected increase in premiums. The savings in FY’19 would be about $4 million, she said.
The deal is not yet sealed. Mary Brown, assistant superintendent for business services, said, “We’re hoping to finalize actual costs at our next meeting in early May. The EBC Board may need to accept us as a member. We think this is a very real possibility.”
Ms. Zalewski added that the insurance coverage provided to employees through the cooperative would be better than the current coverage. It would include a wellness component.
Ms. Zalewski and Dr. Brown both said that uncertainties for the budgeting process remain, particularly when it comes to estimating the amount of State funding that will be provided to the District. A number of bills are pending in Springfield which could change the funding, either positively or negatively, they said. In addition, the legislature is considering legislation that may shift a portion of teacher pension costs from the State to school districts. District 65 has built an amount into its projections on the assumption that the State will do so.
Referendum in the Offing
If the health insurance premium is reduced substantially, Dr. Brown said, the surplus for FY’15 will be greater than projected, and that surplus can be used to prepay expenses in FY’16 which would benefit that year. “FY’16 could look very different,” said Dr. Brown. “I’m more hopeful about FY’16 than I was a month ago.”
If the Board places a referendum to increase operating revenues on the April 2015 ballot, the District would not be able to obtain increased operating revenues until FY’17. Board members asked if they could balance the budget for FY’16 by dipping into cash reserves. Dr. Brown said yes, but that the bonding agencies might reduce their bond rating and this could result in increased interest costs.
She said, though, that dipping into cash reserves to balance the budget for FY’16 might be a “plausible” approach.
Board President Tracy Quattrocki suggested that the District convene an ad hoc budget committee in the fall to look at areas where the District might be able to cut expenses and to lay out the impact of making cuts. “It might help us in the education process, and also might help in the brainstorming for solutions,” she said.
Candance Chow said the strategic planning process scheduled to begin this fall should be done in conjunction with the process to cut expenses. “The two need to be married so our visioning and our future direction is our guiding principle in deciding how to manage our budget,” she said.
The Finance Committee asked administrators to present budget management strategies at the Finance Committee meeting in May, and also to present any updated financial information impacting the projections.
They also asked administrators to put together a list of recommended capital projects that might be included in a capital referendum, together with a description of the projects, and an estimate of the cost. It is anticipated that the Finance Committee will take up these issues at its meeting in May.
In order to balance budgets in the last few years, the District cut 25.5 full-time-equivalent positions, many through attrition. It offered early retirement incentives which enabled the District to replace many retiring teachers with teachers at lower salaries. It substantially cut expenses on purchased services and supplies.
In the last four months, the Finance Committee and the Board have been looking at collections of fees, raising certain fees, increasing the class-size guidelines by one and by two students, and verifying the residency of students to help manage the budget.