On June 9, the Finance Committee of the District 65 School Board reviewed a draft tentative budget for its fiscal year ending June 30, 2015 (FY‘15). Operating revenues are projected at $107.3 million, up 1.5% over the prior year. Operating expenses are projected at $107.2 million, also up 1.5% over the prior year.

The operating budget for FY‘15 has a surplus of $94,193, said Kathy Zalewski, business manager for the District.

Ms. Zalewski also presented revised financial projections that show a surplus of $144,435 for fiscal year ending June 30, 2016 (FY’16), compared to a deficit of $4.7 million for FY‘16 projected four months ago.

The District is thus projecting a balanced budget for the next two years. It continues, though, to project mounting deficits for FY’17 and subsequent years. What happens in Springfield is a wild card.

Board member Claudia Garrison summed up what seemed to be the sentiment of the Finance Committee: “It looks much better than I thought it would. Thank you for your hard work.”

Operating Revenues

On the revenue side, the District is projecting that the property tax revenues it collects for operations in FY‘15 will be $82.3 million, up only 0.7% over the prior year. The District is limited in raising property taxes by State tax caps which limit the increase to the lesser of 5% or the increase in the Consumer Price Index. For FY’15, which spans two calendar years, the applicable CPI rates are 1.7% and 1.5%. Property taxes make up about 77 percent of the District’s operating revenues.

State and federal grants, which account for 16 percent of the District’s operating revenues, are expected to be about $18.8 million, about $400,000 more than last year. About three-fourths of the increase is in federal aid. Local revenues are expected to increase by about $500,000.

Operating Expenses

On the expense side, salaries are pegged at $76.3 million, up 3.2% over last year; and employee benefits are projected to be $13.7 million, down 7% from last year, said Ms. Zalewski.

In February, the District was projecting that the expense for employee benefits would be $15.7 million, $2 million more than the $13.7 million currently budgeted. The savings is due primarily to shifting health insurance and life insurance to the Educational Benefit Cooperative, a self-funded cooperative that consists of 90 school districts, said Ms. Zalewski.

Salaries and benefits, together, account for 84 percent of the District’s operating expenses.

Some key assumptions that impact salary and benefit expenses are 1) the District’s enrollment will increase by 105 students to 7,234 students (not including Park and Rice schools or pre-K students) and 2) staff will increase by a total of 8.4 full-time-equivalent positions.

Ms. Zalewski gave a breakdown of the new 8.4 positions: 1.4 general education teaching positions, 5 special education teachers, 1 special education supervisor and 1 information service support staff.

Board President Tracy Quattrocki asked if the new special education teachers would fully staff the additional classrooms and support centers proposed in April by a panel of supervisors in the special services department. The panel said the additional classrooms and support centers were necessary to provide additional supports to children with more severe disabilities and who might need a smaller setting or more attention in programming.

Assistant Superintendent Sue Schultz said the new positions would fully staff the proposal.

Finance Committee Chair Richard Rykhus expressed the hope that by investing more in special education services, the District might be able to serve more students with a disability in its own schools rather than sending them to schools out of the District. This would result in decreasing tuition payments for those students, he said.

Candance Chow said the Board has had extensive conversations about the need for additional instructional coaches to “gain traction” in improving differentiated instruction. “We need to have a strategy and a plan for how we’re going to fund those kinds of resources,” she said. She suggested the Board consider using the surplus and reallocating funds from other uses to fund instructional coaches.

Finance Committee Chair Richard Rykhus suggested that administrators present a recommendation on this issue in August.

Closing Out FY‘14

Ms. Zalewski said the District is projecting that it will finish the year ending June 30, 2014, with an operating surplus of about $129,644. The surplus would have been larger, but administrators decided to use a portion of the potential surplus to prepay $813,000 toward property liability and workers’ compensation insurance premiums that are attributable to FY ‘15. This increased expenses by $813,000 in FY’14, but reduced them by $813,000 in FY’15.

If the prepayments were not made, the surplus for FY‘14 would be projected at $942,644. The District had budgeted a surplus of $1,097,690.

The projected ending cash balance in the District’s operating funds at June 30, 2012, is $21.7 million, or about 73 days of operating expenses.

Financial Projections for FY’16 and Beyond

Ms. Zalewski presented financial projections showing a surplus of $144,435 for FY‘16, and then deficits of $3.5 million in FY‘17, $4.6 million in FY‘18 and $6.7 million in FY‘19.

This is a huge improvement from the deficit scenario projected four months ago in February 2014. The turnaround is attributable to reducing expenses for employee benefits by about $2.6 million for FY‘16, by $3.3 million for FY‘17, by $4.0 million for FY‘18 and by $4.5 million for FY‘19.

These savings are due almost entirely to shifting employee health and life insurance to the Educational Benefit Cooperative, said Ms. Zalewski.

The projections are still based on many assumptions. The assumptions include the rate of teacher and other employees’ salary increases for FY‘17 and beyond (after the union contracts expire); the property tax caps that will apply to the 2015 levy year and subsequent years; and State legislation that may shift pension costs to school districts and reduce State funding to school districts, such as District 65, that have relatively high assessed valuations of property within their borders.

Ms. Zalewski said the projections include an expense of $300,000 for FY‘16 based on an assumption that the State will shift a portion of the cost to fund teacher pensions to school districts, and that the projections assume that the pension cost shift will increase by about $300,000 each subsequent year.

The projections do not assume that the State will adopt a single formula to distribute State funds for education, such as that provided in Senate Bill 16. The Senate passed Senate Bill 16 in late May, but it was not put up for a vote in the House before the spring session ended. If enacted into law, the bill would reduce state funding to District 65 by about $6.5 million per year according to calculations made by the Illinois State Board of Education.

Ms. Zelewski said that bill “could have a devastating effect on the District’s finances in the future.”

Next Steps

The Board is scheduled to approve a tentative budget in August and then to approve, after a public hearing, a budget in September.

Shifting Health Insurance to EBC Results in Huge Projected Savings

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.

A substantial portion of the mounting deficits was due to projected increases in the cost of obtaining health insurance for the District’s employees, which cost is included in the line item “”benefits expense.”” Between fiscal years ending June 30, 2014 and June 30, 2019, the District projected that the employee benefits expense would increase from $14.9 million to $22.9 million, a 54% increase.

After the February projections were issued, Ms. Zalewski said, the District began to explore obtaining health insurance through a cooperative, Educational Benefit Cooperative (EBC), that includes about 90 school districts. Ms. Zalewski reported that the cost would be substantially less and the insurance coverage provided to employees through the cooperative would be better than the current coverage. It would also include a wellness component.

In a May 29 memo, Beatrice Davis, assistant superintendent of human resources, said representatives of EBC met with the District’s Joint Insurance Committee which is composed of representatives of each of the District’s employee unions. She reported that the Joint Insurance Committee was “”very impressed and expressed high interest in joining the EBC.””

On June 2, the School Board adopted a resolution authorizing District 65 to join EBC.

The projected savings due to the shift are substantial. In its latest projections dated June 9, the District is projecting that during the next five years, between fiscal years ending June 30, 2014 and June 30, 2019, employee benefit expenses will increase from $14.9 million to $18.4 million, or a 23% increase. This compares to the 54% increase projected in February. The projected year by year savings are reported in the accompanying article.