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On Sept. 15 the Finance Committee of the District 65 School Board decided to defer moving ahead with either a capital referendum or an operating referendum until the District completed its strategic plan and until legislators in Springfield decide whether they would revamp the way the State funds education and whether and to what extent they would shift the cost of funding teacher pensions from the State to the local school districts.
A capital referendum would ask voters to increase funding for capital projects, such as for buildings and certain technology. An operating referendum would ask voters to increase funding for operating expenses, such as for salaries and general operations of the District.
Waiting until legislators decide on education funding and on any shift in pension costs will provide a better picture of how the new legislation will impact the District’s budget. By waiting until the strategic plan is completed, the District can better align an operating and a capital referendum with the District’s goals.
Background and Context
Superintendent Paul Goren provided a context for the Finance Committee’s discussion on the potential capital and operating referenda.
He said the District projects that it will operate with a slight surplus in this and the next school year, but it projects deficits of $3.3 million in 2016-17, $4.75 million in 2017-18, and $7.1 million in 2018-19.
These projections are based on many assumptions. One key assumption, Dr. Goren said, is the amount the Consumer Price Index (CPI) will increase this year and subsequent years. The increase in the CPI limits the amount by which District 65 may increase property taxes, which account for almost 80% of the District’s revenues. Mary Brown, assistant superintendent of business services, said the District assumed in making the projections that the CPI would increase by 2%, but pointed out it had recently been as low as 0.1%.
Dr. Brown said if the actual CPI was 1% lower than assumed, property tax revenues would be about $1 million less than projected. Conversely if the CPI comes in 1% higher than assumed, property tax revenues would be about $1 million higher than projected. Because of the way tax caps operate, a reduction or increase carries through to each succeeding year.
Dr. Goren also said the District’s financial picture was uncertain due to three pieces of legislation pending in Springfield:
• One issue is whether or not the legislature will continue the State’s 5% income tax rate. The State raised the income tax to 5% several years ago, and the tax is scheduled to be reduced to 3.75% on January 1. If the 5% rate does not continue, that will reduce the amount the State has available to fund education.
• The State is considering “the degree to which the pension liability will ultimately be shifted from the State to local districts, such as District 65,” said Dr. Goren. Kathy Zalewski, business manager, said the projections assume that District 65 will be required to pay an amount equal to 0.5% of teachers’ compensation into the pension fund, or about $400,000, starting in 2015-16, and that the payment will increase to 2% over the next three years. That amount may significantly increase, perhaps to even 12%, if pension reform legislation enacted earlier this year is held unconstitutional, said Dr. Brown.
• Another wild card at the State level is Senate Bill 16 which proposes to transform the way the State funds education. The Senate passed SB16 in May, and the bill is currently pending before the House. If enacted into law, the prediction is District 65 would lose between $6.5 million and $7 million in State funding, said Dr. Goren.
These variables are “robust” and need to be taken into account in discussing the District’s spending on operations and on capital projects, said Dr. Goren.
Dr. Goren added that the strategic plan should be factored into the mix. “We are moving forward on a strategic planning process which we’re all excited about and excited about engaging the broad communities that make up Evanston and Skokie.
“We want to reserve time to be visionary and we want to reserve the time to move forward in all sorts of interesting ways in the years to come, but it comes at a time when there’s uncertainty.
“The marriage of planning strategically with thinking about the important capital needs of our District and then thinking about the important operating needs of our District is important to keep in context.”
Capital Projects on the Table
At the Sept. 15 meeting, administrators presented a list of potential capital projects, including for buildings and technology, with a total estimated cost of approximately $89 million. This is down $18 million from the amount put on the table in August.
At the request of members of the Finance Committee, administrators took proposed classroom additions at four schools off the list presented in August, and they eliminated a proposal to convert science classrooms into STEM labs at the middle school level. In addition, Dr. Brown said, they scaled back the scope of the work to update intercom systems, which reduced the cost from $2.2 million to $300,000.
Dr. Brown also outlined an option that would reduce capital costs by another $4 million by using a less expensive design for secure entries at Lincolnwood, King Arts and Rhodes schools, and by installing a grass field rather than an artificial turf field at Chute Middle School.
There is no single project on the $89 million list of projects that accounts for a large portion of the building work. The potential work includes roof replacements and masonry repairs, site improvements, replacing ceilings and lighting in the schools, removing asbestos and replacing some floors, upgrading HVAC at certain schools, replacing classroom cabinets, adding cafeterias and creating safe entrances in certain schools, and technology.
The single largest project is roof replacement at Washington school which is pegged at $2.7 million.
Much of the work is due to the age of District’s buildings, said Dr. Brown.
Administrators, together with the District’s architects, TMP Architecture, sorted the projects into three priority levels to further enable the Board to make choices for a potential referendum.
The District’s borrowing capacity under the Debt Service Extension Base (DSEB) is now estimated at about $8 million, and that amount increases at about $2.5 million per year. The DSEB would thus enable the District to borrow about $20 million over the next five years, some of which Board members have said they want to keep as an emergency reserve.
“We don’t have enough in the debt service to really continue at the pace that we feel we need to,” said Dr. Brown. The scope of work on the table can only proceed if the voters increase the borrowing capacity of District 65.
Board Members’ Reaction
Many Board members favored deferring the referenda until after the District has completed its strategic plan, so any capital and operating spending plans would align with the Districts’ strategic goals and so they would have a clearer picture of how actions in Springfield would impact the budget.
“We’re going through a strategic planning process now,” said Sunni Kartha. “As part of that strategic planning process, we may decide we want to press STEM education, maybe not just in our middle schools, but starting in our elementary schools. And all of a sudden we may have capital improvement needs that have to happen in our buildings to accommodate that kind of education.
“I wonder if we might want to pause a minute and really consider a capital referendum in conjunction with our strategic planning and see what we need our buildings to look like five years and 10 years out, and then we’ll have a better narrative to present to the public.”
“We’ve got a timing issue,” said Dr. Goren. He added, though, “I think you’re spot on. In the ideal rational world, as we move forward with the strategic plan and as we identify programmatic foci that we want to invest in as a community, the rational logic says, ‘Let’s make sure that we can support that through the resources that we can gain though a referendum.’”
Finance Committee Chair Richard Rykhus said, “I agree as well. That’s in part why there’s a Plan B in here – because we are not certain what timing might be best because of unknown factors. If we don’t do referenda in this cycle, it would allow us to align capital investments with what comes out of the strategic plan.”
Katie Bailey said, “I think it’s better to wait and really understand how these immediate needs fit within the larger context.”
Board President Tracy Quattrocki said, “I think it makes a lot of sense to tie it to the strategic plan. I think it would also give us time to see what’s happening at the State. It would give us more knowledge.”
Candance Chow said, “There’s so much uncertainty right now, especially with the legislature, in the structural sphere that we operate in. If there’s any ability for us to wade through that a little bit and get some kind of certainty around these items that would have a great impact on us, we should do that.”
Mr. Rykhus also said, “What I’m taking away is we’re in a holding pattern right now. There’s clearly interest that we get some foundational information in place from the State, get our strategic plan in place, get the life-safety survey completed, so we go into a referendum with a lot more knowns.”
If a referendum does not go forward in April 2015 or if it is not approved, Plan B is that the District will spend $4.7 million on capital projects in the summer of 2015, using funding available under its DSEB, said Dr. Brown. That will leave about $3.3 million for potential funding under the DSEB, she added. Some of the major projects are technology ($1.9 million), roofing at Oakton ($1.1 million), and addressing the storm water retention area at Lincoln school ($593,024).
“At the State level, Illinois has a broken financing system and so something needs to be fixed. I think that’s the legislative intent of many of the legislators, including our own.
“”I also think that Illinois needs to focus and maintain focus on children with great needs and indeed that’s where much of the resources that we get are used. We serve a broad diversity of children, including those that have very huge needs. As we know 45% of our kids come to us from at or below the poverty line.
“The conversation right now is pointed at the District level. We need to think about how Districts equalizing or financing, as opposed to – it’s not totally exclusive – as opposed to the student level. Serving students who have the greatest needs. The nudge that I would have tomorrow evening
It’s a really interesting dynamic of the system’s broken, and we want to do best by the children who are here in the State of Illinois and here in Evanston and Skokie. Let’s see how we can focus adjustments and any of the next steps on the children.’