District 65’s tentative budget for the upcoming school year is balanced by a thin margin. With operating revenues projected at $114,101,776 and operating expenditures at $114,022,656, the projected difference is only about $80,000.

At the Aug. 15 Finance Committee meeting, Kathy Zalewski, the District’s Business Manager, described some highlights of and changes in the 2017 tentative budget. Spending is aligned with the District’s priorities and strategic initiative, she said, and short-term measures such as prepayments, reductions, and efficiencies helped balance the budget.

The operating budget is 2% higher than last year’s operating budget in both projected revenues and projected expenditures. Because there was no teacher contract when the tentative budget was created, the business office assumed the total would increase by 5%.

At the request of Superintendent Paul Goren, the School Board froze his salary last year and this coming year, and Dr. Goren has frozen the salaries of his senior leadership team this coming year and tied their future raises to the consumer price index (CPI).

Revenues

Local property tax revenues comprise the largest chunk of operating revenues – $85.5 million, or 75% of the projected revenues. Other sources of operating revenues are the corporate property tax replacement – $2 million; General State Aid – $4.7 million; Categorical State Aid – $7.8 million; and federal aid – $8.6 million.

State-imposed tax caps limit the amount School Districts may levy for local property taxes. The tax cap is tied to the CPI.  For 2014, the CPI was 0.8%. “We haven’t seen a CPI factor over 2% since 2011,” Ms. Zalewski said.

Ms. Zalewski said General State Aid, a per-pupil allocation from the State, is projected to be funded at 100% this year, after several years of below-level funding. Federal revenues are projected to increase this year by 2.5%.  

Expenditures

Salaries account for the bulk of the expenditures, 72%, or $82.3 million in this budget – without a final number for the teachers’ contract. A total of 13.5 full-time employees will be added this year, and the enrollment is projected to increase by 86 students – both of which add to expenditures.

Benefits include a higher early retirement option, but health insurance costs will be flat, with the result that overall benefit costs will see a 6% decrease.

The tentative budget proposes “non-personnel reductions and efficiencies” of $580,000. These include delaying some repair and maintenance projects, reductions to purchased services and supplies, lower utility costs, reducing consulting services with the result that fewer projects will be completed, and purchasing less school furniture.

Grim Forecast for 2018 and Beyond

The result of the continuing low CPI factor, which limits the annual property tax levy, together with other flat or slightly increasing revenues and ever-mounting expenses, has created a structural deficit that District 65 will face in the ensuing years, Ms. Zalewski said.  An internal factor is the District’s decision to shift more technology costs to the operating budget rather than have those costs treated as though they were capital expenditures. That shift will first appear in the 2018 budget.

For purposes of these projections, the District is using a CPI 0.8% for 2014 and 0.7% for 2015, which determine the District’s increase in property tax levies for FY’17 and FY’18. For subsequent years, the District assumes a CPI of 1.5%.  Total salaries are assumed to increase by 3% in FY’18, by 3.8% in FY’19, by 3.6% in in FY’20 and by 3.7% in in FY’21. Both salaries and CPI factors, however, are big unknowns.

With the structural deficit and the added technology costs, the District projects that its deficit will be $6.4 million in 2017-18, $8.9 million in 2018-19, $8.5 million in 2019-20, and $12.5 million in 2020-21.

These projections do not include threats from the State, where politicians continue to propose legislation that, if passed, would severely impact District 65. One threat is the proposal to shift the “normal cost” – that is the annual contribution – of teacher pensions from the State to the local school districts.

Ms. Zalewski said the pension shift would likely be phased in and could affect the District as early as 2017-18. Estimates of the impact of the pension shift are that the District would incur about $334,000 in additional expenses in 2017-18, increasing to $1.5 million in 2020-21.

A second threat is a reallocation of State funds in the guise of “education reform.” Two senate bills, Senate Bill 1 and, later, Senate Bill 231, have been proposed, but neither has been enacted into law. Each bill essentially proposed a re-division of the education-fund pie. Neither proposed an increase in funding for education – either through a statewide tax increase or through relief from tax caps for local school districts.

A property tax freeze is the third possible threat. If enacted without additional relief for school districts, the tax freeze would essentially freeze the potential revenues of school districts at the level of the year the tax freeze became effective.

Ms. Zalewski said, “We are hearing that these [the pension shift and tax freeze] probably won’t happen until [school year 2017-18].”

A memo about the long-term financial forecast included in the Aug. 15 meeting package cautioned that these figures are subject to change and promised updated projections “as they become known during the budget-building process.”

A public hearing on the budget is scheduled for the Board’s Sept. 26 meeting. It is expected that the budget will be adopted at that meeting.