A $73,000 surplus is keeping the School District 65 budget balanced this year. No community members spoke at the District’s Sept. 26 public hearing, and the Board approved the budget unanimously. Operating revenues for fiscal year ending June 30, 2017, are projected at $114,294,000 and operating expenditures at $114,221,000.

The operating budget is 2% higher than last year’s operating budget in both projected revenues and expenditures.

Negotiations between the District and its teachers union (the District Educators Council, DEC) were scheduled to resume on Oct. 5, this time with a federal mediator. Without a firm number for salaries, the business office assumed a 5% overall increase in salaries, which includes salaries for additional teachers, staff,  and increased compensation for employees.  Administrative salaries, however, will see  a small increase, since Superintendent Paul Goren’s salary, at his request, was frozen last year and this year. Raises in other administrators’ salaries will be tied to the consumer price index (CPI).

Revenues

The greatest amount of operating revenues – about 75%, or, in this case, $85.5 million – comes from local property tax revenues. Other monies for operations come from 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,” said District Business Manager Kathy Zalewski.

While General State Aid, a per-pupil allocation from the State, is projected to be funded at 100% this year, providing more than $1 million over last year, federal revenues are projected to increase by 2.5%.  

Expenditures

Salaries account for the bulk of the expenditures, 72%, or $82.3 million in this budget. This figure includes 13.5 new full-time employees. Benefits include a higher early retirement option, but health insurance costs will be flat, Ms. Zalewski said.

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.

Big Unknowns, Grim Forecast Loom

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, is 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.

With the structural deficit and the added technology costs, the District projects that its deficit will be $6.4 million in 2017-18, $9 million in 2018-19, $8.6 million in 2019-20, and $12.6 million in 2020-21.

For purposes of these projections, the District is using a CPI of 0.8% for 2014 and of 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 FY’20 and by 3.7% in in FY’21. Both future salaries and CPI factors, however, are big unknowns.

These projections do not include threats from the State, where politicians continue to propose legislation that, if passed, would severely impact District 65: a proposal to shift the “normal cost” – that is the annual contribution – of teacher pensions from the State to the local school districts; a proposal to freeze property taxes, thereby essentially freezing the school districts’ annual levies; and a proposal to revamp the way the State funds education. These proposals could costs Evanston school districts millions of dollars annually.

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.

Two senate bills, Senate Bill 1 and, later, Senate Bill 231, have been proposed as “education reform” bills, 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 and last for the period the freeze is in effect. Because of the way property tax caps operate, a property-tax freeze for even one year will continue to limit the levy for succeeding years.

The accompanying table reflects the projected string of deficits, starting in fiscal year 2018, including the treatment of technology costs as an  operating rather than a capital expense; the likely, but phased-in, cost of the proposed pension shift; and “other threats from the state.”