On Dec. 19, the Finance Committee of the District 65 School Board recommended that the Board place a $14.5 million operating referendum on the ballot for the April 4, 2017 election. The amount represents a $1 million increase from that recommended by Superintendent Paul Goren on Dec. 5.
If approved, the referendum would provide an additional $14.5 million in funding on an annual basis for education, including classroom instruction, support services, and operations. It would also increase the District’s ability to fund some critical capital projects. The infusion of funding is necessary to sustain the District for the next 8 years, said Dr. Goren.
While the plan is to sustain the District for the next 8 years, the funding could provide a way for the District to survive if the State legislature cuts State funding to District 65 or freezes property taxes.
If the referendum does not pass, the District will need to make drastic cuts totaling $8.8 million to balance the budgets in the next two school years, followed by even steeper cuts in subsequent years.
The updated projections show that the District’s operating deficits will grow from $5.1 million in FY’18 (the fiscal year ending June 30, 2018) to $24.4 million in FY’25. The cumulative deficits during the eight-year period are $112.3 million, said Dr. Goren.
In addition to projecting the District’s operating revenues and expenses on a traditional basis, the projections include two items. The first is an expense of $1.9 million per year for technology. This expense was historically paid through the District’s capital budget. The rationale for the shift is that the expenses are for technology that has a short life span and are more appropriately treated as operating expenses than longer-term capital expenses, said Dr. Goren.
Second, the projections assume that the State will shift a portion of the cost to fund teacher pensions from the State to school districts, and the projections include an amount assuming the shift will be phased in starting at $300,000 in FY’18 and grow to $1.7 million in FY’24 to cover that possibility.
The projections do not build in amounts for other legislation the State legislature is considering that will impact school districts, including a significant reduction in State funding and a property tax freeze being pushed by Governor Bruce Rauner. Dr. Goren said the potential impact of such legislation could add another $30 million in deficits over the next four years. “This is too large an amount to ask the Evanston taxpayers to hedge against,” said Dr. Goren.
The District has already made painful cuts in the last six years to address projected deficits, including $4.5 million in instructional costs, and $5.7 million in non-instructional costs. In light of these reductions, there are “few options that won’t cause us pain,” said Dr. Goren.
Basics on the Referendum
Dr. Goren said an operating referendum of $14.5 million would generate a total of $135.6 million over the next eight years (which includes compounding the $14.5 million due to tax increases at the assumed rate of 1.5% per year). This would be enough to cover the projected deficits of $112.3 million, and leave $23.3 million to enhance educational opportunities, to enable the District to move forward with some limited capital projects, and to maintain the fund balance at 19% of operating expenses, when best practices aim for between 25% and 40%.
In addition, Dr. Goren said he was proposing that the District make cuts of $400,000 in the Central Office starting with FY’18, which would carry through the next eight years at a total savings of $3.2 million. This is in lieu of his proposal on Dec. 5 to cut $1.5 million in FY’18, much of which would have impacted the classroom. Board members were reluctant to make cuts that would impact the classroom, while simultaneously asking the community for funding that would preserve educational programs.
Under the plan, and absent additional threats from the State, the District would be able to preserve its programs and services and balance its budget over the next eight years, said Dr. Goren. The District would also be able to make some enhancements.
He said the District would be able to maintain small average class sizes, strengthen the core curriculum across subjects, continue ongoing work to promote equitable outcomes for all students, provide intensive supports for striving students, provide social emotional learning and improve school climate, and expand family supports and community partnerships.
In addition, the referendum would provide a secure source of funding for technology in the amount of $1.9 million a year, which would essentially enable the District to maintain current levels of teacher and student computers, software licenses, and infrastructure.
The referendum would also enable the District to ensure there is at least one full-time equivalent reading specialist at every school. This would not restore the number of reading specialists to prior levels before recent cuts, but it would be an improvement, said Stacy Beardsley, Director of Literacy.
The funding would also enable the District to expand the digital promise program implemented in partnership with Digital Promise and Verizon at Chute Middle School and King Lab three years ago. Under that program, each middle student was provided a computer tablet, and internet access at home. At the Dec. 19 meeting, teachers said this program helped them significantly in differentiating instruction and has helped to generate student interest in learning. Chute Principal Jim McHolland said the program has helped level the playing field, because students with the greatest need have been provided a computer tablet and internet access while at home.
The cost of this initiative is approximately $7 million over the eight-year period.
When asked about what the District is doing to promote family supports and community partnerships, Dr. Goren said the District was reaching out to the community and providing opportunities for increased parent engagement in the schools, borrowing from what was done in the Harlem Children’s Zone program; that it is continuing the community school model and looking for opportunities to expand wrap-around services to children and families in partnership with community organizations; and it is partnering with many organizations in the Evanston Cradle to Career intuitive.
“We can’t do this work without the community being engaged,” said Dr. Goren.
He said the District is also working to promote equitable outcomes for all students, which includes a focus on early literacy in the K-3 grade levels; providing intensive supports for striving students; providing a culturally relevant curriculum, school climate teams, and equity and diversity-focused professional development for staff. The District estimates the cost of these programs at about $2.8 million a year.
“We’re building momentum,” said Dr. Goren. “Most importantly, over the last two years I’ve been in this post, we’ve been focused on building the capacity of our colleagues who are teachers, principals, and teacher aides to really change the way we do our work. That’s what makes it real exciting. I’m excited about the fact we’re really building the capacity to do things differently and to do things to reach all children and to do things that are equitable across all children, all groups of children.”
“I appreciate hearing that commitment to capacity building and to ensure that we continue the commitment to address the institutional inequities in achievement,” said Board member Anya Tanyavutti. She added, “I want to ensure that we also continue to talk about how we can continue that commitment to correct those inequities that are built into the system, whether things are properly funded or whether they’re not.”
Dr. Goren said, “We have a lot of momentum, … and an agenda around equity, diversity, and a culturally relevant curriculum.”
The District’s ability to fund capital projects is severely limited by its Debt Service Extension Base, which is a state-imposed limit on its ability to borrow funds for capital projects without a referendum. Most of the District’s capital projects in the past 10 years have been to expand classrooms and cafeteria space to accommodate an increase of enrollment by 1,420 students in the last nine years, and to make roofing and masonry repairs, asbestos removal, and other life/safety repairs.
Over the next eight years, the District estimates that it can borrow a total of about $12.5 million for capital projects under its DSEB. The District has a long list of projects that far exceeds that amount, including additional amounts for roofing and masonry repairs, and life/safety work identified in its last life/safety survey.
“We have a long list that hovers around $95 million,” said Dr. Goren.
The referendum would improve the District’s ability to fund capital projects in three ways. First, by paying technology expenses through the operating funds, the District would free up about $7.2 million of funds for capital projects during the next eight years, said Dr. Goren.
Second, the referendum would enable the District to contribute a total of $8.2 million toward capital projects during the next eight years.
The total of $15.4 million would enable the District to fund capital projects such as installing double vestibule safe entrances for five remaining schools by the summer of 2019; and making priority replacement of air handler units, boilers, roofing, and masonry work.
Third, if revenues over and above those predicted are generated, the additional funds could be put toward capital expenses. “I would recommend strongly that we put any surplus into capital projects and the fund balance to make sure we can have favorable bond ratings and can have more money available for the type of capital projects that we’re just not able to fund now,” said Dr. Goren.
Threats from the State
Board member Tracy Quattrocki asked if the referendum funds could be used as “insurance” in the event the State legislature moved forward with the “triple threats.”
Dr. Goren pointed out that the projections built in an amount based on an assumption that the State will shift a portion of the pension costs from the State to school districts. The other two of the “triple threats” are a possible property tax freeze, and possible legislation that would redistribute State funds from school district with high property values to districts with lower property values.
“We are a high-wealth tax district that serves a broad diversity of students, including many families who are in a depth of poverty,” said Dr. Goren. “That is something we are committed to doing, but in the new formula we have the potential of losing $6 million annually.” In earlier memos the estimated potential adverse impact due to a property tax freeze and a change in State funding would be $30 million in the first four years.
A referendum would help the District to get by if adverse legislation were enacted. “We did not factor that into these projections, but to be poised in case of those threats, we at least would have some resources where we would be nimble enough to move forward.”
Managing the Referendum Funds
In the initial years, the referendum would generate a budget surplus, which would, under the plan, be used to manage the projected deficits in the later years. For example, for FY’18, the projected deficit is $5.1 million and the referendum funds would be $13.5 million. The surplus generated would be used to help manage the projected deficit of $24.4 million for FY’25.
Dr. Goren told the RoundTable that the surplus funds would be posted to the District’s operating funds. “The District will monitor projected surplus and deficit amounts to ensure that funds are not used for other purposes,” he said.
Impact on Property Owners
Dr. Goren presented a table showing the impact of the referendum on a property owner. He said a property owner who paid the average property tax bill of $8,076 in 2016 would see an increase of about $470 in property taxes, or 5.8%, per year if a $14.5 million referendum were approved. That would be $42 per month.
A property owner who paid $4,000 in property taxes would see an increase of $233, and a property owner who paid $12,000 would see an increase of $698. The increases are about 5.8% across the board, according to the table.
“We recognize that his referendum is not without an impact on the community – homeowners and renters,” said Dr. Goren. “We do recognize, though, the importance of maintaining the momentum … in a way that’s respectful of Evanston and Skokie homeowners and apartment renters, who will feel the impact of this as we move forward.”
“Without a successful referendum, we’re facing deep deficits and staggering reductions,” said Dr. Goren. The District will have to make cuts of $5.1 million in for FY18, followed by at least $3.7 million of reductions in FY’19. These would be followed by steep cuts in subsequent years.
While the District outlined deficit reduction strategies on Dec. 5, administrators provided additional details on Dec. 19. Dr. Goren said the District would need to do each of the following to achieve between $4.25 million and $6 million in savings, and that it would require reducing between 50 and 60 staff positions:
• Increase middle school class sizes up to 28 students and change enrollment/staffing practices to fill more elementary classes to class sizes “closer to current maximums.” The current K-5 maximum class sizes are 25 at kindergarten, 27 at first and second grades, 28 at third and fourth grades, and 29 at fifth grade. Increases in class sizes are estimated to save between $1.5 million and $2 million.
• Make deep cuts to central office services and operations, with potential savings of between $750,000 and $1 million.
• Reduce building level and classroom supports, with potential savings of between $1 million and $1.5 million.
• Make reductions to curriculum and enrichment programming. As an example, Dr. Goren said the District might be forced to defer updating a science curriculum. Assistant Superintendent John Price said after school and summer programs might be impacted. Potential savings are estimated at between $1 million and $1.5 million
If all the foregoing were implemented, the District would still need to make cuts of between an additional $2.8 million and $4.6 million, said Dr. Goren. To achieve these numbers the District would need to do some of the following:
• Make additional increases to the maximum class sizes at the elementary school level, which could “possibly” push classes sizes in kindergarten to 30 students per class, said Peter Godard, Director of Research, Assessment and Data.
• Close one or more schools.
• Combine buildings to serve fewer grade levels.
• Create multi-grade classrooms.
• Reassign students to different schools on a district-wide basis.
• Eliminate or charge non low-income households for the second half of the kindergarten day.
Dr. Goren said administrators will have to begin to make recommendations for these cuts in January and February, so the District is in a position to implement the cuts starting next year if the referendum does not pass.
Ms. Chow noted that if the referendum does not pass, the District would be limited to spending $12.8 million on capital projects over the next eight years. “We would have absolutely no ability to invest in deferred maintenance or other capital projects over the next eight years.”
District 65’s ability to increase property taxes, which account for 75% of its operating revenues, are limited by tax caps, which generally limit the increase to the lesser of 5% or the Consumer Price Index (CPI).
During the last eight years, since the Great Recession, the CPI has been relatively low: 0.1% (2008), 2.7% (2009), 1.5% (2010), 3.0% (2011), 1.7% (2012), 1.5% (2013), .08% (2014), and 0.7% (2015).
During the eight-year period, the average CPI has been 1.5%. Meanwhile the District’s total salary expense has gone up an average of about 3.6% between FY’08 and FY’16.
The low CPIs have put a significant strain on the District’s financial position, and contributed to a structural deficit, because 75% of the District’s revenues comes from property taxes.Growth in Student Enrollment Paul Goren and Candance Chow both made the point that the District’s enrollment has grown significantly in the last 10 years and that has been a factor in the projected deficits. Ms. Chow said the enrollment increased from 6,474 students in FY’07 to 7,894 in FY‘16, or by 1,420 students. While that growth was occurring, the District was subject to tax caps, which allow school districts to increase property taxes to account for the rise in inflation as measured by the Consumer Price Index, but do not allow school districts to increase property taxes to educate an increased number of students – except perhaps to the extent that new property is added to the tax rolls.Ms. Chow said the added cost to educate an additional 1,420 students is approximately $20 million per year, yet the additional revenue the District receives due to new property being added to the tax rolls since FY’07 is only about $3.5 million per year. “I think it’s important that folks understand this is part of the structural deficit because in our District where 75% of our revenue is from local property taxes, by design increases in enrollment aren’t matched with commensurate increases in revenue,” said Ms. Chow. “The assumption is the population growth correlates with bringing new property onto the tax rolls and in Evanston that’s just not the case.”