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On Aug. 21, the District 65 School Board approved a tentative budget for fiscal year ending June 30, 2018 (FY’18), the first budget that incorporates the additional $14.5 million in revenues that became available through the April 4 Referendum. Overall, the District is projecting approximately $139.2 million in operating revenues and $124.5 million in operating expenses, leaving a surplus of $14.7 million.
The Referendum has enabled the District to balance its budget for FY’18 without making drastic cuts of about $5.1 million, which would have been necessary absent the referendum. In addition, in accordance with the Referendum plan, $13.5 million of the $14.7 million surplus will be set aside to manage future deficits, and $1 million will be used to increase the District’s fund balances.
Property Tax Revenues. Total property tax revenues are budgeted to be $109 million in FY’18, up from $86 million in FY’17, or a 27% increase. Approximately $22 million of the increase is attributed to the Referendum.
The District’s property tax revenues are increased by the amount permitted under property tax caps, taking into account new property and the property that was included in the Howard and Hartrey TIF District which was retired last year.
The property tax revenues also include additional amounts approved in the $14.5 million Referendum.
First, the District will receive an additional $14.5 million as part of its 2016 tax levy. Because of the way Cook County computes property tax installments, that amount will be paid entirely as part of the second installment of property taxes in 2017. This amount falls in the first half of FY’18.
Second, the $14.5 million will also be included in the District’s 2017 tax levy. The District will receive a little more than 50% of the $14.5 million as part of the first installment of property taxes paid in the first half of 2018.
The District will thus receive a little more than $22 million in FY’18 due to the Referendum.
State Aid: The District is budgeting General State Aid to decrease from $4.7 to $4.5 million in FY’18, due to shifts in the number of students from low-income households, and it is budgeting a total of $8.2 million in Categorical State Aid, which includes payments for bilingual education, special education, and transportation.
The State has made only three payments for Categorical State Aid last year, FY’17. One of the payments was due in FY’16, and two of the payments were due in FY’17. The State missed making two payments that were due in FY’17. In FY’18, the District could theoretically receive two payments due in FY’17, and four that will be due in FY’18. Kathy Zelewski, Business Manager, said, though, the District was advised, in light of the financial situation of the State, to plan on receiving only four categorical payments of State Aid in FY’18.
The amounts budgeted for State Aid do not reflect any proposed changes in the General State Aid formula, which are the subject of Senate Bill 1 and Governor Bruce Rauner’s amendatory veto. If either Senate Bill 1 or Gov. Rauner’s amendatory veto are implemented, it should not significantly impact the amount of State aid budgeted by District 65 for FY’18.
Federal Funding: The total amount of federal funding is budgeted to increase to $10.1 million, up from $9.9 million in FY’17. Part of the increase is attributed to more efficient billing for Medicaid reimbursement ($200,000) and an increase of $270,000 in Headstart funding, said Paul Goren, Superintendent of District 65.
Operating expenses are budgeted to increase from $114.2 million to $124.5 million in FY’18, an increase of 11%.
Ms. Zelewski said the increase is primarily due to three factors: increased salary costs; the elimination of prepaid expenses; and paying certain amounts historically treated as capital expenses through the operating budget.
First, Ms. Zelewski said the District’s total salary cost is budgeted to increase by about 6%. The increase is due in part to an increase in the compensation package negotiated with the District Educators Council (DEC, the teachers union) and several other employee groups. One change makes it easier for teachers to make a track movement comes with a cost estimated at $500,000 for this year. But the increase in the total salary cost is primarily due to a net increase of 28.6 full time equivalent (FTE) teachers or staff.
The new positions are:
• 15 teachers/social workers needed to provide teachers an extra planning period that was agreed to as part of the new DEC contract
• A net increase of 1.5 reading specialists to provide reading support (part of the Referendum)
• 2 bilingual teachers, due to program needs
• 4.5 elementary and middle school teachers, due to student needs and enrollment
• 1 special education coach
• 1 bilingual social worker
• 2 special education teacher assistants, due to student needs
• 1 interpretive aide
• 0.6 FTE staff to assist homeless students
Benefits, including medical insurance premiums, which are projected to increase by 3%, are budgeted at $15.3 million. This amount includes $300,000 in anticipation that the State legislature might shift teacher pension costs from the State to the school districts. If the legislature does not do so, the $300,000 will be removed from the budget, said Ms. Zelewski.
Second, the District’s operating expenses in FY’17 and prior years were reduced because certain expenses, such as workers compensation, property liability insurance, and a portion of health insurance were pre-paid. These expenses have not been prepaid for FY’18, which gives the impression that the expenses have been increased by more than $1.25 million, said Ms. Zelewski.
Third, operating expenses are higher because under the Referendum plan:
• $1.9 million in expenses for technology that were historically paid through the capital budget have been shifted to the operating budget
• Capital building projects of about $1.25 million are being funded through the operating budget.
• The 1:1 technology that was piloted at Chute Middle School and at grades 6-8 at the magnet schools for the last three years is being expanded to Haven and Nichols Middle Schools. The estimated cost of continuing and expanding the program is $875,000 per year.
Other significant expenses include mandatory lead testing ($100,000), the cost of equity initiatives ($239,000), and a textbook adoption ($550,000)
Dr. Goren said the Referendum has enabled the District to preserve its educational program with some enhancements, to provide a source of funding for technology and some small building projects, and to allocate $1 million a year to build up the fund balances.
Closing Out FY’17
The District, on an unaudited basis, closed the year ending June 30, 2017 with a surplus of $906,120, compared to a budgeted surplus of $73,168.
Ms. Zelewski said revenues were $793,000 less than budgeted, primarily because of the State’s failure to make categorical aid payments to District 65. Expenses were about $1,631,000 less than budgeted because contract negotiations with DEC and other employee groups reduced total salary costs and the district made reductions in administrative costs.
Approximately $800,000 of the surplus was used to increase the size of the District’s fund balance to avoid a downgrade by the bond rating agencies, said Ms. Zelewski.
At year end FY’17, the District had a cash fund balance of about $23 million, or about 19% of expenses. Best practices call for reserves of about 25% to 40% of expenses, said Ms. Zelewski.
Absent the Referendum, District 65 was projecting that it would operate at deficits growing from $5.1 million in FY’18 to $24.4 million in FY’25. With the approval of the Referendum, the new projections show the budgets will be balanced through FY’25.
In the first four years, FY’18 – FY’21, the District plans to use a portion of the Referendum Funds to balance its operating budgets. In addition, in each of the first four fiscal years, the District plans to set aside a portion of the Referendum Funds to manage future deficits. It plans to set aside $13.5 million in FY’18; $4.4 million in FY’19; $4.9 million in FY’20; and $1.0 million in FY’21.
In the next four years, FY’22 – FY’25, after the entire amount of the annual Referendum funds (the $14.5 million) is applied toward the operating budgets, the District is projected to operate at deficits as follows: $1.7 million in FY’22; $3.9 million in FY’23; $7.1 million in FY’24; and $10.1 million in FY’25.
The District plans to use the portions of the Referendum Funds that were set aside in reserve in FY’18 – FY’21 to balance the projected operating deficits in FY’22 – FY’25. The portion of the Referendum Funds that will be left remaining at June 30, 2025 will be about $870,000.
The green bars in the chart below show the amount of Referendum funds that will be set aside in reserve in FY’18, FY’19, FY’20 and FY’21, and the red bars show the amount of the set-asides that will be applied to balance operating deficits in FY’22, FY’23, FY’24, and FY’25.
The operating fund balance is projected to grow to $31.6 million by FY’25.
The District has committed to report on an annual basis the amount of Referendum fund set-asides and to present financial projections through at least FY’25.
Referendum Plan for Increasing Fund Balances, Capital Spending, and 1:1 Technology
Under the referendum plan, the District will also use a portion of the Referendum Funds collected each year for the following:
• It will contribute $1 million each year to the District’s fund balance to keep the fund balance at about 20% of expenses (best practice recommends between 25% and 40%);
• It will use $1.9 million each year to fund capital expenses for technology, which were previously financed by long-term debt.
• It will use $500,000 each year for scheduled capital expenses, and an additional $525,000 each year for non-recurring capital building expenses.
• It will hire additional reading specialists and maintain and expand 1:1 technology at the middle schools to increase innovation and differentiation, at a cost of about $1,025,000 annually.