On Sept. 25, the District 65 School Board approved a final 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 $139.1 million in operating revenues and $124.4 million in operating expenses, leaving a surplus of $14.6 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, $13.4 million of the $14.6 million surplus in FY’18 will be set aside to manage future deficits, and $1 million will be used to increase the District’s fund balances.
While there were a number of changes made between the tentative budget approved on Aug. 21 and the final budget approved on Sept. 25, the net impact is to reduce the budgeted operating surplus by $70,630.
The major changes were to reduce revenues from the Corporate Property Replacement Tax by $537,747 and to increase revenues from State Aid Categorical payments by $319,887. On the expense side, the major changes were to decrease employee benefits by $782,579, and increase salaries by $283,041, increase consulting fees by $189,000 and increase the expense for supplies and materials by $205,000.
Candance Chow asked about increasing salary expenses and consulting fees by $472,000. She asked, “Are these additional expenses mission critical and are they worthy of using funds that we promised the community that we are going to save for future years?”
Superintendent Paul Goren said, “They are mission critical.” He said the salaries are to address special needs of the student population and the consulting fees, a portion of which is covered by grants, are to support the District’s equity agenda.
The District presented financial projections in which it projects that it will be able to balance its operating budgets through June 30, 2025, using the Referendum funds.
What About FY’26 and Beyond?
At the Sept. 25 Board meeting, Evanston resident Jim Young said during a public hearing on the budget that he was pleased that the April 4 Referendum passed, but he added, “Having said that I hope the Board and administration don’t become complacent. The problems that we’re addressing have not been solved. With the referendum, we have not solved the structural deficit. All we’ve done is push it into the future.”
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.
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: $1.9 million in FY’22; $4.1 million in FY’23; $7.2 million in FY’24; and $10.2 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.
Unless changes are made, though, the operating deficit in FY’26 will likely be about $13 million, and there will be virtually no referendum surplus left to balance that deficit. (Absent the Referendum, the projected operating surplus in FY’26 would be about $27.5 million, so the Referendum will still be a help, but no longer a cure.)
Mr. Young suggested that the Board plan in advance on how to address the structural deficit, noting that salaries and benefits account for approximately 80% of the District’s operating expenses.
Kathy Zalewski, Business Manager and Treasurer, said Mr. Young is correct that the structural deficit did not go away, and added that staff would be working this year on prioritizing its budgeting and reviewing expenditures and staffing.
Board member Candance Chow noted that while the District did not eliminate the structural deficit prior to the Referendum, in the agreement negotiated with the District Educators Council (DEC, the teachers union), the increase in teacher’s base salaries were tied to the increase in the Consumer Price Index. “We still have a structural deficit, but we have made inroads into trying to address the slope of that deficit,” she said.
Raphael Obafemi, Chief Financial and Operations Officer, said, “In order to get to that fundamental structural deficit, we have to really have a conversation of what do we want to look like going out.” He noted that the District could make cuts around the edges, but 80% of the District’s expenditures are salaries and benefits.
Board member Joseph Hailpern suggested the Board discuss priorities before the District is in a crisis position.
For a more complete story on the FY’18 budget, see the article “D65 School Board Approves $125 Million Tentative Budget for FY’18” which is available online at evanstonroundtable.com.