At the March 9 meeting of the Finance Committee of the District 65 School Board, Kathy Zalewski, Business Manager, and Raphael Obafemi, Chief Financial and Operations Manager, presented possible ways to reduce the District’s expenses by $1.4 million for the fiscal year ending June 30, 2021 (FY’21).
Ms. Zalewski said in a memo presented to the Finance Committee, “Per the Board’s directive, the District is working on bringing the rate of growth in expenditures down to reduce the structural deficit. This will be accomplished by implementing efficiencies, reorganization of certain services and non-classroom budget reductions.”
Some Background
The Finance Committee asked administrators to propose reductions in expenses at its meeting held on Feb. 3. At that meeting Ms. Zalewski and Mr. Obafemi presented five-year financial projections that projected the District would have operating deficits of $804,504 in FY’22; $4.2 million in FY’23; $ 6.9 million in FY’24; and $10 million in FY’25.
The projections also showed that, in accordance with commitments made as part of the April 2017 Referendum, these operating deficits would be covered by amounts set aside in a Referendum Reserve.
Ms. Zalewski pointed out, though, that the District continues to have a structural deficit where expenses are increasing at a higher rate than revenues. The contracts entered into last year with the District Educators Council (DEC, the teachers union) and other employee groups have not resolved the structural deficit.
The District has not yet issued projections for FY’26, but if the trend continues, the operating deficit in FY’26 would be about $13 million, and there would be about $8.2 million left in the Referendum Reserve to apply toward balancing that deficit. There would be nothing left to cover operating deficits in subsequent years.
The chart below shows the deficits projected by the District for FY’22 through FY’25, and it shows a potential deficit of $13 million for FY’26 based on the trend. The chart also shows the projected applications of the Referendum Reserve to balance the budgets, which may run out in FY’26 if no action is taken.
A Call to Reign in Expenses
At the Feb. 3 Finance Committee meeting, then Board member Candance Chow said she was thrown by the projections that showed that the rate of growth of expenses compared to the rate of growth of revenues for FY’21 was higher than that budgeted for this year, FY’20. She said, “What we have not done is rein in expenses so we’re not worsening the problem.”
Ms. Chow said the District should not increase the gap between revenues and expenses from what it was in FY’20.
Board President Suni Kartha asked administrators to present a plan at the next Finance Committee meeting that would limit the percent of the gap between revenues and expenses in FY’21 to the percent of the gap that existed in FY’20, and to show how the reductions would be made.
In February, the District was projecting that in FY’21 revenues would go up by 1.47% and that expenses would go up by 3.93%, compared to FY’20 where revenues are budgeted to go up 4.25% and expenses to go up by 6.19%.
At the March 9 meeting, Ms. Zalewski said administrators were seeking to reduce expenses projected for FY’21 by $1.4 million.
The Proposed Reductions
Ms. Zalewski said there were three types of potential cuts: level 1 does not affect student learning, level 2 impacts student learning in an indirect way, and level 3 impacts student learning directly.
The proposed cuts, Ms. Zalewski said, were in the levels 1 and 2. Cuts in the level 3 “are not being contemplated at this time,” she said.
Mr. Obafemi listed nine categories where there could be potential cuts:
- Bus transportation. The only bid received to provide bus transportation in FY’21 included a $1 million increase over this year, FY’20, plus 5% increases in the next two years. In post-bid negotiations, Mr. Obafemi said, the bus company has agreed to reduce the increase by $500,000, and negotiations are continuing. He added that he is trying to keep increases in subsequent years to the increase in the Consumer Price Index, plus 1.25%.
- Administrative Office. The proposal is to improve efficiencies in the provision of supports, with a possible savings of $100,000.
- Early Childhood Education services. The plan is to analyze all the early childhood programs and see if they can be provided more effectively and with a cost savings of $250,000.
- Camp Timberlee. One possibility is to charge families, who can afford to pay, the full cost of the camp for their children. Another possibility is to offer a one-day program at another camp. The possible savings are $70,000.
- Consultants. The proposal is to make better use of the expertise of people in the District and reduce the use of consultants, with savings of $150,000.
- Flat student enrollment. Mr. Obafemi said student enrollment is expected to be flat next year, and the District could increase class sizes “slightly” and possibly save $120,000 by reducing personnel costs. Mr. Obafemi mentioned there was one class that had 15 students.
- Supplies. Achieve savings of $100,000, maybe in connection with a textbook adoption.
- Capital expenditures. One person in the buildings and grounds department is retiring. Because the District has recently hired two new people in the department, they may be able to function without replacing the retiring employee, said Mr. Obafemi.
- Out-of-State travel. Limit out-of-state travel as much as possible and save $50,000.
“We have taken the charge you gave us very, very seriously,” said Mr. Obafemi. “We know that looking forward we have to start doing something now to the extend as much as possible the doomsday that’s reflected in our financial projections.”
Board Reactions
Several Board members expressed concerns about making cuts in early childhood education.
Board Vice-President Anya Tanyavutti said, “I’m a firm believer in really investing in early childhood as a means and as a strategy to reduce the opportunity gap. If there’s opportunities to really augment the quality of the program, I’d say, ‘let’s go forward.’” She added, though, she would like a more detailed explanation on how they planned to improve efficiencies and achieve the proposed savings.
Ms. Tanyavutti added that input should be obtained from stakeholders before any cuts were made.
Mr. Obafemi said the proposed savings in the early childhood area were all in the area of operations. He added, “We agree it would be a wonderful idea to include stakeholder voices in shaping the ideas that we’re pursuing. We are not committed to doing this. We’re just bringing the ideas forward. We’re open to whatever input and feedback we get.”
Joey Hailpern, Chair of the Finance Committee, agreed about getting stakeholder input. He added, “There’s lots of great people doing lots of great work. Nobody wants to lose the relationships with people who do great work. One of the heaviest tasks is how do we do this in a way that impacts kids in the least way.”
Mr. Obafemi said, “We understand that achievement of students is paramount. We want to make sure that student achievement is not negatively impacted.”
Board President Suni Kartha said the Board needs to ensure that next year’s budget does not increase the rate of the structural deficit. She echoed concerns about making cuts in the early childhood area, and asked administrators to make sure they were talking to school leaders and childhood educators in considering any cuts.
Meg Krulee, President of the District Educators Council (DEC, the teachers union) suggested that the District’s early childhood program should be looked at in the context of the Evanston Cradle to Career Initiative. She cautioned against cutting back on building maintenance, and said she would like to see additional data about the cuts in out-of-state travel to see how it might impact professional learning.
Going Forward
Phil Ehrhardt, Co-Interim Superintendent, said, “This proposal was to launch the conversation. This is a first pass. The $1.4 million is a start. What we want to do now is get stakeholder input, from teachers and the community. It’s very, very important to do that.”
He said administrators will come back to the Finance Committee in May with more specifics, “but it won’t be a final plan.”
Ms. Kartha said, “We’re at the point where we need to make some of these bigger decisions. So, this is really incredibly helpful. This is a great start to the conversation.”
While the plan is to reduce expenses in FY’21 by $1.4 million, a complicating factor is that revenues may go down from the amount projected in February.
One key item, Ms.Zalewski said is that in light of the impact due to the coronavirus crisis, interest rates had fallen in the last month. As a result, she said, the District’s investment income would be reduced by about $600,000 in FY’21.
Another unknown is whether the legislature may freeze property taxes.