On May 4, Kathy Zalewski, Business Manager, provided the District 65 School Board with an update on how the COVID-19 pandemic was impacting the District’s current operating budget for the year ending June 30, 2020 (FY’20) and its projected operating budget for the next school year (FY’21).
“The pandemic, which brought the global economy to stand still, is negatively impacting the District’s current financial situation and future budgets,” said Ms. Zalewski.
Raphael Obafemi, Chief Financial and Operations Manager, said, “COVID-19 has done a number on our finances. There’s going to be a asignificant impact to our revenues as well as the expenditures of District 65.”
Some Background: School Closings and When They Might Reopen
The District’s schools were closed for in-person instruction starting on March 13, and will remain closed for in-person instruction for the rest of the school year due to the COVID-19 pandemic. Since then, the District has engaged in remote learning.
On May 5, Governor J.B. Pritzker announced the Restore Illinois plan. Under the plan, the State is already in Phase 2 of the five-phase plan. There are four regions of the State, and each region may move through the remaining phases at their own pace, depending on when they meet the criteria to do so.
Evanston is in the Northeast Region, along with the rest of Cook County and eight other counties. To move to phase 3 and then to phase 4, the Northeast Region must meet benchmarks relating to hospitalizations, testing, and tracing. The earliest the region could advance to Phase 4 is in late June, and there is no guarantee when the region will be able to advance to phase 4.
The Northeast Region has been the hardest hit of any of the regions.
Once a region moves to phase 4, schools may open, subject to certain restrictions. The Restore Illinois plan says, “Gatherings of 50 people or fewer are allowed, restaurants and bars reopen, travel resumes, child care and schools reopen under guidance from the Illinois Department of Public Health. Face coverings and social distancing are the norm.”
So far, IDPH has not issued guidance on the reopening of schools.
These restrictions would remain in place until phase 5 kicks in, and phase 5 only kicks in is when there is a vaccine, or widely available and highly effective treatment, or there is an elimination of any new cases over a sustained period of time.”
There is a lot of uncertainty about whether the District will open its school for in-class instruction and when and under what restrictions.
Board President Suni Kartha said on May 4, it is “highly unlikely it’s going to look like a regular year.” She said there might be closures; there might be staggered attendance, with some children attending school in the morning and some in the afternoon.
If there is a surge of COVID-19 cases, there is also a possibility that schools could be re-closed for in-person instruction.
Revenue Losses for the FY’20 Year
“The Covid-19 pandemic is having a negative effect on almost all District 65 revenues and expenditures,” said Ms. Zalewski.
She said the impact on property tax revenues for FY’20 will be fairly limited because the spring installment of property taxes was due to be paid before the Stay-at-Home order was entered. She said they are projecting to receive the budgeted amount of property tax revenues for FY’20, but cautioned that there have been more property tax appeals than usual, and that refunds could be higher than usual.
Ms. Zalewski said the District is projecting it will receive less investment income than budgeted due to a drop in interest rates, and that it will receive less in childcare fees, general student fees and lunch revenues. Shei also said State aid payments to the District may be delayed. She pointed out that the State is projecting an operating shortfall of $2.7 billion in FY’20 and a shortfall of $7.4 billion in FY21.
On the positive side, she said the District was awarded approximately $800,000 in federal funds under the CARES Act(Coronavirus Aid, Relief and Economic Security Act). The funds have not yet been received, and there is a possibility the funds, which are paid through the State, will be delayed.
Overall, Ms. Zalewski said, the District is projecting it will collect $1.5 million less in revenues in FY’20 than budgeted.
On the expense side, Ms. Zalewski said the District has incurred additional expenses to provide remote learning, including the provision of Wi-Fi hot spots to some households.
She said payroll expenditures are projected to be within budget, and that the District has been able to achieve savings in some expenditures, including utilities, purchased services and supplies.
“Overall,” she said, “We are projecting the expenditure to be under budget. Some of the savings in expenditures should cover the shortfall in our revenues.”
Balancing the Budget for FY’21
Ms. Zalewski said a recession during FY’21 is certain, and the District is projecting that revenues for the next school year will be about $4.4 million less than projected on Feb. 3. She said, though, they could balance revenues and expenses for the year through reductions in expenses and other strategies.
Mr. Obafemi said 80% of the District’s revenues come from property taxes, and the District is now assuming that it will be able to collect only 96% of its property tax levies in FY’21, rather than the 99% assumed in the February projections. He said many homeowners and businesses have been adversely impacted by the economic crisis, and will not be able to pay their property taxes in a timely fashion.
Ms. Zalewski added that they were projecting that the District’s share of the Corporate Property Replacement Tax would be 25% less than projected in February, and that investment income would be 75% less than projected.
Overall, they are projecting the District will receive $4.4 million less in revenues in FY’21 than projected in February.
Ms. Zalewski said, “We are working really hard to reduce expenditures, so the budget will be balanced next year.”
She listed six strategies to do so:
- Implement operating efficiencies, including attrition and a freeze on hiring of non-instructional staff, with hiring in only extreme circumstances. Mr. Obafemi said there would be no freeze on the hiring of instructional staff.
- Renegotiate contracts for services where possible.
- Substantially reduce consulting services and out of state professional development.
- Delay expenditures without affecting teaching and learning.
- Delay the use of $1.25 million in operating funds for capital expenditures, and use only the funds from a previous bond sale for capital expenditures in FY’21.
- Prepay workers’ compensation and commercial liability insurance premiums in FY’20 that are due in FY’21. This will reduce expenses in FY’ 21 by about $700,000.
Ms. Zalewski said with these strategies, they will be bringing a budget that balances revenues and expenses in FY’21 to the Board, unless something drastic happens.
Ms. Kartha suggested that the administration build in a way to obtain community input on any significant reductions in services.
While the District may be able to balance revenues and expenses in FY’21, it is expected that the Covid-19 pandemic, “will have a lasting negative effect on the District’s finances,” said Ms. Zalewski.
A draft tentative budget for FY’21 is scheduled to be presented to the Finance Committee in June, and a Tentative Budget is scheduled to be presented to the Finance Committee and the full Board in August. Updated financial projections along with the referendum reserves balance will be presented to the Board as well.