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At the June 1 meeting of District 65’s Finance Committee, Kathy Zalewski, Business Manager, presented a draft budget for the 2020-2021 school year (FY’21), as well as estimates on how the District will end up for the fiscal year ending June 30, 2020 (FY’20).
Ms. Zalewski said, “The COVID-19 pandemic, which brought the entire nation to a standstill, has affected the entire District 65 community, schools and finances.”
The District is projecting to close out FY’20 with a surplus of about $4.9 million, which is about $600,000 less than the surplus budgeted. For FY’21, the District is projecting that its revenues will be about $3.5 million lower due to the pandemic.
The budget numbers need to be considered in the context of the Referendum approved by voters in April 2017. The referendum provided an additional $14.5 million in funding for District 65 in year one, and slightly higher amounts in each subsequent year.
Under the Referendum Plan, the District planned to set aside surpluses generated in FY’18 through FY’21 in a Referendum Reserve, and to use the amounts set aside to balance projected operating deficits in FY’22 to FY’25. The commitment made during the months preceding the Referendum was to balance the District’s budgets for eight years, through FY’25.
It appears that the District will be putting less into the Referendum Reserve at the end of FY’20 and FY’21 than was contemplated in February, about a month before Governor JB Pritzker entered his first Stay-at-Home order.
In addition, the budget memo for FY’21 says the District will not be allocating $1.25 million to capital projects, and it appears the District will not have sufficient funds to contribute $1 million to cash reserves. For an article on the guidelines for using the Referendum Funds, click here.
Closing Out FY’20
In its budget for FY’20, the District projected it would operate at a surplus of about $5.5 million for the year. Ms. Zalewski said the District is now estimating that it will operate at a surplus of about $4.9 million.
Overall, operating revenues are projected to be $2.7 million less for the year than budgeted. Ms. Zalewski said this was primarily due to receiving about $1.6 million less in “other local revenues” due to lower interest rates and a decline in investment income, and due to a reduction in childcare fees and lunch fees because schools were closed. Another factor, she said, is the State has not paid the District about $826,000 in State categorical payments that are due in FY’20. Mr. Zalewski said she anticipates the State will pay that amount in full, but it will likely be received in FY’21, rather than FY’20.
On the expense side, expenditures are expected to come in about $2.1 million lower than budgeted. Ms. Zalewski said salaries and benefits are expected to come in at about $650,000 lower, and supplies and materials, which includes utility costs, are estimated to come in about $1.5 million lower than budgeted due to the closing of school buildings.
Significantly, though, the District is prepaying about $900,000 in workers compensation and commercial liability insurance premiums in FY’20, which are due in FY’21. This increases expenses for purchased services in FY’20 by $900,000, but reduces expenses in FY’21.
The Draft Budget for FY’21
The draft budget for FY’21 pegs operating revenues at about $139.5 million, operating expenses at about $138.7 million, and projects that the District will operate at a surplus of about $750,000.
Ms. Zalewski said the budget is designed to support these priorities:
- improving the instructional core so that all students and especially students of color have access to common–core aligned grade level standards,
- building the organizational culture grounded in collaboration, trust and engagement of staff and community,
- work on instructional and organizational culture which will include continuing the efforts on culturally relevant teaching, equity learning and restorative practices to disrupt the racial predictability of student performance,
- adapting instructional delivery to meet learning needs of students and families during the COVID–19 pandemic, and
- maintaining long-term financial sustainability.
The District is projecting that student enrollment will decrease by 45 students.
Operating Revenues – $139.5 Million
Overall, Ms. Zalewski said the District is estimating that its operating revenues will be about $3.5 million less than projected in February due to the pandemic, but adds the impact may be larger.
On the revenue side, the increase in property taxes for FY’21, which account for 79% of the District’s operating revenues, is limited by the Consumer Price Index. For FY’21, the increase is capped at 1.9%.
Historically, the District has assumed a collection rate of property tax revenues of 98.5%, but for FY’21, it is assuming a 96% collection rate due to the economic impact of the pandemic, said Ms. Zalewski.
“As a result, we are not expecting an increase in property taxes next year,” she said. Property tax revenues are pegged at $109.7 million.
Revenues from the Corporate Property Replacement Tax are budgeted to be about $560,000 less than actuals last year, and other local revenue is budgeted to be about $700,000 more than actuals last year
The District is estimating that amounts received from the State under the Evidence Based Formula will be about $7.9 million, or roughly the same as last year. The formula contains a provision that school districts will not receive less under the formula than they did in FY’18. The formula provides funding for amounts previously received for General State Aid, the poverty grant, special education personnel, and certain special education and bilingual services.
State Aid Categoricals are budgeted to be about $5.7 million, or about 19% more than last year. However, the amounts for last year are missing one payment, which is expected to be paid this year. The categorical payments include funding for orphanages, an early childhood grant and transportation.
State funding provides about 10% of the State’s total revenues.
The District is budgeting $9.9 million in federal funds, about 1% more than last year. Federal funding constitutes 7% of the District’s overall operating revenues.
The District was awarded $0.8 million in federal CARES Act (Coronavirus Aid, Relief and Economic Security Act) funds; however, due to uncertainty, the funding is not included in the FY’21 budget, said Ms. Zalewski.
Operating Expenses – $138.7 Million
Salaries which account for 69% of the District’s expenses are budgeted at $95.1 million, a 5% increase over last year.
Ms. Zalewski said the increase is due to two things: a net increase of 3.7 full-time equivalent positions, and compensation increases provided in employee union contracts.
While the District is adding only a net 3.7 new positions, many positions are being redefined to meet the instructional and strategic priorities of the District, said Ms. Zalewski.
The redefined and the new positions are as follows:
- 1 Deputy Superintendent (redefined position)
- 1 Assistant Director for Student Services (redefined position)
- 1 Manager of Equity, Diversity, and Family and Community Engagement (redefined position)
- 1 Assistant Superintendent of Middle Schools (budget neutral)
- 1 Instructional Technology Facilitator (budget neutral)
- 12 Learning Behavior Specialists (offset by reduction of 24 Teacher’s Assistants)
- 5 Rice Teacher’s Assistants (budget neutral)
- 1 Information Services Specialist(budget neutral)
- 1 ESL teacher due to student needs
- 1.7 Social Workers due to student needs
- 1 Psychologist due to student IEP needs
- 1 Occupational Therapist due to student IEP needs
- 1 Speech Therapist due to student IEP needs
- 1 Communications Specialist (budget neutral)
- 1 Research Practitioner (funded with grant funds)
- 2 Maintenance Specialists due to building needs (budget neutral)
The cost of salaries also reflects the savings due to retirements. In FY’20, there were 15 certified retirements of certified staff. Generally, the District may replace a retiring teacher with a less experienced teacher at a lower salary, resulting in a cost savings.
Employee benefits are budgeted at $16.8 million, and constitute 12% of the operating budget. Medical insurance premiums are projected to increase by approximately 6.5 % in FY’21.
Capital expenses paid out of operating funds are projected to be about $577,000, compared to $2.4 million last year. Ms. Zalewski said, “Due to the COVID-19 pandemic’s impact on the District’s operating revenues, the District is delaying capital building expenditures funded with the referendum funds for at least one year.”
Under the referendum plan, $1.25 million was to be spent on capital projects each year. For FY’21, that $1.25 million will be diverted to other operating expenses. The District has not explained if it will replenish that amount in the future.
Purchased services are budgeted to increase by 2% to $15.7 million. This includes the increase called for in the bus transportation contract, the cost of which is budgeted to increase by 15%. Raphael Obafemi, the Districts’ Chief Financial Officer, conducted extensive negotiations to keep the increase down to this level.
Ms. Zalewski said bus transportation may increase even more, if social distancing is required for bus transportation.
In an effort to reduce the cost of purchased services, Ms. Zalewski said the District has significantly reduced consultant services and out-of-state professional training.
As noted above, the District prepaid $900,000 in insurance premiums in FY’20 that are due in FY’21. The FY’21 budget for purchased services would be much higher if that cost had not been prepaid.
Supplies and materials are budgeted to increase by 22% (over actuals) to $5.8 million. The budget includes a new allocation of $177,000 for instructional student supplies, which will be provided to all elementary and magnet school students at the beginning of next school year. In the past, parents had to purchase these supplies through their PTA or on their own. Ms. Zalewski said the District will facilitate the purchase and the distribution of supplies to ensure that all students are equitably prepared and ready to start the new school year. Students who do not qualify for the free-lunch program will be charged a supply fee. The District plans to work with PTAs to cover the remaining costs.
Going forward, “There are a lot of uncertainties,” said Ms. Zalewski. She said there is still a risk that the cost of funding teachers’ pensions could be shifted from the State to school districts, and there is a risk that the State might freeze property taxes. These may surface as part of deal on a package for the progressive income tax, she said.
In addition, she said, the economic fallout due to the COVID-19 pandemic may continue to have a negative impact on the District.
The District is scheduled to present a tentative budget to the School Board for approval on Aug. 10.
In a May 26 memo, Ms. Zalewski said administrators would bring updated financial projections to the Board at that time, and, “We will be bringing several different scenarios.”
Her memo says, “[T]he plan is to restructure the District’s expenditures in a way that ensures long-term financial sustainability. In addition, post pandemic economic recovery will determine the impact on the District’s biggest revenue source, property taxes, and consequently the shape of the educational model the District can afford.
“In August, along with the FY’21 Tentative Budget, the administration will present several scenarios of financial projections, which will determine future actions of the Board and the impact on the referendum reserves.”
At the June 1 Finance Committee meeting, no Board member asked what those scenarios might be. Board Vice President Anya Tanyavutti did ask how administrators would obtain community input on these issues.
Mr. Obafemi said incoming Superintendent Devon Horton believed that stakeholder input should be obtained in connection with the preparation of the FY’21 budget. “So that is something that we in fact are going to do.” He said, they will obtain community input on “what to let go of, and what not to let go of.”
Dr. Horton, who attended the meeting, said administrators will be working on a structure to obtain community input in an effective way in the COVID-19 environment.
Heidi Wennstrom, co-Interim Superintendent, added, “The Board really directed the administration to really begin to look at cuts internally that could continue to streamline and create greater sustainability for our School District, and we’ve engaged in conversations with our cabinet members in the past semester. So a number of those things have already been identified.”
In terms of engaging the community, Dr. Wennstrom said, “It really needs to be around different measures that need to be taken because we’re going to have to dig very deeply in order to have our finances targeted to be able to achieve these very aggressive goals that we have for closing the achievement gap, as well as continuing to strengthen our equity practices in the District.”
While the District’s FY’21 budget has operating revenues that exceed operating expenses, Ms. Zalewski said this is the last year the District is projected to have a truly balanced budget. In subsequent years, she said, the District will need to balance its budgets by using funds held in the Referendum Reserve.
In February, the District was projecting that it would have an operating deficit of $10 million in FY’25. While the District was projecting it would have sufficient funds in its Referendum Reserve to cover that deficit, one key issue is what happens if expenses are not reigned in and the Referendum Fund is depleted.
District 65 School Board Approves Guidelines Dealing With Uses of Referendum Funds