At the Aug. 10 meeting of District 65’s Finance Committee, Kathy Zalewski, Business Manager, presented a draft tentative budget for the 2020-2021 school year (FY’21), as well as a report on how the District ended its 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 $7.1 million, which is about $1.6 million more than the surplus budgeted for the year. For FY’21, the District is projecting that it will operate at a surplus of $497,186.
The 2017 Referendum
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 totaling about $31 million in FY’18 through FY’21 in a Referendum Reserve, and to use those amounts to cover projected operating deficits totaling about $31 million 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.
While there is a significant surplus in FY’ 20 and a projected surplus in FY’21, the Referendum Plan contemplated there would be significant surpluses in those years to use to cover projected deficits in later years.
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 $7.1 million, or about $1.6 million higher than budgeted.
Overall, operating revenues are projected to be $423,859 more than budgeted. Ms. Zalewski said this was primarily due to recording about $2.6 million more in property tax revenues than budgeted and receiving about $1.8 million less in other local revenues.
Ms. Zalewski explained that the additional property tax revenues were due to an allocation adjustment between operating funds and debt service funds.
The decrease in other local revenues was due to lower interest rates, a decline in investment income, and a reduction in childcare fees and lunch fees because schools were closed due the pandemic.
On the expense side, actual expenses for the year are about $1.2 million less than budgeted. Salaries, benefits and supplies were about $2.8 million less than budgeted due to the closing of schools.
Purchased services, though, were about $1.1 million more than budgeted in FY20 because the District prepaid in FY’20 about $900,000 in workers compensation and commercial liability insurance premiums that are due in FY’21. This increased expenses for purchased services in FY’20 by $900,000, but reduces expenses in FY’21 by a like amount.
The Tentative Budget for FY’21
The tentative budget for FY’21 pegs operating revenues at about $139.6 million, operating expenses at about $139.1 million, and projects that the District will operate at a surplus of about $497,186.
Superintendent Devon Horton said three things are prioritized in the budget. First, “We were looking for health and safety.” Second, “Equity is something that the District has charged me with and has been charging the community with for quite some time. So the funding is there. Third, “highly engaging support for students, not just academic but also social” is a priority.
Ms. Zalewski echoed Dr. Horton, saying, “Our spending will be in line with our instructional and strategic priorities, primarily commitment to equity, and also making sure that the delivery of instruction, during the time of the pandemic, meets the expectations of our families and students.”
The District is projecting that student enrollment will decrease by 57 students.
Operating Revenues – $139.6 Million
Operating revenues are projected to be about $1.8 million less than the operating revenues last year.
Property Taxes: 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.
This budget assumption alone reduces the amount estimated for property tax revenues by about $2.75 million.
“As a result, the District will not experience a property taxes increase next year,” said Ms. Zalewski. Property tax revenues for operations are pegged at $110 million.
CPRT and Other Local Revenues: Revenues from the Corporate Property Replacement Tax are budgeted to be about $560,000 less than actuals last year. Other local revenue is budgeted to be about $742,000 more than actuals last year.
State Funding: 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 low-income students, special education personnel, and certain special education and bilingual services.
State Aid categoricals are budgeted to be about $5.2 million, or about 7% less than last 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.
Federal Aid: The District is budgeting about $10.3 million in federal funds, about 6% more than last year. Federal funding constitutes 6% of the District’s overall operating revenues.
Operating Expenses – $139.1 Million
Operating expenses are expected to increase by $5.3 million or 6% more than unaudited actuals for FY’20.
Salaries: Salaries, which account for 69% of the District’s expenses, are budgeted at $95.3 million, a 6% increase over last year.
Ms. Zalewski said the increase in salaries is due to two things: a net increase of 10.7 full-time-equivalent positions and compensation increases provided in employee union contracts.
The District is eliminating 24 teaching assistants and adding 34.7 new positions for a net increase of 10.7 positons. The District is also redefining 3 positions.
The redefined and the new positions and the District’s comments about whether the new positions are “budget neutral” 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 Director of Professional Learning (budget neutral)
- 2 Deans of Culture and Climate due to strategic needs (one position is redefined)
- 1 STEM Curriculum Coordinator (temporary)
- 1 Equity Coach due to strategic needs
- 1 Diversity Hiring Specialist due to strategic needs
- 1 Instructional Technology Facilitator (budget neutral)
- 12 Learning Behavior Specialists (cost partly offset by reduction of 24 Teacher Assistants)
- 5 Teacher Assistants at Rice School (budget neutral)
- 1 Network/Data Support Specialist (budget neutral)
- 1 ESL teacher due to student requirements
- 1 Kindergarten teacher due to enrollment
- 1.7 Social Workers due to student requirements
- 1 Psychologist due to student IEP requirements
- 1 Occupational Therapist due to student IEP requirements
- 1 Speech Therapist due to student IEP requirements
- 1 Communications Specialist
- 1 Research Practitioner (funded with grant)
- 2 Maintenance Specialists due to building needs (budget neutral)
Dr. Horton said the role of the Deans of Culture and Climate would help strengthen restorative practices and create safe and engaging classrooms. The Diversity Hiring Specialist would oversee a planned teacher residency program and develop a workforce that more closely reflects the race/ethnicity of the student body.
Romy DeCristofaro, Assistant Superintendent of Special Services, said the elimination of 24 teacher assistants in special services would be done through attrition. Adding 12 learning behavior specialists, she said, would enable the District to provide more effective, inclusionary services to students with an IEP in the general education classroom.
The cost of salaries also reflects the savings due to retirements. In FY’20, there were 15 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.
Benefits: Employee benefits are budgeted at $16.8 million, an increase of about $1.1 million over last year. Medical insurance premiums are projected to increase by approximately 6.5% in FY’21.
Together, salaries and benefits account for 81% of the District’s operating expenses.
Capital Outlay: Capital expenses paid out of operating funds are projected to be about $638,000, 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. The remaining building projects scheduled for FY’21 will be funded with the remaining 2019 bond proceeds.”
As part of the referendum plan, the District planned to allocate $1.25 million from referendum funds to be spent on capital projects each year. Ms. Zalewski said that amount would be restored in subsequent years.
Purchased Services are budgeted to be $15.2 million, about 8% less than last year. A key factor in bringing down the cost of purchased services is, and previously noted, that the District prepaid about $900,000 for workers compensation and commercial liability insurance premiums as well as the Aramark contract in FY’20, which increased the expense of purchased services in FY’20, and decreases it in FY’21.
The cost of bus transportation falls within purchased services. While busing costs increased by 15% for FY’21, Raphael Obafemi, the Districts’ Chief Financial Officer, conducted extensive negotiations to bring the increase down to that level. Mr. Obafemi added that the District significantly reduced consulting services and out-of-state training and travel.
The cost of bus transportation is subject to significant uncertainty. If in-person learning proceeds as planned, the District may need to contract for more buses to ensure that social distances are maintained on the buses. If in-person learning does not proceed or is delayed, the District may be able to achieve some cost savings if buses are not needed.
Supplies and materials are budgeted to increase by 25% (over actuals) to $6.4 million. This includes new software to replace current financial and human resources software ($350,000); and it also includes the cost of instructional student supplies ($116,000) to ensure all students have supplies to begin the school year.
Ms. Zalewski said the District is also incurring about $1.7 million in expenses related to the pandemic to ensure that students will have access to remote learning and to ensure the safety of students and staff who return to the schools. The expenses are:
- Remote learning materials -$336,000
- K-5 Math on-line curriculum -$150,000
- Additional learning materials -$48,000
- Educational on-line Tools -$140,000
- Sylvan Tutoring for dependent learners-$89,000
- Internet “hotspots” -$75,000
- One to one iPads -$243,000
- Personal Protection Equipment (PPE) -$512,000
- Thermo imaging thermometers -$62,000
- Additional facility support -$45,000
Mr. Obafemi said the one-to-one iPad program will ensure that each student has their own iPad so they can participate in remote learning. The District is making sure that every student has access to WiFi through the “hotspot” program. He added that the District has been able to secure reduced prices for WiFi from a major mobile carrier.
Latarsha Green, Deputy Superintendent, said Sylvan Tutoring would provide support for students, including younger students, in developing basic skills in fluency and math.
Mr. Obafemi said, “We are going to try as much as possible to watch what we spend and make sure that our spending is in line or even lower than what we anticipated. But I just want to share that out there. It’s going be a tricky year financially for us.”
Projections for FY’21 – FY’26
Ms. Zalewski presented financial projections that project the District will operate at a deficits of $400,000 in FY’22; $3.9 million in FY’23; $7.1 million in FY’24; $10.1 million in FY’ 25; and $12.9 million in FY’26.
The projections estimate that the District will have sufficient amounts in the Referendum Fund to cover the deficits through FY’25 and have about $9.5 million to apply toward the projected $12.9 million deficit in FY’26.
One major difference between the current projections and the previous ones is that the District does not reflect a $1 million contribution to the fund balance in FY’21 or in any subsequent year. In the months leading up to the referendum, the District made a commitment that it would contribute $1 million a year to the fund balance, and it projected that doing so would bring the fund balance to about $31.5 million by the end of FY’26.
On April 24, 2017, the Board adopted a Resolution in which it committed to make a $1 million contribution to the cash fund every year.
Mr. Obafemi told the RoundTable that the cash contributions of $1 million each year were eliminated for FY’21 and for subsequent years because the District is projecting growing deficits, and it cannot afford to make them. He said the District should start discussing now how to balance its operating revenues and operating expenses for FY’22 and subsequent years.
Mr. Obafemi emphasized that the projections are a snapshot and that the District would be looking at ways to truly balance its budgets. He said they would be looking for ways to reduce expenses throughout FY’21 and to bring a balanced budget for FY’22. “We’re not going to have a $400,000 deficit for FY’22,” he said.
Going forward, there are many uncertainties, said Ms. Zalewski. She said the budget assumes that the CPI, which sets the cap on property tax increases, will be 1.5% starting in FY’23 and continuing in subsequent years. The CPI for this year is currently 0.6%. If the CPI for 2020 is 0.9% less than assumed in the projections, it would reduce property tax revenues by almost $1 million a year starting in FY’23, Ms. Zalewski.
In addition, there is still a risk that part of the annual cost of funding teachers’ pensions could be shifted from the State to school districts, and there is still a risk that the State might freeze property taxes, said Ms. Zalewski. Either of these could have a significant impact on the finances of the District.
The impact of COVID-19 going forward also remains uncertain; it may continue to impact revenues and expenses.
Concerns About the FY’21 Tentative Budget and the Future
While noting that there are Referendum Funds to cover the projected deficits up through FY’25, Ms. Zalewski said it was not a good practice to operate at significant, growing deficits and to cover those deficits using cash reserves.
She said “We have to create and communicate and adopt a culture of fiscal conservatives. Because the future is really unknown.”
John Gallagher, a representative of the District Educators Council (DEC, the teachers union) at Finance Committee meetings, noted that some of the proposed new positions were said to be “cost neutral,” and he asked if they were positions that replaced consultants, and if so, whether they were truly cost neutral. He pointed out that consulting positions were often temporary, and the District might be replacing a temporary position with a more permanent position.
Dr. Horton said, “There are a lot of factors, some open positions as well as a reduction in some consultants.”
Mr. Obafemi said, “We were hoping that all of the positions would be cost neutral, but I’ll be honest in telling you that they were not all cost neutral, because in developing the budget there were needs that Dr. Horton spoke about, and the District thought it was just important to address those needs.”
For example, Mr. Obafemi said, there was a need for the Deans of Culture and Climate to make sure “we support our students who are struggling, with restorative justice.” Another example is the Diversity Hiring Specialist who can work to ensure that the District’s workforce is more reflective of the race/ethnicity of the District’s students.
“Some of the positions were cost neutral, but there were a couple of them that were not cost neutral by design,” said Mr. Obafemi. They are intended to meet strategic priorities of the District.
Mr. Gallagher responded, “But when we, as DEC, look at the positions that were added this year, it seems like there were a lot of positions, and it kind of seems contradictory to our steps to eliminate future deficits. … As staff, we’re not really seeing how those two things go hand in hand. In the positions that you mentioned, I 100% agree those are extremely important positions. I don’t think anyone argues that. But our thought is that there’s a lot more positions that were added for this upcoming year than just those two.”
Dr. Horton said, “As a new Superintendent, coming in and assessing the needs of the District, there are quite a few changes that needed to happen. As the Board spoke, really passionately about being focused and prioritizing reduction of our budget, there’s no way some of the outcomes that we’re looking to gain would happen with our current structure the way that we had it.
“But I’ll tell you this, there are positions or funding that for next school year will become available based on some of the decisions that were made this year. And there’s nothing else that we need to add on our end to move this work. So this is something that I, as a leader in my first year, knowing that we are in this pandemic, and that there’s going to be some very unique needs beyond. When we do return to some degree, we have to be ready for that. And that’s what some of those decisions are grounded in.”
Dr. Horton added, “Moving forward, we have the players and the positions in place that we feel that will help our teachers and our leaders and most importantly, our students to excel in the remote learning, as well as whenever we can get beyond COVID-19.”
Board member Suni Kartha said the Board had been talking a lot about the need to discuss budget reductions. She said Ms. Zalewski appropriately stated that “we need to create kind of a culture of fiscal conservatism,” and “it’s hard to square that with the list of the added positions.” Ms. Kartha continued, “And I hear what you’re saying, Dr. Horton, and I agree with you. I mean, this. It also doesn’t feel like this is the right year, knowing the deep needs that we are going to be encountering with our students, to be reducing staff.”
She asked, though, “What is our timeline?” She said she thought the discussions would be about “painful reductions” that would be “across the board.”
Ms. Kartha also said the community should be engaged in the discussions early on because the reductions, “I think, are going to be significant enough cuts that will change the character of what schooling is going to look like.”
Dr. Horton said, “It’s just not an easy place for any of us, and I would say just at least let us work this year, to see what kind of progress we can get under these dire circumstances for our students, and we will make change, we will be making cuts. It’s coming. … I know it’s not the right time to make cuts. But this is something that we are we are committed to.”
Ms. Kartha said that made a lot of sense.
Joey Hailpern, Chair of the Finance Committee, suggested that the Finance Committee hold a series of meetings “dedicated to the topic of understanding positions, understanding roles, understanding how some of the investments are impacting our school community, so … we are informed as much as possible to make those decisions.”
He said the public could watch the meetings and become educated through those discussions as well.
Board President Anya Tanyavutti said she liked the idea. “At this point, we need to just do it.”
Board member Rebeca Mendoza expressed concerns about adding the new positons and questioned whether there might be more creative ways to do things. She said she thought the Board should also consider the affordability of Evanston and how adding the new positions would impact what Evanston looks like.
She said she agreed with Mr. Hailpern’s suggestion.
Mr. Hailpern suggested that they come up with dates to hold these conversations, and they could present the dates at the next Finance Committee meeting.