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The District 65 Finance Committee met on Dec. 9 to discuss how to address the District’s projected operating deficits which grow to $12.4 million for the 2025-2026 school year. One goal of the meeting was to set a target – how much to cut operating expenses and by when. All members of the School Board were present and participated.
The Board appeared to concur that it would be necessary to cut about $10 million in expenses to balance revenues and expenses by the 2024-25 (FY’25) school year, but several Board members said they still wanted some additional information.
There was no discussion about how much should be cut for next school year, 2021-22 (FY’22), or in each subsequent year. For FY’22, the District is projecting a surplus of $67,243.
Raphael Obafemi, the District’s Chief Financial and Operating Officer, outlined a major proposal to shift budgeting from what he called a staff-centered to student-centered model, which would allocate funding based on student needs and give principals in each school more autonomy over the use of funds allocated to their schools.
Superintendent Devon Horton laid out a plan to gather community input, which will begin this week through a “thought-exchange,” and continue in January with Board cafés, forums and surveys.
There was no proposal, though, to prepare a schedule of potential cuts to circulate to the community or staff before seeking community and staff input.
The timeline is that budget reductions and efficiencies for FY’22 will be presented to the Finance Committee on March 9. Between March and April 21, the Board will be asked to approve efficiencies and reductions that will be incorporated into the FY’22 budget.
It also appears that pairs of two Board members are planning to meet in private with administrators to discuss the District’s financial situation and ways to address the projected deficits and to perhaps reach conclusions, all behind closed doors.
On Sept. 21, Business Manager and Treasurer Kathy Zalewski presented the District’s financial projections to the Board. She presented them again at the Dec. 16 meeting.
The District is projecting that it will operate at a surplus of $67,243 in its fiscal year ending June 30, 2022 (FY’22), and then operate at deficits of $3.4 million in FY’23; $6.6 million in FY’24; $9.6 million in FY’ 25; and $12.4 million in FY’26. The chart below illustrates the growth in projected deficits.
In accordance with a plan presented to the community before the February 2017 Referendum, the District has been setting aside surpluses in a Referendum Fund that now totals about $31 million. The plan was that these funds would be used to cover projected operating deficits in FY’23 to FY’25.
The latest financial projections estimate that the District will have sufficient amounts in the Referendum Fund to cover the deficits through FY’25 and have about $10.5 million to apply toward the projected $12.4 million operating deficit in FY’26.
There would be no amounts, however, left in the Referendum Fund to cover any subsequent deficits. If the trend continues, the deficit would likely be more than $15.5 million in FY’27. The chart below illustrates how Referendum Funds would be matched against projected deficits and be used up in FY’26, and shows where a straight-line projection for FY’27 lands.
As of June 30, 2026, the District is projected to have approximately $25 million in its operating fund balances, which would be about 15% of its projected operating expenses at that time.
If cuts or efficiencies are made now that carry through to subsequent years (e.g., the elimination of a teaching position or the reduction of the cost of bus transportation by increasing efficiencies), it will reduce the projected deficits going forward, and on a year-by-year basis increase the District’s projected operating fund balances.
Setting the Target for Budget Cuts
Joey Hailpern, Chair of the Board’s Finance Committee, said the first goal for the Dec. 9 meeting was to “define the target … that we need to hit over the next couple of years, when we talk about the structural deficit, when we talk about the amount of reductions that we’re talking about.”
He noted that the projected deficits grow to more than $9 million in FY’25 and that the money in the Referendum Fund is supporting that gap right now. “And what we’re trying to do is correct that gap before the referendum dollars are exhausted, so that we’re not in a position where we need to ask the community for more money.”
Addressing Mr. Obafemi, Mr. Hailpern asked, “Is that correct, Raphael?”
Mr. Obafemi responded, “The goal is to have a Referendum Reserve to give us a cushion in case things that we don’t plan for [occur] … If we start planning right now to start reducing our expenditures, then our Referendum Reserves will serve as a cushion in case something happens that we have no plan for.
“What we want to do is preserve as much of the Referendum Reserve for as long as possible, just to make sure that if things come up that we don’t anticipate, we’re in a good shape and we don’t have to resort to trying to borrow money at a high rate of rate of interest.”
At the previous Finance Committee meeting on Nov. 19, Mr. Obafemi listed a number of things that could adversely impact the financial picture of the District and that were not built into the projections. These include:
- a potential cut in State funding,
- a freeze of property tax increases,
- a shift by the State of the cost of funding teacher pensions to school districts,
- a lower CPI than assumed in the budgets, and
- the economic impacts of the pandemic.
He said each of these could have a significant impact on the District’s financial picture. For an article on this, click here.
Mr. Obafemi said that they want to reduce expenditures by about $10 million in about three years.
Ms. Zalewski said that some information relied on in making the September projections has already changed, and that she would be bringing updated projections to the Board in February. She said the revised numbers would probably look worse in light of the continuing pandemic, the low-interest rates, and other factors.
When asked about using the Referendum Reserves to cover the projected deficits, Mr. Obafemi said that dipping into the referendum reserves would be “catastrophic,” adding, “I hate to be so direct and be so colorful in my language.”
He said, “Good financial discipline requires you to have at least minimally 25% of your annual operating expenses” in reserve.
Board member Soo La Kim asked that the District provide a chart showing how the growth in the rate of expenditures was increasing in relation to the rate of growth in revenues.
Ms. Zalewski said charts showing this were contained in the District’s budget documents previously provided to the Board and that they illustrate the structural deficit – that expenses are projected to grow at a faster pace than revenues.
Mr. Obafemi said the major cause of the structural deficit is that 80% of the District’s revenues are tied to the CPI in any given year, and over the last 10 years, the average rate of the CPI has been about 1.7%. He said whenever expenditures exceed that amount, there will be an imbalance.
Salaries and benefits, which account for about 80% of the District’s expenditures, have been growing at a rate faster than the CPI.
The chart below shows the projected growth in the amount of property tax revenues (which account for 80% of the District’s operating revenues) and salary and benefit expenses (which account for 80% of the District’s operating expenses) in the next five years (prepared by RoundTable, using the District’s projected numbers).
On an overall basis, total operating revenues for FY’22 through FY’26 are projected to increase by an average of 2.03% each year. Total operating expenses are projected to increase by an average of 3.66%.
“So that’s why it’s important when we talk in terms of expenditures, why we have to benchmark those expenditures to the CPI,” said Mr. Obafemi. “Anything more than that, the imbalance only grows. So that’s our benchmark.
“I think it’s prudent for us to start planning to make sure at least we have 25% in reserves in case something happens, to be able to weather, to continue to provide an excellent education to our children, our community.”
The projections prepared by the District in September show that if nothing is done, the District will have a fund balance of $24.9 million at June 30, 2026, which would be 15% of operating expenses. While the District has not projected the deficit for FY’27, a straight-line trend line suggests it would be more than $15.5 million. See above chart.
Board President Anya Tanyavutti said “I feel like we as a Board need more specific context of the problem and the potential target for resolution. And I feel like our community is going to need more specific explanation as we bring this conversation to Board cafés or present it. So, I think we’ll need some more specifics.”
Board member Suni Kartha said, “We’re not necessarily talking about cutting $10 million this year, that it’s over a period of a few years, although it’s still not a pleasant number to be talking about in any case.”
She added, “At some point, we do have to figure out how we can make sure that our expenditures are better tied to the CPI.” Otherwise, she said, “We might be solving a problem now, but it’s going to get punted down, maybe it’ll be years, you know, none of us will be on the Board necessarily, when it gets punted down to it, but it is just punting the problem continually when we’re not talking about what is causing the structural deficit.”
Because salaries and benefits account for about 80% of the District’s expenses, it appears the only way to tie the CPI to expenses may be to tie the District’s total salary increases to the CPI.
The last five-year contract negotiated with the District Educators Council (DEC, the teachers union), contains provisions that tie the increase in base salary to the CPI in some respects. But base salary increases are only one part of the teachers’ compensation package. For a prior story on teacher compensation, click here.
Ms. Tanyavutti said she would like to see “a chart or graphic representation of the amount of reduction in expenditures that we need to make, the amount of time that we have to make it over in order to prevent deficit spending and in order to maintain our reserves.”
That issue was not addressed at the Dec. 11 meeting.
It appears that the Board is operating on the premise that the District will need to reduce expenditures by about $10 million by FY’25, and that it would like clarification from administrators on the open points.
There was no discussion on year-by-year targets.
“In order to provide students the best education possible,” Dr. Horton said, “we have to make some decisions that are not easy but are necessary. Fiscal conservatism is something that we want to live by. We want to focus on efficiencies first, knowing that there’s some savings that we can make in those areas. We want to preserve the District’s investments in students’ academic and social-emotional growth. That is a priority for us and there’s no there’s no negotiating that priority.”
He said the District would use an equity lens in making budget cuts and approach the work with the mindset that “an equity outcome is expected to protect our most vulnerable, historically marginalized student groups.”
Dr. Horton also said the District would evaluate programs and their effectiveness and alignment with the District’s instructional goals. He said some programs are doing well and some are not doing that well. “We must preserve our educational model and keep our budget cuts as far from instruction as possible,” he said.
Another goal is to preserve the Referendum Reserve for rainy days and keep the promise made to the community when the referendum was passed in 2017, Dr. Horton said.
Mr. Obafemi’s Proposal to Shift to Student-Based Budgeting
Mr. Obafemi outlined a major proposal that would shift the District’s funding model from what he calls a “staff-based” budgeting model to a “student-based budgeting” model. He told the RoundTable that he thought this would enable the District to operate more efficiently and also improve student achievement.
Mr. Obafemi summarized the proposal at the Dec. 9 Finance Committee meeting. Under the new approach, the principal of each school would be allocated an amount of money and then given the authority on how to spend those funds. He told the RoundTable that the Chicago Public School system and many other school districts in the nation have implemented this model. He said he was involved in the implementation when he worked at CPS.
Mr. Obafemi said the model, sometimes referred to as “student-based budgeting,” would strengthen the District’s financial picture and also help improve student achievement. He said it would take a few years to implement.
“What it does is it allows each of our students to be allocated money,” Mr. Obafemi said. “So the decision of budgeting is made based on student needs, as opposed to being driven by staff.”
The method is conceptually similar to one prong of the evidenced-based funding model recently adopted by the State in allocating State funds to school districts. The District would decide on a base amount of money that would be allocated to educate each student in the District. Then an additional amount would be allocated to a student receiving special education services (and that amount would depend on the general nature of the special education services a student was receiving). Students who are English language learners may also receive an additional allocation and there might be additional allocations based on other factors.
Because the compensation paid to teachers varies widely, the RoundTable asked Mr. Obafemi how those differences would be taken into account in setting the base amount needed to educate a student, and if the allocations made to schools would take into account differences in the average salaries paid to teachers and other staff assigned to the schools.
The contract with DEC is made between the School Board and DEC, as are the contracts with other employee unions. A principal would not have authority to modify those contracts.
Mr. Obafemi said that adjustments to the funding would be made to take into account that the average teacher salaries in a school may be higher or lower than the District average. If the teaching force at a given school had a higher salary structure, that school would receive a higher allocation.
This model would give more autonomy to principals, said Mr. Obafemi, and it would also provide more transparency “so folks in the community can know how much each of these students in the District is being allocated, the base amount, in addition to folks who need additional resources to be able to achieve.”
Mr. Obafemi said this is “one approach that we are looking at to be able to harness our financial resources and do it an efficient way, by doing site-based spending, or what is called student-based spending.”
He said, “If we do this, it gives us a better control about our financial sustainability, because the spending is then driven more by students instead of by adults. … It is geared towards making sure that students have the resources they need to be successful and to be able to achieve the goals that we know they are able to.”
Ms. Zalewski presented a chart showing expenditures made by each District 65 school in 2019-20; she had previously presented the chart to the Board on Sept. 15. Click here for prior story.
The chart shows there is a wide variance in the amount of expenditures by school. At the high end, the per pupil expenditures were $18,498 at King Arts magnet school. At the low end, they were $13,903 at Lincolnwood Elementary School, a difference of $4,595.
The average expenditure per pupil for the 15 schools shown on the chart is $16,372.
The chart below, prepared by the RoundTable, shows the expenditures by school (as reflected in Ms. Zalewski’s chart), but in a different format.
Ms. Zalewski said there were differences in the spending “because we are spending more on our students who are either special education, English-learners, or low-income. So, this is absolutely expected.”
The chart illustrates that the District is already allocating more money to schools that have higher needs. The model proposed by Mr. Obafemi would make the process more intentional and build up the funding on a student-by-student basis, and then give principals more autonomy in how funds are spent.
School Board members did not ask any questions about this proposal.
The Process to Seek Community and Staff Input
Superintendent Devon Horton outlined the process the District would follow in deciding where to make cuts in expenditures. He said the District would seek input from the community and staff using the “Thought-Exchange,” Board cafés, staff forums, and community and staff surveys.
It is unclear how much information will be provided to the community and staff before the District seeks input. In the past when the District sought community input on budget cuts, the District provided the proposed cuts to the public and gave the community and staff an opportunity to react to specific cuts or specific proposals. It is unclear if that will be done.
Dr. Horton did say, though, that he, Mr. Obafemi, Ms. Zalewski, and Executive Director of Black Student Success Latarsha Green will be meeting with each cabinet member starting as early as the week of Dec. 14 “and we’ll dive into some discussions around what are some of the recommendations that they would like to bring to the table in their respective areas that we can then turn around and bring to the Board and the community in those discussions.”
Board member Elisabeth “Biz” Lindsay-Ryan said, “This is a really critical issue for every family that will be felt in some way by your family. So, I really just encourage people to participate and our educators to participate in these opportunities so that we can really hear from our community, because there will be choices on how we make these cuts.”
The Thought-Exchange. Between Dec. 14 and 31, “we’re going to release a thought exchange,” said Dr. Horton. “It’s a community feedback opportunity, and it is something that will be shared via email. All stakeholders and parents, staff, and community members will receive this link. There will a question that we will propose around our budget reductions, and you will get a chance to share your thoughts around that. You can put in one thought you can put in 20.
“That question has not been created, but it will be created before the 14th of December,” said Dr. Horton.
“There’s an algorithm that will then put these similar thoughts together, and then it will create an overall analysis of what the community and stakeholders really believe is important around our budget.”
Mr. Hailpern said,” People can share their ideas on the thought exchange. People can read other people’s ideas and rate them. People can respond to people’s ideas.”
Melissa Messinger, Director of Communications, said people will not have to log in using a user-name to participate, but in response to Board questions, she said the District could ask for demographic information about the people responding. She said the tool would be available in multiple languages through Google translate.
Board Cafés. Between Jan. 4 and 31, “We’re going to have Board cafés,” said Dr. Horton. In the cafés, Board members will have access to the information generated through the thought-exchange, and they can have “rich discussions” with “no preconceived ideas” and get community input stimulated by the ideas generated through the thought-exchange.
Mr. Hailpern said pairs of Board members will host the cafes using Zoom, and anybody that wants to come can come and talk about the budget process and ask questions. “It is a deliberate space for parents and community members to advocate,” he said.
Staff Forums. The District will have staff forums between Jan. 4 and 31. In those forums, Dr. Horton said, “We’re going to meet with different union groups and representatives to talk about our budget to get some ideas from them as well. We know they are on the front line in this work. And it’s important that we hear from them.”
Community and Staff Survey.
Between Jan. 31 and Feb. 15, the District will have a community and staff survey. This will “really probe and get deeper into what the community and our stakeholders are expecting,” said Dr. Horton.
Updates to the Board and Finance Committee. On Feb. 9, Dr. Horton said administrators will provide an update on the financial projections to the Board. On March 9, budget reductions and efficiencies for FY’22 will be presented to the Finance Committee. That date was picked because March 22 is a deadline to issue Reduction in Force (RIF) notices to licensed staff, he said.
Between March and April 21, the Board will be asked to approve efficiencies and reductions that will be incorporated into the FY’22 budget, said Dr. Horton. By June 7, administrators will present a tentative budget to the Finance Committee.
Board Member Private Meetings
It also appears that the School Board plans to have pairs of Board members discuss the budgetary issues in private meetings with administrators. These private meetings were not discussed at the Dec. 9 Finance Committee meeting, but they were talked about at the Nov. 19 Finance Committee meeting.
The agenda for the Nov. 19 Finance Committee meeting said “2×2” discussions might be warranted or needed to discuss staffing and ideas to reduce spending and what the Board and the administration each view as non-negotiables.
At the Nov. 19 meeting, Mr. Hailpern, said, “The public can see a reference on the agenda to two-by-twos, it’s written into our public agenda. Just so everyone knows that’s a format that’s used for Board members to get education by department on certain things. And it’s not meant to subvert the public conversation in this process. No more than two Board members might meet with Dr. Horton, or might meet with Beatrice in HR to ask questions around this process and do our due diligence. “
Later on at that same meeting, Mr. Hailpern said with “reference to the two-by-twos in the agenda, I think we’d like to set up some time for people to ask more questions and to gain further insights and to dig deeper, you know, just sit with Stacy [Beardsley, Executive Director of Curriculum and Instruction] … and talk about the instructional programs and how those are funded. Right, and what they are.”
In response to a request by the RoundTable, Ms. Tanyavutti said in a Dec. 2 email that the Board is demonstrating transparency in “our disclosure about the informal meetings that we will be having with Administration to ensure we are as informed trustees as possible. As part of our commitment to transparency we will disclose any conclusions that we come to as a result of these meetings, though we will not be opening those meetings to the public, due to the sensitive content being discussed as hypotheticals (programs and reduction in force that may impact individuals household income levels). We do not want to cause unnecessary anxiety or disclosure of HR status of individuals. …”
On Dec. 3, Ms. Tanyavutti told the RoundTable no meetings had yet occurred and none was scheduled. She defended the practice, saying that there were “a few occasions when one or two Board members spoke with administrators regarding Reduction in Force in February of 2017.”
Ms. Tanyavutti’s email acknowledges, though, that Board members will be having private meetings with administrators to become informed as much as possible, that they may discuss program and staff cuts in those meetings, and may reach conclusions in those meetings.
These meetings will not be open to the public.
Ideas From the Board
Mr. Hailpern asked members of the Board for ideas on how to reduce expenditures. He started out suggesting that if school start times were staggered, all buses could cover at least two routes a day and reduce bus transportation costs.
He also suggested that the District explore whether some families would be interested in continuing with remote learning after the pandemic, and if so if there would be enough interest to set up a remote-learning program and perhaps close a school.
Mr. Hailpern also asked that the amounts spent on legal services, consulting services and many other line item expenses be examined.
Ms. Tanyavutti said there is about $100 million in capital projects, and she asked administrators to determine the life span of the buildings before investing in the buildings.
She also asked administrators to determine ways to close the achievement gap in literacy. She said if programs were working, the District should invest in those programs and if they were not working the District should spend less on them. She said she would also like to hear from the cabinet [the top administrators] on “what is essential to close the gap in opportunity to achieve.”
Ms. Lindsay-Ryan suggested that the District consider whether it could reduce busing costs and other costs over the long-term by closing a building and establishing a school in the Fifth Ward.
Ms. Kartha asked that an analysis be done to determine how much the District would save if class sizes were increased. She also suggested looking at whether students with special needs who are going to school outside the District could be provided the same services in the District at a lower cost.
Board member Sergio Hernandez suggested exploring whether the District could partner with the City and Northwestern University in offering after-school programs. He added that the District needed a strategy to translate material for Hispanic families.
Board member Rebeca Mendoza said the administration was top heavy and suggested taking a look at cutting expenses in administration.
Ms. La Kim suggested obtaining input from teachers on where they saw opportunities to operate more efficiently.