At the June 7 meeting of District 65’s Finance Committee, Kathy Zalewski, Business Manager, presented a draft tentative budget for the 2021-2022 school year (FY’22), as well as a report projecting how the District will end its current fiscal year, which ends on June 30, 2021 (FY’21).
The District is projecting to close out FY’21 with a surplus of about $2.9 million, which is about $2.6 million more than the surplus budgeted for the year. For FY’22, the District is projecting it will operate at a surplus of $924,389.
Ms. Zalewski said the District was able to balance the budget for FY’22 because of a total of $2.9 million in budget cuts or efficiencies, some of which were previously approved by the Board and some of which were proposed on June 7.
Closing Out FY’21
In its budget for FY’21, the District projected it would operate at a surplus of $344,726 for the year. Ms. Zalewski said the District is now projecting that it will operate at a surplus of about $2.9 million for its fiscal year ending June 30, about $2.6 million more than budgeted.
Overall, operating revenues are projected to be about $1.7 million lower in FY’21 than budgeted due to the pandemic. Ms. Zalewski said the main difference is due to lower local revenues including lower investment income due to low interest rates and lower lunch fees, childcare fees, and other student fees due to school closings.
On the expense side, projected expenses for FY’21 are about $4.3 million less than budgeted, primarily due to the pandemic and the closing of schools.
Salaries in FY’21 are projected to be about $2.6 million lower than budgeted, because school buildings were closed for much of the school year and the District was able to reduce expenses for overtime, for some custodial and maintenance positions, and bus aides.
Expenses for purchased services are projected to come in about $1.6 million under budget in FY’21 due to lower expenses for utilities, bus transportation, training and workshops, and substitute teachers, said Ms. Zalewski.
Overall, the District is expected to show a surplus of $2.9 million for FY’21.
The Draft Tentative Budget for FY’22
The draft tentative budget for FY’22 projects that the District will operate at a surplus of $924,389.
Operating revenues are projected to be $145.4 million, which is 6% more than the projected actual revenues for FY’21 and 4% more than budgeted revenues for FY’21.
Operating expenses are expected to be $144.4 million, which is 7% more than the projected actuals for FY’21 and 4% more than budgeted for FY’21.
Ms. Zalewski said that comparing the tentative budget numbers for FY’22 to the projected actuals for FY’21 is not really helpful “because FY’21 was a very unusual year with very unusual results.” She said comparing the budget numbers of FY’22 to the budget numbers of FY’21 would give a better picture.
She said comparing budget to budget, the revenues and expenses are growing by 4%, and if an adjustment is made to eliminate the revenues and expenses due to federal ESSER funds (Elementary and Secondary School Emergency Relief Fund), the growth is “only 2%.”
The Major Drivers of the FY’22 Tentative Budget
Property tax revenues account for 79% of the District’s operating revenues. Salaries and benefits account for 79% of the District’s operating expenses.
Property Taxes. Property tax revenues for operations are pegged at $114.9 million, which is an increase of about 4% over both the projected actuals and the budget for FY’21.
The increase in property taxes for FY’22 is limited by property tax caps – the lower of the Consumer Price Index or 5%. For FY’22, the increase is capped at 2.3%.
The District is thus assuming an increase of 2.3% allowed by the CPI. In addition, though, the District is assuming a collection rate of property tax revenues of 98.5% in FY’22, which is the historical rate. Last year the collection rate was assumed to be 96% due to the economic impact of the pandemic, said Ms. Zalewski.
Salaries. Salaries are budgeted at $97.7 million, a 6% increase over projected actuals for FY’21 and a 3% increase over the budget for FY’21.
Ms. Zalewski said the increase in salaries reflects the latest employee salary agreements. They also take into account the budget reductions approved by the Board in March and those proposed by the administration at the June 7 Finance Committee meeting.
In addition, the cost of salaries reflects the savings due to the retirement of 20-plus certified staff in FY’21. Ms. Zalweski told the RoundTable that the draft tentative budget assumes that these positions will all be filled, but it may depend on student enrollment.
Generally, even if all the positions of retired teachers are filled, the District may replace a retiring teacher with a less experienced teacher at a lower salary, resulting in a cost savings. Ms. Zalewski said the savings will be primarily realized in 2022-23 and beyond.
Employee benefits are budgeted at $16.8 million, an increase of about $1.1 million over the projected actuals for FY’21, but about the same as the amount budgeted for FY’21. Medical insurance premiums are projected to decrease by approximately 2% in FY’22.
ESSER Funds. The budget includes $2 million in federal ESSER II funds, and does not include any ESSER III funds. Ms. Zalewski said ESSER III funds would be put in the budget when they are approved.
Budget Reductions and Cost Efficiencies for FY’22
In March, the Board approved cuts totaling about $1,922,022. Some of the major ones are:
- Replacing 22 reading specialist positions with 18 interventionists, for a net reduction of 4 positions ($320,000);
- reducing bus transportation costs by changing the start time of the middle schools from 8:30 to 8:00 a.m. and pairing bus routes ($400,000, down from $415,000);
- reducing the cost of maintaining building and grounds through efficiencies and negotiating better prices ($426,000);
- cutting three library media assistants ($106,000);
- eliminating one staff position and reorganizing support in the early childhood area ($122,000);
- replacing Camp Timber-lee with a day program ($50,000).
The Board also approved cuts in other areas, many of which relate to cutting back on consultants and other purchased services (about $130,000), reducing expenses for professional learning (about $165,000), and reducing expenses for supplies (about $60,000).
On June 8, Ms. Zalewski presented some additional possible budget reductions in the administrative area totaling $1,043,753. These have not yet been approved by the Board. They are:
- Elimination of the STEM curriculum coordinator position. Ms. Zalewski’s memo says this was a temporary position and the functions would have to be distributed back to the STEM director or other curriculum and instruction coordinators – $201,216;
- Absorb internally the role of the Assistant Superintendent of Elementary and Secondary Education Human Resources in FY’22 and reexamine in FY’23 – $233,505;
- Elimination of 1 Dean of Culture and Climate position. The functions would have to be absorbed by the remaining Dean – $118,032;
- A one-year salary freeze for administrators and several miscellaneous employees – $226,000;
- Savings from ending the ARAMARK contract – $50,000;
- Reduction in the contractual allocation of professional development funds for principals, assistant principals, cabinet members and other administrators – $95,000; and,
- Elimination of the District’s paid cel phones – $120,000.
In the thought-exchange conducted in January, many people suggested that the District take a look at making budget cuts at the administrative level. “We heard the community, we heard staff loud and clear,” said Dr. Horton. “Of course, you don’t just snap your fingers, we’re talking about people’s careers and livelihoods, how they survive and feed their families.”
Dr. Horton added that things happened that enabled the District to allow them to maneuver some staff around. “Just know that no one … lost their job in that way. So, it’s a process, you can call it attrition and just some other maneuvers that we made with our team.
“So, community, we hear you. There’s an additional, almost $1.1 million in administrative positions and administrative benefits,” said Dr. Horton.
Ms. Zalewski said the surplus of about $900,000 would provide a cushion and would “be used to mitigate any possible revenue losses or unexpected expenditures resulting from social distancing or pandemic-related measures.
“The COVID-19 pandemic, although under control can still influence several of the assumptions, including the collection rate of property taxes and other revenues, as well as additional costs related to pandemic mitigation strategies.”
She said the District will present updated financial projections in August along with the FY’22 tentative budget.
She added that the draft the tentative budget is “very” tentative and it will change.
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 would be able to balance its budgets and generate surpluses totaling about $31 million in FY’18 through FY’21. The plan was to put those surpluses in a Referendum Reserve, and to use the reserve to cover projected operating deficits totaling about $31 million in FY’22 to FY’25.
A memo prepared by Ms. Zalewski projects that the balance in the Referendum Reserve will be $32.7 million at the end of FY’21, which means the District is currently on track with the referendum plan.
If the referendum plan is adhered to, it appears that the District would be able to cover projected operating budgets through FY’25 by using the amounts in the Referendum Reserve, but it would be facing huge operating deficits without reserves to address them starting in FY’26.
Ms. Zalewski said the Referendum did not solve the District’s structural deficit, a situation where the District’s expenses are projected to grow at a faster pace than its revenues.
“The Board and the administration are determined to reduce or eliminate the structural deficit that has been plaguing the District for decades,” she said. “The administration is determined to preserve the referendum reserves and is committed to managing District’s finances in a prudent and conservative manner.”
In February, the District presented a three-phase plan to address the structural deficit in the next three years.