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At the August 9 meeting of School District 65’s Finance Committee, Kathy Zalewski, Business Manager, presented a tentative budget for the 2021-2022 school year (FY’22), and presented information estimating how the District will end its current fiscal year, which ended on June 30, 2021 (FY’21).
The District is estimating it will close out FY’21 with a surplus of about $3.2 million, which is about $2.9 million more than the surplus budgeted for the year. For FY’22, the District is projecting that it will operate at a surplus of $191,862.
One major new source of funding that has impacted the budgets for both FY’21 and FY’22 is a $10 million federal grant of ESSER funds (the Elementary and Secondary School Emergency Relief Fund). The District received $2 million in FY’21, and is planning to spend $7.4 million in FY’22. The balance must be spent by Sept. 30, 2024. ESSER funds may be used to mitigate the impact of COVID-19, to assist with the cost of providing remote learning and to address learning loss.
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 have been previously approved by the Board in March and some of which were proposed on June 7.
The District 65 School Board is scheduled to approve a tentative budget for FY’22 at its meeting in August, and then approve a final budget in September.
The Tentative Budget for FY’22
The tentative budget pegs total operating revenues at $150.6 million, up $11.3 million or 8% from the amount budgeted for FY’21.
Operating expenses are expected to be $150.4 million, up $11.4 million, or 8% more than the amount budgeted for FY’21.
As previously noted, a significant part of the increases is due to the ESSER funding.
At a previous meeting, 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.
Property Taxes. Property tax revenues account for 76% of the District’s operating revenues. For FY’22, property tax revenues for operations are pegged at $114.9 million, which is an increase of about 4% over the amount budgeted for FY’21.
The increase in property taxes for FY’22 is limited by property tax caps – the lower of the Consumer Price Index (CPI) or 5%. For FY’22, the increase is capped by the CPI at 2.3%,said Ms. Zalewski.
The budgeted property taxes for FY’22 build in an increase of the 2.3% allowed by the CPI. In addition, the District is assuming that the collection rate of property taxes will be 98.5% in FY’22, which is the historical collection rate. Last year the collection rate was assumed to be 96% due to the economic impact of the pandemic, said Ms. Zalewski. Using a higher collection rate accounts for part of the increase in the FY’22 budget.
Ms. Zalewski said the actual collection rate of property taxes in FY’21 was 96.5%.
State Funding. State funding, which accounts for about 9% of the District’s operating revenues, is projected to be $13.5 million in FY’22, about the same as budgeted for FY’21.
Federal Aid. Federal aid, about 11% of the District’s revenues, is budgeted at $16.8 million, an increase of 64% more than FY’21. The increase is primarily due to the $7.4 million in federal ESSER funding.
Other local revenues. Other local revenues are expected to be $2.9 million, down 16% from the amount budgeted for FY’21. The decrease is primarily due to lower investment income and lower lunch sales and childcare fees, said Ms. Zalewski.
Salaries. Total salaries are budgeted at $101.3 million, about $6.4 million, or 8% more than the amount budgeted for FY’21.
Ms. Zalewski said the increase in salaries reflects the increases provided for in employee salary agreements and a net 29.8 new positions (not including 64 tutors) most of which, she said, are funded through ESSER and CREATE grants and are temporary. She added that the District will have savings due to more than 25 retirements of certified staff, and the savings due to staff reductions and budget efficiencies previously approved or discussed by the Board in March and June.
New Positions. The new positions recently added to the FY’22 budget were primarily budget neutral or funded with ESSER or CREATE grant funds, said Ms. Zalewski. These positions include:
- 19 Teacher Residents (funded with the CREATE grant) – $570,000;
- 1 CREATE Director (funded with CREATE and ESSER grants) – $110,000, plus benefits;
- 8 Guidance Counselors (funded with ESSER grant) – $520,000, plus benefits;
- 2 Mental Health Practitioners (funded with ESSER grant) – $180,000, plus benefits;
- 1 Coordinator of the Academic Skill Center (paid with ESSER grant) – $60,000, plus benefits;
- 16 Lead Tutors – $272,000, and 48 Academic Tutors -$734,000 (paid with ESSER grant) to address learning loss due to the pandemic;
- 1 Director of Buildings and Grounds and Transportation (replaced the consulting position and resulted in $50,000 savings) – $120,000;
- JEH Building Concierge (budget neutral and replaces consulting services) – $60,000;
- 1 ESL teacher due to student enrollment, $60,000, plus benefits;
- 1 Special Education Teacher due to student needs;
- 3 Content Facilitators due to student needs – $240,000, plus benefits; and
- 2 Central Office support positions to provide support to administrators -$120,000.
Ms. Zalewski told the RoundTable that the following positions are temporary: the 64 tutors, 19 teacher residents, 8 guidance counselors, 2 mental health practitioners, and 1 coordinator of an academic skill center.
Positions Eliminated. Ms. Zalewski said the District eliminated certain positions as part of the budget reduction strategies approved by the Board in March and discussed in June. These are summarized below. Dr. Horton said, “We have major cuts in administration.” In addition, administrators have agreed to forego a salary increase for FY’22.
Retirements: In addition, the cost of salaries reflects the savings due to the retirement of 25+ certified staff at the end of FY’22. Generally, the District may replace a retiring teacher with a less experienced teacher at a lower salary, resulting in a cost savings. As an example, if the District replaces a retiring teacher with a salary of $110,000 with a teacher at a salary of $60,000, the savings would be $50,000 for that position. Ms. Zalewski said the savings will be primarily realized in FY’23 and beyond.
Employee benefits are budgeted at $17.4 million, an increase of 4% from the FY’21 budget. Medical insurance premiums are projected to decrease by approximately 1.9% in FY’22.
Other Expenses. Purchased services are projected to be $16.8 million, including $1.1 million in ESSER funded purchases. Supplies are projected to be $8.2 million, $2.5 million of which is ESSER funding, up 27% from the amount budgeted in FY’21. Capital outlay is projected to be $1.6 million; as part of the 2017 referendum, the Board committed to put $1.025 million each year toward capital outlays.
Some of the non-salaried expenses highlighted by the District include the following:
- $80,000 for elementary social studies materials and $10,000 for middle school social studies;
- $250,000 to improve air quality, $200,000 for building cleaning and school supplies, and $60,625 for bottle filters – all funded by ESSER;
- $250,000 to update technology infrastructure; and
- $200,000 additional allocation for summer school to address learning loss.
The Increase in Employees
The tentative budget calls for adding many positions and eliminating others. A table in a budget memo shows that on a net basis the number of teachers will decrease by 2 full time equivalent employees (FTEs). (The 19 teacher residents and the 64 tutors are not counted as “teachers” in this table.) The number of Central Office Administrators is budgeted to increase from 27 to 28, but the number of positions for Dean of Culture and Climate are budgeted to decrease from 2 to 1.
On a net basis, across all positions, there is a total of 29.8 new FTEs budgeted for FY’22 (which does not include the 64 tutors). According to the table, there are 30 FTEs funded with ESSER or CREATE grants that are temporary, specifically the 19 teacher residents, 8 guidance counselors, 2 mental health practitioners, and 1 coordinator of an academic skill center.
The table below gives the breakdown of employees by type of position. It is reprinted from the District’s budget documents.
Between FY’16 and FY’22, there have been a total of 142.88 new FTEs added at District 65, during a time when student enrollment has declined (or is projected to decline) by 579 students. The charts below show the totals year by year. (The number of FTEs is taken from D65 budget documents; and student enrollment is taken from the FY’22 budget documents.)
The District is estimating that student enrollment will decline by 185 students in FY’22, but it has not reduced the number of teachers in anticipation of that reduction in enrollment. Mr. Obafemi told the RoundTable that the District has not reduced the number of teachers in its workforce because parents who pulled their students out of the District during the pandemic may decide to send their students back to District 65 when schools reopen. He said he thinks the projected reduction in enrollment may be “temporary” and “not real.” He said they have not reduced the teacher workforce to be conservative in their budgeting.
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 reflects that if the District puts $2.2 million of the surplus for FY’21 into the referendum reserves, the balance in the referendum reserve will be $32.1 million at the end of FY’21, which means the District is currently on track with the referendum plan.
Under the District’s most recent financial projections dated Aug. 9, the District will operate at deficits of $2 million in FY’23; $4.5 million in FY’24; $8 million in FY’25; and $11.2 million in FY’26, assuming no new cuts are made or revenues found.
Ms. Zalewski said the most recent projections cut in half the amount of the operating deficits that were projected in February for FY’23 and FY’24.
Raphael Obafemi, Chief Financial Officer, said the reductions were a direct result of the $2.9 million in budget reductions approved and discussed by the Board in March and June.
If the funds in the referendum reserve were applied to cover the projected operating deficits in FY’23 and subsequent years, the District could balance the budgets through FY’26, and it would leave $6.6 million in the referendum reserve at the end of FY’26.
While the District has not prepared a projection for FY’27, a straight-line projection of the deficits shows the operating deficit would be about $14 million in FY’27.
The chart below illustrates the projected growth in operating deficits. The green bars illustrate the projections prepared by District 65. The orange bar is a straight-line projection. The blue bars illustrate the application of the referendum reserves and how the funds would be exhausted in FY’27.
The District’s Budget Reduction Plan
The District is not planning to use the referendum reserves to cover the projected operating deficits. Rather, the plan is to match operating expenses with operating revenues and to maintain the referendum reserve.
“The Board and the administration are determined to reduce or eliminate the structural deficit that has been plaguing the District for decades,” say the budget documents. “Moreover, the administration is determined to preserve the referendum eserves and is committed to managing District’s finances in a prudent and conservative manner.”
Mr. Zalewski reiterated, “We want to live within our means and for our expenditures to match our revenues.”
The District’s deficit reduction plan contains three phases. The plan “will attempt to reduce the District’s expenditures and the overall ‘footprint,’ so it fits the new financial reality and declining enrollments,” say the budget documents.
The District is currently projecting a decline of 566 students between FY’21 and FY’26. Mr. Obafemi told the RoundTable that part of the deficit reduction plan includes a deeper study of student enrollment to get a more reliable handle on what enrollment will look like in five years.
In FY’22 and FY’23, the District also plans to conduct a curriculum audit and to prepare a student assignment master plan, a facilities master plan, a demographic study, and a staffing review.
In FY’23 and FY’24, the District plans to implement recommendations made in these analyses and plans and to make “changes in services, educational model structures and design will result in permanent efficiencies and cost savings.”
Board member Soo La Kim submitted a question asking if administrators planned to cut operating expenses by $1.9 million to balance the budget in FY’23.
Mr. Obafemi said the District will “definitely” make additional cuts of $1.9 million to balance the operating budget in FY’23.
Dr. Horton likewise said, “We will balance the budget.”
As part of the process, some Board members have said that a school or schools may be closed. Administrators and several Board members have also said they are committed to establishing a new school in the Fifth Ward. What the net impact would be on operating expenses is at this point unknown.
Some Additional Unknowns
There are several other big unknowns that may impact the District’s operating projections. The District has been assuming for purposes of its projections that the CPI will be 1.5%. Ms. Zalewski said on Aug. 9 that the CPI was currently more than 5%. She said, though, that the projections continue to use the 1.5% assumption because the CPI could change by the end of the year, and it was more conservative at this point to use a historical average of the CPI.
If the CPI came in at 5% for this calendar year, it would enable the School Board to increase property tax revenues in its 2022 tax levy by about $4 million more than assumed in the most recent projections. This would not only impact its 2022 tax levy, but because of the way tax caps work, it would impact each subsequent tax levy as well. Even a temporary blip in the CPI could have a major impact going forward – on the District as well as taxpayers.
Some other unknowns are that the teachers’ union contract expires at the end of FY’24, the legislature may impose a property tax freeze, the legislature may shift the cost of funding teacher pensions from the State to school districts, and student enrollment may change.
A Brief Summary of the $2.9 Million Budget Reductions and Cost Efficiencies Previously Approved or Discussed by the Board
Ms. Zalewski said the tentative budget takes into account a total of about $2.9 million in budget reductions and operating efficiencies that were previously approved by the Board in March and discussed at a June meeting.
In March, the Board approved cuts totaling about $1.9 million. 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 Timberlee with a day program ($50,000).
On June 8, Ms. Zalewski presented some additional possible budget reductions in the administrative area totaling $1,043,753. These were discussed by not formally approved by the Board. They are:
- eliminating 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;
- Absorbing internally the role of the Assistant Superintendent of Elementary and Secondary Education Human Resources in FY’22 and reexamining in FY’23 – $233,505;
- Eliminating 1 Dean of Culture and Climate position. The functions would have to be absorbed by the remaining Dean – $118,032;
- Implementing a one-year salary freeze for administrators and several miscellaneous employees – $226,000;
- Garnering savings from ending the ARAMARK contract – $50,000;
- Reducing the contractual allocation of professional development funds for principals, assistant principals, cabinet members and other administrators – $95,000; and,
- Eliminating the District’s paid cell phones – $120,000.