District 65 administrators made clear at a Finance Committee meeting on Oct. 11 that a financial goal to “reduce the District’s footprint” means to close one or more of the District’s schools. What was once assumed is now clearly stated. This is one strategy to reduce the District’s projected deficits.
Also, administrators plan to align staffing with declines in student enrollment. In the past five years, staffing has increased while student enrollment decreased.
Simultaneously, the District is considering whether to establish a new school in the Fifth Ward. One purpose of the Student Assignment Planning Committee is to “Determine how to open a 5th ward school in a fiscally responsible manner.” The Walkable Schools and Boundaries subcommittee recommends “the creation of a 5th ward school.”
The Projected Operating Deficits
At the Finance Committee meeting, Kathy Zalewski, Business Manager, said the District is currently projecting that the District will operate at a deficit of $1.5 million in FY’23. The projected deficits for the subsequent years are then $4.3 million in FY’24; $7.4 million in FY’25; and $11 million in FY’26. The chart below illustrates the projected deficits.
Ms. Zalewski said the District plans to address the projected operating deficits by either increasing revenues or reducing expenses, so that operating revenues match with operating expenses in the next four years. Both she and Raphael Obafemi, Chief Financial Officer, have repeatedly said that they do not intend to use the District’s Referendum reserves to balance the budgets.
Unless new revenues are found, the District will need to make substantial cuts in operating expenses.
Last March, Ms. Zalewski presented a general plan to reduce the projected deficits in three phases. The three-phase plan is summarized in the graphic below.
On Oct. 11, Ms. Zalewski said the financial goals are to:
- Balance the FY’23 budget and reduce the structural deﬁcit,
- Reduce the District’s footprint,
- Align stafﬁng spending with decreasing student enrollments and strategic priorities,
- Continue to apply an equity lens to future reductions, and
- Engage the District 65 community
Ms. Zalewski said she plans to present a deficit reduction plan to the School Board in January, and present updated financial projections in February, which would take into account the CPI for 2021. The CPI will be available in mid-January.
Ms. Zalewski added that she would like to present a plan in June 2022 to balance the budget in future years.
Align Staffing with Declining Enrollment
Ms. Zalewski said student enrollment has declined by about 1,000 students since 2018, and that during the same time the number of full-time employees (FTEs) at District 65 has increased.
The chart below shows the student enrollment in grades K – 8 at District 65 for FY’16 through FY’21, according to the District’s Opening School Reports. The enrollment for FY’22 is shown at 6,547, the number reported to the School Board on Sept. 27.
The chart below shows the increase in the number of FTEs at District 65 for the years FY’16 through FY’22. During the period FY’16 through FY’21, the District increased FTEs from 1,122.7 to 1,235.75, or by about 113 FTEs. This does not include the increases in FY’22, which Ms. Zalewski said at an earlier meeting are temporary and funded by federal ESSER funds or grants.
The charts illustrate that student enrollment has declined by about 1,000 students while the number of FTEs has increased by more than 100.
“We would like to, we are working towards aligning our staffing spending with decreasing student enrollment,” said Ms. Zalewski. “And this is just the fact. Our enrollment has been decreasing since 2018. At the peak, we had about – not counting pre-K students and Park School – we had about 7,500 students. Right now, as we heard from the student assignment department, I believe a couple of weeks ago, we are only at 6,500 students. And I know it’s a very unusual year. And some of the students may be coming back. But the fact is, we lost almost 1,000 students, which is more than 10%.
“However, when you look at our staffing, especially our certified licensed staff, that decrease is not reflected.”
Ms. Zalewski said administrators, including Andalib Khelghatti, created a working group to develop a systemic process for aligning staffing with student enrollment because 80% of the District’s operating expenses are people. She said the administration in the past has cut back on non-personnel expenses. She said the reality is that they will now be looking at the personnel side of the budget, and “tying our expenditures to student enrollments as strategic priorities.” She added, “We will apply an equity lens to any budget reductions, and we will be engaging the District 65 community.”
Enrollment in FY’21 was impacted by the pandemic, and FY’22 is likely impacted as well. Whether the decreases are a short-term blip or whether they will be permanent remains to be seen.
Eliminating a School or Schools
Finance Committee Chair Joey Hailpern said the phrase “reduce the District’s footprint, … literally means less buildings. Right?” He added, “There’s no decision on that right now, but by putting it as bullet number two, there’s an anticipation that [District 65 consultant] Cordogan Clark’s work and recommendations from the student assignment group will recommend doing something operationally different with less facilities than we have now. Is that a fair assessment?” he asked.
Board member Soo La Kim interjected, “Based on decreased student enrollment?”
Ms. Zalewski said, “That’s correct.”
Mr. Obafemi said, “Yes, the trend that we’re seeing continues, unless the demographic study comes back and shows us something different, which is one of the reasons why we do five- and 10-year projections. I think it makes sense that we have a smaller footprint than we have right now.”
Mr. Hailpern said the District has used the additional dollars generated through the Referendum to do what was intended and “the goal there was to do something different by the time we got to this point. So, we’re in Phase Two, Phase Two is huge. Phase Two is a huge community conversation.
“And I guess my ask is that we do it delicately and deliberately and redundantly communicate to people where they can have engaging conversations, where they can reach out to find information, and give people a chance to be heard. And I know that’s more than the business office.”
He said, “We need to be prepared to have an open and honest conversation with people.” The District cannot decide in June to lessen the footprint, and then have kids in August starting somewhere new. “That’s not fair to anybody, teachers, families. So, this is a long-term conversation. And we need to see a plan that is more than, you know, months ahead.”
Mr. Hailpern added that the Board needed to talk about the school closing “in public session” so “people can watch it, can hear it, can engage with it. …. It’s not happening behind doors. There’s been no decisions made. And anything that anybody’s heard is all hearsay and rumor mill at this point.”
Dr. Khelghatti said they were trying to accelerate the discussion about enrollment projections. “That’s the conversation we’re working really hard to try to accelerate.” He said they are trying to have “a comprehensive plan that’s really not ad hoc in any way, but really robust and aligned to the needs of the staff on the ground. But more importantly, also our student enrollment numbers.”
On Oct. 11, Cordogan Clark gave an update on the status of their review of the District’s schools and other buildings. They have not yet publicly presented any findings or recommendations. Their study will likely be used in deciding whether and how to redraw attendance areas and whether to close a school or schools.
The Rising CPI
Another wild card is the amount of the CPI. Ms. Zalewski said the projected property tax revenues for FY’23 assume that the CPI for 2021 will be 1.5%. While saying that she did not want to guess, she said the CPI will probably be around 3.5%.
If the CPI is 2% higher than assumed, the property tax revenues will be about $2 million higher than projected, and so will the property tax revenues for each subsequent tax year (assuming the School Board levies to the maximum amount allowed). This may help to reduce the projected deficits. It would also increase the residents’ tax burden and may increase some salary expenses. The February projections will give a clearer picture of how the CPI will impact the projections.