The District 65 School Board approved a final budget for the year ending June 30, 2023 (FY’23) at its Sept. 19 meeting. The budget continues the trend of increasing staff despite declining student enrollment. The budget shows an operating surplus of $574,886.
Business Manager Kathy Zalewski said at an earlier meeting that the district was able to balance the budget for FY’23 primarily due to a reduction of 25 classroom teaching positions. Nonetheless, the district is adding 46.3 new positions, 35.6 of which are not teachers.
The RoundTable covered the main parts of the budget in an article posted on Sept. 14, which is available here. This article will lay out some trends.
Board members did not discuss or comment on the final budget at the board meeting on Sept. 19. Also at that meeting, Anya Tanyavutti resigned from the board and Tracy Olasimbo was appointed to fill a vacancy.
Trends in revenues, expenses
The budget for FY’23 shows operating revenues of $157.2 million and operating expenses of $156.7 million. Since FY’16, revenues and expenses have increased by about 40%, or an average of 6.6% per year. The table below shows the trends.
The above chart shows a jump in revenues in FY’18 due to the referendum approved by voters in April 2017, which provided for a $14.5 million increase in property taxes in calendar year 2017. Because of the way property tax caps work, which increase carries through to each subsequent year as well. The referendum plan was that the district would generate significant operating surpluses in the first four years after the referendum, and that the surpluses would be deposited into a Referendum Fund. The district would then be able to use the money in the Referendum Fund to cover deficits that were projected for the next four years, through FY’25.
Property taxes, which account for about 80% of the district’s revenues, have increased from $85.9 million in FY’16 to $119 million in the FY’23 budget, or by about 38%.
The chart below shows District 65’s actual property tax revenues in FY’16 through FY’22, its budgeted property tax revenues in FY’23 and its projected property tax revenues for FY’24.
The chart shows a jump of $22 million in property tax revenues in FY’18, and then a drop of about $5 million in FY’19. This jump was due to the referendum. The variations in those two years were due to the way in which the first and second installments of property taxes are calculated and the way in which the installments fall into different fiscal years of District 65.
The chart also projects a $6 million increase in property tax revenues in FY’24. That jump is due to the high Consumer Price Index in calendar year 2021, which enables the School Board to increase property taxes for operations by 5% in its property tax levy in December 2022. If approved by the Board, that increase will carry through to each subsequent year.
Another factor impacting revenues is that the legislature approved a change in the Corporate Property Replacement Tax. That change boosted revenues by about $3.3 million in FY’22 and is expected to increase revenues by about $2.4 million in each subsequent year. That was an unexpected boon to school districts in the state.
Another boost to revenues is that the federal government approved federal grants for school districts throughout the nation to assist them to facilitate remote learning, provide safe spaces in the schools, mitigate learning loss and address emotional well-being. District 65’s share of ESSER funds is $10.6 million. It received most of the funds in FY’ 21 and FY’22, but is budgeted to receive $3.7 million in FY’23. Those amounts must be spent on certain types of programs.
Salaries and benefits
Salaries and benefits account for about 80% of the district’s operating expenses. They are budgeted at $123.9 million for FY’23, $10 million more than in FY’22.
The chart below shows the actual expenses for salaries and benefits for FY’16 through FY’22, and the budgeted salaries and expenses for FY’23. Through this period, salaries and benefits have increased from $94.6 million to $123.9 million, a 24% increase.
CHART SALARY EXPENSES
Between FY’16 and FY’23, the number of total staff increased from 1,123 to 1,311, or 188 full time equivalent employees, 150 of whom were not categorized as teachers. The number of teachers increased from 599 to 637, or 38 teachers.
The trends are shown in the chart below. The numbers for FY’16 through FY’22 are taken from tables provided by District 65 in its annual budget documents. The numbers for FY’23 are computed by adjusting the FY’22 numbers by the number of teaching or staff positions Zalewski said were being eliminated or added in FY’23.
During this year’s budget process, Zalewski said that FY’23 was the first time that the district has reduced the number of teachers due to a decline in student enrollment. The district cut 25 classroom teachers, but added 7.2 special education teachers and 3.5 English as a second language teachers, for a net reduction of 14.3 teachers. The district added 35.6 other staff positions.
Superintendent Devon Horton said that 90% of the new positions were added for “safety or for equity.”
While total expenditures for salaries and benefits have been increasing, between FY’16 and FY’22, the number of students decreased by 978 students. In the budgeting documents, District 65 said that student enrollment was projected to decline by 58 this year, FY’23. The District, however, has not yet provided updated enrollment numbers for this year, so a student enrollment number is not included for FY’23.
Raphael Obafemi, Chief Financial Officer, told the RoundTable that the staffing levels were necessary to address the learning and emotional needs of students, particularly in light of the impacts of the pandemic.
As of June 30, 2022, the balance in the Referendum Reserve is about $35.7 million, according to the District’s financial projections dated Sept. 14.
As part of the April 2017 Referendum, the district planned to deposit surpluses generated as a result of the referendum in a Referendum Fund for four years, then use the surpluses to balance budgets for the next four years, through FY’25. The plan contemplated that at the end of FY’22, the Referendum Fund would have a balance of $23.3 million. The district currently has $12.4 million more in the fund than initially contemplated.
While it is a positive development that the district has been able to build up its Referendum Reserve more than anticipated, especially through the pandemic years, several factors have contributed to this:
- The referendum projections assumed that the district would incur expenses totaling $5.1 million though FY’22 to cover the anticipated cost of funding teacher pensions, which the legislature was planning to shift from the state to school districts. While the legislature had been planning such a move, it never occurred. The district thus did not incur $5.1 million in anticipated expenses.
- Actual property tax revenues through FY’22 were $6.8 million more than budgeted at the time of the referendum. This occurred because the Consumer Price Index came in higher than assumed in the referendum projections, and/or because new property (which is not subject to property tax caps) came in higher than assumed.
- CPRT revenues were about $3.3 million higher than assumed in the referendum projections through FY22. Zalewski said this was due to a change in the law regarding the CPRT.
These three factors alone benefited the district by a total of $15.2 million.
Of course, the district went through a major pandemic and incurred significant costs in shifting to remote learning, preparing the buildings so they would be safe for students to return to school, and addressing learning loss and the emotional needs of students. The district was able to pay for at least a portion of the extra costs due to $10.6 million in federal ESSER funds. In addition, the district was able to save some money due to the school closings. How all this balances out is not known, but the pandemic had a major impact on the schools and on students.
On Sept. 14, Zalewski presented updated financial projections. The projections show a surplus of $1.5 million for FY’24, and then deficits of $2.4 million in FY’25, $6.3 million in FY’26, $10 million in FY’27, and $13.4 million in FY’28.
The projections are illustrated in the chart below.
Obafemi said in prior meetings that these projections assume no budget reduction strategies would be employed. He said, though, “We always have to look at our expenditures and look for ways to right size. … We will do whatever is necessary to make sure that revenues balance out with expenditures. I will never have deficit spending.”
One major factor impacting the projections is what the increase in the CPI will be this year and in subsequent years. Property tax caps limit the amount by which District 65 may increase property taxes to the lessor of 5% or the increase in the CPI. The increase in the CPI for calendar year 2021 was 7%. The District’s property tax levy in December 2022 will be limited to 5%, and that levy will be felt in the District’s FY’24 year. The district’s updated financial projections assume that property taxes will rise by 5.6% in FY’24.
The CPI for the 12 months ending Aug. 31, 2022, was about 8.3%, and the CPI for calendar year 2022 is on track to exceed 5%. If so, the District 65 School Board could increase its property tax levy by 5% in December 2023. The District’s financial projections, though, assume that the board will increase the property tax levy by only 1.5% in its December 2013 levy and subsequent years.
What the CPI will be for 2022 and subsequent years is unknown, and whether the board will increase property taxes to the full extent permitted is unknown. A 1.0% increase in property taxes, though, means an extra $1.1 million in property tax revenues, said Zalewski, and because of the way property taxes operate, an increase in one year carries through to each subsequent year.
Assuming that the School Board raises property taxes by 5% in both its 2023 and 2024 levies, that would mean an increase of $10.5 million for those two years, which would carry through to each subsequent year.
This would be 69% of the amount of the $14.5 million increase approved in the referendum.
Other unknowns going forward include what the compensation will be under new contracts negotiated with employee groups, whether student enrollment will decrease or increase, whether one or more schools will be closed, whether the district will be able to reduce transportation costs by $3.2 million each year for the next 20 years to pay for the cost of the new Fifth Ward School, whether the state legislature will freeze property taxes or shift the cost of funding teacher pensions to school districts, and other factors.