At School District 65’s Finance Committee meeting on Sept. 14, Kathy Zalewski, Business Manager, presented a final budget for the 2020-2021 school year (FY’21). The District is budgeting that it will operate at a surplus of $344,726 in FY’21. This is about $150,000 less than planned in the tentative budget presented to the Finance Committee on August 10.

The final budget summaries report on an unaudited basis that the District closed out the fiscal year ending June 30, 2020 (FY’20) with a surplus of about $6.2 million.

The RoundTable previously posted an in depth article on the tentative budget, which is available here. This article will only highlight some key numbers in the final budget and some changes.

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 planned to set aside surpluses totaling about $31 million in FY’18 through FY’21 in a Referendum Reserve, and to use those amounts to cover projected operating deficits totaling about $31 million in FY’22 to FY’25. The commitment made during the months preceding the Referendum was to balance the District’s budgets for at least eight years, through FY’25.

While there is a significant surplus in FY’ 20 and a projected surplus in FY’21, the Referendum Plan contemplated there would be significant surpluses in those years that would be used to cover the projected deficits in later years.

Closing Out FY’20

The final budget summaries presented on Sept. 14 report on an unaudited basis that the District closed out FY’20 with a surplus of about $6.2 million. On Aug. 10, the tentative budget reported on an unaudited basis that the surplus was $7.1 million.

The decrease of about $900,000 is due to reporting about $900,000 less in property tax revenues for operations in the final budget summaries than in the tentative budget summaries. Ms. Zalewski told the RoundTable that an allocation adjustment was made which reduced property tax revenues in the operating funds by about $900,000 and increased property tax revenues in the debt service fund by a like amount.

The District had budgeted last fall that it would operate with a surplus of about $5.5 million for FY’20. It will thus close the year with a surplus about $700,000 higher than budgeted.

The Final Budget for FY’21

The final budget for FY’21 pegs operating revenues at about $139.3 million, operating expenses at about $139 million, and projects that the District will operate at a surplus of $344,726.

Property tax revenues, which account for 79% of the District’s revenues, are budgeted at about $110.0 million. This is about $1.5 million less than the amount collected in FY’20. Ms. Zalewski said the District is assuming the collection rate of property taxes will be 96%, rather than the historic collection rate of close to 99% due to the impact the pandemic is having on property owners.

Salaries and benefits, which account for 80% of the District’s revenues, are budgeted at about $111.7 million. The District is adding, on a net basis, 10.3 new positions.

Overall, operating revenues are expected to decrease by 0.8%, and operating expenses to increase by 3.5% from last year’s unaudited actuals.

While there are a number of changes made since the tentative budget, the overall changes are not significant. On the revenue side there is a reduction of $760,000 in other local revenues, and an increase of $403,710 in State aid categoricals, and a few other adjustments. On the expense side, there is a reduction of $383,307 in salary expenses, an increase of $233,170 in purchased services and materials and supplies, and a few other adjustments.

A memo to the Board states, “These changes had a small impact on the bottom line of the operating budget, decreasing the overall FY’21 surplus by $152,460.”

Projections for FY’21 – FY’26

At the Sept. 14 Finance Committee meeting, Ms. Zalewski presented updated financial projections that project the District will operate at a surplus of $67,243 in FY’22, and then 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 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 deficit in FY’26. There would be no amounts left in the Referendum Fund to cover any subsequent deficits. See above chart.

Ms. Zalewski said that while the projections showed a surplus of $67,243 for FY’22, it was “very tentative” in light of the potential impact the pandemic might have on the economy.

She added that for FY’23 and subsequent years, the projections assume that the CPI will 1.5%. The CPI is important because a school district may increase property taxes by the lesser of the CPI or 5%. Ms. Zalewski said the CPI is currently 0.6% for 2020. She said if the CPI stays at 0.6, the amount of property taxes projected for FY’23 and subsequent years will be less. Conversely if it is higher, property tax revenues would be higher. She said a 1% move in the CPI equates to about $1 million in property tax revenues.

Raphael Obafemi, Chief Financial Officer, said that the projected deficits for FY’23 and beyond look “very bad.” He added, though, that the projections assume “we do nothing. We just go on autopilot. And we know we're not going to go on autopilot. Just like if we see a freight train coming for us, we're not just going to keep driving to the freight train. The plan is we are going to have to adjust our expenditures, which is what we have control over. There's a limit to how much we can take in as far as revenues, but we have control of our expenditures and the plan is that we will do something so that the red ink that we see in the out years doesn't come to pass.”

One thing limiting on the District’s ability to reduce expenses are the collective bargaining agreements entered into with the District Educators Council (DEC, the teacher union) and with other employee unions.

Joey Hailpern, Chair of the Finance Committee, said the Finance Committee is scheduled to discuss how to address the District’s projected deficits this fall. Special meetings have been scheduled for Nov. 19 and Dec. 9.

The School Board is scheduled to adopt a final budget on Sept. 21.