In what will be a multi-year effort to right-size the budget for St. Francis Area Schools, district leaders and the school board are working to right-size the budget with an estimated adjustment of $3.7 million for the 2018-19 school year. Budget right-sizing is aligning revenues and expenses to create a balanced budget by evaluating enrollment trends and projections. The goal is to continuously end the fiscal year better than projected on a multi-year basis. The school board approved moving forward with right-sizing the budget at the January 22, 2018 school board meeting.
A number of factors, including last year’s unexpected decrease in enrollment, this year’s projected decrease in student enrollment and correcting previous budgeting opportunities, has resulted in the budget adjustment amount. In addition, general operating expenses continue to rise every year and school district revenue sources do not keep pace. District leaders are working together to right-size the budget and determine how this will impact staffing and programs. A resolution addressing budget adjustments was presented at the February 26, 2018 school board meeting. The resolution passed, with a 6-1 vote.
For the past several years the district has been working hard to build financial reserves, which is referred to as a fund balance. St. Francis Area Schools is not alone in its budget challenges. A recent survey by the Association of Metro School Districts (AMSD) shows that 27 of its 40 member districts face budget deficits totaling 97 million for 2017-18. School systems with declining or flat enrollment, like St. Francis Area Schools, feel the effects of fewer resources even greater.
Frequently Asked Questions
Q: Why do we need to right size the budget?
A: In spite of prudent stewardship of district assets, there are several factors contributing to a structural deficit (expenses outpacing revenue) and eroding the district’s unassigned fund balance. The unassigned fund balance as of July 1, 2016 was $2,732,892. The fund balance as of June 30, 2017 was $630,259.39. This was due to revenue shortage of $1,102,912 and an expense overage of $1,326,987.
In order to comply with school board policy, the district must maintain a fund balance of five percent of its general fund budget. The current fund balance cannot sustain projected deficits and still meet the reserve policy, thus the need to reduce spending.
Q: What is a fund balance?
A: A fund balance is a “rainy day fund” that is intended to bridge the gap when expenses are greater than revenue, known as a structural deficit. District administration was purposeful in building a fund balance to ensure it could sustain investments made to enhance and improve student learning through staffing and programming.
Q: Why is a fund balance so important to the school district? If we have money, shouldn’t we spend it in the classroom where it’s needed?
A: The fund balance serves four main purposes:
- Cash flow for payments to employees and vendors;
- Allows districts to manage changes in payment from the state;
- Serves as a “rainy day fund” for unforeseen enrollment or negative changes to expected revenues or expenditures;
- Bond rating and and plans for debt issuance.
Q: Why is enrollment such an important part of the budgeting process?
A: Enrollment changes can have a significant change in the revenue the district receives from the state. In 2007-08 we had 5,596 students and in 2017-18 we are projected to end the school year with 4,294 students. This is an estimated reduction of 1,302 students over a ten year period.
Enrollment projections can be challenging to predict for Kindergarten and the High School. A projection model is used to help us project Kindergarten. The model provides key data, including birth within the district, zip code birth data and other key data elements for enrollment.
Q: Why are we right sizing the budget?
A: There were actually multiple factors leading to the district’s structural deficit that necessitated a multi-year effort to “right size the budget.”
- Enrollment (fewer students mean no additional or less state funding);
- State Funding (annual increases were approximately one percent annually, which as noted previously, is insufficient to cover inflationary costs);
- Increase in District Spending (due to inflation).
- Special Education lack of full funding.
- Uncertainty of 3rd party billing revenue.
- Anticipated reductions in federal funding.
State funding is largely based on student enrollment. Over 80 percent of the district’s revenue comes from the state.
Q: Why are we not seeing more options of cuts at the district level vs. the threat of losing teachers?
A: Over the years, significant budget reductions have been made at the district and administrative level. The Board and administration values smaller class sizes and we also value compensating our teachers well. These values are important because we want to recruit and retain the best and brightest teachers so they can inspire our students to be the best they can be. Balancing a budget that values paying well and having small class sizes is a formidable challenge. With our declining enrollment, the Board and administration is faced with challenging choices.
The reality is, just like most districts, almost 83 percent of our annual spending goes to staffing costs. The other reality is that the majority of the remaining 17 percent of district spending are for essentials (utilities, insurance, student transportation, etc.). Therefore, although reductions are being done in other areas a major share of the reductions must include staff positions.
Q: How does the district budget the 2 percent increase from the state?
A: We’ve built the district budget to include the state increase in formula revenue. While appreciated, the current (and past) increase does not keep pace with inflationary costs. On the expenditure side of the budget, the district has fixed annual increases, including the salary schedule, utilities and fuel to name a few. These inflationary increases and additional spending have all contributed to the district’s current structural imbalance (i.e. expenses exceeding revenue).
Q: When money is budgeted and not spent, what considerations go into the decision to spend or save the money?
A: First, we are entrusted to be prudent stewards of district assets and to maintain financial stability while balancing the needs of student instruction, intervention and achievement. We have been committed to driving resources to the classroom and programs that directly impact students. Second, school board policy requires the district to maintain a fund balance of five percent of its general fund budget. A fund balance affects us in both the short and long term. It allows the district to meet day-to-day obligations and to adjust to sudden decreases in revenue or unexpected expenses without having to make abrupt changes in programming or services.
Q: Why is super conservative budgeting good for St. Francis Area Schools?
A: “Super conservative budgeting” is a matter of opinion. Managing public money is a matter of public trust and a responsibility we take very seriously.
Low state funding, complicated funding formulas and enrollment changes are challenging for the district.
Q: Why is it important for St. Francis Area Schools to be financially responsible?
A: The School Board and administration take the responsibility of managing the taxpayers resources very seriously. Building trust and respect within the community, including the stakeholders, families and staff is taken very seriously by the School Board and administration. Responsibility and accountability are core values and are part of the mission of St. Francis Area Schools.