Tuesday, March 25, 2014 || By Michael Romain
According to FY 2013 financial data, about 62 percent of school districts in the state have relied on deficit spending, cash reserves or borrowing to fund their operations. That’s compared to nearly 33 percent in 2008. The downturn in the financial performance of the state’s public school districts has been such that their average financial score has dipped below “Financial Recognition”–the highest financial ranking a district can receive–for the first time in five years.
The above data was compiled by the Illinois State Board of Education (ISBE) and featured in its annual Financial Profiles of state public schools, which it released during a regular board meeting on March 12th.
The state’s general trend, however, didn’t necessarily apply to Maywood’s elementary and high school districts. For the first time in at least ten years, both Maywood-Melrose Park-Broadview District 89 and Proviso Township High School District 209 have received Financial Recognition at the same time. District 89 has not received the designation since at least 2003. District 209 has achieved Financial Recognition every year since 2010.
Each year, the ISBE issues Financial Profile Designations, which essentially grade the performance of each public school district in the state. Districts are evaluated on a scale of one to four, with four the highest. If a district scores anywhere between 3.54-4.00, it is given Financial Recognition, which is the highest ranking for financial strength a district can obtain. Districts with this designation require little to no review or intervention by the ISBE.
A score that falls between 3.08-3.53 is enough to land a district in the next highest category–Financial Review–which involves the ISBE conducting limited intervention and monitoring for any deterioration in financial performance.
A score that falls between 2.62-3.07 earns a district a place in the Financial Early Warning category. Districts within this category are monitored closely by the ISBE and offered a range of technical assistance in areas such as cash flow analysis and financial projections. The ISBE will also determine whether or not these districts qualify for a Financial Oversight Panel, which is an unpaid committee of experts and community members tasked with restoring the district to financial solvency.
If a district scores between 1.00-2.61, it is placed on Financial Watch, the highest risk category among the four designations. These districts receive intense monitoring and technical support by the ISBE, in addition to serious consideration as to whether or not they qualify for a Financial Oversight Panel.
Since 2005, District 209 had received either Financial Review or Financial Watch designations. In 2009, the Board was compelled to bring in a Financial Oversight Panel.
The ISBE’s Financial Profile evaluates school districts based on five key indicators:
- The Fund Balance to Revenue Ratio (FBRR) is a reflection of a district’s overall financial strength, in a similar way that an individual’s savings or checking account balances are a reflection of the strength of his or her personal finances. The district’s total fund balance is divided by its total revenue. The higher that ratio, the greater the score. “A ratio of .25 or greater scores 4, between .25 and .10 scores 3, between .10 and zero scores 2 and a negative fund balance to revenue ratio scores 1.”
- Expenditure to Revenue Ratio (EXRV) compares the amount of money a district spends to the amount of money it receives. A ratio of one (1) means that the district is spending no more money than it is taking in. An EXRV ratio equal to “or less than $1.00 has a score of 4, between $1.00 and $1.10 scores 3, between $1.10 and $1.20 scores 2 and spending of greater than $1.20 scores 1.”
- The Days Cash on Hand (DCOH) represents the number of days that a district can maintain its operations in the event that it stops receiving revenue. “180 days or greater scores 4, between 90 and 180 scores 3, between 30 and 90 scores 2 and less than 30 days of cash on hand scores 1.”
- The Percent of Short-Term Borrowing Ability Remaining (STB) reflects a district’s ability to raise short-term debt for a variety reasons (for instance, in the event that it hasn’t received an infusion of local tax revenues on time).
- The Percent of Long-Term Debt Margin Remaining (LTD) reflects a district’s ability to borrow long-term funds that are typically used to cover the costs of major construction projects and equipment purchases/repair.
According to their FY 2013 5-Year Profiles, both districts 89 and 209 seem to have made serious spending cuts and have increased their cash reserves tremendously.
Between FY 2009 and FY 2013, District 209’s FBRR went from 0.29 to 0.419–a 44.5 percent increase; its EXRV went from $1.02 to $0.884–a 13 percent decrease; the number of days its cash reserves could support operations in the event that revenue stopped coming in increased from 93 to 167. District 209’s overall FY 2013 profile score was 3.80, the same as it was in FY 2012.
In FY 2007, District 89’s FBRR was 0.10, enough to earn it a score of 3. By FY 2013, its FBRR was 0.255–landing a score of 4, although that year’s ratio was still lower than 2011’s 0.524. In 2013, the district’s EXRV ratio was $0.902, a nearly 20 percent improvement over 2007’s $1.10. In FY 2007, District 89 had 33 days’ worth of cash reserves on hand. By FY 2013, the district had 96 days’ worth of cash reserves on hand. District 89’s overall FY 2013 profile score was 3.70. In FY 2012, its profile score was 2.40.
Cutting To Pieces
In any given year, however, any of those five key indicators may be subject to a variety of external pressures, such as national economic recessions and state budget cuts. According to the ISBE, as state and national economic conditions seem, at best, stagnant, public school districts should brace themselves for even worse financial statements.
“An analysis of the FY 2013 AFR [Annual Financial Report] data showed an increase in proceeds in bond sales, which means that districts are funding deficit spending with long-term debt. Additionally, information submitted by school districts for FY 2014 forecasts that the number of districts with deficits will increase to 532 or 61.8 percent of all districts, compared to 420 or 48.7 percent in FY 2013,” according to the ISBE.
“The overall average 2014 profile score for all districts dropped to 3.52 (Financial Review) from the 2013 average score of 3.54 (Financial Recognition). The graph below outlines the state’s average profile score trend line over the last five years. Analysts believe the increase in the average profile score saw a brief uptick in 2013 due to the infusion of revenue from the federal stimulus funds, called the American Recovery and Reinvestment Act (ARRA).”
ISBE Board Chairman Gery J. Chico said that the deteriorating financial condition of the state’s public school districts is directly attributable to Springfield’s education cuts.
“Tough choices have become par for the course for school district administrators and local boards as many have cut staff positions as well as arts and after-school programs, delayed construction projects and important repairs and are deficit-spending in order to pay the bills,” Mr. Chico stated in an ISBE press release.
“Less state funding directly contributes to these struggles and appears to correlate to the rising number of districts in the highest risk category on our annual Financial Profile. With continued cuts to education funding, this trend will continue. Today’s lack of investment in education will be seen for many years to come in our economy and workforce.”
The ISBE has been rather explicit about Illinois’s chronic tendency to underfund its public schools for some time. According to a fact sheet released by the ISBE’s division of information in February 2013, the Illinois General Fund’s allocation for P-12 education had been cut by more than $861 million since FY 2009, despite public school enrollment levels having remained constant at approximately 2 million pupils.
“Between FY12 and FY13, average per-pupil spending in Illinois was cut by 4.7 percent, the third largest cut among the 50 states, according to the Center for Budget and Policy Priorities,” the fact sheet noted.
“These funding cuts have occurred despite the fact that the state of Illinois contributes a smaller share to total P-12 public education funding than any other state. In 2010, the last year that U.S. Department of Education data is available, Illinois was ranked 50th in the nation, as the Illinois state budget provided for just 28.4 percent of education expenditures across the state while local tax revenues made up 59.2 percent.”
According to Chris A. Koch, the state’s Superintendent of Education, the marginal benefits accruing to public school districts from budget cuts have reached a point of no return.
“When comparing Financial Profile data over the last decade, it’s apparent that districts have been forced to reduce expenditures and incur additional long-term debt in order to balance their budgets. Cutting expenses even further is going to be near impossible for most districts to do without negatively affecting the quality of education they provide,” he said.
Every year, the Illinois Foundation Funding Advisory Board (EFAB) makes recommendations for setting what’s called the General State Aid (GSA) Foundation Level, or the minimum amount of funding required to adequately educate each K-12 pupil in the state. Every year since 2002, however, “the Foundation Level set in statute has regularly fallen short of the EFAB recommendation,” according to the ISBE.
On top of this disparity, for the past three years, the state has failed to fully fund the GSA Foundation Level that had been promised public school districts under state law. For FY 2013, the GSA Foundation Level was $6,119 per pupil, only 89 percent of which was appropriated by the Illinois Legislature. That effectively amounted to the Legislature apportioning for each pupil $522 less than what it had promised.
Citing the ISBE, the public advocacy organization Advance Illinois noted, “Illinois public schools lost $1.4 billion when adjusted for inflation in state funds during the past four years.”
Among the many programs that have been eliminated: Gifted Education, Jobs for Illinois Graduates, Targeted Interventions, Growth Model, Illinois Governmental Internships and Summer Bridges. Among those that have experienced dramatically reduced funding: Alternative Learning/Regional Safe Schools (64.7 percent reduction); Arts and Foreign Language (87.5 percent reduction); Children’s Mental Health Partnership ($90 percent reduction); State and District Tech Support (28.1 percent); and Advanced Placement Classes (68 percent).
In the past several years, those economic woes and the attendant cutting sprees that they often trigger have hit home. In 2009, District 89 laid off about 30 teachers and staff members, many of whom included tutors, literacy coaches and technology assistants. And in 2012, the District refused to renew the contracts of all 10 of its principals in a restructuring process. Those principals were allowed to reapply for their jobs.
In a May 2012, article, the Chicago Tribune reported that, since allowing in the Financial Oversight Panel, District 209 “has managed to balance its last three budgets — with deep cuts to staffing and programs. But its fiscal health is unstable, and the future is uncertain. State lawmakers are talking about cutting transportation aid to schools or shifting teacher pension costs to local districts. Property tax collections have been lagging.”
Enough Is Enough
After being warned by the ISBE that her constituencies should anticipate another $1 billion in education cuts for next year, State Senator Kimberly Lightford (D-4th) struck a tone of outrage.
“Enough is enough,” she said in a March 21, press release. “Earlier this year, the State Board told us that our schools need another billion dollars to perform their basic function. Now, the Board is telling us that the reality next year will be nearly $1 billion in cuts. This situation is unreal. Do we want to sentence an entire generation to failure?”
Both Sen. Lightford (D-4th) and Rep. Emanuel “Chris” Welch (D-7th) have expressed support for legislative measures intended to ease the burden of local public school districts.
Rep. Welch has co-sponsored legislation with House Speaker Michael Madigan that would impose an additional income tax on “individuals in an amount equal to 3% of the portion of the individuals income [sic] that is greater than $1,000,000 for the taxable year. The bill further mandates that this additional tax be distributed directly to school districts on a per pupil basis.”
House Democrats estimate that the added measure could generate an additional $1 billion for local school districts.
Sen. Lightford is the force behind a move to increase the Illinois minimum wage to $10.65 an hour, making it the highest in the country and perhaps indirectly expanding the state and local tax base on which local school districts rely.
Going forward, both Districts 89 and 209 will be forced into a delicate operation in which circumstances have made it rather difficult for public school districts and state lawmakers to determine precisely whether their financial scalpels are cutting the waste or cutting the patient.
“We need preschool. We need teachers in the classroom. We need programs like art and music. We need to make sure that children with developmental disabilities and learning disabilities get the special attention they need,” Sen. Lightford said. “I don’t want to live in a society that tells kids they don’t matter.” VFP