State of Finances in Riverton CUSD #14

by Tom Mulligan

June 13, 2010

Where Does the Revenue Come From? As we bring an end to Fiscal Year 2010 (FY10) and get ready to begin Fiscal Year 2011 (FY11), the financial situation in Illinois continues to worsen. This situation has a substantial impact on the Riverton School District. A decrease in state and federal funding has a larger impact on the Riverton School District than many other districts because a large part of our revenue comes from both the state and federal government. State revenue for FY10 made up 55.8% of the overall revenue budget for the district; federal revenue made up an additional 12.5% of the revenue budget. That means that local revenue, primarily property taxes, makes up only about 31.8% of the total revenue budget. Therefore, only $3 out of every $10 the district spends is generated by local revenue. As a result, when the state’s commitment to schools is not met or is reduced (as is planned for FY11), the Riverton School District is hit very hard. This cut in funding has a substantial impact on our ability to continue to offer programs at the same level as we have in the past.

Riverton CUSD #14 Does Not Overspend: What is frustrating is that our school district is already very conservative in terms of spending. When examining spending, it is important to look at Operating Expense per Pupil. This represents the amount the district spends per student. The 2009 School Report Card indicated that the Riverton School District has an operating expense per pupil of $6,658, which can be compared to a state average of $10,417. That is a difference of $3,759 per student. To spend what the average district in the state of Illinois spends, the Riverton School District would need to spend an additional $5,000,000 (our total budget is only around $12,000,000). Riverton is also one of the lowest spending school districts in our area. It is clear from our conservative operating expense per pupil that there is not a lot of “fluff” in our budget, and any cuts at all will directly impact our students.

FY10: Because of state cuts last year, the district entered this fiscal year with a projected deficit budget of around $414,000. With a half of a month remaining in this fiscal year (which ends on June 30), the state of Illinois still owes the school district $880,000 in state revenue that was promised. Unfortunately, the state does not have sufficient revenue to cover what they promised. Based on a recent analysis, if the district does not receive any of that $880,000, it will end the year with over a $1,000,000 deficit. This deficit will take our total reserves (the amount of money the district has in savings) down to around $2,300,000.

FY11: We will enter FY11 with even more uncertainty than we ended FY10. The state of Illinois has passed appropriations for general state aid and for grant programs. Unfortunately, everyone has projected that there is going to be nowhere near enough funds to pay for the appropriations. As a result, we cannot budget for that total amount as we did this year and then end the year way over budget. We have to be more realistic.

This spring, the district went through a painful process of making cuts in the district. We cut textbook purchases, bus purchases, training for staff, facility improvements, technology, the Pre-K program, and several staff positions. All together, the district cut over $800,000 from the budget. Even with these cuts, the district is projecting to have a deficit budget of around $800,000. That would put the district’s fund balances down to around $1,500,000.

Different Funding Buckets: I often get questions like, “why did the district spend money on that when they had to cut teachers?” Believe it or not, there is a very good answer to that question. I stated earlier that almost 70% of our funding comes from state and federal sources. Some of that revenue can be spent on whatever the district wants to spend it on. On the other hand, many grant programs can only be spent on certain expenditures and cannot be used for things such as teacher salaries, benefits, etc. Local taxes are very similar. When you get your tax bill, you see the amount of your taxes that goes to the school. When the school receives the tax revenue, the revenue is broken down into different funds: education, building, transportation, etc. The amount of tax revenue that is generated for the transportation fund can only be used for transportation expenditures. It cannot be used to pay teacher salaries.

There are many, many grant programs that the district receives that are very restrictive on what the money can be spent on. If you see an expenditure you don’t understand, before passing judgment, please remember that there is a very good chance that the funds that are being used for that expenditure were probably only available to make that specific purchase.

Think of Your Own Finances: If you think of your own finances at home, it will probably help to understand some of the ideas I have shared above. Generally most people receive revenue from several sources, but the main source of income is paychecks from employers. You can consider the state and federal government as the Riverton School District’s primary employer. If your employer(s) cut back on your work days or lowers your salary, you have two choices; either cut back on your spending or keep your spending the same and dip into your savings to make up what you have lost in salary. The amount you have in your savings will determine how much you will need to cut back and how much savings you can use. As your savings goes down, the more spending you will need to cut.

This is exactly what has happened to the district. The state of Illinois has now significantly cut back the amount of pay that the school district gets each year. We decided that we would approach this by both reducing our spending and by also dipping into the district’s savings. I stated earlier that we cut over $800,000, but that we will still have around an $800,000 deficit for this year’s budget. We are very lucky that we do have some savings, thereby allowing us to minimize the cuts we need to make. We hope to be able to continue using the balanced approach (cutting while using reserves) until some economic recovery occurs in the state of Illinois. Unfortunately, the longer the economic crisis continues, the lower our fund balances will become, and the more we will need to cut.

Now let’s say for a minute that your employer came to you and said, “I know we have cut your pay, but we are going to give you a bonus … but you can only use that bonus for a new big screen TV, a new car, and for taking a vacation.” Are you going to decline that bonus because you need more money to pay for your electric bills, for school clothes, or for eating out more? Of course not, you’re going to take the money, mount the big screen TV, hop into the new car, and head out on that vacation. That scenario is similar to the restrictive grant programs from the state and federal government. Of course, we would like all revenue to be unrestrictive so we could spend it as we like, but that is just not the way it works. Sometimes, we spend money on things when we would rather use that money for salaries, etc., but we just do not have that option.

Sales Tax for School Facilities: Another example of restrictive funding is the proposed sales tax increase for facilities. As I have written about in previous articles, there will be a ballot question in November to increase the sales tax by 1% in Sangamon County, with the revenue generated to be used only for school facilities. This tax will apply to all purchases with the exception of the following items: most foods sold at grocery stores; drugs/medicines; farm equipment and parts; farm inputs; cars, trucks, ATV’s, boats and RV’s (licensed vehicles); and mobile homes. This tax can only be used by school districts for facility improvements. The district recently passed a Board resolution that outlined exactly how the district planned to spend funds generated from this tax if it is passed in November. They included:

Paying off debt annually on the $8,800,000 General Obligation Bonds from 2005
Paying off debt annually on the $2,100,000 QZAB Bonds
Using it for annual building improvements
Purchasing of additional property

Details of the resolution can be found on the district’s website. As you will notice, the district plans to use a portion of the sales tax revenue to offset property taxes that are paid directly for the payment of the 2008 bonds. There are some important points for taxpayers and for the school from this type of tax:

Anyone who visits and spends money in Sangamon County will be helping to fund building improvements in our schools
It would be a more stable funding source for the district as it would not depend on state or federal funding
It would allow the district to move funds from the building improvement budget over to the education budget, which could save programs during tough economic times
If the district paid half of the annual bond and interest payment annually with this revenue source, it could reduce the bond and interest tax rate by half as well; that means a $0.34 reduction in the tax rate; for a home valued at $150,000, this rate reduction would mean an annual property tax reduction of $170; that same property tax owner would have to purchase goods (excluding those listed above) in excess of $17,000 to spend more on the sales tax than they save in property tax relief
As stated earlier, this bucket of money is very restrictive and can only be used to improve the facilities in the school (expenditures for salaries, etc. are not allowed)

Our Approach: The Riverton School District will work hard in these tough economic times to continue to provide programs and services for students, while still being fiscally responsible. Let’s just hope the leaders of our state can make some tough decisions that will begin to turn things around in our state.