Friday, January 20, 2012

Link to Updated Financial Projections for Minooka CCSD 201

Click here for a link to the updated financial projections which Mr. Gegenheimer presented to the Finance Committee on January 19, 2012. I encourage you to review this presentation. Pay particular attention to pages 12 and 18 of the slide show. Page 18 shows the deficits that Minooka CCSD 201 will run in the future unless we adopt additional deficit reduction measures. Page 12 shows the significant assumptions that were used to produce the projections. You should note in particular assumptions numbered 1,2 and 9. Assumption number 1 is what is, in large part, driving the deficit problem. The assumption states that our costs will increase at roughly 3% per year. Now 3% does not seem like a lot. However, 3% per year is a description of what in math is called an "exponential function." The interesting thing about exponential functions, as any math teacher can tell you, is that the quantity described by any exponential function where the growth rate is greater than 1 (such as here where the rate of growth is 1.03 per year or 3% growth per year) grows at an ever-increasing rate due to the "magic" of compounding. Click here for a graph of an exponential function, and you can visualize what I mean. This phenonmenon of exponential growth in expenses is what is bankrupting our federal, state and local governments. It comes down to a failure to control costs. Without aggressively controlling costs, the only way to stave off deficits and eventual bankruptcy is to continually increase taxes. This, of course, shifts the problem with the exponential function to the taxpayer and merely delays the inevitable, since there is only so much the taxpayer is willing or able to pay (and we should recognize that those industrial and commercial taxpayers who ostensibly don't get to vote in our elections for school board or our referenda do have the ability and willingness to "vote with their feet" and leave a district where taxes become too high for them to bear or significantly higher than other districts where they might locate). Now, while our district has a deficit problem, we do not yet have operating debt (as opposed to debt from capital improvements) nor are we anywhere close to bankruptcy. This does not mean, however, that we should not aggressively attack our deficit problem by controlling costs. On the contrary, it is precisely now that we should be making cuts, since smaller cuts now will preclude the need for larger cuts later. Assumption number 2 states that the district's equalized assessed valuation (EAV) will remain flat for three years then grow at a rate of 3% per year. The problem with this assumption is that it likely paints an unrealistic picture of the future. EAVs in Illinois are based on the market values in the prior three years, so the 2011 EAV is based on market values for 2008, 2009 and 2010. Real estate market values continued to drop throughout 2011 (as most of us know all too well) and this drop is not yet reflected in the district's EAV. The 2012 EAV will most likely be another 3 to 4 percent lower than the 2011 EAV. Even if real estate values stabilize in 2012, the 2011 decrease is not reflected in the projections. Assumption number 9 states that there will be a gradual increase in the total tax rate after the 2011 levy. There are a couple of problems with this assumption. First, this would require successive votes of the school board in each of these years. Second, without this assumption, the financial projections would be worse than what has been presented. I have asked for this assumption to be removed and the projections to be revised. I will post them as soon as they are available.

Click here for a link to the Finance Committee page on the district's website. The meetings of the Finance Committee are open to the public, and everyone is welcome to attend.

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