The Most Recent Budget Vote

At the recent Minooka CCSD 201 school board meeting on September 24, the board considered the district's proposed FY 2015 budget (see here).  My thoughts regarding this proposed budget are detailed in a previous post (see here).  I made a motion to approve the budget with the following modifications: (1) the expenditures in the Education Fund be revised to match the projected revenue in that fund (still more than a $1 million increase from the previous year); (2) the expenditures in the Operations & Maintenance Fund be revised to match what they were in 2014 (still representing a more than $300,000 deficit); and (3) that the expenditures in the Tort Fund be revised to match the projected revenue in that fund.  Adopting a budget with these revisions would still have left the district in a position of deficit spending but would have represented a significant move in terms of controlling expenditures and reducing the deficit over time.  The motion "died for lack of a second."  Subsequently, it was moved and seconded that the proposed budget be approved as presented, and, after some discussion, the board voted to approve the proposed budget by a 4 to 2 vote (Hannon was absent).   Those voting "yes" were Skwarczynski, Clucas, Allen, and Satorius.  Those voting "no" were Crouch and Martin.

Once More Unto the Breach: The Budget Deficit

At its most recent meeting, the Minooka CCSD 201 school board considered the district's preliminary budget for the current school year.  Once again, the district budget calls for deficit spending (see here for the proposed FY 2015 budget).  And, once again, I called for the district to tackle the deficit problem by controlling spending to eliminate, or at least reduce, the deficit.

The response from the superintendent was that we cannot possibly cut the deficit (even though his proposed budget calls for a $2.4 million increase in spending in the operating funds).  To put this into perspective, let's look at some data.  Last year, the district spent $28.6 million in its operating budget (which consists of the Education Fund, the Operation and Maintenance Fund, the Transportation Fund, and the Working Cash Fund).  The proposed budget for this year calls for spending of almost $31 million (after adjusting for certain flow through payments), an increase over last year of $2.4 million or approximately 8.4%.  The projected budget deficit for this year is just over $2 million.

What I am advocating is a balanced budget, which would allow for an increase of $400,000 rather than an increase of $2.4 million.  An increase of $400,000 would still represent an approximately 1.4% increase from last year's spending.  So, in reality, I am not advocating a cut in spending.  I am merely asking for a smaller increase in spending.  In addition, if we drill down into the separate funds that comprise the operating budget, we would see that the budget for the Education Fund could increase by $1 million (a 4.3% increase over last year's spending) and achieve balance in this fund.  Balancing the budget in the Operations and Maintenance Fund and the Transportation Fund would be more difficult, calling for reductions from last year's spending of $330,000 and $700,000 respectively.

Now, I understand that student enrollments are going up.  They are not, however, going up as fast as the district's spending.  As of August 19, 2013 (the beginning of the last school year), district enrollment stood at 4,175 students.  As of August, 12, 2014 (the beginning of the current school year), district enrollment stood at 4,248 students.  So, student enrollment from last year to this year has not gone up by 8.4% or even 4.3% but rather 1.75%.

The superintendent would have everyone believe that the only way to erase the deficit by controlling spending would be to cut teachers and harm the academic program.  This is really just a scare tactic and is wrong for a number of reasons.

First, the largest projected deficits by percentage are in the Operations and Maintenance Fund (the fund out of which utilities and the upkeep of schools are paid) and the Transportation Fund (the fund out of which busing is paid), not the Education Fund (the fund out of which teachers' salaries and benefits are paid).  The current projected deficit in the Education Fund is 4%.  Meanwhile, the current projected deficit in the Operations and Maintenance Fund is 25%, and the projected deficit in the Transportation Fund is 19%.  So, the big deficits (by percentage of spending) are not being caused by teachers and, therefore, cannot be addressed by cutting teachers.  In other words, cutting teachers or academic programs, such as P.E. or Music or Art, will do very little to address the deficit.
   
Second, I am not advocating reducing the per pupil operating expense (which is the amount of operating money that is spent on each student) but rather controlling its increase.  Therefore, as student population increases, spending would also increase.  For example, if we assume the district's per pupil operating expense were held at $8,000, adding 100 students would call for an increase in operating spending by $800,000.  What it would not call for is adding an additional $1.6 million of spending over and above the $800,000 and raiding the district's "rainy day" funds in order to pay for the additional spending.

Third, these measures to control spending could be (and could have been) phased in over time.  Over the last seven years, the district's per pupil operating expense (as reported to the Illinois State Board of Education and calculated using average daily attendance rather than actual student population) has increased from $5618 in 2007 to $8477 in 2013, a 51% increase.  Now, admittedly, I have only been advocating controlling the increase in spending since I became a board member in 2009.  However, had the district limited the increase in the per pupil operating expense over the last seven year period to approximately 40%, we would have a balanced budget today.  A 40% increase in spending per student over seven years hardly seems draconian.

In response to my calls for cutting the deficit by controlling spending, I was also told by the superintendent that because we currently have large fund balances, it would be irresponsible to cut the deficit right now.  I find this to be somewhat baffling.  It is true that we currently have fund balances (excess money in our bank accounts).  These fund balances, however, amount to less than what the school district spends in a year.  What is more, the money in the Working Cash Fund (half of the current fund balances) is used to even out seasonal cash flow and so is not really available to be spent.  In addition, we are depleting those fund balances each and every year that we run a deficit.  At current spending rates, those "large" fund balances will be completely erased in 3 to 5 years.  So, now is exactly the time to control spending.  Had we been doing a better job of controlling spending over the last seven years, we would not have a deficit today.  Problems don't get better with age, especially spending problems.  As I have been stressing for the last five years, small steps early allow one to avoid large sacrifices later.

Ironically, in our discussion of the budget, the superintendent made the remark that we could not look to the State of Illinois to bail out the district because the state was bankrupt and we could not look to the Federal government to bail out the district because the Federal government was bankrupt.  My response was: the reason that they are bankrupt is because they did exactly what the district is doing right now--they spent more than they took in.  And they kept doing it, year after year, even in the face of numerous calls for them to balance their budget.

I think it is irresponsible to continue to deficit spend in the hopes that someday soon the taxpayers will agree to provide more money through a referendum, which is what the current administration is counting on.  I also think that it is irresponsible for the current school board to completely deplete the district's fund balances.  At the end of my term on the board, I do not want to vacate the seat in favor of a new board member and tell them "good luck, we spent all the money, now you get to deal with the consequences."

The motion to approve the preliminary budget passed on a vote of 6 to 1 (I, of course, voted "No").

Detroit Bankruptcy a Wake-up Call for Pensioners

This article from the New York Post is a must read for anyone who has a municipal pension.  State pensions may not be far behind.  All it would take is an amendment to the federal bankruptcy law to allow states to declare bankruptcy.

Get Ready for the Largest Municipal Bankruptcy in U.S. History

In his book The Sun Also Rises, Ernest Hemingway penned a classic exchange regarding bankruptcy.  "How did you go bankrupt?," asked one character.  "Two ways.  Gradually, then suddenly." was the reply.

Well, the same can certainly be said of Detroit, Michigan.  Detroit is getting ever closer to declaring bankruptcy (see here).  If Detroit does declare bankruptcy, it would be the largest municipal bankruptcy in the history of the United States.

What does this have to do with Minooka CCSD 201?  Well, most of us know that the State of Illinois has financial trouble of its own, including the worst underfunded pensions in the nation and pension contributions that are increasingly eating into current services.  Well, if you follow the link above and read the article, you will notice that the Detroit emergency financial manager, Mr. Orr, is contemplating a plan where, among other things, retirees will receive less than 10% of their promised benefits under the current pension plan.  I am quite sure that this is going to cause a great deal of financial hardship for those retirees.  One lesson that we can learn from Detroit's example is that when a municipality (or perhaps a state, in the case of Illinois) gets into serious financial trouble (and by all accounts Illinois is already there), the "promises" that were made pursuant to a pension plan become negotiable.

Now a state is different in at least one important respect: under current law, states cannot file for bankruptcy protection.  They can, however, renegotiate "promises," and you can be sure that they will.  States after all go bankrupt (or become insolvent) just like any other entity . . . "[g]radually, then suddenly."