Surprise District 65 Budget Shortfall, Again

District 65 Announces $10m budget miss this year

Hopefully, everyone is having a nice summer. If you’re on any District 65 mailing list, you received this email from the Superintendent last night. The District’s primary claim is listed below;

Based on preliminary figures, the District ended FY24 with a deficit of approximately $10 million (expenses over revenues). The variance almost exclusively occurred within the transportation and special education budgets. While the deficit is in line with the prior year, it exceeded the budgeted deficit adopted in September 2023 by approximately $8 million. 

This isn’t the first year District 65 has had a surprise budget deficit, I wrote almost the exact same story at this time last year.

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Transportation: How Bad is it?

The first place you can look is the District Annual Statement of Affairs, which is a summary published every fall with prior year’s data. We have data available through school year 2023, which ended June 30, 2023.

They are right that the transportation costs have doubled in a short span! But the District has been aware of this issue since at least last summer, when the CFO Obafemi quit after a surprise budget shortfall. The District didn’t hire a new CFO until last month, going a full year without a CFO.

It’s not evident to me why this wasn’t budgeted last year, they clearly saw the $10m bill last year - why wasn’t that in the budget for this year?

We can peek at what the 2023-24 transportation expenses will look like by looking at the list of bills paid annually to vendors. You’ll see almost the entire blowup in costs is by a single vendor, Britelift, which according to the District handles “Individualized Education Services and McKinney Vento”¹ 2023-24 seems like it’s going to look a lot like 2022-23.

District 65 isn’t the only district facing bussing issues the past few years. Reema Amin over at Chalkbeat reported yesterday that CPS couldn’t guarantee bussing for students last year and is trying creative solutions, such as hub stops and stipends.²

Reserves and the 2017 Referendum

You can look at the financial projections that the District published at this time last year to see the reserve situation. As of 8/15/2023, District 65 had about $30.9 million in reserves, down about $7 million from the same time in 2022. These were reserves built up from the 2017 referendum.

If there is another $10 million shortfall coming out of the reserves, it will drain it to about $20 million. On top of that, the Board passed a resolution in January to potentially spend somewhere between $4-8 million in reserves on non-construction costs of the new Foster School.³

It’s not clear whether this is technically in violation of the resolution passed in 2017 after the referendum, but it certain is in spirit.

After the reserves are gone, there’s nothing else. Like, District 65 doesn’t have any bonds squirreled away or secret funds they have access to. On top of that, they have considerable debt, as of 2023, District 65 listed about $99,073,290 in long-term debt on their annual statement of affairs (reminder: District 65 has $150 million in annual revenue).⁴

Again, a big percentage of this conversation could’ve been mitigated had District 65 choose to follow the law when financing the new school, and held a referendum to finance it as they did in 2012.

Additional Uncertainty - Teacher Salaries

On top of all of this, it is a contract year for District 65 teachers. As of today, the educators still don’t have a contract with the District. For reference in 2019, the teachers had a five year contract that was voted on by June 10th. In the current state, if the teachers go back to work in a month, they’ll be going back without a contract.

I’ve written extensively about teacher compensation, including documenting that District 65 educators are paid 20% less than their ETHS counterparts, even in entry level positions. In addition, while the current collective bargaining agreement gives some inflation based annual raises, it’s capped, so they’ve fallen behind the CPI slightly. I think they have a compelling case to ask/demand a considerable raise.

You can read the CBAs if you want:

• 2019-2024 Collective Bargaining Agreement

• 2016-2019 Collective Bargaining Agreement

Follow-up Coming

This financial mess seems like it is going to be bad for everyone - the teachers, the taxpayers, and the kids. At this point, I think they have to punt this to the taxpayers in 2025 with a referendum, like in 2017. There are a lot of compelling reasons why they should do this⁵ but it’s going to be a much harder ask this cycle⁶. Without a referendum or consolidation, things are not looking good. If I’m writing this story again next year, the District is in real trouble; the kind that is going to really impact families.

I reached out to the District with some questions and I will publish their responses here when I get it.

• CPS announced significant changes/cuts to bussing due to similar issues. Outside of bussing shifts from the Foster School, has D65 considered cutting or modifying bus services like CPS has done?

• The $10m shortfall - presumably the funds will come out of the reserves, like last year, which caused the reserves to drop from $36m to $30m. Can the District provide a clear picture of how much money is left in the reserves? If so, my understanding is that another $6m will come out of the reserves to pay for things in Foster School. This could put the District in a potentially precarious situation - is there a plan to maintain a minimum balance in reserves or other options considered with funding the non-construction costs for Foster School?

• If you look at the attached 2017 Resolution (Exhibit A), it does seem to indicate that the 2017 referendum funds were really only meant to last until 2025. Can you comment on whether the Administration or Board has considered adding a referendum on the 2025 ballot?

• This last question is probably more for the Board than the Administration (cc School Board), but I have attached a copy of the resolution that the Board passed in 2017. In Exhibit A, the 2017 Board required that a minimum contribution of $1m be made every year. My understanding is that this is not happening - will the Board be considering a resolution to change requirements for minimum balance and minimum contributions to the reserves?

I will publish as more information becomes available.

1. If you look at the spreadsheet you will also see that District 65 continues to spend nearly $100k on food a year, something I haven’t seen with any other governmental body that I look at. I’m sure some % of this is food for students but I can’t imagine very many K-8 students noshing on Grecian Kitchen.

2. A stipend just seems like giving up, to be honest!

3. Cordogan-Clark estimates the non-construction costs will be around $6.3m and construction costs will be $42m. The lease certificate will cover most if not all of the construction costs, but the non-construction costs have to come from somewhere..

4. For reference, ETHS/D202 has about $30m in long term debt. Yet another reason that consolidation may be more of a necessity than a preference.

5. In particular, the most compelling reason is that the 2017 referendum explicitly states it was designed to cover deficits up to 2024. The Board should’ve put this on the 2023 ballot.

6. I think this is where the drop in enrollment hurts the District the most. When a large % of the kids in your town don’t go to the public schools anymore, it creates a crisis of legitimacy, which will cause people to vote against the schools, leading to a worsening situation.