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home : schools May 25, 2017

4/19/2017 2:40:00 PM
District 65 School Board Considers Resolution Dealing with Referendum Funds
By Larry Gavin


On April 10, the District 65 Finance Committee discussed adopting a proposed resolution stating that the District would use the additional funds approved by voters in the April 4 referendum to balance the District’s operating budget through 2025-26, and hopefully beyond. 

Paul Goren, Superintendent, noted that the latest financial projections showed the District would operate at deficits growing from $5.1 million in the fiscal year ending June 30, 2018 (FY’18), to $24.4 million in fiscal year ending June 30, 2025 (FY’25). Over the eight year period, the total operating deficits were projected to be $112.2 million.

With the passage of the referendum, Dr. Goren said, “Our promissory note” is that “we will be deficit free through 2024-25.”

The plan is that the referendum funding would generate surpluses in the early years that will be used to cover higher deficits in the later years.

For example, the additional referendum funding of $14.5 million in FY’18 would cover the projected deficit of $5.1 million in FY’18, and leave a surplus of $9.4 million. The $9.4 million surplus would be applied to reduce the projected deficit of $24.4 million in FY’25.

Dr. Goren told Board members the proposed resolution is intended “to ensure that in the operations of the District, which I’m responsible for, and in the governance of the District, that you are responsible for, that we have very explicit parameters that the resources that we have can continue to not only 2014-25, but my wish is to go beyond that and to do what we can in terms of efficiencies …”

Dr. Goren summarized three additional areas he thought the resolution should cover. First, he said the administration should include in its annual budget presentation to the Board a summary of “how we will focus on referendum deficit management.”

Second, he said, the District should use its best efforts to put at least $1 million into the working cash fund balance on an annual basis, as was promised to the community.

Third, when proposing the annual budget for the District, administrators would also present projections showing how long the District would be deficit free. This process “requires us to reserve the resources that we’re getting in the early years through the referendum to make sure we have them in the later,” said Dr. Goren.

Kathy Zalewski, treasurer, said, “I would just like to add that we will be tracking the reserve, and the balance of the cumulative reserve …” She added she plans to present this “information annually or twice a year as we update financial projections with our budget, so you know exactly where we are with that reserve. Depending on the economic situation, what’s happening with the State, and the CPI, we should be able to stretch that out beyond FY 2015-16.”

Board President Candance Chow said the District’s commitment to use a portion of the referendum dollars for capital projects should be incorporated into the resolution.

Ms. Chow also brought up how the Board would deal with a “windfall,” or a “shortfall.” As an example, she said the District may receive a windfall if the Consumer Price Index (CPI) was higher than the amount assumed in projecting future deficits, and the District received more property tax revenues than anticipated.

“Does the windfall get put in the reserve, because in reality a windfall is for a year and it’s not in perpetuity? Does it become available for capital? Does it go for programming?” She expressed a concern that adding new programs could require a permanent source of new funding.

Ms. Chow said she thought the Board should articulate how it would handle windfalls and shortfalls, and set “our order of priorities.”

Suni Kartha said, “I think we need to deal with what you’re talking about, but that it might be dealt with better [as a Board] policy. She added, “It seems to me we’re getting very, very specific, maybe in a way that will inadvertently hamstring us.”

Ms. Chow responded, “I don’t want to hamstring us either, … but I do think that we made a promise and a commitment to the community that we’re using this $14.5 million to make sure that we get through the eight years …” She said the resolution needs to say what’s going to happen with the $14.5 million, especially in the early years when there will be excessive funds, “so we can ensure we are preserving that to cover the out-year deficits.”

Tracy Quattrocki said, “As we sit around here, we have such a common understanding of how to use that money and what the public understands our intentions to be. But in eight years we will have all new players around this table – most likely much of the Board and perhaps some of the administration. We quickly forget some of the things we assumed. That’s why I think it’s so important that we are explicit about what we said we’d do with these funds.”

Ms. Quattrocki said the resolution should contain the general outline that  surpluses in the early years should be set aside to cover the deficits in future years. “It needs to be explicit. We need to be very clear.”

Claudia Garrison added the resolution should also encompass the commitment to fund about $1.8 million of technology each year through the operating budget.

Dr. Goren said he would bring a resolution back to the Board on April 24 with specific language on the use of referendum funds.

He added that a next step would be establishing a Board policy or policies providing specific guidance on other issues, such as how to deal with windfall surpluses or shortfalls.

 





Reader Comments

Posted: Thursday, April 20, 2017
Comment by: Chae Yi

I commend the administration and the board with maintaining fiscal responsibility. However, what's not clear is how D65 will incur the debt to cover the projected deficits. Will the district borrow the entire ~$116 million upfront? Will the borrowing be effected through a bond offering or other type of bank loan? If the entire amount is borrowed upfront, how will the district manage the probable negative carry between interest owed on the debt incurred and the return on investments from the reserve fund and other excess cash? Will the debt be floating rate or fixed rate? What types of investments can be made with reserve fund monies?

My point being that the district should ensure that it is considering all options on its debt strategy, especially in light of potential additional funds coming from the state if CPI increases. Editor's Note: The plan is the projected deficits will be covered by the additional funds approved in the referendum.




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