District 207 faces $17 million deficit

Maine Township High School District 207 officials will have to make significant cuts starting this school year to stave off a $10 million deficit, expected to grow into a $17 million shortfall next year.

That's if the district continues to spend as it has in years past with the current trend of declining revenues, said Mary Kalou, District 207's new assistant superintendent for business.

Kalou said district administrators, including a new superintendent, will spend the coming weeks finding ways to cut expenses and increase revenues, preparing a plan for the board to address the issue.

The district has been in an enviable financial position. As of earlier this year, it had a $100 million cash balance, roughly 90 percent of its annual operating budget of $112 million. If current trends aren't checked, though, that would be gone in five years, officials said.

That large fund balance helped the district absorb a nearly $10 million deficit in the 2008-2009 school year, originally expected to be $4 million, Kalou said.

An independent audit due to conclude later this month will solidify the final figure.

"Running the types of deficits that we're running, the fund balance gets eaten away very quickly over the next several years if the district does nothing," Kalou said.

The nearly 87 percent fund balance the district had at the end of 2008-2009 is expected to dip to 60 percent by the end of the 2010-2011 academic year.

In a special finance committee meeting before Monday's regular meeting, the school board reviewed two five-year financial forecasts, one from Kalou and a second independent forecast from PMA Financial Network Inc., a company specializing in school financing. Both forecasts showed similar trends.

Kalou said before last school year, the district was close to having balanced budgets.

"A lot of what they didn't anticipate is the downward trend in the economy," she said.

The most severe economic downturn in 80 years and virtually no new revenue due to the impact of a Consumer Price Index (CPI) approaching zero largely contributed to the deficit, officials said.

Other factors flattening revenue include falling interest rates which reduced the return on invested funds by $3.5 million during the past two years.

Yet, CPI, the measure used by governments to determine the property tax levy each year, is the major culprit.

Illinois' school-funding formula ties districts' property tax revenue directly to CPI. Illinois places a 5 percent ceiling on districts' new property tax collections but does not establish a floor.

"Over 80 percent of our revenue is property taxes," Kalou said. "The last time (the district) did the five-year forecast, it was before the collapse of the economy. So they were looking at a CPI on average of 3 percent."

Kalou said with the CPI increasing only 0.1 percent in 2008, the district is losing between $3 million and $4 million in revenue each year from what was initially projected.

District 207 will receive virtually no increase in property tax revenue in the 2010-11 fiscal year. Revenue increases in future years will be calculated starting with a smaller base costing the district between $15 million and $20 million in revenue in the next five years compared to the earlier projections.

Meanwhile, the district planned for a health insurance cost increase of 8 percent next year, but it may be significantly higher. And the overall cost of salaries, most of which are governed by a collective bargaining agreement, rose about 5 percent this year.

The district's overall budget for the 2009-2010 school year, approved by the school board in September, is about $130 million for all funds, including $7 million in capital projects. Revenues are expected to be about $120 million.

In the coming months, district administrators and employees will have to make tough choices. That could include not hiring staff replacements, 1 percent salary increases for non-contractual staff, possible renegotiation of the teacher's contract that expires in 2012, energy conservation, and revenue enhancement initiatives, Kalou said.

"I don't think we can improve it by $10 million," she said. "Certainly, anything we can do and do this year we're going to do."

Administrators will discuss the situation with various groups and present the board with a proposed plan of action between November 2009 and February 2010.

"Dealing with the long-term impact of the downturn in the economy on the district is not the task that we envisioned for our first year, but the problem is ours to address, and we will do just that," District 207's new Superintendent Ken Wallace said in a news release.