News

How District 207's budget crisis came about

Posted January 31, 2010 10:00 pm

With the vote to cut 137 Maine Township High School District 207 teachers and employees looming today, the factors that led a district once lauded for its financial solvency into a deficit sinkhole have become somewhat clearer in recent days.

District 207's financial troubles came to light at the end of the 2008-09 school year, when the district still had a cash balance of $100 million, roughly 90 percent of its annual operating budget of $112 million.

After months of alluding to an "accounting error" that led to a larger-than-anticipated deficit that year, District 207 administrators last week explained how it happened.

The district's current leaders learned last July - weeks after Superintendent Joel Morris and Assistant Superintendent for Business Pamela Schau retired - that a projected deficit of $3.8 million for the 2008-09 fiscal year was actually $10.3 million.

Around September 2008, the school board had approved a facilities plan with $3.8 million earmarked for capital improvement projects that year.

That was before the announcement of a nearly flat Consumer Price Index in 2008. CPI is the measure used by school districts to set the property tax levy each year to collect taxes. It was a dramatic drop from previous years when the district had gotten used to 3 percent to 5 percent growth in property tax revenues.

What officials didn't anticipate was the additional $6.5 million deficit due to the then-administration's failure to include some expenses in that year's budget, current Assistant Superintendent for Business Mary Kalou said.

Those missed expenses were salaries and benefits for some of the 12 newly hired teachers and teaching assistants and increased district contribution toward the Teacher Retirement System per changes made to the teachers contract - amounting to $2.4 million.

The district also saw a dip that year in property tax revenues - personal property tax receipts came in 1 percent lower or $1.5 million under what was budgeted and corporate property taxes were down $500,000 - that weren't known until after Kalou joined the district last July 1.

"It's hard to say what they should, shouldn't have done," Kalou said. "Hindsight is always going to be 20/20. (With taxes) you can't predict with certainty what that trend is going to be for ... it was a reasonable amount to budget."

Other contributors to the deficit were two unexpected early retirements - including Schau - that cost the district a $300,000 penalty under state law, and lower than expected revenues from the district's book store, summer school and tuition, she added.

Kalou said by the time the extent of the district's financial troubles became known, it was too late to go back on scheduled capital improvement projects such as replacing windows and renovation at Maine East, installing artificial turf and lights at Maine South's football stadium, and new scoreboards for all three high schools.

"CPI comes out Dec. 31, so things started to deteriorate as they were putting their bids together and awarding them," Kalou said. "Once you award your bid, there's no sense in stopping it."

Former District 207 Superintendent Morris defended his administration's actions, saying he advised the school board not to spend on capital improvement projects and hiring additional staff, as well as proposed administrative and extracurricular program cuts for the 2008-09 school year after financial consultants warned of future deficits.

"I recommended several million worth of cuts and they chose not to pursue it," Morris said.

Officials justified those expenses saying there was tremendous pressure from the teachers union and community to spend down the $100 million cash reserve.

Morris said even if the district had put off those projects, it would still be running deficits because of the flat CPI.

"I think every school district is in a tough situation right now because of the way you have the tax cap structured," he said.

Of the accounting errors, Morris said, he was never briefed by his staff.

"I'm not surprised if there were some things that the business office did not include," he said. "One of the things that happens with budget is you don't get a final figure on budgets until after July 1. If there were indeed things that the business office missed, I'm sorry that that happened. I'd be concerned too."

Morris, of Park Ridge, added he had always planned to retire at the end of the 2008-09 school year after his three-year contract with the district ended with 38 years of service.

Fast-forward to the 2009-10 school year, the district by year end would have used more than $22 million of its reserve to plug deficits over the past two years.

The school board tonight is expected to approve $15 million in cuts to reduce a projected $19 million deficit in the 2010-11 academic year - a measure officials say is necessary to ward off further depletion of the reserve. Even with the proposed cuts, the deficit by the end of the 2010-11 school year could be between $4 million and $9 million, taking into account the 2009 Consumer Price Index of 2.7 percent, released Jan. 15.

With new financial projections, the district could have anywhere from a $12 million to $22 million deficit in the 2013-14 school year.

"The fact of the matter is the problem is here, it's ours to address," District 207's current Superintendent Ken Wallace said.

Wallace said the district most likely would not have made big expenditures, had officials realized the extent of the deficit, which he didn't know until after he became superintendent July 1.

"What happened, happened," he added. "We need to move forward and try to make the best of the situation. It was a one-year glitch that came at the worst possible time ... amid the economic collapse of the country."

School board President Edward Mueller acknowledged errors were made, but blames most of the problems on teacher salary increases that were built into the current teachers contract.

Per the current four-year contract, which expires Aug. 15, 2012, teachers are guaranteed between 3 and 3.5 percent wage increases annually on top of yearly step raises for about 76 percent of teachers. Both certified teachers and teaching assistants are covered in the contract.

"During our union negotiations we had outside projections that we relied on, including the projection of our inflation growth ... due to the financial collapse those projections are not accurate," Mueller said.

The district's proposed layoffs would eliminate about 12.5 percent of the 600 union members.

The administration has now asked the union to forego a 3.2 percent salary increase in the 2010-11 academic year to save 40 to 45 teaching jobs.

Most teachers would continue to receive step pay increases based on years of experience and a 3.5 percent wage increase for the 2011-12 school year, officials said.

The union earlier rejected the administration's request to forego the 3.2 percent wage increase in 2010 and the 3.5 percent increase in 2011 to save 55 jobs.

Maine Teachers Association President Emma Visee said district administrators are merely deflecting the blame onto teachers.

"How does it happen that one year the state of Illinois recognizes you for your fiscal responsibility, and the next year you are crying financial crisis?" Visee said.

Visee said District 207 still has larger reserves compared to other area districts such as Northwest Suburban High School District 214.

"Why are we worse off when we have more reserves," she said. "It does beg the question ... are you asking the union to do their share to cover up these losses because you don't want to expose your own bad judgments?"

Visee said just as past predictions turned out to be wrong, the district's latest financial projections also could be off.

"We've been asking them all along, slow down your process," Visee said. "The alternative would need to come from the administration. They are stuck in their need to do the cuts. They haven't taken any responsibility."

Joel Morris, former superintendent

<h1>More Coverage</h1>

<h2>Stories</h2>

<li><a href="/story/?id=355005">District 207 offers teachers a compromise option <span class="date">[01/29/10]</span></a></li>

<li><a href="/story/?id=353101">Students protest outside Maine South against District 207 cuts <span class="date">[01/22/10]</span></a></li>

<li><a href="/story/?id=352632">More than 3,000 rally against proposed Dist. 207 cuts <span class="date">[01/20/10]</span></a></li>

<li><a href="/story/?id=350620">Teacher's union asks District 207 to spare jobs, use reserves instead <span class="date">[01/13/10]</span></a></li>

<li><a href="/story/?id=350219">Maine Twp. District 207 to cut 137 jobs next year <span class="date">[01/12/10]</span></a></li>

</ul>

<h2>Related documents</h2>

<li><a href="/pdf/dist207faqs.pdf">Frequently asked questions from Jan. 20 Dist. 207 board meeing</a></li>

<li><a href="/pdf/207cuts.pdf">Proposed 2010 budget cuts </a></li>

<li><a href="/pdf/207cuts5year1.pdf">District 207 five-year financial forecast</a></li>

<li><a href="/pdf/207cuts5year2.pdf">Independent five-year financial forecast</a></li>

</ul>

<h2>Video</h2>

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