Just how did U-46 get into a $53 million hole?

You could have heard a pin drop in the Elgin Area School District U-46 board room Monday night after Chief Financial Officer Ron Ally projected a $53.5 million hole in the budget come June.

After all, less than two months before the district's interim CFO told the board that while U-46 had closed its books in June $43 million in the red, that situation had improved by $17 million.

The $53.5 million deficit announced Monday shocked even school board members, President Ken Kaczynski said.

"I think we were surprised at the size of the number," he said.

Just how did it get so bad, so seemingly fast?

Here's a timeline of U-46's financial situation in the last year:

September 2008: A $446 million 2009 budget is approved by the school board.

Then-Chief Financial Officer John Prince says U-46 finished out the 2007-08 school year with a $6.4 million operating fund deficit.

December 2009: Seeing both a lag in state aid and a spike in home foreclosures, U-46 announces plans to cut back on spending by $2.7 million. Capital expenditures are placed on the back burner. Overtime is limited, as is conference attendance and spending on supplies.

January 2009: A second phase of cutbacks begin, to reduce spending by another $1.7 million. U-46 begins reducing third-party contracts and the use of substitute teachers, lowering building temperatures and restricting night and weekend activities.

March 2009: The equivalent of 348 full-time positions are eliminated and a tentative $425 million 2009-10 budget is unveiled.

May 2009: Prince tells board that current cash reserves are only expected to last through the first week of June.

August 2009: Interim finance director Mike Pehan presents a $434 million budget to the school board. He says the district finished out the 2009 fiscal year in June $43 million in the red, with $31 million less revenue received than expected. However, in between June and mid-August, the district received $17 million more in payments. Officials expect to receive another $13 million in the coming weeks.

October 2009: New Chief Financial Officer Ron Ally says U-46 expects to be $53.5 million in the red by June, the deepest deficit in recent memory. That sum breaks down into a $28.9 shortfall from last school year, plus $19.7 million carried over from previous school years and $4.9 million expected this year.

The economic downturn hit U-46 much faster than officials expected, he said. The district saw local, state and federal revenues come in last year at $20 million less than budgeted, $10 million short in property taxes alone. At the same time, salary and benefit costs increased beyond what was projected.

The $53.5 million was tallied according to the modified accrual method of accounting, instead of the cash method, which the district used up until this fall. According to Ally, the new method more accurately represents the current situation - or hole - U-46 is in.

"I think if we were still on the cash basis we would still have negative balances in some of the funds. But that wouldn't be as true and accurate of a picture," he said.

Going through three different finance directors in less than six months, Kaczynski admitted, may have slowed deficit predictions a bit, too. "I think if there was a miscalculation it was the speed (of the economy plummeting) coupled with the fact it does take a brand new CFO a little bit longer to grab all those numbers." If board members had seen numbers a few weeks earlier, he said, "it still would have been after the time period to affect this school year."

U-46 has a mammoth balancing act at hand in the months ahead. Ally announced Monday that U-46 plans to cut $4.9 million from this year's budget, and wipe out $25 million of the deficit by 2011.

With 75 percent of expenses coming from salaries and benefits, the district faces an uphill battle, at best.

Layoffs are very likely coming in the months ahead, Ally said. Along with staff members, students will undoubtedly feel some effects of the cuts.

"The revenue, the total revenue stream, is relatively flat," Ally said. "And expenses are going up. It's not sustainable. It's a structural imbalance."