Thursday, April 2, 2015

School districts face growing debt, increased reliance on deficit spending

The Illinois State Board of Education (ISBE) recently released its annual financial profile of public schools through Fiscal Year 2015, and the numbers are trending downward.

Districts are designated by one of four categories. The vast majority, or 553 districts, remain in the top category (Financial Recognition). But the number dropped by seven since last year, while the number of districts in the next category (Financial Review) increased by 18. State school officials said that long-term debt is increasing along with the number of districts that are expected to deficit spend.

Many of these districts have already made significant cuts; they have reduced staff, delayed building repairs and upgrades, and eliminated academic and extracurricular programs with little financial relief in turn, according to ISBE.

“Our data shows that while our schools continue to cut costs and stretch shrinking financial resources, many still must borrow or dip into their reserves in order to stay in the black,” said State Superintendent of Education Christopher A. Koch. “There also appears to be a direct correlation between the decrease in state funding and the declining number of districts in Financial Recognition.”

ISBE’s look at the schools’ long-term debt indicates that:

  • districts are continuing to decrease their expenditures and incur debt to sustain fund balances and operations; while districts issued $356.5 million in new debt in FY 2014 in their operating funds; $72 million (25.3 percent) more than the $284.5 million new debt issued in the prior year, FY 2013.
  • For Fiscal Year 2015, ISBE projects that the number of districts with deficits will increase to 550 or 64.2 percent of the state’s school districts, compared to FY 2014, when there were just 364 districts or 42.4 percent with deficits.

While the latest profile, based on data from Fiscal Year 2014 that ended June 30, 2014, shows that 553 districts, or 64 percent of the state’s 860 public school districts, were in Financial Recognition status, those numbers are trending downward. Three years ago, 670 districts or 77 percent achieved the top status, the highest number ever to attain that ranking.

The 2015 report also shows that more districts are in real distress; increasing from 17 districts, or 2 percent on the Financial Watch list three years earlier, which was an all-time low, to 38 districts or 4.4 percent in the latest profile.

School districts are being good stewards of their funds, however, as the average “fund balance to revenue ratio” score has remained constant over the past years of falling state support, with only a slight decrease in the ratio in FY 2014. According to ISBE, though, school district reserves continue to be diminished.

In addition, even though the average of the “expenditure to revenue ratios” reflect a slight increase, districts overall continue to deficit spend, which is diminishing fund balances, state officials said.

The Financial Profile is created by using five indicators:

  • Fund balance to revenue ratio
  • Expenditures to revenues ratio
  • Days’ cash on hand
  • Percent of short-term borrowing ability remaining
  • Percent of long-term borrowing ability remaining
  • The 2015 Financial Profile for all districts can be found online at: .

The state board has asked for an additional $730 million for a total $7.5 billion appropriation in FY 2016 to fully fund General State Aid.

The Fiscal Year 2016 budget recommendation would end the 89 percent proration schools are currently faced with and fully fund the $6,119 per pupil foundation level the state has established. Districts this year, however, will receive $5,446 per pupil in foundation support, again 89 percent of the foundation amount set by law.