Saline Area Schools officials are eyeing a three-pronged plan to deal with funding shortfalls in 2020-21. Speaking at a special Board of Education meeting Thursday night, Superintendent Scot Graden said the district would like need concessions from staff, cash from the district’s fund balance, and other spending cuts, to make ends meet.
Graden said it would will likely require shared sacrifice to weather this storm.
“We all have a card in this hand in saying, ‘how are we going to solve this and make sure we continue to provide the type of education we want our students to have an environment we want our staff to be a part of,’” Graden said.
One might remember the 3 Cs - Cuts, Cash and Concessions.
It was how the district balanced the budget and maintained quality instruction during the Great Recession. As painful as 2009-11 was for the district, at least district officials usually had concrete formulas giving the district financial targets to reach.
On June 23, the Saline Board of Education will likely adopt a budget with no expectation the projections will hold. The state, which funds most of the district’s operations on a per-pupil basis, has not yet revealed how the anticipated $2.4 billion shortfall caused by the COVID-19 lockdowns will impact transfers to local school districts.
School officials have heard of cuts in the neighborhood of $250 to $600 per student - that’s anywhere from $1.3 million to $3.1 million in lost revenue.
Here’s the other problem. Even without factoring for a funding cut, the district is budgeting for a $1.2 million deficit.
Graden and Miranda Owsley, the Assistant Superintendent of Finance for the district, presented financial information to the board Thursday evening. The board is expected to approve the budget at Tuesday’s meeting.
There was some good news. Despite the COVID-19 school closure, the district expected to finish the 2019-20 year with a $338,000 surplus that can be added to the district’s fund balance. That surplus represents a substantial swing from the $245,000 deficit the board expected when it amended the budget in November. Revenue only fell about $150,000 to $63,378,000. Spending declined by more than $700,000 to $63,040,00. The biggest savings were in instruction, where $500,000 was saved.
“That concludes the good news for the evening,” Graden said. “Our employees, Miranda and her staff, taking us from where we were and moving us to a slight positive, it’s a testament to the work they did.”
The district will take that $500,000 budget swing and roll the surplus into the fund balance, which goes from $2.89 million to 3.2 million.
For now, the district rolling the previous year’s information forward to budget for the upcoming year, Graden said. The district is using the existing foundation allowance (the per pupil funding) and spring enrollment to project revenue. Accounting for the increase in local source revenue, the state foundation would be down by more than $400,000. The district will also see ISD funding drop by more than $500,000. In all, total revenue is expected to drop about $700,000 to $62,645,000.
On the other side of the ledger, costs, based on five-day-a-week school, are expected to rise by about $800,000 to $63,814,000, even after replacing five retired certified staff with younger teachers and eliminating the Saline police resource officer position from the budget. Graden expects a four percent increase in health care costs, a one percent increase in retirement costs and some expenses associated with steps.
Trustee Dennis Valenti called it a “placeholder budget.”
“Giving all the uncertainties surrounding the budgeting process right now, this is just a placeholder budget,” Valenti said. “This assumes no decline in per-pupil funding. We know it could be worse. We don’t know how bad it’s going to be,” Valenti said.
Graden said this budget will be a starting point.
“We’re trying to keep a pure view of our starting point. As we move forward with dealing with the ramifications with the loss of revenue, it’s critical to have a starting point to understand where we are going,” Graden said.
Graden and the board believe they could manage a $1.2 million deficit. Unfortunately, that number is going to be much higher. Graden shared data with the board explaining how various funding cuts would impact the district.
A $200 per-pupil cut would cause the deficit to balloon to $2.2 million. A $400 per-student cut would cause the deficit to rise to $3.3 million - more than the $3.2 million in the district’s rainy day fund. A $700-per-pupil cut would cause a $4.5 million deficit and leave the district in a $1.3 million hole.
The district does not want to become one of Michigan’s Deficit Districts and incur the supervision of the state. And, even if the district is willing to use some of its rainy day fund, officials also expect the financial impact of the COVID-19 lockdowns to last more than one budget cycle.
Board President Heidi Pfannes noted the district borrows to meet payroll every summer. The fund balance can only absorb so much.
“We’re going to have a couple years of this. We can’t continue to go down this path and think this will take care of itself,” Pfannes said,
Trustee Michael McVey agreed.
“The cuts, when they happen, are not going to be a temporary, one-year-only. We’re going to have to drag ourselves out of that hole for a long time,” McVey said.
So, how does the district solve the problem?
Cash from the fund balance will absorb some of the shortfall. But that won’t be enough, Valenti said.
“Solving the problem is going to involve a lot of players here,” Valenti said.
One of those players might be the federal government, Graden said. The board voted last week to pass a resolution asking Congress to authorize funds to assist school districts. Graden doesn’t how much money the federal government will provide for school districts. And he doesn’t know when the funds might arrive. He said it might not happen until after the elections.
“It’s unlike anything we’ve faced before and there’s a lot of speculation as to how it could go,” Graden said.
The district’s administrative team met Thursday to discuss how to address the issue.
With the fund balance only so big and the uncertainty surrounding federal assistance, the only other place to look is spending. Most of the district’s $63 million in spending last year was on employee costs.
“There’s no doubt we’re going to need to make cuts,” Graden said.
Another scenario is concessions from the collective bargaining units and administration.
“It would be prudent for us to go back to the individuals and collective bargaining units in our organization and conversations about wage and benefit concessions,” Graden said.
Graden said the unions have been partners with the district and expects they’ll continue to work with district leadership.
Administration will meet with the bargaining units July 7.
“We’ll have deeper conversations about what that means,” Graden said.
Graden said he hoped the district can use employee salary structure as a buffer as it awaits federal funds.
“There’s a shared burden here. We’re talking about us all saying we know we need to come on board to be part of this solution,” Graden said.
Graden said the board’s contribution will be from the fund balance.
“What level of contribution from the fund balance will the board be comfortable with,” Graden said.
In other district budget news, the district is planning to push the timetable and roll out the final series of bonds in January of 2021 instead of the fall of 2021. The district is expected to borrow around $13 million. Graden said the district wants to be in a position to have bond money ready to spend if it’s determined necessary to spend on COVID-19 safety measures in the spring/summer of 2021.
The district also plans to borrow $9.5 million to make payroll over the summer. Because of the low fund balance, the district typically borrows for this reason.