Linda (Rafanello) Matkowski is a managing director for Raymond James with responsibility for public finance activities in the Midwest. She served as the district financial advisor for CUSD 300, Carpentersville, from the late 1990s until 2004 when she became a school board member for the district and served for two years.
In 1995, Algonquin, Illinois, was a small but growing community of nearly 12,000 in Kane County. It had a rural feel, good schools and a four-way stop sign at the intersection of Randall Road and Route 62.
Today, the population is approximately 30,046 and the intersection of Randall Road and Route 62 is eight lanes wide. From 1995 to 2010, Community Unit School District 300 grew at an average rate of 421 students a year and from 16 to 25 buildings.
The associate superintendent of operations told the school board regularly: “Adding that many kids is equal to one elementary building a year.”
During the late 1990s, the school board’s major focus was how to handle the effects of rapid growth. These effects were not limited to increasing student enrollments. They also included the additional consequences on teaching and learning, facilities, community involvement, staffing and other resource allocations. Most in the district expected enrollment growth to continue unabated.
But by the mid-2000s the board started to ask: “What happens if the housing market slows down?” followed closely by “What happens when the housing market slows down?”
Although board members may have been skeptical that this kind of growth would continue at this pace forever, they would never have expected it to come to a complete and almost absolute stop in late 2008. In 2005, 48,699 new housing “starts” were recorded in Illinois. In 2010, that number fell to 7,925.
In a very short period, CUSD 300 has gone from working through “rapid growth” to dealing with “no growth.” And the district is not alone.
The sudden slow down of the housing market coupled with a subsequent retraction in property values has left many people dazed and confused. School board members are left to make rapid adjustments to financial plans, staffing plans and capital plans that they developed under completely different circumstances.
During numerous school board meetings in 2008 and 2009, many school board members were left wondering, “What now?” After constantly coping with rapid enrollment growth including new building, referendums and frantic hiring, now they must contemplate staffing reductions, building closures and restless community members.
Simply put, new homes are not being built, people aren’t moving in and residents are staying longer. This leaves districts to deal with both positive and negative changes.
On the positive side, steady enrollments allow districts to focus on current students instead of worrying about accommodating future students. On the negative side, districts are grappling with significant fluctuations in local, state and federal revenues.
And on the neutral side, districts are adjusting expenditures to accommodate revenue changes, or as the popular saying goes, they are “right sizing” their operations.
Getting through ‘right sizing’
John Dewey, an American philosopher and early developer of pragmatism, once said, “Problems: We don’t solve them, we just get through them!”
School board members can get through the problems associated with declining growth by asking themselves a number of general, but important, questions to help guide discussions about planning, finance, facility and staff requests.
• How well do we understand the relationship between property values and property taxes?
Counties under the Property Tax Extension Limit Law (PTELL) can increase their levy extension by the lesser of the Consumer Price Index (CPI) or 5 percent every year, whichever is less. This occurs regardless of whether a parcel of property has lost market value. This is why community members ask: “Why are my taxes going up, but my home’s value is going down?”
Being able to explain the relationship clearly to constituents encourages trust and communication for all parties. By explaining how local revenue is generated, school board members are also more aware of the factors that will affect the district’s revenue either positively or negatively. This will help them in financial planning as well.
For districts not subject to PTELL, board members should be aware that a much more explicit relationship exists between property values and property taxes. When property values drop, generally revenue will drop proportionately. And when property values increase, generally revenue will increase proportionately. For districts experiencing property value declines, property tax revenue will decline proportionately unless something is done to increase the tax rates.
• How well do we understand the relationship between changes in enrollment and changes in state and federal funding?
The General State Aid (GSA) formula can be complicated, but it essentially combines with local revenue sources to establish a minimum “dollar per student.” The divisor in the equation is the student attendance number represented by an average of the “best three months” reported by the district. In other words, more students and less local revenue will generate more general state aid, while fewer students and more local revenue will generate less general state aid.
During periods of rapid growth, districts might have assumed fairly consistent levels of general state aid. However, in some situations, steady enrollment with increases in local revenues might reduce the amount of general state aid received. Conversely, districts experiencing steady enrollment and reduced local revenues might not see any change in the amount of general state aid they receive.
Board members who are not comfortable in their understanding of the GSA formula should ask administrators for additional explanations. The Illinois State Board of Education has made it easier for districts to project their anticipated General State Aid revenue long term. The ISBE website has documents that explain GSA and the formula calculations, available at http://www.isbe.state.il.us/funding/html/gsa.htm.
Federal funding for Title I and IDEA programs is also connected with student enrollment. Additionally, these programs are specifically tied to services provided to students who qualify for various federal programs. Board members should become familiar with exactly what the federal funding is going to be used for and what conditions are attached to the receipt of the federal funds.
• How does the housing market influence property values, enrollments and the district budget?
In a slow housing market, families may move out; but if the home isn’t sold, then no new children move in. Taxes, even though owed, may not be paid when no one is living in the home. This further complicates revenue flow to local taxing bodies.
Board members should review financial information on a regular basis. Changes in revenues and enrollments will require changes in expenditures if school districts are to remain financially viable. Reduced enrollment may result in the need to review staffing requirements and building needs and usage. Everything involved in the district’s budget should be reviewed regularly.
During this time, simply “rolling over” an annual budget — based on the same assumptions from your past budget years — is not appropriate. Thought and care needs to be used in developing a spending plan that reflects the new realities of the district’s situation.
• How flexible are our plans?
During a period of rapid growth, districts often undertake formal demographic studies to better prepare for rapid increases in enrollment. The same might be good advice during a period of steady to declining growth. Depending on the severity of the housing market slow down, it is conceivable that districts may go at least a decade before there is any meaningful housing growth. Having an up-to-date enrollment projection will help board member and administrators be proactive regarding decisions on facility use, staffing and potential transportation issues.
Both short-term and long-term financial planning is important. Think of good short-term and long-term financial planning as the navigation system to get the district where it needs to be. By having strong financial planning processes, the board/administration team can better identify their options in the event of additional unforeseen changes or challenges.
Additionally, short- and long-term financial planning allows board members and administrators to engage in the important activity of “what if” scenarios. By exploring all the viable options and possibilities, board members can become more deliberate in responding to suggested changes made by the administration, as well as their constituents.
• What if the district is currently “mid-construction”? What process can be used to evaluate the district’s options?
School board members need to have full and complete discussions with the administration and construction consultants, as well as other facility and financial consultants before making a final decision. A construction project consists of many issues and how to proceed when a district is mid-construction on a building that might not be used as originally planned requires even more deliberation. It can involve asking questions like:
• What are the implications or the effects if the district determines that “moth balling” a facility is an appropriate choice?
• What else can be done with facilities if there are not enough students to occupy them?
• What do we do when growth resumes?
• What if growth never resumes?
In addition to the above questions regarding finances and facilities, a number of questions can be asked regarding the district’s approach to the academic and “cultural” aspects of declining enrollments. In many respects, rapidly growing districts may now face similar academic and cultural issues that more “mature” districts already have faced.
In Cook County, many of the suburbs that grew rapidly during the 1970s and 1980s slowed to more “mature” growth rates during the 1990s and 2000s. They did not need to build new buildings every year to accommodate large numbers of students. They were not hiring scores of new teachers each year, and they had a different opportunity for their academic focus.
They could review the effect of various class size options because they were not worried about staying in front of enrollment growth. The need for large numbers of new staff each year slowed, and overall teacher experience levels began to increase.
As most administrators will attest, having a teaching staff that has more years “in the district” provides stability to educational delivery methods, even though salaries may be higher as teachers proceed through contract “steps” and “lanes” with increased experience and possibly attainment of higher degrees. Staff stability allows teachers the time, and therefore the opportunity, to focus on various educational strategies with colleagues that they know, creating a higher level of trust.
Community concerns
The final suggested area to consider is the change in behavior of the general community during the current economic period. If individual school board members are personally concerned about the effect of a slowing housing market and reduced property values, imagine how the community at large is feeling?
The relationship between a school district and a community can be fickle. The relationship between a school board and their constituents can be even more fickle when there is an air of uncertainty in the community. Higher unemployment and climbing foreclosure rates without any tax relief in sight may leave constituents angry and disillusioned.
Now more than ever is the time for the school board and the administration to reach out to the community to strengthen ties and provide information about the district’s future. Here are some activities that can help to strengthen that relationship:
• Review meeting structure. Putting “Visitor Comments” sections at the end of the meeting agenda, when meetings don’t normally end until after 9 p.m., does not encourage good community relations. Allow audiences to address the board at the start of the meeting. Some districts also allow a second audience comment period at the end of their meetings. This should balance a need to allow the audience to comment and be heard without disrupting the effectiveness of the meetings.
• Know what will be discussed at the meeting. Well-prepared board packets from a superintendent will allow board members to be prepared and convey a sense that they understand a subject well enough to make a good decision. It also allows administration an opportunity to feel that ‑their work is valued by the school board. When board members do not take time to open their packets and review the subjects to be discussed at the meeting, it can result in difficult and noticeable gaps in getting to final decisions.
• Rely on good policy. School board members can work with administrators, as well as with the Illinois Association of School Boards, to develop a set of policies and procedures that are understandable and can be followed. Policies that can be explained to the community, as needed, are valuable and provide a sense that the board and administration are “in tune.”
• Adopt “good behavior” during board meetings. It is easy to get frustrated with community members who “just don’t get it” or “ask the same question over and over again.” Being tolerant of community members’ questions builds good will and shows the community that the board is open to listening to their concerns.
With all of these thoughts in mind and armed with a good knowledge base of district finances, board members will be able to navigate these new “right sizing” times. The new reality may be different, but it need not be a vast chasm of uncertainty.
Booming past the bust
by Mohsin Dada
The financial impact of declining growth in a booming school district is much more severe than the financial impact of declining growth on a school district with stable growth. The largest and most severe impact is on a district’s property tax revenues and the tax rate.
All of a sudden, projected growth in Equalized Assessed Valuation (EAV) is no longer available to sustain the once booming school district. Booming school districts normally plan ahead and may be in the midst of major capital projects. They may not have the flexibility of stopping major capital projects immediately and may, instead, be committed to completing them.
In booming school districts, such projects are normally financed with long-term construction bonds, and the plan to pay them back anticipates continued growth. If that included promises to stabilize the debt service rate, those promises will be very difficult to keep. The district may not have the resources in operating funds to staff and operate these new facilities.
The most logical solution would be to stop the once “robust” recruitment program. Having a decline in property tax revenues and a “freeze” on staffing will be a major culture shift. One of the outcomes will be an increase in class size. If the collective bargaining agreement restricts the school district’s ability to raise class size, the district loses the flexibility of serving more locations with the same staff.
The perfect combination to propel growth in a school district is the availability of land at an affordable price, the availability of jobs within commuting distance, an excellent school district and other services that enhance the quality of life for young families. Any significant change in this macroeconomic environment can cause a major impact on the growth for these districts.
The local school board is not in control of the macroeconomic environment. The Great Recession caused the current decline of growth in these booming school districts. This recession and slow down of economic activities also reduced state revenues that resulted in the reduction of state support for educational funding.
The slowdown of local and state revenues, accompanied by rising unemployment in the community, can be very challenging for any district. The collective bargaining agreement may not allow school districts to modify staff compensation to reflect the most current economic conditions.
Boards of education are always better off not referencing maximum class size in collective bargaining agreements, or they should at least have the provision to reopen the contract if financial conditions change.
In addition to collective bargaining contracts, school districts should look at service providers and vendor contracts. These contracts can be short term or could be for multiple years.
Single-year contracts can leave the district open to wide fluctuations in price from year to year, based on the economy (think commodities like gasoline/diesel for buses). But they also allow the district to switch vendors if they become unhappy with the service or the product.
Multiple-year contracts reduce uncertainty for service providers and assure vendors a steady stream of revenues for a longer duration. With uncertainty reduced, the service providers are able to provide a “better” deal. School districts also may award multiple-year contracts because of the time and resources involved in developing the bids. But these longer-term contracts also lock the district in for longer periods of time.
Just as with collective bargaining agreements, it is advisable to have the option to modify long-term service and vendor contracts if warranted.
It becomes a school district’s responsibility to do a cost/benefit approach to justify whether losing flexibility by signing a multi-year contract outweighs being able to switch to a different provider for the next school year.
To mitigate the risk and manage the process, the school board should discuss contingency plans, so that the district is prepared however the economy swings.
Mohsin Dada retires in June 2011 after serving 31 years as assistant superintendent/business manager for Schaumburg CCSD 54. He also is a past president of the Illinois Association of School Business Officials.