By Crystal Hayduk
Statewide, school district budgets face serious shortfalls as a side effect of the State of Michigan’s suffering financial health due to the COVID-19 pandemic. Chelsea School District’s budget is not immune.
Michelle Cowhy, assistant superintendent of finance and administrative services, presented a lengthy and complex explanation of the final amended 2019-20 budget and the 2020-21 preliminary budget at the Chelsea School District (CSD) board of education meeting on June 22.
Cowhy reported that the district will end the 2019-2020 fiscal year with an estimated total fund balance of just over $5.9 million, which is 20.25 percent of the budget, more than the board’s minimum policy of 15 percent. The amount is higher than the 17.78 percent estimate from the January, 2020 amendment primarily because the closure of buildings and cancellation of events reduced expenses for staffing, substitute teachers, buildings, and utilities.
Still in question for the 2019-20 budget is whether the State of Michigan will prorate districts during the state’s fiscal year, which runs from Oct. 1 through Sept. 30.
If the Department of Treasury determines there is not enough money available to meet their State Aid payments to districts (payments occur monthly except for October), disbursements could be reduced by a calculated dollar amount per pupil anytime between now and September.
Even though proration was not built into the 2019-20 final amended budget, it is still a possibility. “We hope it won’t happen because when [Governor Whitmer] closed down schools, she also said we had to continue to pay everybody. That meant we didn’t have the opportunity to save money for a possible cut this year,” said Superintendent Julie Helber.
“But that doesn’t mean they can’t do it. People who work with the legislature say it’s not off the table, and we’re concerned about that,” she said.
Another way for the state to reduce district revenue this year is through negative supplementals, or cutting line items of funding used to pay for certain services. This was not placed into the final amended budget, either.
If either of these reductions were to occur, the budget would not be amended again, but would show up in the audit, said Cowhy.
Because school districts are required to submit a balanced preliminary budget each year by July 1 (while still waiting for the Oct. 1 state budget), Cowhy is accustomed to preparing it with guesstimates and assumptions.
Current pandemic uncertainties have made 2020-21’s budget preparation especially problematic.
State representatives met in mid-May for the Consensus Revenue Estimating Conference (CREC), a biannual assessment of the state’s current finances that assists in future projections. The meeting “provided a bleak assessment of an economy that has suffered devastating contraction in light of the COVID-19 outbreak,” according to a written statement from Dirk Weeldreyer, executive director of the School Equity Caucus (SEC) in Lansing.
Reasons for the dismal projections for state funding include reduced revenue from sales tax as well as future expectations for lowered income tax, property values, and corporate tax revenues based on the current year.
“At the May, 2009 CREC, as a result of the Great Recession, total revenues were revised down $1.3 billion for 2009 and down an additional $1.7 billion for 2010. Today’s downward revision is more than double those numbers,” according to the CREC alert.
Utilizing information from CREC as a starting point, Cowhy developed the 2020-21 preliminary budget. In contrast to the amended 2019-20 budget, next year’s estimated total fund balance will be just over $3.3 million on June 30, 2021, or 11.41 percent of the budget, well below the board’s policy of 15 percent.
Cowhy based the 2020-21 preliminary budget on a reduction of $700 per student. “This is the amount the state needs to plug the $1.1 billion hole to balance their budget by Sept. 30,” said Cowhy.
She also conservatively estimated 50 fewer students in the district, subtracting graduates and adding kindergarteners. The combination of the reduced foundation allowance and fewer students will result in the district’s loss of $2.4 million in state aid.
On the expense side, Cowhy based the budget on pay freezes for everyone except employees in the transportation department, who still require steps and increases in the third year of their contract.
She also saved $516,000 in staffing costs due to attrition. Some employees who retired or resigned will not be replaced at this time; others may be replaced by hiring staff at entry level wages. Helber said the district has received notice of 18 employees who will not be returning; of those, only seven are expected to be replaced.
Helber said the district has been good stewards of the school’s money by maintaining a total fund balance—similar to a family’s savings account—of 15-20 percent as recommended by accounting specialists. The district is able to handle the next year by using money from the fund balance, but experts suggest the pandemic’s financial fallout will last for more than one year.
“We want to be able to weather the storm for two years through a combination of cost-saving factors, including use of fund balance, without putting the district at financial risk,” she said. “This catastrophe is exactly the type of situation we need to be prepared for. We have to be careful about using the fund balance for recurring costs because those expenses will still be there next year.”
Helber said the district’s priorities include protecting programming for students, maintaining low class sizes, and protecting staff from layoffs.
The board is expected to vote on both the 2019-20 final amended budget and the 2020-21 preliminary budget resolutions at its meeting on June 29.
Let’s always remember , they are sitting on 20% fund equity, which is UNHEARD OF.