11/30/2009 5:34:00 PM
School district faces sizable structural deficits according to 5-year projections
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Adam Mella
Managing Editor
With personnel costs on the rise and state-imposed revenue caps limiting the district's ability to keep up with those costs, the Monona Grove School district, like many in Wisconsin, is facing a sizable budget deficit in the near-term and structural budget deficits in the long-term that will eventually erase the "rainy day" fund over the next five years unless significant changes are made. That was the basic gloomy conclusion of a five-year budget forecast given to the school board last week.
Scott Gralla, Senior Financial Advisor for PMA Financial Network, presented the board with a 5-year budget forecast model that predicts a nearly $5 million deficit in fiscal year 2015 that would leave the district's fund balance ("rainy day fund") with almost $10 million in debt.
That projection is at this time only a worst case scenario, however, assuming the current "structural deficit" will remain unchanged. The model considers current enrollment projections for each grade class, teaching and support staff including projected salaries and benefits, and open enrollment, among other things.
"We feel confident that your forecasts are in center field in relations to other districts in the state," said Gralla. The model is conservative in nature, especially relating to future state aid payments and district property valuation, added Gralla.
Although the district received help through federal stimulus funding this year, officials are not planning on such funding in 2010, and decreases in state aid are also expected.
After taking in $785,657 in excess revenue in 2005, the district was able to grow their fund balance by roughly $500,000 in both 2006 and 2007. Monona Grove essentially broke even in 2008, according to district documents, creating a fund balance of $5.8 million.
With the economic downturn beginning in 2008, however, Monona Grove expects to run a $279,000 deficit in fiscal year 2009, even with federal stimulus help. According to projections, Monona Grove will incur a $613,000 deficit in 2010, meaning that the district's reserve fund balance will take a large hit unless changes are made.
Looking forward from 2010 to 2015, projected budgets show an annual "structural deficit" that will grow each year, Gralla told the board, unless state aid is increased or the district cuts spending, which will almost certainly mean cuts to district staff, since payroll and benefits make up the vast majority of yearly expenditures (80 percent).
School board members have already indicated that staff reductions will be necessary in 2010 in order to reduce expenditures and avoid such a large deficit.
According to documents provided by Gralla, Monona Grove will face a deficit of $1,005,736 in fiscal year 2011 if no such changes are made beforehand, which will grow by an average of around $1 million every year through 2015, assuming enrollment remains steady. If this is the case, the district's rainy day fund will be erased by 2014, and the district would find itself with a $9,790,469 debt in fund balance by 2015.
School board member Peter Sobol called the projected deficits "consistently sad news," adding that "this is the stuff that should keep board members up and night."
"We need significant re-thinking of how we do business in this district," said Sobol.
District Superintendent Craig Gerlach said that state aid could go back to where it should be in two years, but he also acknowledged that it could be cut further.
"I think we have to look seriously at how we got here, and how we can do better," said board member Susan Manning.
Mr. Gralla said that many districts in the state, including a few in Dane County, are in worse shape that Monona Grove. With the model in place, Gralla said the district can plug in different budget proposals in the future to see how they improve the projections for 2010, or over the next five years.
Gerlach and the board agreed that although the news was not positive, it is good to know the gloomy outlook sooner rather than later so that they can begin work to fix the structural deficits now, rather in the spring when teacher contracts come up for renewal.
A budget workshop is scheduled for mid-December.
Open enrollment
While accepting additional students through open enrollment is one way to increase state funding for the Monona Grove district, doing so can also lead to larger class sizes. In addition to the budget forecasts, open enrollment and class sizes are two issues the board has been looking at recently to ensure the fiscal health of the district along with optimal learning environments for students. During their November 24 meeting, the board discussed changes to open enrollment policy that would make it easier for the district to reject requests in the future. State law is somewhat tricky regarding open enrollment and the board felt some changes were in order to ensure they could legally reject requests in the future, if class sizes grew too large. If teaching position need to be cut, that would also increase some class sizes.
Proposed changes include adding language to define official 'optimal' enrollment figures for each school, and using 'shall' rather than 'may' in some cases to give the board more flexibility. The board will revisit the issue on December 9.
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