|

RSD205 Budget Deficit – Depends on your point of view – Condensed Version

The Rockford School District’s budget process involves a series of estimated forecasts, such as property values (EAV), General State Aid (GSA), Corporate Personal Property Replacement taxes (CPPRT), Teachers Retirement System (TRS) and a host of other variables over which the district has little control.

As claimed by the Rockford Education Association (REA) in their first press conference, the district had incorrectly entered $41M in local revenue on the Illinois State Board of Education’s (ISBE) website that should have been a zero. Unfortunately, from a deficit perspective, the erroneous entry was on the wrong side of the ledger and would almost double the deficit of $43.6M projected by the district.

However, the administration stated during a special board meeting last Saturday that a $41M entry is also included on the expense side of the ledger balancing out the incorrect entry on the revenue side. This fact needs independent verification to ensure the deficit isn’t higher than projected.

Another REA claim is that the district has increased the benefits for 2011 from $76.6M to $124.6M, an increase of $48M.The REA subsequently subtracted that value from the district’s deficit projection, in combination with other assumptions, to arrive at their deficit estimate of $15.6M.

Following their news conference, the REA provided a copy of the 2010 Annual Financial Report showing that the actual total benefit was only $71.1M, not $76.6M, in 2010. Now, some in the community complained that $71.1M compared to the district’s projected $124.6M for 2011 benefits was an increase of 75% in a single year!

The district’s financial staff explained to the board Saturday that the state requires the district to include the 2010 TRS “On-Behalf” payment of $38.8M in the total benefit projections totaling $110M.

The 2011 estimated benefits now include the increase in the TRS “On-Behalf” of $41M plus the $71.1M actual costs, equaling $112M. The district also estimated the medical insurance will increase by 13% over the current $42M, or $5.5M, plus the TRS on behalf has increased by $7M a year for the last four years, hence $124.5M.

The addition of the TRS factor significantly increases the REA’s deficit calculation of $15.6M, since the REA had subtracted this amount from the district’s deficit forecast. A more open budget development process might have prevented this miscalculation.

The estimates for GSA and CPPRT by the district and the REA differ by $21M. The REA predicts the state will pay their bills, since the state has always fully funded the schools, primarily through borrowing and also assumes the corporations will pay more as the economy improves.

The district is more conservative, assuming the CPPRT will continue its downward trend and have little faith the state will fully fund the GSA based on the state’s recent failure to pay transportation costs and categorical aid for the last two quarters.

The district projects an increase of 1% in property taxes. The actual EAV may decrease 1 to 2% due to forclosures and short sales being included in future EAV calculations, plus over 5000 county assessment complaints, that usually have a 70% success rate.

To determine the 2012 deficit, assume nothing changes – no school closings, no programs or cuts made, the district would have the same deficit as last year – $27M, plus $11.6M in REA salary and benefit increases scheduled in the contract. That equals the $38.6 deficit shown in the 2011 budget; add $2M in CPPRT and the $10 – $12M reduction in GSA equals a $50M – $52M deficit.

If the REA is correct regarding distribution of the revenue from the state and the CPPRT ($21M more revenue), then the deficit drops to around $30M, but not the $15.6M as initially claimed.

There is ample time to do a review before mandated state code timelines. This review is not just about the money, but trust in the process which voters need prior to the 2012 renewal of the 58-cent referendum.

Share:

18 Comments

  1. kevind1986

    Ted: if you are willing to serve on a committee to help with this debacle, and you aren’t invited to serve, then we obviously need new leadership all around. Maybe some people who are more concerned with the truth and facts and a lot less concerned with posturing for their own benefit. Who would be so cowardly as to keep you away from the table?

  2. educationiste

    Excellent review. Thanks.

  3. Luke Fredrickson

    Important question:

    What is the “TRS “On-Behalf” payment of $38.8M”?

    Is it a new expense?

    Does it recur annually, and if so at what levels? How has this expense been handled in past budget estimations?

    Is the state’s rule to include it in deficit forecasts new?

    Where does this expense get funded?

    It seems that this single, huge number is pivotal in determining whether there is an actual crisis. Thanks for your analysis Ted.

  4. Ted Biondo

    Good Questions, Luke. The TRS On-Behalf has been there since the Teacher’s Retirement System (TRS) has been there. It is not a new expense. The district pays about 10% of a teacher’s salary into the state’s TRS fund each year.

    The state pays their portion of the TRS pension “On-Behalf” of the Rockford district. The money doesn’t come to the district but from the the state. The state then tells the district to book the state’s payment into the TRS fund, as a revenue and an as an expense on the district’s books and the reports that are due to be sent to the state.

    I’ll just stick with this entry, rather than get into all the other problems with the budgets and reports and the district and the state.

    The reason that the On-Behalf is a problem this year, is that the REA thought that their benefits were a lot lower as reported in 2010 and had increased by 75% for 2011. So, they subtracted the On-behalf money from the district’s estimate of the deficit. The REA didn’t realize that the On-Behalf amount was included on another line in the report but was added to the benefits line.

    The district also made a mistake with an entry on their budget they sent to the state, kind of offsetting the REA’s mistake. The real deficit is somewhere between $30M and $50M depending on the General State Aid and the Corporate taxes. I hope that helps.

  5. Luke Fredrickson

    Thanks again Ted.

    If as you say “the money doesn’t come to the district but from the the state”, how is it relevent to the deficit? Is the admin. assuming the state may not pay this $38M? If the state pays as in past years, does this reduce the actual benefit expense back to the $70M range?

  6. Ted,

    If the state fails to pay into the TRS, is it the District’s responsibilitly to pick up the tab.

  7. Ted,

    What about the expenditures for 2010 that will not be repeated in 2011? One of the 2010 purchases were about $2M for 2,000 laptops, setup, and training. Including the one-time expenditures will give a higher baseline before the conservatism is added. The most reasonable budget defict projection is probably somewhere between the twp extremes, $15M and $51M, or $33M.

  8. Ted Biondo

    You are right Luke – it shouldn’t have anything to do with the deficit, but the REA said district increased benefits by $48M and subtracted – the increase in benefits, which included the TRS on-behalf -from data the district used for their deficit calculations.

    The REA, nor anyone else, knew that the TRS on behalf was in the benefits number, so district wasn’t counting it either – it’s simply a bookeeping entry. it shouldn’t have even been considered, nor should it have been subtracted by the REA in their calculations.

    The district also entered $41M in the revenue that should have been zero, but that just adds to the deficit, because it was an increase on the revenue side.

  9. Ted Biondo

    Jerry H – if the state fails to pay their portion of the TRS, the district is not liable for the payment. The state just borrows more money from our kids and grandkids in some future time when the $80B underfunded pensions in the state of Illinois comes due and no one will loan this deadbeat state another dime.

    But we elected Quinn. He raised taxes 67% and with the current spending I heard today, Illinois is still $1.25B short on the annual budget, with nothing going to pay the $8.7B bills including our General State Aid, etc.

  10. OK.
    Isn’t the liability in the budget though? So that means a 41 Million dollar addition to the budget when it really doesn’t need to be there?

    And this isn’t just Quinn’s fault. He has many many accomplices. And there have been Republicans in charge too. They screwed it up too.

  11. Ted Biondo

    Jerry H – the TRS on behalf is just a book keeping item, normally. When the district mistakenly put it in the revenue side of the district’s budget, it became a problem to be reviewed. The REA also made a mistake, when they subtracted the same amount from their benefits because it belonged there.

    I agree with you, at least on the Republican governor, the crook George Ryan, and the Crook Blago also were responsible for deficits. George Bush was responsible for deficits at the national level almost doubling the national debt. Obama will quadruple it.

    It’s just seeing the thought process used today with the governor’s budget speech, I think Quinn, and I know Obama, have taken deficit spending to an art form.

  12. Ted Biondo

    Joe welcome to the blog – Joe the one time expenditures that you mention were paid primarilly by grants not from the education fund. Remember the debate over the superintendent spending the money for these items because the district felt the board didn’t need to approve such grants by board policy or grant provisions.

    Also Joe – I have calculate the deficit between $30M and $51or $52M. It could be higher because the property values could decrease over 3 or 4% which would cause the district to lose another $3M or more. Median is closer to $40M. Sorry!

  13. I want to make sure I’m reading this right. The district did put the teacher benefit up to 112 million. This includes the 41 million that the State should pay. But then left out the states 41 million payment right. Well that is a deficit of 41 million that doesn’t need to be there.

  14. I will give you 2 problems with the economy today.

    1. Not in my backyard.
    2. My Congressman better vote against any pork barrel project, except if it benefits me and my district.

    When the country can get over those two, we can become even bettter than we are today.

  15. Ted Biondo

    What happened is the district actually spent $71.1M in 2010 on all funds benefits. The state requires that the district place the TRS paid by the state on behalf of the district on the benefits line. The REA mistakenly thought the district had increased their benefits by 75% and they subtracted the entire increase in benefits amount from the district’s projected deficit.

    The district made an incorrect entry on the Revenue side of their budget projections, which means if there isn’t an expense offsetting this mistake, the deficit increases by another $41M.

    The two mistakes are additive towards a bigger deficit than the REA calculated. Then since salaries and lanes increase salaries by $4.4M, .5M in TRS is added on top of that.The district is projecting 13% increase in the medical this year of $42M thats another $5.5M in medical. Benefits are now to $117M. Finally, the TRS On-behalf has increased by an average of almost $7M per year – makes the benefits equal to $124M. These are estimates, but that’s what the budget process is all about.

  16. Ted Biondo

    On the second point Jerry – there is one problem with the economy – all governments, at all levels are spending more money than they are receiving.

  17. One area that does not appear being explored is the expenditure side of the budget.

    We can cut $23.6 million off the current 2010-2011 budget just by rolling back purchased services, supplies, and other expense to the 2008-2009 spending levels. This $23.6 million in savings is without closing a school, without eliminating a program, and without laying off any RPS205 personnel.

    2008-2009 purchased services, supplies, and other expenses: $68.9 million
    2010-2011 purchased services, supplies, and other expenses: $92.5 million

    Seems like a pretty good place to start.

  18. Geez, I wish I could read. Sorry. I see that you wrote that the district added the 41 million on both sides. I was reading that the district was just adding to the expenditure sides. Thanks Ted.

Leave a Reply

Your email address will not be published. Required fields are marked *