A LONG WAITING GAME: Local school districts face uncertain financial future
MARQUETTE — Local school districts, as with other school districts in the state, are facing severe and undetermined financial challenges as a result of the COVID-19 pandemic.
In May, the Consensus Revenue Estimating Conference estimated a $1.1 billion cut to the existing year’s state School Aid Fund.
Carrie Meyer, superintendent of Ishpeming Public Schools, is understandably concerned about the situation.
“We have to have a budget passed every June that starts July 1,” Meyer said. “However, the state of Michigan has not indicated what their budget is going to look like and how much our school is going to be allocated for our per-pupil state aid.”
Following stay-at-home orders, the district closed its doors on March 16. At that time, it did not know how long the closure would last, she said.
“We continued to pay our employees, and then were notified two weeks later that we had to set up a continuity of learning plan, that we were going to be out of school for the rest of the year, and if we paid all of our employees, our school employees, that we would not have our state aid reduced.”
All districts set up their plans, she said, and IPS continued to pay its employees. In fact, they’re committed to pay them through Aug. 31.
However, in the last month, things have changed.
“Legislation is telling us that, ‘Brace yourself, we may have a proration for the ’19-20 school year,'” Meyer said. “We don’t finish getting our state aid allocation for the ’19-20 school year until July and August. So, even (though) our school year’s complete — we’ve committed to paying all our employees — there may be a proration in July and August that goes back into the ’19-20 budget year.”
This leaves the district with a problem: it may not receive some of the revenues it is expecting.
That’s what proration means.
“They may go back and prorate us from this last school year and not send us some of or all of our July and August state aid payments, which could be very devastating to our budgets, seeing that the school year’s done and we’re just continuing to pay the employees for work that they’ve done already,” Meyer said.
With the uncertainty of the situation, the district modified its 2019-20 budget with a $250 per-pupil reduction, so it ends with a deficit of about $186,000, using that much of its fund balance, she said.
The hope is that extra federal funding will be released, she said. However, the district did budget $8,411 per student for the 2020-21 school year. It also budgeted for 700 students, down from 728.
The “worst-case” budget scenario passed by IPS Board of Education earlier this month includes about $7.9 million in revenues and about $8.8 million in expenditures.
Other steps IPS has taken, Meyer said, included a voluntary severance plan and three partial staff layoffs, which involve a reduction in schedules.
Other districts in same situation
Deb Barry, Marquette Area Public Schools assistant superintendent of finance, said the school district is taking a “middle-of-the-road” approach to budget issues.
Barry said the district proposes to use its fund equity for fiscal year 2019-20 with a $350 proration for an amount totaling around $307,000.
“This would be like tapping into your savings account because you have been laid off for 20% of the time and needing to still make your payments,” Barry said in an email. “You can’t really earn more wages — we can’t gain more revenue — and you still have to pay your bills because you haven’t had time to cut back.”
Barry said the district still must pay all its employees, and needs to tap into its fund equity.
For the fiscal year 2020-21, MAPS will use its fund equity for about $1.5 million. This represents the amount of expenses that exceed the district’s revenues and that equity will be restricted to cover those expenses.
The MAPS board OK’d a $35.3 million 2020-21 budget on Monday.
However, the board voted for the 2020-21 budget to include a $650 per-pupil rotation for a conservative outlook.
Barry said that the Coronavirus Aid, Relief and Economic Security Act currently cannot be used for backfilling budget shortfalls, and because of the uncertainty, the final MAPS budget amendment did not use the full $650 amount.
She noted some savings related to COVID-19 were seen, such as closed buildings and reduced bus fuel as well as furloughs. However, salaries and benefits were paid through the end of the school year. Unspent budgets were reduced, plus there was a moratorium on spending.
The district fund balance would have to absorb a potential shortfall, Barry said, and it’s important to have fund equity to make payroll expenses.
“We’re building the assumptions,” Barry said. “We’re moving forward and then hoping that in August when the state comes out with their budget, ready for their fiscal year, we would know what we are going to be funded and can amend our budget to match that.”
NICE Community Schools faces a dilemma as well.
“We are still uncertain regarding exact amounts for our per-pupil funding for this coming year,” NICE Community Schools Superintendent Bryan DeAugustine said in an email. “The information simply is not available from the state of Michigan at this time.”
The district still is uncertain regarding the mandates the state will require when the 2020-2021 school year begins, he said.
“We have made our budgetary assumptions with the best information available,” DeAugustine said. “If we can bridge the gap between this economic crisis and our state’s eventual recovery, we should be OK if the actual cuts are not too severe.
“We’ll do this by cutting as many compressible costs as possible and utilizing a significant portion of our General Fund reserves. If the economic downturn is more prolonged than expected, we will make adjustments. We are committed to protecting our programs and instructional delivery.”
DeAugustine said the district expects to receive $13.5 million in revenue while spending $14.1 million in expenditures, which will cut deeply into its fund balance. So, it needs assistance from the federal government to protect its programs from drastic cuts.
Most of the Upper Peninsula, he pointed out, is already at the minimum per-pupil foundation allowance.
“This will widen the gap between our lowest-funded schools in the state and our highest-funded schools,” DeAugustine said.
The Negaunee Public Schools Board of Education on Monday approved amending the 2019-20 budget and the adoption of the 2020-21 budget.
A projected proration of $450 per student in state foundation allowance was used for the final 2019-20 budget amendment. For NPS, this is a $702,900 loss in revenue, NPS Superintendent Dan Skewis said in an email.
“If this were to happen, it would decrease our fund balance by $614,897, leaving us with a total fund balance at the end of this fiscal year of $3,463,284,” he said. “If a proration does not occur, then we would be adding approximately $88,000 to our fund balance, giving us a total fund balance of $4,166,184 at the end of the 2020 fiscal year.”
As the district prepares for the 2020-21 budget, it is projecting its state foundation allowance to be reduced to $7,661 per student, which is $450 lower than this past school year. If this estimate is accurate, Skewis said it would decrease the fund balance by an additional $325,000, leaving the district with a fund balance of $3,138,284 at the end of the 2021 fiscal year.
This number does reflect the projected proration for 2019-20, he said. If the district does not receive a proration this fiscal year, then its fund balance would be $3,976,288 at the end of the 2021 fiscal year.
“We anticipate that we will not know what our state funding will look like until September,” Skewis said. “While the financial outlook isn’t a positive one, we are not going to panic. A significant reduction in the foundation allowance will have a severe impact on many districts throughout the state of Michigan.
“My feeling is the Treasury Department and legislators understand this, and I am hopeful that a sensible decision is made so schools that are already financially stressed won’t face an even bigger burden. It is also important to mention that a reduction in state aid for next year will have an adverse effect on budgets for several years to come.”
Skewis noted it could potentially take three to four years for some districts to get back on their feet due to the current budget concerns.
“School districts won’t feel comfortable until state aid is at or above the $8,111 per student student allowance that we experienced this year,” he said. “With the predicted reduction in funding, I feel especially fortunate for the current financial position that Negaunee Public Schools is in. A steady increase in enrollment over the years has benefited us in many ways. We will continue to keep the best interest of our students as a top priority in the decisions we make.”
Sandy Petrovich, superintendent at Gwinn Area Community Schools, said there is a basic theme to school districts’ financial situations: the uncertainty.
“We are having to put together budgets for boards to approve, our amendments for ’19-20 as well as new budgets for ’20-21 without any clue as to whether there’s going to be a proration, when is it going to be and how much is it going to be,” Petrovich said. “Along with unknown enrollment, we are taking our previous experiences, our best knowledge and putting together what we think is best for our individual districts.”
On Monday, the GACS Board of Education adopted its amended 2019-20 general fund budget as well as the 2020-21 general fund budget, which includes projected revenues of about $11.35 million in revenues and about $11.5 million in expenditures.
“We decided to take the proration cut for this amended budget for the ’19-20 school year, even though the proration has not occurred yet, and we don’t know when or if it will occur,” Petrovich said.
The district, she noted, planned for the “worst-case scenario.”
“If the proration does not occur in this state’s fiscal year, then we’ll be better off next year because we wouldn’t then have a cut in ’19-20,” Petrovich said.
But there still are the undecided factors, such as whether federal money will be available.
“The unknowns are so big and so many,” Petrovich said.
Return to Learn Plan
Help might be coming in the Return to Learn Plan, which uses federal funding to assist school districts and outlines top priorities for schools as they consider the future of in-person learning.
Michigan Senate and House Republicans announced the plan on Tuesday.
The Return to Learn Plan outlines the top priorities for schools to allow learning to continue in a safe and healthy environment and includes $1.3 billion in federal coronavirus relief funds to help pay for the costs faced by administrators, teachers and students during the COVID-19 pandemic.The plan includes an additional $800 per student so schools will have the resources needed to implement health and safety measures for classrooms. School districts would receive additional resources to implement smaller class sizes and other adjustments, enhance sanitation procedures, purchase personal protective equipment and make building enhancements to improve safety.
Meyer said this money would “definitely” help all districts.
Christie Mastric can be reached at 906-228-2500, ext. 250. Her email address is firstname.lastname@example.org