Skyrocketing costs, low reserves and likely state aid cuts…
Academic programs, extracurricular activities and jobs could all be in jeopardy this spring as members of the Broadalbin-Perth Board of Education craft the 2010-11 budget proposal that will be presented to voters in May.
“We’re facing an impossible situation,” said Superintendent Stephen Tomlinson. “With rising costs for things like health insurance and the employee retirement system, our rollover budget would require a 28 percent tax levy increase. Combine that with the governor’s proposed state budget, which includes nearly $1.5 million in cuts to state aid for Broadalbin-Perth, and we’d be looking at a tax levy increase of more than 43 percent just to maintain the staff and programs we currently have.”
Broadalbin-Perth residents would not be able to support such a large tax levy increase, Tomlinson said, and district leaders will not ask them to. Tomlinson said the Board of Education was looking to propose a budget that includes a tax levy increase of 8 percent or less. Residents will vote on the proposed budget on May 18.
Shrinking revenues, rising costs
School district budgets, like household budgets, have two basic parts: revenue (income) and expenditures. By law, school districts must present a balanced budget, where projected expenditures are offset by projected revenue.
There are several expenditures in school budgets that districts have little to no control over. One of those expenditures is state-mandated contributions to the Employee Retirement System (ERS) and the Teachers Retirement System (TRS). The hits that Wall Street has taken during the recession have also hurt the state’s two public employee retirement systems, which are funded in part from investments in a diversified portfolio of stocks, bonds and mutual funds. Because pensions for public employees are guaranteed by the state constitution, any shortfalls in funding from investments must be recovered in part from contributions from public employers, such as school districts. The bottom line: When the stock market does well, investment earnings pay for pension benefits. When the stock market fails, taxpayers pay for pension benefits.
At the same time that pension costs will be higher, district officials also estimate that health insurance costs could increase as much as 20 percent in 2010-11. The district must also budget for uncertain energy and fuel prices, and is obligated by law to fulfill its contractual obligations.
So, how will the district pay for all these expenditures? School districts like Broadalbin-Perth obtain revenue from three primary sources: state aid, local property taxes and undesignated fund balances (“rainy day” funds). If the state Legislature accepts Gov. David Paterson’s proposed state budget, Broadalbin-Perth’s 2010-11 state aid will be reduced by $1,486,085 – or a reduction of 11.32 percent from 2009-10 (not including building aid).
Broadalbin-Perth’s revenue situation is further complicated this year by the Hudson River-Black River Regulating District – B-P’s single largest taxpayer – being unable to pay the $256,000 in school taxes it owes to B-P in 2009-10. Broadalbin-Perth has contacted county and state officials to find ways to recoup those tax dollars, but in a worst-case scenario, the school district could lose the revenue entirely.
Historically, Broadalbin-Perth has maintained a small fund balance and utilized its reserves to offset the local tax levy. Last year was no different: Members of the Board of Education chose to use $150,000 in fund balance to reduce the 2009-10 tax levy. Assistant Superintendent Marco Zumbolo expects that the district will have approximately $500,000 in its undesignated fund balance at the end of the 2009-10 fiscal year, some of which the board might choose to use to offset tax levy once again (see “Role of the ‘rainy day’ fund,” below).
Assuming that the board will propose a school budget with a tax levy increase no larger than 8 percent, Broadalbin-Perth’s revenues would total $27,821,086 for the 2010-11 school year. However, the district’s rollover budget calls for expenditures of $30,629,177 – a difference of $2,808,091.
“We’ve already accounted for all of the revenue we can expect to receive,” Tomlinson said. “There won’t be any last-minute miracles this year like we saw with the federal stimulus last year. Our only option is to make cuts – and unfortunately, these cuts are going to be painful.”
Role of the “rainy day” fund
The governor has said that most school districts have enough in their undesignated, unreserved fund balance (or “rainy day” fund) to cover the cuts he proposed in his executive state budget. However, in Broadalbin-Perth, the district’s reserves would barely cover 35 percent of the Governor’s proposed cuts. Even if B-P had sufficient reserves to make up the difference, raiding its “rainy day” savings would place the district in a dangerous financial position going forward.
Like a family savings account, undesignated, unreserved dollars are used by school districts to pay for unexpected costs, such as a water main break or a broken boiler. A “healthy” fund balance, which is at or near the state cap of 4 percent of a school district’s total budget, also allows districts to moderate tax increases from one year to the next by applying funds from their reserves to offset tax levy.
For the same reasons the governor resists tapping the state’s own “rainy day” reserves to close this year’s state deficit, school leaders across the state have been questioning the soundness of expecting schools to deplete whatever reserves they may have to close what would be state-imposed gaps in their budgets.
Reducing the tax levy increase to 8%: What would it take?
District leaders and members of the Board of Education are looking at the 2010-11 rollover budget line-by-line as they try to trim nearly $3 million from next year’s proposed spending plan. In anticipation of another difficult budget year, the board has sought community input on each expenditure category in the budget through a series of six Community Roundtable conversations. District leaders have also received budget-related feedback through Broadalbin-Perth’s online forum, Patriot Plain Talk.
“Most people are telling us that they don’t want us to cut anything – programs, services, teachers,” Tomlinson said. “And of course no one wants to see their taxes go up. Unfortunately, we can’t have things both ways.”
The board is considering cuts to many areas of the budget, including non-mandated programs such as college-level courses, athletics, expanded art and music programs, field trips and extracurricular activities. However, even eliminating each of these programs from the 2010-11 budget would not save enough money to fill the gap.
As is the case in most school districts, approximately two-thirds of Broadalbin-Perth’s budget is for employee salaries and benefits. Therefore, it stands to reason that the district can realize the most savings by making cuts in that area. However, eliminating any positions – teachers or support staff – could potentially have long-term negative effects on the district’s academic programs.
“The recession isn’t going away anytime soon,” Tomlinson said. “The state and federal governments are going to continue to have budget deficits, which means we’re not likely to see a significant increase in state aid anytime soon. So, if we cut a position, it’s gone – we’re not going to have money to bring it back for several years, if ever.”
Broadalbin-Perth can realize the most savings from staff members who retire. This year, 26 staff members are eligible to retire; however, only five have indicated their intent to retire at the end of the school year. When a staff member retires, the district can simply choose not to fill his or her position.
Because of the nature of public employee contracts, Broadalbin-Perth cannot freeze salaries or reduce employee benefits without reopening their contracts – something both the district and the unions must agree to do. The only other way for the district to reduce costs in this area is to eliminate positions and lay off staff.
Tomlinson anticipates that the district would have to eliminate 5-10 jobs to fill the funding gap. According to state education law, the district must notify members of the staff whose jobs may be affected by budget cuts by April 1.
“It’s not something any of us wants to consider,” Tomlinson said. “But we don’t have $3 million worth of supplies or equipment that we can cut out of the budget.”
Where do we go from here?
There are no easy solutions to the budget problems facing school districts this year. Before the Board of Education adopts its budget proposal in late April, it will continue to seek community input and suggestions on how to meet the current challenges.
A comprehensive budget survey is currently available online (
Click Here to Take the Pre-Budget Survey). The survey asks residents to consider suggestions made at each of the Community Roundtables and provide feedback that members of the Board of Education will consider as they work on the budget.
District leaders also encourage all residents to submit their budget-related questions and comments to Broadalbin-Perth’s online forum, Patriot Plain Talk, available at
patriotplaintalk.blogspot.com.
“We’re at the point where we can no longer accept responses of, ‘Don’t cut anything,’ from people in the community,” Tomlinson said. “The harsh reality is that there’s not enough money to save every program or every staff member. If our parents, teachers and taxpayers want to help us craft the best budget we can under the circumstances, they need to let us know what their priorities are and what they can live without.”