Ohio school districts submit five-year forecasts with red ink

Jun 3, 2013 by

Treasurer Jack Pierson last week presented to the Akron board of education two very different — yet possible — financial futures.Unhappy-hour

During the special meeting Thursday, Pierson gave the board two fiscal forecasts to consider: one projecting a nearly $8 million surplus and the other a $25 million deficit.

With identical expenses in both cases, the $32.7 million swing is the result of one unknown: “We don’t really even know what the [state] budget is for this biennium yet,” said Pierson, who is required to send Akron’s five-year financial forecast to the Ohio Department of Education by the end of May — a twice-a-year ritual.

Other treasurers filed as well, but unlike Akron, with a successful additional levy in November and a current five-year forecast of a $7.8 million surplus, nearly half had a more bleak outlook.

In all, eight of Summit County’s 17 school districts project negative cash balances by the end of the five-year budget cycle in 2017. Cuyahoga Falls, with a failed May levy, and Nordonia Hills schools each predict the highest deficits at more than $7.2 million.

That’s normal, said David Varda, executive director of the Ohio Association of School Business Officials, which advises the school treasurers.

“It’s not unusual to see deficits,” Varda said. The forecasts initiate “a good public discussion so that everyone understands where the district is financially.”

Part of that discussion is how to shrink the gap between swelling expenses and flat-lining or fleeting resources.

“A forecast is not a financial report,” Varda said. “It’s just a planning tool.”

Biennial uncertainty

While the forecasts were mandated by the legislature to be submitted twice a year, the May estimate in every odd-numbered year is a roll of the dice. That’s the state budget year.

State aid, on average, accounts for about half of what districts receive for operations, but the May five-year plan is submitted weeks before the legislature completes a two-year budget. State aid could change radically and the plan could be rendered inoperative.

No relief

Many treasurers are predicting no relief from the legislature despite the fact that the state’s April financial report showed total revenues for fiscal year 2013 nearly $2.8 billion ahead of a year ago.

Meanwhile, school administrators use their forecasts to plan program cuts, staff reductions and additional property tax levies.

That’s what the Manchester school district is planning. So far, state budget proposals have provided little help to the district, which has a relatively weak property tax base for raising its own funds.

With the third-highest projected deficit at nearly $4.6 million by 2017, Manchester schools would sink into red ink before any other Summit County school if the state does not increase aid.

Manchester analysis

A Beacon Journal comparison of basic state aid received in the 2012-13 state budget versus projected funding in the Senate’s latest proposal indicates that Manchester would receive about $137,000 additional funding over the two-year period. But that increase includes state aid for transportation, which was not included in basic aid in the previous biennium — and the legislature has included language that would require districts to give up more of their transportation money to charter and private schools.

In Manchester’s case, the last figure available for transportation was $274,000 in 2011. By including transportation in the overall estimates of aid to the district, Manchester may in fact receive less state assistance.

Manchester treasurer Dave Osborne estimates a $500,000 deficit as early as next year. So he’s doing something that no other treasurer in the county has done: He’s penciled in additional property tax revenue for a levy that hasn’t been proposed to voters, let alone gone to the ballot.

“Yes, this is taking a giant leap of faith,” Osborne said. “It spells out exactly the whole philosophy in the forecast … that in order for this forecast to work, we will have to go to the voters for additional funding at some point.”

That “some point,” according to his forecast, would be within the next year, when Osborne predicts a 4- to 6.9-mill levy would be needed to supplement state funding that doesn’t appear to fill spending deficits from expenses related to online testing mandated next year.

“That would keep us positive all the way through June 30 of 2018,” Osborne said of the levy.

Choice with forecast

He had a choice in his forecast: Either show no additional property taxes and a deficit, or plan on additional property taxes and a healthy financial outlook. “You’re darned if you do, darned if you don’t.”

In spite of the work done by treasurers to submit the forecasts, no one at the Ohio Department of Education compiles a list of schools that face the need for additional property taxes in the next five years.

“The short answer is no, we don’t look at how many districts are counting on levies to erase red ink,” said department spokesman John Charlton in an email. “Even if the district showed a levy that would erase the deficit, we would still ask for a plan in case the levy doesn’t pass.”

So, what state officials won’t know is whether mandates enacted by the legislature are creating any strain — which they are.

All districts are grappling with new curriculum and testing standards that require technology upgrades that consume more than 3 percent of the operating budget. The 45-state effort, called the Common Core, attempts to create comparative educational goals and testing.

Textbooks over the next five years are expected to cost Akron more than $18 million. In order to test students under these new content standards, online assessments have been created that would require Akron to invest $758,000 in network and cable upgrades at 22 buildings, $80,000 in disaster recovery equipment and additional costs for infrastructure upgrades at 48 other buildings. The cost will be rolled into the annual budget, beginning with $4 million next year.

Rosier assessment

After the Akron board accepted Pierson’s rosier assessment of a 6 percent state funding increase, he said the five-year forecast could just as quickly change after the governor signs the state budget, which must be completed by June 30.

Collectively, Summit County’s 17 districts project year-end balances to drop from about $132 million this year to about $15 million by 2017, with eight assuming they will renew expiring property tax levies.

In the meantime, school administrators must strike up a discussion about how to curb expenses, shoulder additional state mandates, absorb climbing transportation costs and who to ask for money when they fall short.

“The key [to a five-year forecast] is making sure the board, superintendent and the treasurer all agree on what the assumptions are, because that’s what drives the forecast,” Varda said.

That’s difficult to do, Varda and area treasurers say, because no one can assume the fiscal impact of the state budget.

The two-year budget process began in January as Kasich began his rollout.

The House moved its version in mid-April.

With four weeks until the current budget expires, the Senate has yet to finalize its funding proposal. Details may come this week, at which time the chamber may quickly vote.

Afterward, both houses are expected to send members into a secretive conference committee where they’ll likely fashion a different proposal that traditionally is rushed to the floor of both houses at the final hour and passed with little time for analysis or public hearings.

With little hope of state help, many school districts submit five-year forecasts with red ink – Education – Ohio.

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