Illinois School Finances Continue to Show Impact of Economic Downturn and Fewer State Education Dollars

ISBE analysis shows 64 percent of school districts expected to deficit spend

SPRINGFIELD, IL —Illinois school district finances continue to show the strain of operating with fewer funds from federal, state and local sources, according to an annual statewide review of financial data by the Illinois State Board of Education (ISBE). The number of districts earning ISBE’s top financial rating dropped again this year while those districts that are projected to deficit spend this school year increased to 550 (or 64.2 percent) of all districts.

Many of these districts have already made significant cuts; they have reduced staff, delayed building repairs and upgrades, and eliminated academic and extracurricular programs with little financial relief in turn.

“Our Financial Profile data shows that while our schools continue to cut costs and stretch shrinking financial resources, many still must borrow or dip into their reserves in order to stay in the black,” said State Superintendent of Education Christopher A. Koch. “There also appears to be a direct correlation between the decrease in state funding and the declining number of districts in Financial Recognition. Our Board will continue to advocate for more state education funding through the spring so schools can start a new fiscal year on July 1 with more resources and support for the needs of all students.”

The Board has asked for an additional $729.9 million in education funding from the current year to fully fund General State Aid, which has been prorated for the last four years. When adjusted for inflation, the proposed fiscal year 2016 budget amount is still 5.2 percent less than the FY 2009 general fund appropriation level.

The 2015 Financial Profile is based upon FY 2014 data received from school districts and provides a snapshot in time that helps ISBE gauge school districts’ financial health. The profile’s designation categories and FY 2015 and FY 14 statistics are:

The 2015 Financial Profile data shows seven fewer districts earned Financial Recognition this year than in 2014. Overall, districts’ Financial Profile scores are shifting toward the mid-range of Financial Review and Financial Early Warning.

The City of Chicago School District 299’s financial score declined this year, landing the state’s largest district in the lowest designation of Financial Watch for the first time in the state’s 12-year history of providing this analysis. As of June 30, 2014, the district has been deficit spending for the last two fiscal years and had only eight days’ cash on hand. If this trend continues without additional revenue or reduced expenditures, Chicago is projected to have a negative fund balance for its operational fund in FY 2015, with a deficit of $862.3 million.

ISBE will continue to review and monitor CPS and the other 37 districts on the 2015 Financial Watch list. The state education agency may recommend potential intervention as needed, such as financial projections, cash flow analysis, budgeting, personnel inventories and enrollment projections. Those districts listed on the Financial Watch list serve 22 percent of the public school children in Illinois.

This year’s Financial Profiles also show that more districts are continuing to decrease spending and take on debt to keep up their fund balances and operations. In FY 2014, districts issued $356.5 million in new debt in the operating funds. This amount is $72 million (or 25.3 percent) more than the $284.5 million in new debt that was issued during FY 2013. Additionally, information submitted by school districts for FY 2015 forecasts that the number of districts with deficits will increase to 550 (or 64.2 percent) of all districts, compared to 364 (or 42.4 percent) of districts in FY 2014.

“Multiple years of financial hardship have left school districts struggling to trim already lean budgets without affecting regular classroom instruction,” said Dr. Michael Jacoby, executive director of the Illinois Association of School Business Officials. “This struggle has forced many districts to tap into their reserves or long-term borrow just to provide basic resources and services to students. Valuable academic enrichment, specialized instruction and extracurricular opportunities are no longer affordable, preventing schools from helping students reach their full potential.”

A district is categorized for the Financial Profile based on its Annual Financial Report from FY 2014, which ended June 30. The rating is created by using five indicators of performance:

Fund Balance to Revenue Ratio

Expenditure to Revenue Ratio

Days’ Cash on Hand

Percent of Short-Term Borrowing Ability Remaining

Percent of Long-Term Borrowing Ability Remaining

The Financial Profile alone does not provide a complete picture of a district’s financial condition, but it provides a valuable tool for ISBE staff to use with other data and information to assess an individual district’s financial status.

From 2004 to 2009, the number of districts in Financial Recognition status on the Financial Profile increased each year. In 2010, the number of districts in Financial Recognition decreased due to the beginning of the economic downturn. For the 2011 and 2012 Financial Profiles, the number of districts in Financial Recognition increased again as a result of the infusion of revenue from the federal stimulus funds, called the American Recovery and Reinvestment Act (ARRA). For 2013-15, the number of districts in Financial Recognition has steadily declined, due in part to the proration of General State Aid.

Of the 49 districts that were on the Financial Watch list in 2014:

·         Four have improved to Financial Recognition

·         Nine improved to Financial Review

·         Fourteen improved to Early Warning

·         Twenty-one remained as Financial Watch

·         One district reorganized into another district

The 2015 Financial Profile for all districts in Illinois will be available through ISBE’s School Business Services page in alphabetical order, by count or Financial Profile designation at www.isbe.net/sfms/P/profile.htm.