Does District 113 Need More Tax Money To Fix Its Schools?

Editor's note: This is the second of a series of articles exploring the District 113 referendum. Read the first story here.

Since District 113 announced it would be asking residents for $89 million to help pay for renovations to Highland Park and Deerfield High Schools, some have wondered: could the district improve the schools using existing funds alone?

Get caught up on the District 113 referendum here.

Education First, the community group that opposes the referendum, believes it can. The group has proposed its own plan to address the schools' needs that it estimates would cost $60 million, all of which, its members argue, could come from the district's fund balance. The district currently has about $47 million, or about half of its annual budget, in its fund balance.

"We can pay for this affordable plan with existing dollars while still leaving a substantial amount of money," said Frank Pirri, a Deerfield resident and the chairman of Education First. 

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There are big differences between the District 113 plan and the Education First plan. District 113's plan replaces the pools at each high school, while Education First's plan simply repairs them. District 113's plan demolishes the C building at Highland Park, while Education First's turns it into a vocational training program.

For more details about how the plans differ, read Patch's last story about the referendum.

The most notable difference is the cost. District 113's plan is estimated to cost $114 million total, with $89 million of that coming from taxpayers through a referendum and $25 million coming from the district. Education First's is estimated to cost about half as much.

"That which [District 113] wishes to do we think is more elaborate than necessary," Pirri said. "That which needs to be done can be paid for out of existing dollars. That's really the bottom line."

The functions of the fund balance

If the renovations were priced at half of what the district is proposing, could District 113 pay for them without any help?

Barry Bolek, the district's assistant superintendent for finance, seems doubtful.

"I guess you could do that if you wanted to go bankrupt," Bolek told Patch in an interview last week. 

The fund balance is in place to "maintain appropriate cash flow, manage unfunded mandates and/or delayed reimbursements and address emergencies," according to Bolek. He compared emptying the funds to pay for capital improvements to a consumer maxing out a credit card on a shopping spree before paying off the monthly bills.

"It'd be like you taking all the money you have right now and buying something," Bolek said. "Your Discover bill comes in: how are you going to pay for it?"

Pirri counters that it wouldn't be necessary for the district to pay for all of the renovations up front. The district's current proposal includes paying $25 million over five years. The Education First plan proposes paying $25 million at once, and then paying $10 million a year for the next five years.

"[District 113] would generate more than enough money that would be able to afford this plan," Pirri said.

Again, Bolek isn't so sure.

Restricted vs. unrestricted funds

Pirri says that the district has been generating $16 million annually. He argues it should not be difficult for the district to use some of that money for capital improvements.

"If you've been that successful," Pirri said, "could you not be just that successful for the next 5 years?"

Yet the district is putting less than half of that into its fund balance annually, according to Bolek. He says the fund balance increase over the past two years has been $14 million, not $32 million.

This isn't a difference in opinion so much as it is a difference in distinction. The district's 2012 comprehensive annual finance report report, an in-depth report on the district's finances issued by Bolek each year, states a net asset increase of $16.6 million; however, that number doesn't distinguish between what's restricted and what's unrestricted. Some funds are marked for certain purposes and can't be used for anything else, according to Bolek.

"You can't go into the health care to pay for a swimming pool," he explained. "That's against the law."

So, while the total net asset increase from 2011 to 2012 is $16.6 million, the fund balance only increased by $6.9 million in 2012 and by $7 million in 2011, according to Bolek. 

"Education First," Bolek said, "isn't really paying attention."

Yet Pirri and Shapiro counter that the reason the fund balance increase has been so much smaller than the net asset increase is because the district was using the remainder to pay off bonds. For example, in 2012 the district paid down $10.5 million of its long term debt, according to page three of the CAFR.

The district's bond obligations over the next five years are $24 million, according to page 36 of the 2012 CAFR. If the district continues to generate income comparable to what it generated in 2012, but doesn't have to spend that money on paying down bonds, Shapiro and Pirri believe the district can afford its own renovations.

"The balance should be, when accumulated, sufficient funds to pay for a very aggressive program to address the structural needs of the schools," Pirri said.

Bond ratings matter

So what actually happens if the district fund balance's fund balance dips below 25 percent? Bolek says dropping to any less than 25 percent of the annual budget violates state policy.

"The state mandates school districts have 25 percent of their operating budgets in fund balances," Bolek said in an email. "Our auditor and financial advisors suggest that we have close to 50 percent or six months’ worth of our operating budget."

As Pirri and Education First member Sam Shapiro explained, however, there's no law that explicitly forbids such a maneuver.

"There's no law that they would be in violation of if they reduced their fund balance," Shapiro said. 

Bolek acknowledges there is no law, but he points to policies of the Illinois State Board of Education, which scores school districts based on how much they have available in fund balances.

"It is not a 'law' but a calculation that determines the 'score' of a district, which also plays into the bond rating of a district."

District 113 currently holds a AAA bond rating, the highest rating available. 

"By doing that, when we do go for debt services, we get a lower interest rate than someone who does not have that rating," Bolek said.

Pirri and Shapiro don't want the district to totally deplete its fund balance. They just don't see why the district can't use half of its reserves for renovations so that the fund balance remains at the 25 percent mark instead of the 50 percent mark.

"Many school districts operate at a lower percentage and still borrow at the lowest possible interest rate," Shapiro said.

What the tax increase would mean

If the referendum passes, District 113 residents who own homes valued at $300,000 will pay $173 in taxes to the district in levy year 2013, a $47 increase from levy year 2012.

If the referendum fails, those same homeowners would only pay $15 in taxes to District 113 in 2014 because the District paid off a significant amount of its debt this year. 

The 10-year average price residents have paid to District 113 in taxes is $198 annually, according to District 113's financial advisor, Tammie Schallmo, with PMA Securities.

Towards the end of the interview, Shapiro, who helped assemble the Education First plan after briefly participating with the District 113 study groups, pointed to the district's annual revenues of about $107 million, and the district's total enrollment of roughly 3,700 students.

"That's about $28,900 per student," Shapiro said. "My goodness, that's a lot of money."

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