From Cary Elementary School District 26 Board President:
Given the financial challenges facing D-155 over the next few years, it is imperative that the Board be led by those that will meet those challenges in a fiscally responsible manner.
D-155, as well as many other local districts, is facing the problem of how to effectively manage in a declining enrollment environment and an efficient cost structure.
Further compounding the problem is the fact that the State is currently laying a legislative minefield in front of school districts.
School districts will be dealing with:
- A levy freeze of a yet to be determined duration,
- A change in the school funding formula by the State, and
- Increased costs related to the pension program.
School districts will need to adjust to an environment where existing union contracts expand labor costs at 3%-4% or more while levy revenue will be frozen for an extended period of time.
As to changing the school funding formula, all previous legislative attempts were scored showing significant cuts to suburban districts.
I expect the latest effort will further exacerbate suburban districts’ revenue issues.
Lastly, having spent some time this weekend deciphering Althoff’s SB2172 regarding pension modifications, the State is planning to add some significant cost components onto the school districts.
One of the most significant changes relates to pension spiking, typically seen as 4 year increases at 6%/year (6-6-6-6).
Most districts have some form of this in their union contract.
One of SB2172 changes modifies the employer penalty incurred for any excess salary over 6%, down to CPI.
This penalty is the net present value of the excess benefit based on where the retiree sits on the actuary table, with an 8.5% return.
It can be fairly onerous.
The problem of course is that districts are now contractually committed to 6-6-6-6 and will have to pay significant penalties for the amount over CPI.
My rough estimate is that the typical retiree will cost a district an additional $50+K penalty.
And that’s not the only negative impact related to retirement costs featured in that bill.
So, we’re left with a district that is declining in enrollment, is operating inefficiently, has a cost structure that is growing faster than its revenue, has excess facility capacity, and will face frozen levies, reduced State funding, and increased retirement costa.
It is imperative that the new D-155 board possess the financial acumen and will power to address its challenges head on in the coming months.
Failure to do so will have long term negative consequences.