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Districts predict tough times ahead for school budgets

By: Kristyne E. Demske | St. Clair Shores Sentinel | Published June 19, 2020

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ST. CLAIR SHORES — Local school districts must submit a balanced budget to the state by July 1.

The state of Michigan, however, doesn’t approve its budget until October, leaving school officials wondering about the state of funding in a year when state sales tax revenue has been decimated due to the COVID-19 shutdown.

Lakeview Public Schools’ budget, approved by the Board of Education June 16, takes into account an estimated loss of $675 per pupil from the student foundation allowance, or about $2.9 million. School officials said they had been told to expect a cut of $650-$700 per student because of the $1 billion loss to the Michigan school aid fund, so they budgeted for the average. Despite gaining students each year since at least 2008, the district also budgeted for flat enrollment for a conservative estimate. Because Lakeview offers its own virtual school, however, there is a potential for more students to enroll online, boosting the district’s enrollment.

“Heading into the 2021 school year, there’s a lot of unknowns. The expectation is we will be bringing an amendment, for sure, in the winter (and/or) spring, but possibly sooner when we get more information available,” said Katherine Konon, the director of business services.

She told the board to be prepared to have the student foundation allowance prorated — or reduced — for the 2020 school year, as well as for the 2021 year. Despite finishing its fiscal year at the end of June, school districts still have two more payments coming from the state for the 2019-2020 school year. In Lakeview, those two payments will total about $7 million, but Konon said there is a chance they could be reduced.

“That would create a budgeting challenge,” she said. “We’ve already got the money spent for the year.”

Konon said that Lakeview is projected to add $142,928 to its fund balance at the end of the 2020 fiscal year, bringing its total to $5.3 million. Having that fund balance will help the district “weather the storm in 2021,” she said, explaining that in a worst-case scenario, the district’s fund balance would drop to a balance of about $4 million at the end of the 2020-21 fiscal year.

Lakeview is projecting $47.4 million in revenues and $48.8 million in expenditures for the 2020-21 school year. The budget will be boosted by the $440 per student, or approximately $1.9 million, the district expects to receive from the Macomb County Schools Enhancement Millage approved by voters in March.

“Thank you to the community for passing the countywide enhancement millage,” she said. “That does lessen the (blow) for us Macomb County districts.”

However, the state is making local school districts pay for an increase in the retirement rate of 0.71% this year, instead of absorbing that cost itself, which is an increase of about $156,000 for Lakeview. Plus, districts know they will have to spend more on sanitizing, personal protective equipment and other supplies if they reopen in the fall, Konon said. The district did receive $172,000 from the first round of the CARES Act payments, which can be used to pay for PPE and sanitization supplies, and Lakeview Superintendent Karl Paulson said Macomb County districts have joined together, and with the county itself, to form a purchasing consortium for such supplies.

“We are acting as a large purchasing consortium for anything related to the opening of school, like masks, sanitizer, any other PPE,” he said. “We’ve doubled our power of purchasing. The county has actually offered part of their CARES Act funding for COVID-related PPE ... to the schools in order to offset what we might face to open in the fall, which is very much appreciated.”

The Lakeview Board of Education unanimously approved the 2020-21 budget June 16.

“The 2020-21 budget process is going to be a work in progress for the next 12 months,” said Lakeview Board of Education President Daniel Dombrowski. “We’re just shooting from the hip with what we know, which is not much.”

Frank Thomas, business and human resources director for South Lake Schools, agreed. He believes it could be as late as fall before public school districts know what will happen with state funding for the 2020-21 school year. To create South Lake’s budget, he proceeded with the assumption that the district could lose up to $750 per student from its $9,234 foundation allowance.

Thomas said that although that may be on the “higher end” of estimates, he wanted to present a budget with the most conservative assumptions.

“If everybody comes back and they start spending some money … the state’s (fiscal) year doesn’t end until the end of September, so we’ve actually got some time. This hole could be made up,” he said.

Thomas said that he doesn’t anticipate the district receiving a proration in the amount of student foundation allowance it is due for the 2019-20 school year. Several state officials have told him that they are working hard to make sure schools receive all the money they were promised, he said.

Nevertheless, South Lake Schools doesn’t have much fat to trim from the budget.

“South Lake’s been in deficit for a couple years, so we’ve been making reductions, so the staff levels are pretty thin anyway,” he said. “We’re not replacing staff as they retire or resign and, right now, I have six across the district.”

Thomas also said that the Macomb Enhancement Millage has been a game changer for the district. While South Lake was hoping to use it to boost teacher salaries, now it will be used to offset potential cuts from the state.

“Unfortunately, it’s now having to be used as a result of the coronavirus,” he said. “It would be a totally different conversation had we not had the enhancement millage because we would be talking about additional cuts for next year. So that helps South Lake not to have to do that and keep those cuts away from the classroom.”

As of the end of June, South Lake Schools anticipated a deficit of about $1.8 million. Assuming the district loses $750 per student in the 2020-21 school year, Thomas said that South Lake will likely add another $250,000 to that amount.

“We should be able to amend the deficit elimination plan. We’ll just have to extend the amount of time it’s going to take us to get out of deficit,” he explained. “Certainly, if the $750 does come through, or a little more, then we’d have to have conversations about midyear cuts.”

The South Lake Board of Education approved a 2020-21 budget with $18.3 million in revenues and $18.55 million in expenses June 17. The district did receive $271,000 in CARES Act money, but Thomas said that is just a hole he will have to plug later since it is one-time money.

“Even though I’ve got that in the 2021 budget, I’ve got to cut another $271,000 in the 2021-22 budget,” he said.

For the upcoming school year, he said, South Lake hopes to keep the cuts from impacting the classroom.

In Lake Shore Public Schools, it’s not just the loss of student foundation allowance money that will have an impact, but the loss of dozens of students.

Superintendent Joseph DiPonio said this will be the first year in a long time that the district will likely not welcome students from China in the fall.

“As of right now, we do not anticipate Chinese students coming back,” he said. “There is a desire for them to come here ... but there’s so many variables here, political, health-wise. We’re planning as if they are not going to be here.”

Because the Chinese students pay to attend Lake Shore, there is a financial and cultural hit to the district if they don’t come in 2020-21, DiPonio said.

“The reality is that no one really knows at this point what is going to take place,” DiPonio said.

Pete Basile, the chief financial officer for Lake Shore Public Schools, told the Board of Education during an economic forecast meeting June 9 that if the state allows districts to use the student count from fall 2019 instead of fall of 2020, the loss of revenue from the Chinese students would be offset somewhat.

The district typically is able to transfer about $800,000 from the room and board the students pay to Lake Shore to its general fund, DiPonio said in an interview. The district also receives the student foundation allowance for each of the Chinese students who attend, which in 2019-20 was 74 students.

Basile said that he is anticipating the district will lose about $500 of its $8,411 student foundation allowance because of state funding cuts, but they should know more in August. The district is set to receive money from the federal government’s CARES Act, however, and the district has experienced some retirements and resignations that it may not refill to “right size,” saving about $700,000, he explained. As of June 16, DiPonio said, six staff members had retired and would not be replaced, but that would not impact class sizes.

District officials hope the loss in student foundation allowance will be a one-time cut, which would return to its former level in 2021-22 if the economy recovers.

“No one can really tell at this point. It just depends how quickly the economy can come back,” Basile said.

The Lake Shore Board of Education was set to adopt its 2020-21 budget June 23, after The Sentinel went to press. DiPonio said that Lake Shore had a fund balance of about 12% of revenue as of the end of the 2019-20 school year.

“We’re certainly in that rainy day, and we’re going to use a portion of that to balance the budget,” he said.