The economic slowdown prompted by the COVID-19 pandemic could bore a nearly $10 billion hole in Illinois’ budget over the next two fiscal years. The gap would likely mean steep cuts to local school districts. District 200 in particular faces a worst-case scenario of nearly $42 million in revenue losses through 2025 as a result of the COVID-19 recession, district officials said recently.
Those prospects, however, did not deter the D200 school board from unanimously voting at a regular board meeting on April 23 to move forward, as scheduled, with $32.6 million of long-overdue capital improvements that affect some of the most vulnerable students at Oak Park and River Forest High School.
The board also directed the administration to explore ways of funding some of the work by taking on debt. Board members agreed that, despite the financial uncertainty they’re facing, now is probably the best moment to expend some of the financial capital they’ve built up over time in the form of a $100 million fund balance and zero debt.
Members also agreed that the advantages of starting construction this summer, when the campus will be empty due to COVID-19 restrictions, outweigh the costs of postponing construction to see what circumstances may arise in the future.
“There’s not a complete right or wrong answer to what the board decides to do going forward,” said Rob Grossi, the district’s outside financial consultant, during a PowerPoint presentation at last Thursday’s meeting.
Grossi emphasized that he was not making a recommendation for one action over another. D200 administrators, however, recommended that the board postpone the planned construction at least until there was more clarity about how the COVID-19 crisis would impact the district’s long-term financial standing.
“I will say this,” Grossi explained during one of the moments in his point-counterpoint presentation that seemed to resonate loudest with board members. “More than likely, your current financial condition is going to be the best condition you’re going to be in for many, many years — maybe forever.”
Grossi and Cyndi Sidor, D200’s chief financial officer, both said that the COVID-19 crisis raises the probability of state lawmakers implementing a statewide property tax freeze in order to bring some relief to residents and businesses. Grossi projected that a property tax freeze could cost D200 $3.7 million in FY 2022, $4.9 million in FY 2023, $6.4 million in FY 2024 and $7.9 million in FY 2025.
The state may also be forced to cut Evidence-Based Funding, a school funding model signed into law in 2017 that’s designed to distribute more state funds to students and districts most in need. If the state cuts Evidence-Based Funding, the district could lose the annual $3.8 million it’s getting from a Property Tax Relief Grant it secured last year by agreeing to give back $2 million to taxpayers in the first year of the grant program.
Grossi and Sidor added that if the state forces local school districts outside of Chicago to pick up a larger share of teacher pensions, the district could lose even more money. Grossi projected that D200 could lose $400,000 in FY 2022, $800,000 in FY 2023, $1.2 million in FY 2024 and $1.6 million in FY 2025 if that happened.
A worst-case scenario — which includes D200 losing the annual Property Tax Relief grant funding, the state implementing a property tax freeze, and state lawmakers shifting the cost of pensions to local districts — could translate into a total loss of roughly $42 million from 2022 through 2025, Grossi projected. If that happens, the district’s fund balance would fall well below the 25 percent of annual revenues that the Illinois State Board of Education considers to be the bare minimum for a district in good financial health.
Of course, circumstances may change and some scenarios may be avoided, Grossi said. The state could receive a federal bailout or voters could pass the Fair Tax amendment, which would change the state’s income tax structure from a flat tax to a graduated tax, which would partially offset the state’s heavy financial losses.
Board member Ralph Martire, executive director of the Center for Tax and Budget Accountability — a nonprofit public policy think tank — said that, based on his discussions with lawmakers, he’s “not quite as convinced” as Grossi that there will be a property tax freeze.
“The optics of kicking pension obligations back onto the local level looks better for the state, [but] if the state is going to kick the costs of funding teacher pensions down to the school level, they’re sure not going to freeze property taxes at the same time they’re doing that,” Martire said. “They get that that’s a no-go.”
Whatever the circumstances, the state is all but certain to feel some significant financial pain. Grossi said the governor has projected a budget gap of $2.7 billion in FY 2020 due to COVID-19, which Martire said could actually be closer to $780 million when partially offset by $1.2 billion in short-term borrowing, $400 million in deferred interest costs and $323 million in borrowing from other state funds. Grossi and Martire said the governor has projected a budget hole of $7.4 billion in FY 2021 due to COVID-19.
The situation the district now finds itself in is a far cry from just two months ago, when officials seemed positioned to execute the first phase of a 10-year facilities master plan created by the Imagine OPRF working group and approved by the board in December 2018.
The $32.6 million first phase of work includes the renovation or construction of 76 general education classrooms, the reconstruction of the south cafeteria and the relocation of the library. Other major aspects of the work address a range of critical improvements for students in OPRF’s special needs program, such as installing an Americans with Disabilities Act-compliant elevator and an ADA-compliant restroom. All of the first phase work will be paid for out of the district’s roughly $100 million fund balance.
Board members who spoke during last Thursday’s meeting said they were not comfortable with postponing work that could benefit OPRF’s most vulnerable students.
“It feels that we’re really shortchanging our students yet again, kicking the can down the road yet again,” said board member Sara Dixon Spivy. “I am not inclined to postpone it.”
Board President Jackie Moore echoed points mentioned by representatives with Pepper Construction, the firm managing the construction work, who said that delaying construction would certainly mean higher labor costs and possibly higher material costs, among other increases. Moore added that the district has already obtained the necessary permits to start construction this summer, when the campus will be empty. She added that adding debt “needs to be considered,” since it “spreads out responsibility of this project to future citizens and taxpayers.”
Grossi said the district could issue debt certificates to defer project costs over an extended period of time in a way that would not impact the tax levy.
“For example, if you borrow $10 million today for the project and paid it off over 10 years, you’d get the money in the bank, use it for the project and pay off about $1,151,000 a year out of your budget,” Grossi said. “So it would cost you about $151,000 a year in interest at a current rate of 2.88 percent. In theory, it would give you more time to adjust to what happens to the district. … If, four, five, six years from now, we’re in trouble, then we haven’t exhausted all $32.6 million of fund balance reserves.”