As the board prepares to vote on the proposed tax levy this week, questions have been raised about why a levy is necessary when the district has a sizeable fund balance. To understand this issue, imagine that you were to receive your entire annual income in two payments a year. If you were to look at your bank balance the day after a payment, you might conclude you had plenty of money to buy a new car or a lavish vacation. But you wouldn't be managing your funds wisely if you ran out of money before the next check and couldn't cover your rent or mortgage.
District 200 is in a similar situation. The district receives 92.8 percent of its funding from local sources, the majority being property taxes. In Cook County property taxes are received in two installments: The spring payment is for the next fiscal year, which begins July 1. The fall payment can be received from the county anytime between September and December.
The district's fund balance is measured annually when it is at its highest, on June 30, the day before the new fiscal year begins. The majority of the district's annual spending occurs over the summer, months before the district typically receives the second tax payment from the county. Because the district must have enough cash on hand to cover all expenses, OPRF High School adheres to the strategy of maintaining at least nine months of cash reserves to support operations between property tax payments.
Adequate reserves also are necessary because of the structural imbalance that exists in school funding in Illinois, where districts are more reliant on property taxes than in other states. The maximum amount a district can levy is 5 percent or the Consumer Price Index for all Urban Consumers (CPI-U), whichever is less. The CPI-U is based on a specific list of goods consumers typically purchase — including cigarettes, televisions, and pet products — not the items a school district must pay for, such as health-care insurance for employees, which can increase annually by as much as 10 percent.
Because of this imbalance, school districts eventually go into deficit spending, triggering the need for a referendum. If approved, a referendum typically creates a more significant tax increase than the incremental increases of annual levies. The board intends to delay the next referendum as long as possible, and having adequate reserves allows us to do so. The reserves also will enable the district to pay off debt on the call date, thereby saving the community $1.2 million.
Paying the bills isn't the only rationale for having a healthy fund balance. One of the most important reasons is that it allows the district to create and sustain educational programs over the long term, benefiting not just current but also future students. In comparison, other districts typically create a rash of programs after a referendum passes, and then cut them just as quickly once they start to deplete their reserves.
Among the long-term programs the district recently has created are a reading program, double math periods, and the Tutoring Center, all of which help students who need extra academic support. The district's reserves are likely to take a significant hit in the next few years from pension reform. In addition, enrollment is projected to increase by roughly 700 students in the next decade. Property tax revenue, however, does not increase with increased enrollment. Yet because of our healthy reserves, we expect to still be able to offer these programs to the current middle and elementary school students who eventually will walk through our doors with academic needs and the expectation that we will be able to support them.
One final note: A letter in last week's Viewpoints section alleged that the district's reserves have not been managed well because of the low rate of return on investments. The school district investments are managed by PMA Financial Network, and as school-finance experts know, public school funds may be invested only in low-risk, government-backed securities and CDs, which currently have a very limited rate of return.
Terry Finnegan is president of the District 200 Board of Education.
Answer Book 2019
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