Down to the Core: As more districts go bankrupt, will the state help?

Apr 1, 2003

Construction paper isn’t in much demand in Carlinville’s schools because elementary students can no longer take art. The teaching staff was cut by more than 17 percent, forcing class sizes to climb at all elementary grades. The average fourth-grade class size is now 29.

The district has had to take several such steps over the past three years to reduce its budget deficit. 

Yet even with these economies, Superintendent Michael Collins had to borrow $750,000 in the 2001-02 school year to cover operations. That debt had to be paid back this year. But, facing rising personnel costs, Carlinville Unit School District 1 in the central Illinois county of Macoupin will have to borrow as much as another $1.7 million this spring just to finish out the year. And if voters turn down an April 1 referendum calling for a $1.3 million property tax levy boost, Collins is expecting to have to make another $1 million in cuts, leaving, he says, only “a shell of a school district.”

Rural Carlinville’s plight mirrors problems faced by school districts throughout the state, including New Trier in the wealthy North Shore suburb of Winnetka and such northern urban districts as Elgin, which faces a whopping $56 million deficit. 

Collins and some 118 other superin-tendents have been counting on local taxpayer support for tax and bond referenda this month. But if history is any guide, their chances are slim. Five referenda were on the ballot in February. All failed. And last November, only about a quarter of 88 tax- or bond-related school referenda were approved, the lowest percentage in the past decade. 

Now Illinois school districts are increasingly looking to the state for help in avoiding deficit spending or outright bankruptcy because a growing number of them are in trouble. At least 74 percent, or 657 of Illinois’ 892 school districts, spend more than they take in, and the state board expects that figure to grow to 80 percent or more by the end of this school year. 

“If local referenda do not pass this spring and we are unable to do something to correct the foundations that we have for funding [schools], then we are going to see this crisis exploding at us in the years to come,” state schools Superintendent Robert Schiller warned lawmakers. 

In fact, school officials are putting on a full-court press this legislative session for an increase in the state’s share of elementary and secondary education spending. But chances of getting much help from Springfield are slim, too. The state faces a $4.8 billion deficit of its own through the next fiscal year. True, some legislators are floating proposals to change the way Illinois schools are funded, but those proposals would require a hike in state taxes. Gov. Rod Blagojevich says he won’t raise income or sales taxes. 

“This is a tough year, and everybody knows it,” says state Rep. Jerry Mitchell, a Sterling Republican and the minority spokesman for the House Elementary and Secondary Education Appropriations Committee.

Meanwhile, an increasing number of school districts are expected to borrow to cover their expenses. They’re permitted by state law to do that, but hardships in some districts have led them to borrow at the maximum allowable level. Even this wasn’t sufficient to help two districts. Hazel Crest School District 152 1/2 in a poor and primarily black south suburb of Chicago and Cairo Unit School District 1 in the far southern region of the state approached bankruptcy within the past few months. 

Had the state not provided emergency financial assistance to Hazel Crest, the district would have had to shut its doors before the end of the school year. In November, the state established an oversight panel for that Cook County district, but matters didn’t improve and private lenders refused to provide more dollars. In early December, lawmakers and former Gov. George Ryan agreed to loan Hazel Crest $4.4 million. The district will have to pay this loan back. In the meantime, the state controls the district’s checkbook through the oversight committee. Similar controls were already in place for the Round Lake district in the far northeastern corner of the state. 

In early February, Cairo turned to the state education board for financial oversight. This means the state must approve the district’s budgets, as it currently does for the Livingston and East St. Louis districts. Cairo schools, which serve a student population that is 85 percent black and 85 percent low-income, had accrued more than $3 million in combined short- and long-term debt. 

That district’s financial woes didn’t appear overnight, of course. Cairo Superintendent Robert Isom says it was borrowing against tax revenues to pay operating costs. But the combination of reduced state assistance resulting from school days lost during a strike last year, buildings that had to be repaired and the failure of November’s $4.1 million bond referendum pushed the district to seek help. “Without external resources and assistance, we were going to be insolvent. It would be almost impossible to say we’re running an education program,” says Isom.

The financial problems faced by Cairo and Hazel Crest also raised questions about the state’s monitoring program. The state board knew about Cairo, yet the district didn’t appear on its 2002 financial watch list. In fact, Cairo had been removed from the previous year’s list. Hazel Crest was not on the list either.

To better assess the fiscal health of school districts, the board is instituting a new formula. Instead of merely comparing a district’s expenditures to its cash balance, the board will weigh other factors, including revenue and borrowing. To use an analogy, the old formula was like seeing whether a homeowner pays the utility bills. If the lights were on, everything was considered OK. But the old formula could miss the reality that a homeowner might be taking out a home equity loan to cover the groceries. 

An assessment of the new factors could lead to a spot on the state’s warning list — meaning the board recommends certain financial practices — or on its watch list — meaning the board requires those practices. “It’s a more holistic analysis,” says Gary Ey, the state board’s financial manager. “We’re going to throw that net out there, and catch a lot of districts.” Indeed, this new approach is highlighting additional problems. More than 200 districts appear on the new financial warning and watch lists. The old formula recognized only 11 struggling districts.

Yet districts that don’t appear on the list are struggling, too. They are looking at cost-cutting measures to stave off deficits. Most of those cuts will come in programs and staffing. Springfield Public School District 186 in the central region, for instance, has eliminated librarians, instrumental music instruction and Spanish classes at elementary schools as part of $10 million in cuts for the current school year. And Quincy Public School District 172 in west central Illinois is considering a four-day school week, among other proposals, in an effort to trim busing and overhead costs, according to Herb Jackson, that board’s president. 

The long-term costs of such cuts could be great. “When you’re losing money,” argues former state schools Superintendent Robert Leininger, “you can’t possibly provide the kind of education you did before.”

And more fiscal difficulties could lie ahead. The federally mandated education reforms under No Child Left Behind require student achievement to start improving next year. The new law will require schools to show annual improvement in reading, math and science until 2014, at which time 100 percent of students should meet or exceed standards. Schools that fail to meet standards could end up losing students and, as a result, federal dollars. 

“We’re asking districts to do more with less,” state Superintendent Schiller says. He’s lobbying the feds to let Illinois veer from the timeline.

But the federal government isn’t the only concern. School superintendents fear the state will renege on its final two state aid payments this school year as it struggles to close the state’s budget gap. While Blagojevich has not said whether he will freeze those payments, former Gov. Jim Edgar used that solution to help solve his budget problems. The stakes are high. Many districts could lose several hundred thousand dollars that were built into their budgets.

For Donald Hahn, superintendent of Olympia Community Unit School District 16 in rural Stanford, southwest of Bloomington, the final two state aid payments would total more than $300,000, an amount that roughly covers the salaries and benefits of 10 teachers. And the district already faces an almost $3 million deficit. 

“When you take away that promise, it compounds the problems,” says Rep. Mitchell. He and other downstate Republicans have introduced a bill to change the state aid payment schedule. Instead of 24 payments, the measure would mandate 22 equal payments to be made before the end of the fiscal year. Currently, those payments total about $7.2 billion. 

Schiller would go further. He pro-poses increasing the state’s guaranteed per pupil spending from $4,560 to $4,760 for the fiscal year that begins July 1. The state has not increased this level since fiscal year 2002. But to do so would cost the state $253 million. Schiller also wants the state to fully fund special education grants. Districts currently are receiving only 91 percent of their intended monies. Full funding would cost the state an additional $210 million. To cover these additions, the state would need to come up with another $463 million. 

“I don’t apologize for it,” Schiller said during a legislative committee hearing. “I apologize to the schools and school districts. It’s not enough.” 

While this increase would help struggling districts, Schiller argues it only scratches at what’s really needed. 

In the long-term, he would increase the guaranteed per pupil level even higher, to $5,665. That’s the amount supported by Network 21, a Chicago-based education spending reform group, and by the Education Funding Advisory Board created by the legislature. Advocates say this sum is the minimum needed to educate a public school student. But to increase the foundation level to this higher amount would cost the state an additional $1.8 billion. 

“It costs a helluva lot of money,” agrees Leininger, who chairs the funding advisory board. 

Everyone agrees, too, fundamental change, including an increase in the level of per pupil spending, would require increases in state revenues. 

That would seem radical this spring, but some advocate changing the way schools are funded. “Nobody can criticize the Illinois General Assembly for not putting a lot of money into education — you have,” Leininger told lawmakers. “The problem is you’re putting it in the same formula you’ve been putting it in for years, and it’s been broken for years.”

Suggestions for overhauling school finance generally call for taking the pressure off local taxpayers. “We can’t go any further with property tax,” says Scott Goldstein, policy adviser for Network 21. As it stands, local property taxes comprise 52 percent of education funding. The state puts in 38.9 percent, and the federal government provides the rest. 

Nationally, Illinois’ education funding scheme rates among the worst. In a study by the Education Trust, an education reform advocacy group in Washington, D.C., Illinois ranked 45th out of 47 states studied because it covers such a low percentage of education costs.

The debate over lessening the burden on local taxpayers is not new. During the 1990s, the focus was on a dollar-for-dollar switch from the local property tax to the state income tax. Some of the momentum went out of that debate in 1996, however, when the Illinois Supreme Court determined the state doesn’t have to provide 51 percent of all dollars for education, despite state constitutional language giving the state “primary responsibility.” 

This spring, though, some new ideas are on the table. Sen. Miguel del Valle, a Chicago Democrat and chairman of the Senate Education Committee, is floating one that would provide property taxpayers relief for school levies. Rep. Monique Davis, also a Chicago Democrat, is sponsoring the same proposal in the House. 

Under the plan, county clerks would calculate tax bills just as they do now. However, the state would establish a set percentage of property tax relief, which would be sent to the county assessors. They would then lower the actual bill for homeowners. For example, if the state provided 20 percent relief and schools levied $100 per homeowner, the state would send the county $20 and the homeowner’s bill would total $80. 

Del Valle pegs the total cost of the relief at $3.2 billion, and he calls for a 1 percent increase in the state income tax to help cover those costs. But del Valle doesn’t stop there. 

He also would increase the state’s guaranteed foundation level to $5,665 per pupil. And he would make education a continuing appropriation, so it is always funded first.

Del Valle admits the idea might not have legs this year because of state budget woes, but he says he feels obligated to get people talking. “When we had surpluses, people didn’t want to talk about it then either,” says del Valle. 

“At what point do we start talking about the most critical issue in public education? I refuse to continue to wait for the right time.”

Further, he charges that the prevalence of local school deficit spending “has served us well” by letting the General Assembly avoid tackling the inequities in education funding. 

Leininger is skeptical that this year’s debate will be any different from the last few years. “We’ve made the presentations and said the same damn things about school funding. We have an over-reliance on property tax, we need more state funding. We’ve got to fundamentally change the way we do it.” 

Changing the way education is funded is certainly the topic du jour, says the state board’s Ey. While he, along with Goldstein of Network 21, believe all funding scenarios are on the political bargaining table, lawmakers are steeling themselves against the debate. 

Legislators in both chambers acknowledge that the financial problems in Illinois’ schools are severe. But any solution requiring increased taxes may be more than they are willing to stomach this year. “You’re making the case, it seems to me, for us not to be able to help you,” Rep. Constance Howard, a Chicago Democrat, told Schiller. 

In the meantime, Carlinville’s Collins and Cairo’s Isom, along with other school officials, continue to watch their districts’ rising red ink and sinking revenues. They watch the debate in Springfield too.

“There’s a way to be a hero here,” says Collins. “The legislators are going to have to stand up and be counted if we want a quality education program. I’m tired, as a district, of being a political football.

Illinois Issues, April 2003