Challenging school budget cycle on horizon

With a troubled economy tightening public budgets across the country, Nashville’s public school district is not expected to be exempt from making tough financial decisions in the coming year.

Problems caused by tight fiscal times are exacerbated by several budget challenges the district would be facing this year, regardless of how revenues shape up. Last year, the district pulled more than $19 million from its reserve funds for recurring expenses, and care must be taken to not deplete the district’s reserves too much. There is currently intense public interest in ensuring that additional resources promised to schools by a new rezoning plan are kept at a high priority, and the state Department of Education has the newly acquired authority to control all district financial resources.

With all of this on the horizon, it’s not unreasonable to anticipate a stormier budget process than usual. Steve Glover, the new finance chair for the Board of Education, said Friday that this year’s budget cycle “very likely could be” more challenging than in previous years.

“Taking a proactive role and looking at reductions now … may in fact ease the burden in the next year,” Glover said.

District officials last week began talks about the budget for the current school year, and opted to undertake a “soft” hiring freeze affecting vacant positions not connected with classrooms. While the budget for the current school year was passed this summer, sales tax revenues for the district continue to come in lower than predicted, meaning that changes may be necessary.

Sales tax revenues for the district have been on a downward trend for months. For the first two months of this school year, sales tax revenues were $1.4 million short of projections. Sales tax revenue projections are calculated by Metro government. Tax revenues reach the school district two months after the funds are generated in retail settings, meaning that the local school district impact of the poor retail figures reported nationally earlier this fall still has not been registered.

Glover has repeatedly emphasized in public statements that he doesn’t know whether cutbacks this year will be necessary. It’s still early in the school year, and sales tax revenues are only a portion of the local revenues the district receives. Another major source of local funding for the district, property tax revenues, are not expected to be as volatile as sales tax figures, officials say.

Trimming budget now could make next year easier

Trimming the current school year’s budget could, however, ease the funding cycle for the next school year, according to Glover. And even if funding the already approved budget for this current school year were not a concern, the budget cycle for the 2009-2010 school year would probably be a challenging one due in part to reserve funds already pulled for recurring expenses.

More than $19 million of recurring expenses — costs that come up year after year — for the current school year are being paid from the district’s reserve funds. And last year, a total of about $6 million was pulled from the reserves for recurring costs.

Considering that the district’s reserve funds do not typically increase very fast, district officials said last winter that the situation would have to be monitored closely. Using non-recurring funds to finance a recurring cost means that an increase in funding will be needed the following year to prevent reserves being tapped again. Either that, or some of the recurring expenses must be trimmed.

There are a variety of laws and recommendations addressing use of reserve funds. State law stipulates that school districts can’t budget any fund balance that is not more than 3 percent of the total operating budget. And Metro’s finance department has a policy specifying that a reserve balance of 5 percent of total funds should be maintained in reserves.

MNPS’s reserve balance is still well above those requirements — 5 percent of the district’s operating budget would represent about $30 million, and 3 percent about $18 million. The approximately $19 million in reserve funds authorized for this current school year came at a time when the district’s reserve fund balance stood at just over $60 million.

Rezoning means spending will be closely watched

Next year’s budget must also include additional resources for a recently passed school district rezoning plan. Several school board members have expressed concerns about funding the resources mandated by the plan.

Concerns have been expressed by community leaders outside the board, too. Metro Council member Jerry Maynard is among those who have publicly expressed worries about the board taking on the resources promised by the plan in a year that is already tight. At a recent meeting of the Metro Council Education Committee, Maynard said he anticipates the state to be strapped financially in the near future, and expressed concerns about funding for the rezoning plan.

Other opponents of the rezoning plan say they believe the plan will either save the district no money at all, or that it will come at a cost to the district. According to initial estimates from MNPS, implementation of school improvements promised by the plan could cost about $4.7 million. Savings to the district as a result of the plan are estimated at $1.2 million. That number is lower than what had previously been anticipated, and rezoning opponents say that as further details of plan implementation are fleshed out, anticipated savings could dip even further.

Implementation of the plan — and investment in the additional resources the plan promises — will be closely watched by the community. Marilyn Robinson, president of the local chapter of the National Association for the Advancement of Colored People (NAACP), has said her organization is still working with the national NAACP and the NAACP’s Legal Defense Fund to assemble information that could contribute to a possible lawsuit stemming from the plan and its implementation.

Robinson told The City Paper that her organization’s first choice would be for school district officials to defer the plan until all necessary resources are committed.

“We want to minimize any negative impact this whole thing could happen on children and families,” Robinson said.

When asked about community concerns related to the plan and the tight MNPS budget, Glover said many of the numbers quantifying costs and savings have not been fully calculated, and that rezoning spending may amount to a shifting of resources from transportation to classroom expenditures.

“[Were] there some additional costs with the plan? Yes. But it may be that we can shift resources around,” Glover said. “It represents about three-quarters of one percent of the total budget.”

State has unprecedented control over district finances this year

This current year also marks the first time that the Tennessee Department of Education has authority over MNPS’s financial resources, due to the district’s “Restructuring I” status under federal No Child Left Behind laws. The state can legally make decisions about any spending planed by MNPS.

This means that state decision-makers are legally able to add their opinions to the mix of already tough decisions that will likely need to be made in the upcoming school year. But despite the state’s rights under the law, “Restructuring I” status does not mean the school board is not still in charge of the budget, DOE officials say. The board still has to make its own decisions, and the DOE won’t be getting involved until much of the board’s budget work is complete.

“During the process, we’re not going to be right in there every step of the way,” DOE spokesperson Amanda Maynord said Friday. “We’ve … taken a hands-off role, and want to make sure that the district’s running the district.”

While Maynord said that lines of communication are open, and acknowledged that state employees are embedded within MNPS, the state’s role in the budget process will consist of reviewing the final plan once it has been approved by the board. The state will ask that spending be prioritized to “best serve students,” Maynord said, particularly in line with recommendations made by last year’s state-funded audit of the district.