News

For Immediate Release
March 12, 2014

2014 Financial Profile shows drop in state’s overall average score with more school districts earning lowest financial ranking


ISBE analysis reflects one third of students in state are in schools in poor financial health

SPRINGFIELD — Statewide data shows that Illinois public school districts are continuing to struggle financially with 532 districts – or nearly 62 percent – deficit spending, using their reserves or borrowing, this year compared to 32.5 percent in 2008. Despite significant cuts to schools’ staff and academic programs, the average score of district finances, based upon FY 2013 data, dropped below the highest financial ranking for the first time in five years, according to an annual Illinois State Board of Education (ISBE) statewide review.

ISBE’s 2014 Financial Profiles of the state’s public schools, released during the Board’s monthly board meeting Wednesday, shows that one third of all Illinois public school students are in schools that rank in the lowest two financial categories. The annual Financial Profiles demonstrate K-12 education’s need for more state funding. The Board is seeking an additional $1.08 billion from lawmakers as an investment in a quality workforce for Illinois and a prosperous future for the state’s 2 million students. State elementary and secondary education funding was cut by nearly $1 billion from 2009 through 2012, and districts are also grappling with shrinking local resources.

“Tough choices have become par for the course for school district administrators and local boards as many have cut staff positions as well as arts and after-school programs, delayed construction projects and important repairs and are deficit-spending in order to pay the bills,” said Board Chairman Gery J. Chico. “Less state funding directly contributes to these struggles and appears to correlate to the rising number of districts in the highest risk category on our annual Financial Profile. With continued cuts to education funding, this trend will continue. Today’s lack of investment in education will be seen for many years to come in our economy and workforce.”

The Financial Profile provides a snapshot in time that helps ISBE gauge school districts’ financial condition. The profile’s designation categories in descending order are:

The number of districts realizing Financial Recognition, the highest category, for the 2014 Profile decreased to 560 districts or 65 percent of the state’s 862 districts, resulting in two fewer districts than last year and 110 less than the 2012 Financial Profile. The number of districts listed in Financial Watch, the lowest designation, rose to 49 from 45 last year, while the number of districts in Financial Early warning grew to 72 from 67 in 2013. Statewide, 14 percent of school districts in the 2014 Financial Profile fell in the lowest two designation categories, compared to 12.9 percent for 2013.

The overall average 2014 profile score for all districts dropped to 3.52 (Financial Review) from the 2013 average score of 3.54 (Financial Recognition). The graph below outlines the state’s average profile score trend line over the last five years. Analysts believe the increase in the average profile score saw a brief uptick in 2013 due to the infusion of revenue from the federal stimulus funds, called the American Recovery and Reinvestment Act (ARRA).

FY14 Financial Profles - Average Profile Score Trend Line

A district is categorized based on its Annual Financial Report (AF) from Fiscal Year 2013, which ended June 30. The rating is created by using five indicators of financial performance:

The 2014 Financial Profile data shows how the unavailability of debt, reduced state funding appropriations and delays in receipt of state funding and local revenues have affected school districts’ financial performance. The funding appropriations for Fiscal Year 2015 could worsen the impact.

More Districts Deficit Spending

As economic conditions show no sign of improving, school districts are anticipating worse financial positions in the coming year. An analysis of the FY 2013 AFR data showed an increase in the proceeds of bond sales, which means that districts are funding deficit spending with long-term debt. Additionally, information submitted by school districts for FY 2014 forecasts that the number of districts with deficits will increase to 532 or 61.8 percent of all districts, compared to 420 or 48.7 percent in FY 2013. 

Deficit spending is defined by spending more than one dollar for every dollar of revenue received in the fiscal year. Districts may deficit spend by dipping into their reserves or by long-term borrowing, which can create cash balances to build reserves. School districts submit a deficit reduction plan if their budgets are not balanced and they do not have an adequate fund balance to sustain the deficit. An adequate fund balance is defined as an ending fund balance that is three times the deficit amount. For example, if a district incurred a deficit of $100,000, it would be required to submit a deficit reduction plan if the ending fund balance was less than $300,000.

Of the 532 districts that expect to incur deficits in FY 2014, 109 school districts were required to submit a deficit reduction plan. Last year, 87 districts were required to submit a deficit reduction plan. ISBE staff will continue to monitor these school districts and conduct reviews to ensure all districts that are required to submit a deficit reduction plan have done so. After a thorough review, staff will report the districts that meet the criteria for certification in financial difficulty. 

The table below depicts historical trends in school districts’ deficit spending.  The deficit is calculated by examining the four operational funds:  Educational Fund, Operation and Maintenance Fund, Pupil Transportation and Working Cash.

 
2008 Annual Financial Report
2009 Annual Financial Report
2010 Annual Financial Report
2011 Annual Financial Report
2012 Annual Financial Report
2013 Annual Financial Report
2014 Budget Report
Total Number of School Districts
869
867
864
863
861
862
860
Total Number of Deficit Spending School Districts
282
355
327
157
415
420
532
Percentage of Deficit Spending School Districts
32.5%
40.9%
37.8%
18.2%
48.2%
48.7%
61.8%
 

“When comparing Financial Profile data over the last decade, it’s apparent that districts have been forced to reduce expenditures and incur additional long-term debt in order to balance their budgets. Cutting expenses even further is going to be near impossible for most districts to do without negatively affecting the quality of education they provide,” said Superintendent of Education Christopher A. Koch. “This harsh reality is why we’re calling for K-12 education to comprise one-third of the state’s budget to ensure our graduates receive a competitive, 21st century education necessary to succeed in a global economy and improve our state’s economic vitality.”

Historically, Illinois’ State General Funds budget has dedicated about 27 percent to K-12 education. As part of their budget request, the Board is also asking that lawmakers honor the General State Aid (GSA) Foundation Level commitment of $6,119 per student. School districts have not received the full share of GSA promised to them under state law for the past three years.

Scores Adjusted for Delayed State Payments

For each year since 2009, the Financial Profile scores have been adjusted for delayed state-mandated categorical payments, such as pupil transportation and special education, due to the state and national recession. The school code was amended to ensure that districts are not designated as being in financial difficulty solely due to delayed state payments. Regarding mandated categorical payments for FY 2013, the State Board vouchered these payments, but the Comptroller made one payment after June 30. For districts on the cash basis of accounting, these payments were not recognized until the next fiscal year, 2014. If the payments had not been delayed, they would have been received in FY 2013.  Therefore, the Financial Profile indicators were adjusted as if the delayed payments were received.

While the Financial Profile alone cannot provide a complete picture of a district’s financial health, it provides a tool for ISBE staff to use with other data and information to assess an individual district’s financial status.
This is the 11th year that the Financial Profile has been used to evaluate districts.

From 2004 to 2009, the number of districts in Financial Recognition status on the Financial Profile increased each year. In 2010, the number of districts in Financial Recognition decreased to 578 from the previous year’s 626, due to the beginning of the economic downturn. For the 2011 and 2012 Financial Profiles, the number of districts in Financial Recognition increased again to 604 and 670, respectively, influenced by the infusion of revenue from the federal stimulus funds, called the American Recovery and Reinvestment Act (ARRA). For 2013 and 2014, the number of districts in Financial Recognition declined to 562 and 560, respectively. This decline has been influenced by the proration of General State Aid.

Number of Districts in Financial Recognition 2014

Summary of Financial Watch List Districts

Of the 49 districts that are on the Financial Watch List this year:

The Financial Watch List districts are from the following counties:

FY 2009-2014 Financial Profile Results



 

FY09 Financial Profile Based on FY08 data Adjusted
FY10 Financial Profile Based on FY09 data Adjusted
FY11 Financial Profile Based on FY10 data Adjusted
FY12 Financial Profile Based on FY11 data Adjusted
FY13 Financial Profile Based on FY12 data Adjusted
FY14
Financial Profile Based on FY13 data Adjusted
Financial Recognition
626
578
604
670
562
560
Financial Review
165
196
188
143
191
181
Financial Early Warning
  57
  66
  52
  37
  67
72
Financial Watch
  22
  29
  24
  17
  45
49 
Total
870
869
868
867
865
862

The 2014 Financial Profile for all districts in Illinois can be found through ISBE’s School Business Services page in alphabetical order, by county or Financial Profile designation at http://www.isbe.net/sfms/P/profile.htm.

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