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Published in Print: September 3, 2003, as Illinois 'Watch List' Snares Rich And Poor Districts

Illinois 'Watch List' Snares Rich And Poor Districts

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At a glance, Grass Lake School District 36 in Lake County, Ill., seems blessed with the sort of stability many districts could only dream about. An hour north of Chicago, it serves a community dotted with single-family homes and summer cottages, where weekday commuters and retirees keep the tax rolls churning, year after year.

But recently, the one-school, 275-student district joined nearly a third of Illinois' 893 districts in gaining another, undesirable designation: financially at risk.

Grass Lake is one of 283 school systems identified as having budgetary woes under Illinois' newly rebuilt financial-profile system, which experts on education finance say is one of the nation's only extensive, across-the-board state programs for judging the financial health of local districts.

The financial profile, released in March amid one of the worst budget crises in Illinois' history, replaced a system that state officials said had failed to identify struggling districts before they slipped into insolvency.

The new model, by contrast, casts a wider net. The most severe profile categories are "financial watch" and "financial early warning." Those categories include traditionally cash-poor systems as well as districts such as Grass Lake that have relatively strong tax bases but are hurt by local caps on tax growth and limited state aid, school officials say.

While the new profile has drawn criticism from some K-12 officials, who question its methodology and usefulness, Grass Lake Superintendent James Beveridge sees logic in his district's ranking.

"We deserve it," Mr. Beveridge said. "I don't see why we weren't on it before. ... [T]he average person on the street doesn't understand what the watch list means, but they understand cuts to school programs."

Faced with a deficit of more than $300,000 earlier this year out of a total budget of $2.2 million, Grass Lake cut its staff from 44 to 29 employees, with the layoffs affecting teachers' aides, a social worker, a technology coordinator, and others. It also eliminated all sports programs and privatized its lunch program. Eventually, it whittled the shortfall to about $15,000.

Few Options

The district still faces another, larger burden: debts borrowed against future taxes for $700,000, the superintendent said.

Mr. Beveridge noted that Grass Lake's struggles, like those of many districts, were due partly to factors beyond its control.

Local tax caps limit his district's ability to raise money. State grants have grown more scarce. And several local ballot referendums have failed—most recently on April 1, when a proposal to raise about $350,000 fell short by 23 votes.

Rose Van Pelt, 59, who was Grass Lake's media and technology coordinator until she lost her job at the end of the school year, hoped the district's inclusion on the watch list might build public support for schools. Ms. Van Pelt, who is still looking for work, added, "I knew it was a small school ... but I had no idea this would happen."

Those district-level woes are evident statewide. Illinois officials recently estimated that 85 percent of the state's school systems would begin this academic year with budget deficits. And the state has been unable to do much to help. Illinois lawmakers began the calendar year with an estimated $5 billion budget deficit, out of a general fund of roughly $23 billion.

For 2003-04, K-12 schools fared better than many areas of state government: They got a general-fund increase of about 6 percent, from about $5.2 billion to $5.5 billion. Still, superintendents said cuts to grant programs and other areas created budget problems at the local level.

Officials from other Illinois districts say the state's profiling system merely tells them what they already know. The question is what to do about it.

The recent budget crisis has led for some renewed calls among some Illinois legislators to raise state funding for schools and reduce districts' reliance on property taxes. So far, however, those proposals have gone nowhere.

"You can have all the money out there, all the tax wealth— you're just not allowed to touch it," said Joshua W. Orlan, the board president of Lincolnwood School District 74 in Cook County. Lincolnwood, which ended up on the financial-watch list, also faces tax caps, limits on the amount that public entities in counties can levy on residents. Those ceilings are allowed by state law.

"The state has shifted costs to local school districts," Mr. Orlan said.

Serious Situation

Illinois state schools Superintendent Robert E. Schiller, hired last year as the state board of education was finishing work on the new profiling system, said he and his staff were reviewing the model, which he sees as a vast improvement over the old method.

"I see this as a somewhat fluid process, up to be revised again and again," Mr. Schiller said in an interview last month. "It gives us a statewide snapshot. Data is a very powerful tool."

The Illinois state board of education launched its new profile last year, as signs of fiscal deterioration mounted in districts across the state.

One of the most startling slides occurred in the suburban Cook County district of Hazel Crest 1521/2, which found itself $5 million in debt, largely the result of a wave of rising costs and heavy borrowing. ("Illinois Districts Using Red Ink to Pen Budgets," Nov. 6, 2002.)

State officials were troubled that Hazel Crest, which has since been put under state oversight, was not identified by the Illinois' previous budget oversight system, known as the Financial Watch List and Financial Assurance and Accountability System.

That system judged districts by only one measure of fiscal health: a ratio of fund balance to revenue. The new profile gauges districts' stability according to four factors, including cash on hand and their short- and long-term debt.

The new profile ranks districts in four categories. "Financial watch" is for the highest-risk group. "Financial early warning" is the next-most- serious group. "Financial review" and "financial recognition" both reflect better fiscal health.

Included on the early-warning list was the well-heeled New Trier Township High School District 203, in Chicago's upscale North Shore suburbs. In fiscal 2003, the district had a deficit of $8 million on its $60 million budget, much of it due to construction projects.

The shortfall will be erased with revenue from a referendum passed last April, Superintendent Hank Bangser said. Because the money didn't arrive by the start of fiscal 2004, however, the district made the watch list anyway.

Mr. Bangser said that even when it had a deficit, New Trier kept a reserve of $20 million.

"A structural deficit goes on year after year," Mr. Bangser said. "We did not have that."

Ending up on the warning list may have helped with the passage of the April referendum, Mr. Bangser said.

"It became a headline," he said. "'If New Trier, which is prosperous, is on the financial watch list, you can see how serious the situation is across the state.'"

Vol. 23, Issue 1, Pages 21,31

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