After taxpayers recently criticized the Grand Forks School Board for a proposed 28.6 percent tax increase, school officials maintain the step is necessary to make up for its $5.4 million deficit.
School Board member Tim Lamb has described last year's shortfall as "a perfect storm," saying the deficit was a combination of enrollment growth in 2011, additional compensation costs and federal and state reductions that couldn't be foreseen when the School Board was creating the budget in July.
Some residents, including City Council members, expressed anger at last Monday's public tax hearing over the proposed increase, which follows a recent 50-mill state-funded tax buydown of district tax levies statewide.
Superintendent Larry Nybladh said it's easy for city or county officials to say they're not raising property taxes because it has other sources of revenue, such as sales tax collection.
"What's not being said is that the School Board has only one source to raise revenue, and that's property tax," he said. "The school board by constitution and law cannot charge people for their education. They can't levy a sales tax, that's illegal."
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Federal funding
The deficit is a result of several trends, including large cuts from federal sources, district officials said.
A combination of reduced funding, the effects of federal budget sequestration and the privatization of housing on the Grand Forks Air Force Base accounts for about $2.5 million, or about one-third, of the district's budget deficit, Nybladh said.
The biggest source of that loss is a sudden decline in federal funding district officials call impact aid. This compensates the district for property taxes that would have been generated by the air base.
Since 2007, district financial reports show the district received between $5 million and $6 million in impact aid each year. However, the district this year received only about $2.2 million, or half of what it expected, Nybladh said.
Historically Congress has appropriated enough funding to cover 100 percent of this funding, but after school officials lobbied for an increase, it shifted to paying 70 percent, or $2.5 million, last year and that's what they anticipate receiving this year, he said. If the district had been given full funding last year, it would have meant about $1.2 million more revenue.
Sequestration also cut impact aid and the district's No Child Left Behind funding, which supports students qualifying for free and reduced meals along with other programs, said business manager Vicky Schwartz.
"When grant dollars are reduced, the district can do one of two things -- reduce the program throughout the district and consequently serve fewer students, or move the expenditures from the (NCLB grant) to our general fund because there is not enough money" and supplement what's remaining with tax dollars, she said.
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Declining enrollment at the air base's two schools -- Carl Ben Eielson Elementary School and Twining Elementary and Middle School -- and privatization of base housing also hasn't helped. With more students from the base living in town, it means reduced federal funding the district receives for those pupils, Nybladh said.
Although he said they'd been predicting the decline, he said they're still subject to the military's changing mission at the base.
"Even if we see a pattern, we don't know with absolute certainty even if there is a trend," he said.
Legislature
Nybladh maintains one of the district's budget problems could have been solved by the Legislature earlier this year.
Had House Bill 1237 passed, the district would have received about $3 million in revenue (at about $8,810 per pupil) to cover the estimated 300 new students the district expects will enroll this fall. That would take care of about 17 of the 22 mills the School Board is looking at, he said.
The last thing the board and the administration want is to pick a fight with the Legislature, Nybladh said.
"We have very high respect for our Grand Forks legislators, for the governor, for the entire system," he said. "But we feel it's our obligation to point out when there's a little quirk in state policy that needs to be addressed."
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Instead, the district has been getting paid based on the previous year's enrollment, a policy dating to 2009. Because enrollment had been declining for more than a decade, at least up until 2011, they never had a budgeting problem in the past, he said.
"We didn't know that we'd get 222 more students until they showed up the first few weeks of school (last year)," he said.
The new growth required increased staffing and all of the associated costs with staffing, including salaries, benefits and supplies such as textbooks. This became a major part of the school's deficit. Nybladh said they couldn't anticipate several of the changes, including sequestration or the cut to impact aid.
"We didn't know we'd need to add staff until the new students showed up. We were scrambling the first week of school to add sections," he said. "People can look back and say, 'Gee, they should have known all of these things now.' No, all of these things were unfolding post-July and August when the School Board was considering their budget."
New school
At last week's public tax hearing, some residents suggested the district delay building a $15 million new school on the city's far south end.
School officials disagree. Enrollment growth at district schools began to turn around in 2011 and continued this past fall. A district task force, developed to address the imbalance between the overcrowded south-end schools and underused north end ones, last year found intense growth projected at all schools over the next five years.
This fall, the district considered adding portable classrooms to Century Elementary to accommodate the increased enrollment and already delayed construction of the new school by one year to 2015, Nybladh said.
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"If we were to push it off any further, I think you would see incredible pressure on our elementary schools for space," he said. "I think we'd be looking at portable classrooms on our south-end schools, and I don't think that's the kind of thing that makes teachers and parents very happy."
Delaying construction would also ramp up the cost to taxpayers, he said. On Monday, the board approved a $15 million state construction loan at an interest rate of 1.9 percent. Construction and other costs, which are projected to increase 3 to 5 percent each year, would add another $1.5 million or so to the building, he said.
"You'll have to borrow more and pay more interest," Nybladh said.
To pay for building projects like the new school, districts like Grand Forks use bonds to borrow money, which is then repaid with property taxes.
Teacher, compensation costs
In addition, accommodating enrollment growth means hiring more teachers and staff, said Nybladh.
The district added 14 full-time staff members last year, resulting in $4.3 million in new costs, and it expects to have another $3.7 million increase this year. Salaries make up approximately 85 percent of the school's budget.
Nybladh said costs can also be attributed to fewer teachers retiring, which leaves more senior staff teaching. Some teachers have also received more advanced training and likewise more money, he said.
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"So, it does add up," he said. "Those are real numbers."
Another big hike in the past two years has been "fringe" costs under teacher salaries, which include retirement costs and Social Security and Medicare contributions. As salaries go up, these costs follow, Schwartz said.
Two years ago, unaudited figures from the district showed these costs ballooned from an estimated $6.1 million to an actual $13.2 million, and exceeded expectations again last year.
"The budget in 2011-2012 was built on the expectation that we'd be reducing full-time employees," she said. "But in reality, they ended up adding employees because of the additional students. We were under-budgeted in 2011-2012 because of that."
This year, the district is "playing catch-up" and proposes an estimated $16.3 million.
Clarity for taxpayers
Nybladh said the district sent a letter notifying residents of the increase to help explain the discrepancy. He thought taxpayers would be more confused otherwise, he said.
Only 662 residents were given the letter, as law requires notification be sent only to residents who would experience at least a 10 percent increase in property value.
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A few residents have questioned why the board couldn't shift money from other funds, but Nybladh said it's not allowed. According to the North Dakota School District Accounting and Reporting Manual, the guide state districts follow for budgeting methods, the capital projects fund -- which includes the special building and special assessment funds -- must only be used for the construction or acquisition of major capital facilities.
District staff members have been working to answer every question or comment made at last week's hearing and say they will likely release a document next week. It will be posted on the district website, made available at the district office and prepared to be mailed to residents.
"We want to put this out and make it as clear as possible," Schwartz said.
Call Johnson at (701) 787-6736; (800) 477-6572, ext. 1736; or send e-mail to jjohnson@gfherald.com .
