Janesville51°

Tax hike seems certain, but how much?

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FRANK J. SCHULTZ
October 9, 2011

It's been a long, bumpy road for the Janesville School Board.


Board members now can see the end of the road after months of strife and even tears, but they face at least one more decision on the 2011-12 budget.


The board must set the tax levy by month's end. It also must hold a public budget hearing, which is set to happen during Tuesday night's board meeting.


Board members have been frustrated since February by surprises from state government and at conflicts among themselves and with their employee unions over how to address what is arguably the most contentious budget in living memory.


The conflicts aren't over.


The board still must close a gap of about $6 million to balance the budget. The Gazette polled all nine board members last week, asking them how they would prefer to do it.


A majority of board members seemed unhappy but resigned to raising property taxes by some amount.


"What would I prefer? I would prefer that a sympathetic citizen win the lottery and donate about $5 million to the district," board member Peter D. Severson wrote in an email.


Severson did not mention taxes in his response, but he said the board should use as little of the fund balance as possible. That approach leaves two options: a tax increase or budget cuts.


The board already has approved $9 million in cuts. Only one board member, DuWayne Severson, is calling for more.


Board President Bill Sodemann's frustration also came through in his email: "Am I in favor of raising taxes? No! We are now forced to, however, because of the decisions that we made on the (union) contracts."


Those contracts protect most district workers from a new state law that otherwise would require them to contribute 5.8 percent of their pay to their pension fund. The law also would negate much of the protections of a union contract and allow the board to impose higher premium payments for health insurance.


Those measures would have gone a long way to balancing the budget, but the school district's union employees won't have to face those cuts to their incomes until their contracts run out in July 2013.


Sodemann was in the minority when he opposed the teachers contract a year ago—well before anyone knew the Republicans in Madison would pass the new law and cut state aid in the biennial budget.


The board also approved contracts with two other unions after the changes were proposed last February.


Board member Karl Dommershausen put it this way: Of the tools that state government gave schools boards to balance their budgets, taxes is the only tool left to this board.


The latest estimate is that the board could increase taxes by a maximum of $3.57 million. That would be a 10 percent tax increase. Some say the board should tax all the way to the max. Others say they should keep taxes as low as possible and instead dip into the district's checking account/emergency fund known as the fund balance.


District CFO Keith Pennington estimates the maximum tax increase would mean an increase of about $90 a year on the average Janesville home.


That's about $7.50 per month, Pennington noted. Or, as Dommershausen put it, quoting his mother-in-law, a cup of coffee a day.


Taxes couldn't close the gap all the way, so most board members indicated that some use of fund balance is unavoidable.


The board already has voted to use about $4 million from the fund balance, but they could still change their minds, using either more or less.


The fund balance shrinks to less than $4 million in parts of the year and has ranged in recent years up towards $30 million. If the balance dips too low, the district is forced into short-term borrowing to pay its bills, something it hasn't done for many years.


Using fund balance creates a problem for the following years' budget because the same amount of money would need to be found to fill the hole next year, if expenses stay the same. That's what happened when the board used fund balance to hold down taxes and balance the 2010-11 budget.


Board members already are looking ahead to the next year's budget, which will have its own built-in deficit, comprising mostly pay increases and whatever amount of fund balance is used in this year's budget.


Here's what Janesville School Board members said when asked how they would like to close a $6 million gap in the 2011-12 school district budget.


WHAT THE MEMBERS SAY
Greg Ardrey: "For me, it's probably a little bit of both (fund balance and tax increase), but probably more of fund balance than taxes."

Ardrey points out that from February to July, the board was told it wouldn't be able to raise taxes at all because of actions of the newly seated Republican Legislature and governor. Then in July, they learned that they would be getting less state aid, but they could raise taxes to make up the difference.


The board should stick with its original assumption and not raise taxes, or not much, Ardrey said.


"Next year, that's a completely different story," Ardrey said.


However, Ardrey said he's open to persuasion: "I'm not dug in either way, so definitely, the thoughts of my fellow board members are going to mean a lot."


Karl Dommershausen

Dommershausen has been crunching numbers and making projections for the next three years. His figures show that the district would be in much better shape financially if it taxed to the maximum allowed under the state's revenue cap.


Dommershausen would not, however, commit to taxing to the max. He said the board will have to take some from both fund balance and a tax increase.


"Any call we make is going to be unpalatable, but we've already made the big call—$9 million in cuts," Dommershausen said.


Scott Feldt: Feldt said he has not yet formed an opinion and that airing his position in the newspaper would harm the process.

"I am still considering all of the options. When considering spending cuts, fund balance transfers and raising taxes, there are unlimited variations of dollar amounts that can be discussed and considered.


"For me to publicly identify a specific dollar amount to a specific option paints the picture that this is my public position on the budget. This would not be true. There has been no discussion between board members and none of the normal give and take that happens during a school board decision.


"I do not think this helps to bring board members to consensus when they have been labeled or identified with a specific position."


Kristin Hesselbacher: "Given that the school board chose to decrease the tax levy in 2006, 2007, 2009, and 2010, I believe it is time for the taxpayers to increase their support of public education, which benefits everyone in our community. …

"I support using up to $4 million of fund balance, but I would prefer to bring in additional tax levy to keep the district's finances healthy for the long term. Using fund balance is acceptable for a year or two, but it is not sustainable. Increasing the tax levy would bring in the revenue we desperately need over the next few years.


"I support fully utilizing the tax levy cap this year, which would mean we would use less than $4 million from the fund balance."


Kevin Murray: Use as much fund balance as possible to keep taxes as low as possible, perhaps even a no-increase levy.

Murray said he understands that using the fund balance creates a deficit in next year's budget, and he knows that taking too much from fund balance could cause short-term borrowing, but he said it's still worth it.


"We still haven't turned the corner here in Janesville, and we need to do everything we can to keep the tax levy down."


DuWayne Severson: "My preference would be that the board would still go back to try to find cuts. I don't think our taxpayers can afford additional tax increases at this time."

Severson has received no support for more cuts, however.


"I understand that it looks like we might be down to tax increases and fund balance, and my preference is trying to reduce expenses and minimize the use of the other two options. I guess I need to hear what other people have to say, but I don't like the two options in front of us."


Peter D. Severson: "I think that we have to do whatever we can to fix this year's deficit while minimizing the effect on next year and years to come. I believe this is done by using as little fund balance as possible."

Using fund balance creates a deficit that must be dealt with in the following year and raises the threat of interest costs from short-term borrowing, Severson added.


"That is about as much specifics as I can give at this point."


Lori Stottler: "Since the state continues to penalize school districts who don't tax to the max, and since we were unsuccessful in getting concessions from school district unions, and the board voted for no closing of an elementary school to seek savings … I am compelled to believe that the best way to balance the 2011-12 budget is to tax to the max or near the max this year. Then in 2012-13, tax again but have a hand-shake agreement that the 2013-14 burden to close any budget shortfall would come through increases in (employees' health insurance) premium share and retirement contributions …"

Stottler also called for more flexibility to use volunteers and contractors to provide services once the union contracts run out.


Bill Sodemann: "Whether we use fund balance or a tax increase, we are still using taxpayer money. We need to consider next year in the equation, as any use of fund balance will have to be duplicated again next year as a starting point to our deficit. Extensive use of fund balance will have to be replenished in the 2013-14 budget via adjustments in salary and benefits.

"Bottom line is that because of the situation that we put ourselves in, I am forced to accept a tax increase of at least $1 million toward the remaining $2 million deficit."


Sodemann's answer assumes that the board would stick with earlier votes to use about $4 million from fund balance.


TIMELINE

Here are some of the events in the Janesville School District budget saga:


-- 2008-2010—The Janesville School board taxed about $6.5 million less than it could have during these years. If the district had taxed the extra amount and spent it, state aid would have been nearly $2 million more over those three years.


-- Sept. 21, 2010—The Janesville School Board votes 5-4 to approve a four-year work contract with the teachers union. The contract is retroactive to 2009-10, in which teachers got no additional pay, but the contract sets raises in each of the following three years.


-- Oct. 12, 2010—The board discusses a projected budget deficit in 2011-12 of $4 million to $6 million and mentions possible staff cuts.


-- Oct. 26, 2010—The board finalizes the 2010-11 budget, setting a property tax levy of $35.88 million, a 3.17 percent increase from the previous year.


At the same time, the board votes unanimously to use the fund balance to cover a shortfall. The one-time use of the $2.3 million would become part of the following year's budget deficit. The other major factors: federal stimulus spending of $1.8 million in 2009-10 that was not available in the following year and increases in salaries and benefits for all employees, including a 15 percent increase for health insurance, for an increase of about $5.7 million.


-- Nov. 23, 2010—The board votes to cut one high school assistant principal position. The board would later cut a second assistant principal position.


-- Dec. 15, 2010—"The Great Budget Battles of 2010-2011 have begun," the Gazette writes, describing the previous night's school board meeting. Residents pleaded with the board not to cut high school teachers, but the board votes 9-0 to increase the minimum high school class size from 18 to 24 students.


-- Jan. 11—The board votes 8-1 to send preliminary layoff notices to four social workers.


-- Feb. 8—The board, facing a budget shortfall now projected to be $9.7 million, tells the administration to plan to save $6.5 million by cutting an undetermined number of teachers and making other reductions in next year's budget. The remainder of the needed savings would come from fund balance and a tax increase.


-- Feb. 11—Gov. Scott Walker announces his plans to end collective bargaining for nearly all public employees, saying the state is broke. Walker says the collective bargaining changes were needed to give local governments and school districts the flexibility to deal with budget cuts he will outline in his two-year budget plan, to be released Feb. 22.


-- Feb. 20—The Gazette reports that Gov. Walker's budget will include a state aid cut that could boost the Janesville School District's budget deficit for 2011-12 from about $10 million to $15 million. The deficit estimated later is revised to $13.4 million.


-- Feb. 22—The board votes 5-4 to approve a contract with 178 custodial, maintenance and food service workers. The pact includes raises and does not require any contributions to the pension fund or any increase in health-insurance premiums.


-- Feb. 23—An estimated 200 to 300 students from each Janesville high school walk out to protest planned high school course cuts.


-- March 8—The board votes 5-3 to approve a contract giving raises to 351 secretaries, clerks and aides, most of them part-timers. The pact does not require any contributions to the pension fund or any increase in health-insurance premiums.


-- March 15—The board asks all three of its employee unions to voluntarily contribute half the amount that goes to the state pension fund, which would amount to a 5.8 percent pay cut. The move would boost the budget by $3.5 million a year. The unions later reject the offer, as they had a previous offer.


-- April 5—About 70 people meet at Craig High School to form what will become Save Janesville Schools, a fundraising effort to help stave off school staff cuts. The organization later will turn over about $64,000, and the district will use it to boost aide time to keep elementary libraries open. The organization continues to raise money in hopes of helping with the 2012-13 budget.


-- April 6—The board votes unanimously to cut the equivalent of about 130 full-time positions, most of them teachers. The board also votes to issue layoff notices to cover those cuts, but how many notices was not clear. The district could refill some of those positions later if money becomes available, officials say.


-- April 26—The board votes to take $3.4 million out of its fund balance to help balance the 2011-12 budget. The vote will help officials to call back an as-yet undetermined number of teachers, counselors and librarians. About 125 members of the teaching union have received layoff notices. The board later will take another $600,000 from fund balance after an unexpected closure of a city TIF district.


-- May 6—Superintendent Karen Schulte issues a memo describing how some former counselors, librarians and learning-support teachers who had received layoff notices would be hired for different, restructured positions.


-- May 10—The board votes to cut jobs and increase fees. The unanimous vote eliminates 37.5 counselors, learning-support teachers, librarians, reading specialists and other teachers union members categorized as support staff, saving about $2 million. Union and district leaders will argue in months ahead just how many were laid off. The final figure will be a reduction of 110 positions of all sorts, from custodians and clerks to teachers to administrators, all part of a spending reduction amounting to $9 million.


-- June 28—The latest accounting shows the district would be in the black by $115,000 for 2011-12 if nothing else changes, Schulte tells the board in a memo, but she warns that the district still faces many budget unknowns.


-- July 1—The fiscal year begins, although the district won't know until October exactly how much money it has to work with.


-- July 8—District officials announce that the July 1 state aid estimate show about a $5 million cut in state aid instead of the previously announced $3 million cut. The estimate also gives the district the ability to impose a property tax hike of up to 7.5 percent, more than enough to make up for the loss of aid. Local officials previously had expected the state would allow little or no tax increase. Officials from the governor's office down to the local level cannot explain why the numbers shifted so drastically.


-- Aug. 19—At the insistence of the school board, Schulte produces a list of spending items that could be cut for the upcoming school year. Schulte tells the board that any cuts would harm education. The board later decides not to make any more cuts.


-- Aug. 22—The school district will close the books on the 2010-11 fiscal year after spending about $3 million less than it budgeted, officials announce.


-- Sept. 12—The Janesville Education Association's Representative Assembly votes "no" to another offer by the school board to reopen its contract. The board had offered not to cut teaching positions next year, except for enrollment declines, if the teachers would pay 2.9 percent of their salaries toward their pensions this year and 5.8 percent starting next year.


-- Sept. 15—The board receives yet another estimate showing state aid would be even less than previously estimated, but the board could raise taxes to make up the difference. The estimate shows a maximum property tax increase of about $3.5 million, or 10 percent higher than last year.


-- Sept. 27—The board votes 6-3 not to close an elementary school in 2012.


-- Oct. 15—School boards will get finalized aid statements from the state.


-- Oct. 27—The school board is scheduled to set the tax levy.



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