Editor’s note: The January meeting of the School District of Fort Atkinson Board of Education was held Tuesday, Jan. 17, and not Thursday, Jan. 19, as previously reported. Fort Atkinson Online regrets the error.
By Kim McDarison
The School District of Fort Atkinson Board of Education during its meeting last month discussed options for a three- and four-year operational referendum to be placed on the spring election ballot.
Language associated with two four-year options came before the board for a decision on Tuesday, Jan. 17.
Of the two four-year options, the first seeks to exceed state imposed revenue caps, beginning with the 2023-24 school year and ending with the 2026-27 school year, by an amount not to exceed $3 million for each of four years on a recurring basis and $5 million each year on a nonrecurring basis, for a total of $8 million each of the four years.
The second four-year option seeks to exceed state imposed revenue caps for the same four-year period, with an amount not to exceed $5 million each year on a recurring basis and $3 million each year on a nonrecurring basis, also for a total of $8 million each year.
Following board approval, one of the two questions will be placed on the ballot in April.
Aided by slides, during the board’s December meeting, Director of Business Services Jason Demerath reviewed the district’s five-year financial projection, covering fiscal years 2023-24 through 2027-28. While no action was requested of the board in December, Demerath asked board members for feedback regarding varying referendum scenarios, noting that options for an operational referendum question would likely appear on the board’s agenda for approval in January.
Offering an overview of his presentation, Demerath said he would provide a “refresher about financial strategies” leveraged by the district in the current year’s budget, and their results. He also would provide enrollment projections, assumptions used to create the projections, and financial surpluses and deficits as they related to several possible scenarios.
Financial strategies
Revisiting “actions taken over the past year,” Demerath said that during that time, the Consumer Price Index (CPI) had reached 4.7%, and health insurance costs had increased by 16%. With those increases in mind, he said, the district leveraged such strategies as providing a competitive compensation package to the district’s employees, “right-sizing” staff through attrition based on declining enrollment and programming analysis, making use of one-time Elementary and Secondary School Emergency Relief Funding (ESSER) and federal COVID relief aids, and bringing before the community in November two referendum questions, one to support capital improvements and another to support operational expenditures.
A slide, shown above, listed the various strategies employed by the district to create the 2022-23 school year budget.
Budget strategy evaluation
Demerath next offered an evolution of the budget strategies used to develop the 2022-23 school year budget.
Pointing to a slide, shown above, Demerath said two “sub-strategies” were employed to provide a competitive compensation and benefit package, the first of which involved moving all of the district’s active employees to a Health Savings Account (HSA) and eliminating the Health Reimbursement Arrangement (HRA) plan. Additionally, a full CPI increase and a market adjustment compensation was provided to district employees, which, he said, provided an average increase in pay of about 5.7%.
“By moving all current employees to the HSA plan, we were able to hold our increase in spending related to health insurance to only 3.2%, rather than the 16% increase we were facing,” Demerath said.
The combination of strategies, including right-sizing the district’s staff, resulted in an overall increase in spending for salaries and benefits over last year of 3.53%, he added.
Looking specifically at staff right-sizing, as shown in the slide above, Demerath said, after accounting for declining enrollment of 2.42% and evaluating staff vacancies, the district downsized its number of full-time equivalent (FTE) K-12 staff members by 4.09%.
Demerath cited the district’s use of ESSER and COVID relief funds, which, he said, were used to offset operational deficits and enhance mental health services and supports.
“We did this by covering some positions that were approved prior to receiving the funding such as interventionists and social workers,” he said.
Illustrated in a slide, shown above, Demerath said three “funding waves” were allocated during the 2020-21, 2021-22, and 2022-23 school years.
“In 2023-24 we will have about $700,000 or so remaining of this funding that will be built into that budget, which will be the last year to utilize the funding,” he added.
Looking ahead, enrollment
Looking ahead, Demerath said, financial projections begin with enrollment.
A slide, shown above, presented a graph depicting changes in student enrollment at the elementary school level.
“This enrollment projection uses what is called a five-year cohort survival ratio to project future enrollments, meaning that it looks at the survival rate of grade level cohorts from one grade to the next over the past five years, and then uses that data to apply to the current year’s enrollment to cast it forward. At the elementary level you can see that the recent smaller classes coming into kindergarten have an impact, with a projected decrease of about 40 kids over the next five years,” Demerath said.
Sharing a slide showing middle school enrollment projections, shown above, Demorath said: “It is projected that total middle school enrollment will drop 80 kids over the next five years, plateauing in the mid-400s. which is about 200 kids less than five years ago.”
At the high school level, Demerath pointed to a slide, shown above, depicting what he described as a projected “major drop in enrollment.
“We see those elementary and middle school declines carry forward to that level by going from 973 this year to 713 in five years, a decrease of 260 kids,” he said.
Looking at the full enrollment picture, Demerath said that total K-12 projected headcount for the next five years drops to about 2,000 students as opposed to 2,600 students enrolled in the district five years ago.
He cited “factors” which, he said, might change the course of the projections. Among them was the anticipated Banker Road development which would create new housing near the high school, and some projections revolving around the district’s 4K program. While the program supports some 130 students this year, that number is down from the 150 to 160 students supported in past years, Demerath said. He noted that COVID may have played a part in the decline in 4K registrations.
Financial projection
Demerath next shared budget assumptions used to create a “base projection model,” which, he said, was used as a “starting point,” to produce “running scenarios” over the next five years.
Among projections, Demerath said the district’s budget assumes “no new allowable revenue granted under the upcoming state budget.”
In addition, he said, the federal COVID relief funding was removed from future budgets once it expires. Still, he said, “the expenses that these funds were used for, which were mainly recurring staff positions, have been continued moving forward in this model and would need to be evaluated as part of the budget process.”
According to Demerath, assumptions for next year’s budget include a CPI adjustment of approximately 8%, and a wage and salary increase of 5%, followed by a wage and salary increase of 3% in subsequent years.
“Where this ends up will be subject to negotiations and how other factors play out. Among my colleagues across the state, many have said they didn’t think they could get to the 8%, but feel something in the 5% range might be doable, so using this number in the projection may at least keep us competitive. As other districts move forward with their budget process, negotiations, and compensation increases for next year, we will begin to get a good idea of what might be a competitive increase if reaching the 8% CPI is not achievable given financial constraints. This will also hinge greatly on whether or not the April operational referendum is approved,” Demerath said.
Addressing increases surrounding health insurance, he said traditionally, increases have been between 6 and 10%. Budget assumptions include a 10% increase across the five-year projection period.
Assumptions further include a 5% increase for utilities and business insurance, a 3% increase for transportation costs and 4K payments, and a 2% increase for “other miscellaneous categories.”
Base projection
Demerath next pointed to a slide, shown above, depicting the budgetary changes resulting from the expiration of the district’s current $3 million operational referendum. This year’s budget is the last to include funding from the previously approved referendum, he said.
Without a successor referendum in place, declining enrollment and the expiration of federal funding, and “no new revenue paired with expense increases,” Demerath said, “the financial picture does not look very good.”
The district was projecting a budget deficit next year of $6.8 million, with “further deficits each year thereafter,” Demerath added.
He cited a possible revenue increase of $200 per pupil for each of the next two years built into the state’s biennial budget.
A graph, shown above, showed the impact of the increase to the district’s budget. The per pupil increase represents a 1.11% increase in revenue over this year’s budget, Demerath said, noting that currently the district faces an inflation rate of approximately 8%.
Said Demerath: “A much larger increase from the state would be needed to make any significant positive changes to this projection. With the state sitting on a $6.5 billion surplus going into the next state budget, we are hopeful, but it is hard to be too optimistic, about what funding might come to public schools in that next state budget.”
Demerath said a slide, shown above, illustrated his reasoning for guarded optimism, noting that in the last 14 years, only once has the state granted a per pupil increased exceeding $200.
Board discussion on strategies, referendum question
“So where does this leave us?” Demerath asked.
He pointed to the 2023-24 budget and the potential for an operational referendum question on the April ballot.
“It will be a big question mark as to whether or not we can provide a competitive compensation and benefits package for 2023-24 given CPI at 8%, an unknown state budget, and an operational referendum in April,” he said.
With the declining enrollment, he added, “we will need to continue to right-size our staff for that enrollment through evaluation of all vacancies for attrition and restructuring, as well as analyzing current programming and prioritizing where our limited resources provide the largest return on investment.
“The question will be: Will attritions of retiring and departing staff member positions be enough to meet the financial situation we are facing?”
Demerath cited the two referendum questions posed to the voters in November, noting that voters approved a capital improvements referendum. A operational referendum did not meet with voter approval.
“So nothing further is needed at this time related to this strategy other than to move that work forward,” he said adding that he would next talk about continued planning to craft an operational referendum that could be presented to the voters in April.
He reminded board members that the ESSER and COVID relief funds would “run out in the next two years.”
He asked: “How do we ease ourselves away from these resources, and determine if the expenses associated with these resources continue while other expenses are eliminated, in order to fold these into our operational budget?”
Three proposed referendum options
Demerath produced three slides, each showing a different scenario for funding through use of a future operational referendum.
A first scenario, shown above, according to Demerath, illustrates the impact of a three-year referendum asking voters for $7 million in revenues above the state-imposed cap each year.
“The bottom line is that we could get through 2025-26 with such a referendum if we work to reduce a total of $2.1 million over the course of those three years from our operational budget. An example of this would be that $700,000 in recurring expenses would be cut from next year’s budget, which over the course of three years would add up to the $2.1 million,” Demerath said.
He stressed to board members the importance of considering the length of time for each operational referendum scenario, noting that in November of 2026, the district has proposed including a capital referendum on the ballot to achieve funding to build a new middle school.
“Given our experience this November with the capital question passing and the operational question failing, we can’t help but think about how that middle school referendum might impact a successor operational question after this upcoming April referendum. This is simply the long-term planning that we always do as we make decisions in our current situation,” he said.
A second referendum illustration, shown above, suggested the board consider a four-year referendum that would ask voters to approve an $8 million increase above the revenue cap for each of the four years.
Said Demerath: “Under this scenario, we would need to address a total cumulative deficit of $5 million over the next four years, or as I illustrated before, if we reduce $1.25 million in recurring expenses from next year’s budget, that would add up to the $5 million over four years. This scenario would put the operational referendum ending at the same time as we would come back with the middle school capital referendum.”
A third illustration, shown above, would combine a recurring and nonrecurring amount that would create in total an $8 million increase over each of three years.
Said Demerath: “The current $3 million operational referendum would continue in a recurring fashion and then there would be $5 million dollars nonrecurring for (each of) three years. Because the amount is a total of $8 million dollars and only over three years, there is no cumulative deficit to address here. The main point to look at here is the final two years of the projection. Because part of the funding is recurring, that sets a new baseline for the deficits rather than falling back down to where we would be after a nonrecurring referendum expires. That is the difference between recurring and nonrecurring referendums.”
He added: ”All three of these scenarios … result in a projected lower tax rate than the current year due to a lower capital debt levy than this year.”
Ballot language
Demerath identified “ballot language” as a possible “stumbling block” regarding referendum passage. he suggested that the operational referendum brought before voters in November, may not have passed due to the “complicated nature” associated with its language.
“We know that it likely needs to be simplified for the upcoming April referendum, which will somewhat dictate the referendum structure,” he said.
Demerath identified “referendum thoughts,” as shown on the slide above.
Board discussion
The December meeting was attended by board members Kori Knickrehm, Chris Rogers and Robynn Selle. Members Amy Reynolds and Rhona Buchta were not in attendance.
Knickrehm asked Demerath to describe the process through which a referendum question is placed on the ballot.
Demerath said the district consults with legal counsel, who receives the financial referendum scenario as approved by the board and compares it with state statutes. He next prepares language in accordance with state statutes.
Rogers asked if language prepared by the district for the ballot is approved by a state agency.
Demerath said the district sends the ballot language to the State Department of Public Instruction, but a formal approval process is not undertaken.
School District of Fort Atkinson Superintendent Rob Abbott said he appreciated the interest in referendum language, adding: “One of the questions we had after this fall’s referendum was like: ‘listen dummies, your question was too complex.’ And we would make it much more simple if we could. From how we talk about what the question is, and what it would do, at the board tabled, to what it needs to be translated into for the ballot is beyond our control.”
Offering some ideas about why the operational referendum did not receive voter approval in November, he said that he believed “it did not help” during the fall election that both of the district’s referendum questions were on the back of the ballot.
“So the number of undervotes compared to the number of undervotes for other voting categories on that ballot was significantly higher,” he said.
Selle asked if there was a timeframe or deadline by which the district would know whether the state would provide a revenue increase.
Demerath said: “Typically the budget cycle is that the governor releases his version of the budget proposal in, around Valentine’s Day, late January, February, State of the State timeframe, and then the Legislature usually spends a couple months in budget hearings and other things, and then they negotiate. We always hope that we will hear by June 30th.”
He said in recent years, the district has waited until October for an approved budget to be announced.
“We needed our state numbers by Oct. 15. So, it depends on the Legislature, and the governor, and how they work or don’t work together in order to get to a final budget,” he said. He noted that state statutes specify that school boards receive certifications of state aid by Oct. 15.
Looking at the differences between recurring and nonrecurring annual operational referendum amounts, Selle said: “recurring feels like it puts us in a better position in the future.”
Demerath agreed.
Looking back over the district’s past operational referendums that had been approved by voters, Demerath said the past two were comprised of a combination of recurring and nonrecurring amounts.
“The first one, we had a timeframe where we asked a nonrecurring amount, and then that nonrecurring amount became recurring, and we asked for a nonrecurring amount on top of that, and then after three years, that nonrecurring amount became recurring, and then we asked a nonrecurring amount this time around of $3 million.”
He said that when nonrecurring amounts become recurring, “it sets a new baseline that at least there’s some security in that, but also the further out you get, the larger the numbers will get if its nonrecurring.”
Said Knickrehm: “I think it’s important obviously to look at that reoccurring obviously so we can kind of raise that up, but it makes us a little bit less vulnerable as we move forward.”
Abbott stressed that the amount approved in an operational referendum is “the top that the board can levy. So, if something miraculous were to happen in Madison where funding became adequate, the board could choose not to invoke that full portion that was approved by the voters. That was always the thought process, is that school funding, to date, and for many, many years clearly has not caught up with costs, expenditures and inflation. And we have all of those as necessities organizationally, so that raises the floor because you know that need isn’t going to go away, but it gives us flexibility to work out a few years and then regroup and go back to the electorate. I mean that’s been the sort of general philosophy behind that as well.”
Addresses issues of declining enrollment, Abbott said: “I think historically we’ve known this was coming. It didn’t fall out of the sky. For literally more than a decade we’ve known that this was the projection, as did other districts. If you get into some of the suburban areas, sort of the sprawl spaces, it looks a little different. For most public schools, districts are seeing a reduction or smaller enrollment coming in just because the birth rate was lower. Compounding that for us literally was the impact of COVID, and so, as we look to the future, for us, you know, in Jason’s numbers, he points out that our 4K numbers are smaller, but we’ve also heard that some families are choosing not to enroll kids in 4K because they’ve had the ability to keep them home. So I think it will be a little longer before we’re able to really understand truly what that future is. We know it’s going to be going down for a bit.”
He pointed to planning as new housing opportunities become available within the city potentially through the city’s Banker Road development project. He said he believed the new development would bring new home buyers into the district.
Comparing the options of constructing a three- or four-year operational referendum question, Knickrehm said: “We need to be prudent in our understanding of what we have in front of us as far as a new middle school and things like that. We are continuing to go to the voters time and time again … I don’t know how that feels to me, continuing to ask the voters to vote on referendums, so I’m a little concerned about that when we consider a three- or four-year operational referendum.”
Selle said that when voters see big numbers on the ballot each cycle, it begins to look “daunting.” People ask, she said: “What’s my tax bill going to look like now?
“I would be very nervous about putting a referendum, another operational referendum, on the same ballot as a middle school referendum. I think we just saw how a very complex operational referendum, plus a capital referendum, where that falls. It wasn’t like it lost by a landslide, but it still didn’t pass.”
Abbott said he’d been made aware that people chose between which referendum to support.
He said there was support for public schools, but people were affected by circumstances.
“I would like to avoid two questions because I think we ran really solid communication on both of those questions, and at the end of the day, it appears to be a choice for people whether or not either of the questions is more or less important than the other,” he said.
Looking beyond the upcoming April ballot operational question, as far out as 2026, Demerath asked board members whether the district should next entertain asking for another operational referendum or a capital improvement question, seeking funding for a new middle school.
Selle said she saw pressing issues ahead at the middle school, recommending placement of the capital improvements referendum on the ballot first.
Knickrehm agreed.
Selle said she preferred an operational referendum that did not have the complexities of both a recurring and nonrecurring component.
Said Abbott: “So I think if the suggestion was going to be to have a portion that’s recurring and a portion that’s not, it would be two numbers, which is what we’ve had success with in the past, the past few, as opposed to different numbers related to different years. That’s definitely where the complexity of the question — it was fiscally prudent, and it was money where we needed it when we needed it, and not before, so the thinking was right. The question is that became very complex.”
“We are projecting up to five years in the future. I find that challenging. Let’s get the recurring in and at least we know we can keep the doors open. If all that’s going to tie in with a new middle school, I’m not prepared to give you my opinion tonight on that. It should be recurring and I’d go for the four years,” Rogers said.
“My problem with nonrecurring is once that has run its course and we need more money, it will be a bigger ask than what we are doing right now,” he added.
“The one thing that I would just add to this mix is that until the state steps up and provides adequate funding, no matter how fiscally prudent we are in this district, we will need to turn to voters for additional funds to operate properly. And I would just want us to be abundantly clear that if we were doing a fully recurring, that we were never purveying a sense that we would not need to come back again, because we would. So when that is might be a bigger question, and I’m not at all disagreeing, I’m just saying, other districts where that has been the tact they have taken, where it’s not a blended question, it’s all one or the other, that in some occasions there can be a perception of ‘we’re fixed,’ and at 8% inflation, you’re not fixed,” Abbott said.
This post has already been read 1716 times!
