When Eanes ISD Chief Financial Officer Chris Scott calculated the 2020-21 budget projections in February, the district’s financial position looked much different than it does today.
Without any action, EISD is facing a $4.5 million budget shortfall for the next school year due to a variety of unexpected factors. The financial hit can be attributed to a significantly lower than expected tax base growth, estimated lower investment earnings and the financial effects of COVID-19.
Scott virtually presented the board of trustees with an additional update April 28.
The effects of House Bill 3
The district has been discussing a potential budget deficit throughout the 2019-20 school year. Scott reported during a Nov. 19 meeting that EISD could face a $2.3 million budget shortfall next year.
This was in part attributed to a 4.5% compensation increase for all staff. The district has also been candid in noting that House Bill Three, which passed in June, provided EISD with less financial assistance than neighboring school districts.
At that time, Scott presented the option of going out for two additional "golden pennies" in an effort to keep the district in good financial standing.
Under HB3, districts are allowed a maximum of eight golden pennies, which are pennies within a district’s maintenance and operations tax bill. Additionally, these funds are not subject to recapture payments.
The district has six golden pennies—the amount permitted prior to eased restrictions from HB 3—and they represent $0.06 of EISD’s total tax rate of $1.13 per $100 valuation.
Texas’ recapture system required districts with a cost per student higher than $6,030 to contribute payments based on their taxable value, according to the Texas Education Agency. The money is collected into an education fund and redistributed to school districts that fall below the $6,030 threshold.
For the 2018-19 school year, EISD contributed 60% of its property taxes in recapture payments, while retaining about $59.9 million, according to district information.
If the penny collection was approved by a majority of local voters, EISD could increase its golden penny rate by two while lowering the interest and sinking rate by the same amount. This would allow the district to retain more local dollars but result in no change in resident’s overall tax rate.
In February, Scott reported this decision could bring the district an additional $3.5 million dollars. However, that data did not take into account unexpected news regarding Travis County home appraisals.
Today, if EISD brought in two golden pennies and made no adjustments in staffing numbers the 2020-21 budget will reflect a $2.5 million shortfall, opposed to $4.5 million. News from the Travis Central Appraisal District
The Travis Central Appraisal District informed local school districts Feb. 12 that it will not appraise residential properties in 2020. This was the result of the Austin Board of Realtors sending TCAD a cease-and-desist order in May, which prohibited the TCAD from utilizing market data in the appraisal process.
This decision led Chief Appraiser Marya Crigler to announce that TCAD will use last year’s values for 2020.
Scott reported April 28 that residential property makes up about 70% of the district tax base.
“Our five-year rolling average for tax base growth that we used in the last projection was 7.2%,” Scott said in a memorandum. “Based on the April estimate of certified values, we believe that our actual tax base growth will be approximately 3.8%.”
According to district projections, this will result in a loss of about $2 million for the 2020-21 school year.
The district’s investment earnings
When the 2019-20 budget was passed, the district estimated $2.2 million in earnings from investments. By December that number was revised based on Federal Reserve moves, reflecting earnings of about $1.6 million
The district’s investments are extremely conservative, according to Scott, this factor tends to tie its investments closely to the federal funds rate.
“By law and board policy, Texas school districts have a hierarchical set of investment goals: safety, liquidity and yield,” the memorandum states.
Amid the COVID-19 pandemic, the Federal Reserve moved the overnight rate to zero. EISD is now anticipating earning approximately $1 million in 2019-20.
According to Scott, that number is largely comprised of earnings EISD secured prior to the pandemic.
Estimated earnings for the 2020-21 school year reflect funds less than $500,000, according to district information.
“As we’ve all said many times, this is unprecedented and we don’t know what’s going to happen,” Scott said. “I think it’s a realistic expectation that at least for the next school year, the overnight rate will remain at or near zero.”
The COVID-19 outbreak
With all district facilities closed for the remainder of the 2019-20 school year, EISD will save a modicum of funds. School buses are not running and presumably, electricity usage has decreased.
However, according to Scott, these savings will not generate a sustainable amount of revenue.
As of March 31, approximately, 98.5% of the 2019 adjusted tax levy has been collected. Consequently, Scott said the district’s monthly financial report appears remarkably normal.
The sustainable hit will be highlighted on the revenue component of the budget, Scott said, adding that EISD is issuing refunds for a number of school programs that have been canceled.
“We’re still paying people but there’s no revenue coming in to cover them,” Scott said.
In a prior memorandum to the district, Scott reported the COVID-19 shutdown could cause a $1 million hit on the budget. This estimate is based on the thinking EISD students will be able to return to campus in August, which cannot be confirmed at this time.
“Looking beyond the upcoming school year doesn’t provide comfort,” Scott wrote. “The legislature will be meeting again in 2021 and we were already concerned about the sustainability of the new school finance system before the recession began.”
Evaluating these factors, the district has discussed a number of cost-saving measures, including reducing the overall number of full time or equivalent (FTE) teachers for the 2020-21 school year.
EISD has previously stated a number of staff reductions can be attributed to teachers leaving the district or retiring.
Trustees also discussed obtaining revenue through bringing in out-of-district transfers. It was reported that each out-of-district transfer student brings in $8,602 in funding per student and effectively lowers the district’s recapture payments by that amount.
According to Scott freezing salary rates for the 2020-21 school year would bring save the district about $1.2 million. However, this option was not discussed during the meeting.
The conversation on employee compensation is will be discussed by trustees in May.
