SPRINGFIELD – A statewide financial analysis shows more than 100 school districts dropped out of the highest financial ranking in the past year and the number of districts in the lowest category doubled, reflecting the significant cuts to the state education budget and decreased local revenues of the past several years. The Illinois State Board of Education’s annual Financial Profile of the state’s public schools was released during its monthly board meeting Wednesday night at a time when state lawmakers are considering further funding reductions after already slashing nearly $900 million from the K-12 education budget since 2009.

“It is no surprise that our analysis shows the harmful effects of multiple cuts to education funding by the legislature. School districts have already eliminated thousands of teaching positions, increased class sizes, delayed facility repairs and so on, all in an effort to reduce expenses,” said Board Chairman Gery J. Chico. “We cannot expect Illinois to remain competitive in a global economy if we continue to shirk our responsibility to children as our schools struggle to make ends meet.”

The Financial Profile provides a snapshot in time that helps ISBE gauge school districts’ financial condition. The profile’s designation categories in descending order are:

• Financial Recognition: This designation is the highest category of financial strength. A district must receive a score of 3.54 – 4.00. Districts in this category require little or no review or involvement by ISBE unless requested by the district.
  
  
• Financial Review: Districts with a score of 3.08 - 3.53 receive this designation. Districts in this category receive a limited review by ISBE, but they will be monitored for potential downward trends. Staff will be assessing the next year’s school budget for negative trends as well.
  
  
• Early Warning: Districts with a score of 2.62 - 3.07 are placed in this category. ISBE monitors these districts closely and offers proactive technical assistance (e.g., financial projections and cash flow analysis, etc.). These districts are also reviewed to determine whether they meet the criteria set forth in Article 1A-8 of the School Code to be certified in financial difficulty and possibly qualify for a Financial Oversight Panel.
  
  
• Financial Watch: If a district receives a score of 1.00 - 2.61, it is placed in this highest risk category. As with the Financial Early Warning districts, ISBE monitors these districts very closely and offers them technical assistance including, but not limited to, financial projections, cash flow analysis, budgeting, personnel inventories and enrollment projections. These districts are also reviewed to determine whether they meet criteria set forth in Article 1A-8 of the School Code to be certified in financial difficulty and qualify for a Financial Oversight Panel.

The 2013 Financial Profile scores show that the number of districts in Financial Recognition, the highest category, decreased from 670 last year to this year’s 562 or 65 percent of the state’s 865 districts. The number of districts listed in Financial Watch, the lowest designation, increased from 17 last year to 45 this year. Additionally, nearly 13 percent of the state’s school districts are in the lowest two designation categories for 2013 compared to 6.2 percent last year.

A district is categorized based on its Annual Financial Report from Fiscal Year 2012, which ended June 30. The rating is created by using five indicators of financial performance:

• Fund Balance to Revenue Ratio
• Expenditures to Revenue Ratio
• Days Cash on Hand
• Percent of short-term borrowing available
• Percent of long-term debt remaining

The 2013 Financial Profile data shows that school districts have been forced to not only reduce expenditures but also increase cash balances by issuing debt or restructuring debt payments. Reduced state funding appropriations and delays in receiving state and local revenues have all negatively impacted districts’ financial performance.

More Districts Deficit Spending

Districts’ financial pictures are expected to grow even bleaker in the coming year. Information provided by school districts for Fiscal Year 2013 forecasts that the number of districts deficit-spending will increase to 573 or 66.7 percent of all districts, compared to 415 or 48.2 percent in Fiscal Year 2012.

While the Financial Profile alone cannot provide a complete picture of a district’s financial health, it provides a tool for ISBE staff to use with other data and information to assess an individual district’s financial status. This year is the 11th year that the Financial Profile has been used to evaluate districts.

Scores  Adjusted for Delayed State Payments

For each year since 2009, the Financial Profile scores have been adjusted for delayed state-mandated categorical payments, such as pupil transportation and special education, due to the state and national recession. The school code was amended to ensure that districts are not designated as being in financial difficulty solely due to delayed state payments.  As of this week, the state’s current backlog of bills owed to schools totals more than $634 million.

Meanwhile, districts are also grappling with a nearly $321 million or 7-percent reduction in General State Aid, which supports general local district operations, since 2009. For the last two years, district GSA receipts have been prorated below their claim amounts.

To help ease school district’s financial burden, the Board is asking for an $875 million increase in P-12 education funding for Fiscal Year 2014 over the previous year, a majority of which would go directly to districts through the GSA formula. The Board reviewed the financial profile data Wednesday during their March meeting, held in Belleville.

“The Illinois State Board of Education is simply asking for what is required by law in fully funding General State Aid,” said Superintendent of Education Christopher A. Koch “While we understand that difficult decisions must be made and that there is a great deal of pressure on the state budget, we are asking the legislature to meet its constitutional commitment. This recommendation is aggressive but desperately needed to provide much-needed financial relief to districts.”

The 2013 Financial Profile reflects how districts are grappling difficult economic times. From 2004 through 2009, the number of school districts in the Financial Watch category declined each year until 2010. That year was the first that the number of districts in the highest risk category increased. The number of districts in Financial Watch decreased once more in the 2011 and 2012 Financial Profiles. This year’s profile, however, saw a 165-percent increase in the number of districts classified in Financial Watch with 45 total.

There are 34 new districts in this year’s Watch category. Of these, five decreased from Recognition, 16 dropped from Review and 13 decreased from Early Warning. Four districts – Bellwood School District 88, East St. Louis School District 189, Maywood-Melrose Park-Broadview 89 and Webber Township High School District 204 – did not submit their Annual Financial Reports. These districts received a score of zero in all categories and were classified as Financial Watch. ISBE staff continues to work with these districts and respective auditing firms in order to receive reports.

For the 2013 Financial Profile of 865 districts, there are:

• 562 Financial Recognition school districts, based on FY12 revised data, down from 602 in 2008 and down from 670 with revised data in 2012.
• 191 Financial Review school districts, up from 182 in 2008 and up from 143 with revised data in 2012.
• 67 Financial Early Warning school districts, up from 59 in 2008 and up from 37 with revised data in 2012.
• 45 Financial Watch school districts, up from 30 districts in 2008 and up from 17 with revised data in 2012.

Results of the Financial Profile: