New budget projections show the Mehlville School District will face a roughly $4.8 million deficit next fiscal year, one officials will have to offset through a combination of cuts and spending down district reserves.

The Board of Education asked administrators last week to prepare a recommendation on how to close that $4,825,000 gap using both budget cuts and reserves.

While the board last spring adopted a contingency plan of possible budget reductions, officials will be able to craft a more detailed and prioritized list now that next year’s financial outlook is becoming clearer, Superintendent Terry Noble told the Call.

“We’ll list items — kind of like our contingency plan except more detailed — and they’ll have a dollar amount. We’ll prioritize it in our way of thinking, and the board may have a different opinion, so it may change,” Noble said. “But we’ll show how to get to $4.8 million at least and maybe even go beyond that so that the board can then have something as a basis for making those decisions.

“For instance, (in the original contingency plan) staff positions aren’t identified; it just says so many staff positions and doesn’t really identify what they might be. In this case there’ll still be some places we may not identify specifically who but we may be able to say ‘x’ number of positions won’t be filled through attrition, and we may identify ‘x’ number of classroom teachers versus ‘x’ number of administrative positions, things like that.

“I think what I heard the board saying is that they know we won’t be able to take $4.8 million right off the top in cuts,” the superintendent said. “But using that with some spend down of the balances we’ll get to $4.8 million.”

Chief Financial Officer Noel Knobloch projected nearly a year ago that Mehlville would deplete its operating reserve by 2013 due to a combination of flat local revenue and millions of dollars in possible state funding cuts. The Missouri Department of Elementary and Secondary Education requires school districts maintain an operating fund balance that’s at least 3 percent of total operating fund expenditures, excluding activities, athletics and food service.

Districts that don’t are placed on the state’s “distressed” schools list.

Knobloch told board members at a work session last week he currently projects the district will end fiscal 2011 on June 30 with revenues of roughly $101.4 million, expenditures of roughly $101.6 million and a 14.2-percent operating reserve.

“This is based on what I know today, and there still are a lot of variables out there,” Knobloch said. “Our tax receipts are looking very good, but we still don’t know what’s going to happen with the state …

“This is assuming that they will be able to pay the entire formula this year, and it’s expected that they will do that with one last piece of stimulus funds.”

Once federal American Recovery and Reinvestment Act dollars disappear July 1, Mehlville may see as much as a 15-percent — or $1.5 million — drop in state moneys, he said. The district also is expected to lose roughly $700,000 in one-time local property tax receipts it was able to recoup this fiscal year because it set its tax rates the previous year based on preliminary assessed valuation figures, Knobloch said.

Therefore, the CFO estimated the district in fiscal 2012, without making any budget reductions, would see total revenues drop to roughly $99 million while expenditures increase to roughly $103.8 million — creating a $4.8 million deficit. If the district only used cash to offset that deficit, its operating reserve would drop to roughly $7.5 million — 8.3 percent of expenditures — from the roughly $12.3 million balance projected at the end of fiscal 2011.

Without identifying specific cuts, Knobloch presented the board with three possible alternatives to such a reduction of its operating reserve.

The first option — reducing expenditures by $1 million to $102.8 million — would leave an operating reserve of roughly $8.5 million, or 9.6 percent of expenditures.

The second option — keeping expenditures at the projected fiscal 2011 level of $101.6 million — would cause the district’s reserve to decrease to only roughly $9.7 million, or 11 percent of expenditures.

The third option — a budget balanced at $99 million in revenues and expenditures — wouldn’t require the use of cash, and the district’s operating reserve would remain at roughly 14 percent of expenditures.

“But it’s easy to balance a budget on a spreadsheet,” Knobloch told the board. “It’s difficult when you start trying to cut $4 million to $5 million out of your expenses.”

Board member Micheal Ocello several times has asked administrators what percentage of expenditures they believe the operating reserve shouldn’t go below. He asked again last week, seeking Noble and Deputy Superintendent Eric Knost’s opinions.

“Let me go first because I’m not the one that’s going to have to live with this; Eric is,” quipped Noble, who is retiring at the end of the current school year. “My biggest concern as always is that item of recurring expenses. If you’re going to spend down (reserves), just make sure it’s not spending down to pay for the future. As long as you’re not doing that, you know where you are. You draw a line in the sand and say: This is as low as we’re going to go. Then we can stop there and do what we have to do to stay at that number, whatever that balance needs to be.”

Ocello said, “What is that number that you think is proper for us?”

“I would like to see it at least in the double digits, at 10 percent,” Noble said. “I’d like to see us not go below that. That would be my recommendation.”

Knost said he would like to see the reserve not go lower than 12 percent but added, “It would have to be reducing to 12 percent by one-time funds.”

Knobloch said he would prefer an operating fund balance that ranges from 10 percent to 12 percent of expenditures, noting the district’s bond rating may be downgraded if the reserve dipped below 10 percent.

But Ocello later said, “I’m not all that concerned about the bond rating, and I’m not that concerned about it because right now we are in a bit of an emergency mode from my perspective. I don’t see us going out and building something right now. And according to Noel, at least what I understood him to say is, your bond rating may take a hit, but as things start to turn around … you can fix that. So right now I’m more concerned about messing up our district and the education and quality of our district than I am being concerned about our bond rating. I know to a CFO that’s not very …”

Knobloch interjected, “Well it depends on what you’re doing in the market. If you’re not in the market it doesn’t make any difference.”

Ocello said, “But I think, at least from my perspective, I think that’s our priority — to maintain the quality of this district and to continue to provide a proper education. If we need to go to 9 (percent), that doesn’t hurt my feelings.”