Without taking steps to increase revenues or cut expenses, the Mehlville School District will deplete its operating fund reserves by 2013, according to a recent financial projection.

That in mind, the Board of Education last week directed district administrators to create a contingency plan to address a potential budget crunch in the 2011-2012 and 2012-2013 school years.

“Basically what the contingency plan will consist of is prioritizing everything in our budget,” Superintendent Terry Noble told the Call. “While we know that everything in there is important, some things are more important than others. And that’s really what we need to do is get it in the right order across the board … So as shortfalls occur we have a list to pull out and look at and know where to go first.”

Noble said the effort likely will involve input from community members and other stakeholders.

A number of subcommittees first would prioritize the needs of each district department and program — and then would form that master list from which cuts could be made, he said. Administrators hope to finalize the plan within the next few weeks, Noble said.

“I’m glad we’ve got a little bit of time to do this, but it will take some work to get it all done,” he said.

A forecast of Mehlville’s finances over the next three school years shows overall expenditures increasing to more than $109 million by 2012-2013 from current levels of roughly $101 million, with revenues stagnant at roughly $101 million.

The resulting annual shortfalls would drain the district’s total fund balance to a projected $7,499,354 on June 30, 2013, from the $22,002,354 estimated for June 30, 2010.

The Missouri Department of Elementary and Secondary Education requires school districts to maintain an operating fund balance that’s at least 3 percent of total operating fund expenditures.

With no significant increases in revenue or cuts to expenditures, Mehlville’s operating fund balance is projected to drop to a negative balance of $285,036 by June 30, 2013, from its estimated balance of $14,127,964 on June 30, 2010.

As a percentage of operating fund expenditures, that’s a decrease from 15.48 percent to -0.29 percent.

For now, the district has some breathing room, which can be attributed in part to Proposition T, a successful November 2008 ballot measure that transfers 31 cents per $100 of assessed valuation from the district’s debt-service fund to the operating fund. Prop T is expected to generate roughly $5.6 million a year for the operating fund.

“We’re like one year behind most of the rest of the districts in the St. Louis area because of what happened last year with our tax transfer,” Chief Financial Officer Noel Knobloch told the school board last week. “That helped us get through this year and it gave us at least a leg up on next year. It’s just when that then kind of goes away, then we get those same significant issues most of the other districts started getting last year and are definitely getting as they’re talking about their budgets for this year.”

Mehlville is projected to end 2009-2010 with roughly $101,200,000 in revenues and $101,137,000 in expenditures. That leaves a surplus of about $62,000 — $921,000 short of the $983,000 surplus officials initially anticipated.

The district is projected to lose more than $500,000 in property-tax revenue this year because it set its tax rates last year using preliminary — and overestimated — assessed valuation figures from St. Louis County.

State legislation that would have extended taxing bodies’ deadline to set their rates to Oct. 1 was vetoed by Gov. Jay Nixon last summer. However, the county assessor’s office was working under the Oct. 1 deadline, and only preliminary assessments were available by the Sept. 1 deadline to set rates.

The final numbers, released in mid-September after taxpayer appeals to the Board of Equalization, showed decreases in all four of Mehlville’s assessment categories: residential, agricultural, commercial and personal property.

The most significant decrease was that of commercial assessed valuation. The district set its 2009-2010 commercial tax rate at $2.8935 per $100 of assessed valuation based on the preliminary commercial assessed valuation of $330,153,040.

But that figure dropped to $308,427,520 — a decrease of 6.6 percent. That means the district could have set its commercial rate at $3.1232 per $100 of assessed valuation to collect the same amount of revenue as the previous year, which it’s allowed to do under the Missouri Constitution’s Hancock Amendment. However, the district will be able to recoup the lost tax revenue in 2010-2011 using an interim tax rate, Knobloch said.

Besides the drop in local property taxes, the district saw a roughly $360,000 drop in state sales tax revenue and its earnings on certificates of deposits cut in half due to poor interest rates.

“The net projection for this year … basically shows that we will approximately be break-even,” Knobloch said of the 2009-2010 budget. “There’s still a lot of work to be done this year from the standpoint of finalizing our revenue collections and our bill payments. Those numbers could improve. They could go the other way.

“… We would hope that any shortfall there could be offset by some savings in expenses in the current year. We’re obviously very closely watching all of those. I think the expenses budgeted in here are conservative. I think we’ll have some savings in certain areas, but there’s also the possibility of having shortfalls in revenue, particularly from the state.

“And we’re not sure how our final collections will come in yet,” Knobloch added. “We’ve collected about 93 percent of our levy, but we get one big payment in April after they release the protested taxes, which is the one that we know if we’re going to be on budget or not. So those are the variables we’re looking at for the rest of this year. We would hope that we could come out break-even, which is not bad in this environment. Unfortunately when we budgeted the year we thought we would have a million-dollar surplus. But at least we had that amount of surplus budgeted to cushion us this year.”

The financial officer said there is a “big concern” over state revenues this year, as Nixon’s office recently announced that DESE would not receive a $43 million mid-year funding increase that’s called for in the 2009-2010 school funding formula. Mehlville budgeted receiving roughly $10.5 million from DESE but could be out as much as $200,000 this year because of the $43 million withholding, Knobloch said.

“Those numbers have not been reflected in (the Mehlville budget) because we don’t know exactly what they’re going to be, and it’s a very dynamic, changing environment,” he said. “We project that this year it could cost us as much as $200,000, or between 1 and 2 percent … Next year it could cost about 5 percent, which would be $500,000.”

Knobloch said the district should be able to balance its 2010-2011 budget, though it may have to make cuts to “discretionary” expenditures.

His preliminary 2010-2011 budget assumptions include a slight bump in revenue due to the recoupment of lost property tax revenues, but overall predict flat or declining local and state revenues — a trend that’s likely to continue for the next three to four years, he said.

As for expenditures, Knobloch has assumed normal step increases for district teachers in 2010-2011, but additional positions and base salary increases thus far are not included in the budget. He also anticipates small cost increases in such areas as retirement contributions, health insurance premiums, water and sewer rates, energy costs and food.

“You’ve got 17 percent (of budgeted expenditures), or roughly $17 million, that is what I’ll call discretionary, for lack of a better term,” Knobloch said. “But even that discretionary amount, there’s not complete discretion in all of that stuff because you have to run the operations. So what our intention is as we look through this is to try to get next year to a balanced budget also by making some pretty tough cuts in some of those discretionary items, hopefully not impacting anything in the salary and benefit area other than the way I have them in the projection.

“So we’re going to focus on that 17 percent and try to squeeze enough out of the expenditure line to get a balanced budget next year without having to impact the personnel side of it …,” Knobloch said.

The financial outlook for the 2011-2012 school year and beyond, however, doesn’t look as certain, he said, as state officials are “using the term ‘falling off a cliff.'”

“(T)hey expect to be about a billion dollars below budgeted revenue in fiscal 2011-12, and they’ve used $700 million to $800 million in each of these last two years to balance their budget and most of that allowed them to almost fully fund the formula,” he said. “The problem in 2011-’12 is that if they have a shortfall of 25 to 30 percent that could cost us as much as $2 million to $3 million. Those numbers aren’t even in my assumptions as we sit here tonight. The further out we get, the more uncertain it is.

“… The state is the wild card there, and if we lose $2 million, $3 million from the state funding formula, that obviously goes right to our bottom line.”