Mehlville’s projected $8 million deficit for 2015-2016 not a surprise, CFO says

District’s shortfall could rise to $19 million by 2019-2020

By Mike Anthony

A projected budget deficit of more than $8 million for the 2015-2016 school year is no surprise, Mehlville School District Chief Financial Officer Marshall Crutcher recently told the district’s Finance Committee.

Regarding Mehlville’s projected $8.189 million budget deficit for the coming school year, Crutcher said, “… That’s not a surprise. You know, I’ve heard that there’s people out there that are shocked that we have that …”

But he noted a five-year financial trend summary that he presented to the Board of Education last June projected the deficit.

“So last year, as I put out in June, it clearly shows that we were predicting an $8 million forecast loss,” he said. “So we knew that last June. So as we talk about this today, this is no surprise. This was already out there.”

The board voted 5-2 last June to approve a one-year memorandum of understanding, or MOU, with the Mehlville National Education Association. The pact included an average 2.4-percent salary increase for teachers, which added up to $2.5 million more in budgets for this year and future years.

Opposed were Vice President Venki Palamand and Secretary Lori Trakas.

Palamand and Trakas said they voted against the raise to slow the district’s rate of deficit spending out of its $21 million reserve fund. Five-year projections show the reserves dwindling to nothing if no changes are made to the district’s finances.

Because salaries are an annual reoccurring expenditure, increasing salaries could take $12 million out of the district’s reserves over just the next few years, Palamand said at the time.

The board also voted 6-1 last June to approve a $110 million budget for the current school year that has a nearly $5 million deficit — part of a five-year plan to spend down reserves. Trakas was opposed.

The nine-member Finance Committee is comprised of residents who have financial backgrounds. During the panel’s Jan. 29 meeting, Crutcher provided an overview of the district’s financial situation, noting that the projected $8.189 million deficit for 2015-2016 includes no pay raises. To eliminate that deficit with no cuts, a tax-rate increase of 51.25 cents would have had to have been placed on the April 7 ballot.

The board is set to consider approval next week of the district’s new strategic plan.

To implement the plan, a tax-rate increase of 86 cents per $100 would have had to have been placed on the April 7 ballot to offset a projected $13.7 million deficit.

Because no tax-rate increase was placed on the April ballot, at least $8 million in cuts will have to be made for the 2015-2016 school year.

In his presentation, Crutcher also cited key financial trends over the past six years.

“… This is really important,” the CFO said. “In the last six years, property values have decreased 1.11 percent per year, which explains why total revenues have only increased 0.62 percent per year. The taxes which are affected by this property value, the taxes comprise 60 percent of our total revenue source. So the fact that AV (assessed valuation) is declining, it’s a huge part of our revenue.

“If property values had increased just a quarter of a percent per year during this six years, then right now our revenues would be about $5 million more per year …”

For those six years, salaries have increased by 1.29 percent per year, while total expenses have increased 1.8 percent per year.

“That’s very efficient,” Crutcher said, adding that even with the pay increases approved last year, the average salary increase is 1.29 percent over the six years. “This is not frivolous spending. This is very efficient.”

Compared to Mehlville’s benchmark districts — Affton, Bayless, Fox, Hancock, Lindbergh and Wentzville — five of the six spend from 10 percent to 30 percent more per student than Mehlville, he said.

“Only Bayless spends less. They spend 7.2 percent less per student, but they do not have or provide transportation,” Crutcher said. “That’s how they do it.”

Four of the six districts have 35 percent to 55 percent less property value per student than Mehlville. One district has 1 percent less and one district, Lindbergh, has 27 percent more.

“Yet, all six districts have tax rates that are between 71 cents and $1.64 higher than Mehlville. Every single district has higher tax rates than us, and 71 cents is the lowest difference. If Mehlville had those tax rates, they would have, at a minimum, $11.4 million more per year, up to $26 million more …,” Crutcher said, noting that the additional minimum revenue would cover most of the projected 2015-2016 deficit of $13.75 million to implement the strategic plan.

“Those are facts. I’m not saying we should have a tax increase, but I am saying that you need to look at the data and you need to understand the facts,” he said.

Crutcher also presented financial projections for the next five years, starting with the projected shortfall of $8.189 million for the coming school year. Assuming flat assessed property values and flat student enrollment, that shortfall is projected to increase to $19.897 million for the 2019-2020 school year. Those projections include no salary increases for the 2015-2016 school year, step increases for 2016-2017, no pay increase for 2017-2018, step increases for 2018-2019 and no salary increases for 2019-2020.

“This is not lucrative. I mean, this continues pretty much that 1.29-percent trend … I think that’s pretty conservative — three of the next five years, no pay raises …You’re not going to attract top talent doing that,” he said, adding, “… So if we have any desire for student achievement, that’s not going to cut it. This is just to survive.”

But Trakas said that Mehlville’s financial situation is not unique.

“… It seems to be an issue among St. Louis County (school districts). It’s not just to Mehlville. This is an epidemic that’s going on. It’s not unique to us — that there are a lot of people who really need to come together to solve this problem,” she said.

In response to a question from committee Chairman Charles Fischer, Crutcher said his five-year projections include a possible ballot measure in which voters would consider transferring 3.2 cents from the debt-service fund to the district’s operating fund.

“… In the ’17-’18 (school) year, in that year our GO (general-obligation) bonds are paid off,” he said. “So the only way — and I’m not saying the community is going to want to do this or should do it or whatever — but I’m just saying, the only way that we can keep the deficits to this is if we pass a no-tax-increase (measure) where that 3.2 cents on the GO bonds shifts over to the operating tax levy in that year …

“If we don’t do that, you can tack on another $500,000 of deficit every year.”