Review of the D65 Deficit Reduction Plan

Bus Savings, the gift that keeps on giving

Update: 1/17 5:31PM: The district reached out to me with some corrections to the lease certificate section. In particular, the full $21 million dollar amount may include working cash, lease certificate payments, and refunding older bonds. Stay tuned for an update which will come as a new post.

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This Monday, the District 65 Administration presented the structural deficit reduction plan (SDRP) to the Board. The Roundtable has some good coverage (and comments) on the subject. I wanted to spend a few days processing before I wrote on this topic.

The high level summary is (view their slide deck) is:

• Reduce central office administration (22 full-time employee cuts in FY25 and 21-26 cuts proposed for FY26): ~$2.5 to $3 million.

• Reduce School-level non direct instruction/SEL staff: $1.8 to $3.3 million

• Reduce Number of Classes: $2.2 million¹

• Optimize bus routes, remove after-school/summer school busses, and remove bus aides for non-IEP/504 students: ~$4.4 million.

• Cut 10% of the Supplies Budget: ~$432,000

• Ending Academic Skill Center (which was funded by COVID-relief money): $934,000

• Re-financing Foster School Lease Certificate with municipal bonds (see below)

All of these proposed changes are for the 2026 fiscal year, which goes from July 1, 2025 to June 30, 2026. So most of the cuts are not going to happen until six months from now. As for this year, the original deficit projection is also -$13 million.

So if they can shift next year to a -$3 million dollar loss instead of a -$16 million dollar loss, I guess that’s moving in the right direction?

There were no plans presented for closing buildings in 2025-26. That is part of SDRP Phase 3, which focuses on long-term sustainability, is set to begin next month. In reality, that’s probably a decision for the next Board starting in May.

Bus Savings 🙄

I don’t completely understand the bus savings - $4.4 million is a massive cut to the overall budget, which is around $10 million dollars. It’s not clear to me how you can get there by only cutting non-IEP/504 aids, after-school/summer busses and optimization of bus routes. If true, it’s bonkers if the District is spending 44% of the current transportation budget on these things alone!

So I tried to see if I could back into these amounts. The District uses two bus companies and you can view invoices that I have FOIA’ed below.:

• Britelift Contract

• Britelift Invoices

• Positive Connection Invoices

Britelift doesn’t detail the cost for aides in the invoices, but they do in the contract - it’s about $60+ per ride. However, Britelift primarily serves special education students. Here’s a list of how their bill was broken out in May 2024. There’s not much juice to squeeze from that orange but a large portion of this should be reimbursable by the State.

We can also look at Positive Connections invoices - they do most of the other rides, including Fifth Ward kids. The most recent bill I have is from December 2022:

If “Monitor” is the equivalent of the bus aides, you can see it is around 10% of the whole bill. So perhaps, this is the source of some savings, but it’s hard to imagine how you can get to $4.4 million from that plus a few optimizations.

Given that only 3 years ago, the District 65 administration misled the Board and the taxpayers with false claims about bus savings in order to make a terrible financial decision (the lease certificate), it’s hard to give the benefit of the doubt here.

Speaking of that bad financial decision..

Refinancing Lease Certificates

The Board was also presented with an option to refinance the lease certificate using a more traditional financial instrument - municipal bonds. A bond allows the District to get a pile of new debt, use it to pay off some of the lease certificate, and then kick the can on payments down the road or potentially forever (because they can always re-fund the bond later).

If the District had held a referendum (which is required by law for construction), this is how they would’ve funded it:

• Voters approve tax levy for construction.

• District takes out a bond for construction.

• As the taxes come in, they go towards paying off the bond, over a period of 20 or 30 years.

This is an incredibly common practice - in the November 2024 elections alone, there were 20 Illinois Districts that voted on construction referendums.

So here we are, taking out a bond to pay off the lease certificate, which was only permissible in the first place because the District made false claims regarding bus savings. State law is incredibly clear that a referendum is required for this type of construction!

Sec. 10-22.36. Buildings for school purposes.

(a) To build or purchase a building for school classroom or instructional purposes upon the approval of a majority of the voters upon the proposition at a referendum held for such purpose or in accordance with Section 17-2.11, 19-3.5, or 19-3.10. The board may initiate such referendum by resolution. The board shall certify the resolution and proposition to the proper election authority for submission in accordance with the general election law.

But District 65 is not the only one to use this loophole. Skokie District 69, when they built Lincoln Middle School also skipped a referendum. District 69 took out a lease certificate for $25,065,000 in January 2019 and then two months later took out bonds for $22,315,000 to pay off most of the lease certificate.

I personally find this loophole so anti-democratic and clearly in violation of the spirit of the law. It’s unclear if it’s actually legal, as far as I can tell, it has never been tested in court.

Update: 1/17 5:31PM: The district reached out to me with some corrections to this section. In particular, the full $21 million dollar amount may include working cash, lease certificate payments, and refunding older bonds.

Either way, the refinancing would look like this: they would take out $950k in March 2025 in order to make the June 2025 lease certificate payment of about $950k. Then in September, they would take out a bond for $21.5 million to fund a little more than half of the lease certificate payments.

This would effectively end the $3.25 million dollar annual drain on the operating budget but create longer term debt and put District 65 back at the maximum debt limit.

The refinance doesn’t come cheap, PMA (the vendor managing this) provided some example fee amounts in their proposal.

• For a $3,000,000 bond issue, the fee would be $16,545 (or $5.52 per $1,000)

• For a $6,500,000 bond issue, the fee would be $23,620 (or $3.63 per $1,000)

• For a $10,000,000 bond issue, the fee would be $30,375 (or $3.04 per $1,000)

• For a $20,000,000 bond issue, the fee would be $45,375 (or $2.27 per $1,000)

• For a $30,000,000 bond issue, the fee would be $59,075 (or $1.97 per $1,000)

So for a refinancing like this, it would cost around $50,000 for issuance. It’s unclear if there are longer term fees.

The advisor suggested the Board needs to decide on this as soon as this month in order to get funds in time for the June lease certificate payment. I wondered - is it possible that the fund balances get so low, by June 2025 that they might need to take out tax anticipation warrants (ie short term debt payday loans)? It’s unclear. June 2025 can be an expensive month for District 65 since some of the teachers receive their summer compensation in a lump sum and the lease certificate payment. That’s a big check to write and those fund balances are going fast.

I had someone go through all the District 65 financial reports and digitize revenue figures for me. In general, it seems like revenue comes in when the Cook County taxes are due. In 2024, it was due March 2024 and August 2024.

It’s possible that the cash crunch gets very tight until the August 2025 tax money comes in and plausible that they may need to take out tax anticipation warrants. It’s astonishing that over the last five years, the District went from having $36 million in reserves to living paycheck-to-paycheck.

Back in September, Dr. Grossi warned of the dangers of these short term loans and a state takeover.

The takeover is somewhat arbitrary, there is some metrics they cite in the code in terms of issuing two years of tax anticipation warrants but a lot of it is just an assessment. At some point in time they get on the state’s radar and they monitor what is going on and depending on the situation, they act accordingly.

1. Technically this was labelled, “Section reductions in alignment with class size guidelines” - but my interpretation is that this approximately means reduction in the number of classes.