Budget challenges for next year

Friday, February 24, 2017 - 3:18pm
A Message from Superintendent Gdowski

Superintendent Gdowski explains factors leading to 2017-18 budget challenges

Dear Five Star families and staff members,

I hope this letter finds families celebrating their children’s progress this school year following parent/teacher conferences, and that all of you had an enjoyable extended holiday weekend.

I’m writing today to bring you up-to-date regarding our work in preparing the district’s budget for the 2017-2018 school year. We’re facing, like other school districts throughout the state, difficult decisions in preparing our budget for next year as our revenues continue to fall short of covering our expenses.

Read or listen to an article on Colorado Public Radio about state funding challenges featuring our superintendent, Chris Gdowski.

Some readers may be surprised to learn we face this budget challenge, as many believe public schools are receiving significant revenue from marijuana sales. Others may believe our $350 million bond, which passed in November, would help us operate our schools. Unfortunately neither of these beliefs are accurate.

Marijuana sales only generate $40 million per year for school facility needs throughout the entire state. Marijuana money is not allocated for school district operations.

Likewise, our bond revenues are restricted to building and fixing facilities and cannot be used to hire teachers, bus drivers, paraprofessionals, or pay for utilities, textbooks and other expenses necessary to operate our schools.

We are grateful to your support in passing 3D, but unfortunately it does not solve our state’s continued reductions in K-12 funding.  

The remainder of this letter gives more detailed information about our budget challenge and next steps that we’ll be taking to address it. Our budget challenge is the product of several variables, including the following:

1. Continued Declines in State Funding
Funding for K-12 education has declined sharply in the years following the Great Recession of the late 2000s. The state legislature sets school funding levels each year and starting in the 2009-10 school year those allocations have fallen short of the amount needed to keep up with inflation and growing statewide enrollment. For the current school year we're funded about 11.5 percent lower than we were in the 2008-09 school year when adjusting for inflation. In dollars and cents, the state funding reductions over the past eight years total more than $290 million for the Five Star District alone.

We expect it will get worse for the 2017-18 school year because of a few major factors at the state level: 

  • Gallagher Amendment Adjustment
    The legislature is unlikely to nail down school funding allocations for next year until late April or early May, but at this point we believe we could have our funding for next year reduced by about $4.7 million as compared to Governor Hickenlooper’s proposed budget released in November. Most of the reduction is the result of a provision in the Colorado Constitution called the Gallagher Amendment. Gallagher requires reductions in the residential assessment rate for property tax purposes when increases in home values outpace increases in the value of commercial property. The big increase in home values has triggered the Gallagher adjustment.  State analysts indicate tax rates for residential property will go down starting in January 2018 and that the funding for K-12 education will decline by over $100 million statewide. Governor Hickenlooper proposed making up for this lost revenue by increasing the tax rate on recreational marijuana and by changing the tax structure on homes owned by senior citizens, but it appears neither of these proposals are likely to pass the legislature. 
    • Click here to watch a video explaining how the Gallagher amendment works. 
  • Additional State Funding Allocation to Some Charter Schools
    Senate Bill 61 is pending in the legislature which could reduce our state funding for next year by about $700,000 on top of the funding lost through the Gallagher adjustment. It would allocate about $14 million in state K-12 funding to a group of charter schools overseen by an entity called the Charter School Institute, or CSI. The bill's objective is to give these state-supervised charter schools additional funding to help them keep up with schools that have received supplemental funding through local elections. (These supplemental funds are commonly referred to as "mill levy overrides," and in the Five Star District our voters have approved four such overrides from 1991 to 2008. Revenues from these overrides total $35.4 million per year). If this bill passes, it will reduce the amount of funding we receive for each of our students in the Five Star District, including the students enrolled in the three charter schools -- Stargate, Westgate and Prospect Ridge Academy -- that are overseen by the district.
District Revenue Outlook Feb 2017

2. Reallocation of Past Overrides to Charter Schools
As noted above, district voters have approved four local overrides from 1991 to 2008. These overrides were earmarked for increasing high school graduation requirements, avoiding staffing reductions, and other specific uses approved by voters. Senate Bill 61, if it becomes law, would redirect approximately $3 million of these override funds to our three charter schools. 

3. Depletion of One-time Dollars, also known as Fund Balance
We have mitigated some of the bite of these ongoing state funding reductions by using money from the district's savings account, which we commonly refer to as "fund balance" or "reserves." In the 2012-13 school year we had about $46 million in our reserves. We have drawn from the reserves consistently over the past five years to offset state funding cuts so that we can have competitive salaries and benefits to neighboring school districts and to invest in programming to improve student achievement. These expenditures have been targeted at addressing the district's most critical needs and have helped us improve the academic achievement of students to a level that has elevated the district's state accountability rating to Performance status.

We are no longer able to use reserve funds to help subsidize our operations, as our fund balance has declined by 40 percent over the past five years and is now sitting at the minimum levels required by state law and board of education policy. 

The Bottom Line
Given the reduced revenues I’ve outlined above, and an anticipated $10 million increase in expenditures for such things as increased health care costs, covering one-time dollars used to balance the current year (2016-2017) budget and compensation, Adams 12 Five Star Schools may experience a $13.8 million shortfall for next fiscal year.

Revenue Forecast Feb 2017

How are other districts dealing with state revenue cuts?
There are three primary ways that a school district can soften the blow of state revenue cuts:

  • Pass a local mill levy override. Local voters can generate additional property tax revenue for their local school district through passage of an override, which generates ongoing dollars to support compensation, programming and other academic opportunities. Districts that have passed an override, in or after 2010, have used the dollars to help ease the pain of cuts at the state level. Voters in the Five Star District last passed an override in 2008.
  • Increase enrollment. The amount of state funding a school district receives is based on the number of students it serves. While the Five Star District has seen significant growth and overcrowding in newer parts of the district, some of the older, more established neighborhoods have experienced enrollment declines. This creates negative pressure on the district’s revenue.
  • Use available fund balance. All fiscally responsible organizations save dollars for a “rainy day” like the Great Recession. Adams 12 Five Star Schools is no different. The problem is the “rainy day” has turned into a “rainy decade” and has depleted the district’s fund balance from roughly $46 million in 2012-2013 to about $27 million currently.   

Next Steps in the Budget Process
We will continue to monitor the budget-setting process at the state level. The funding picture should become clearer in late March. Additionally we will engage staff, our District Accountability Committee (DAC), our board of education, our teacher and support staff association leaders and the greater Five Star community in building an understanding of the budget situation. As we move forward, we will consider immediate budget-balancing options to include:

  • budget reductions,
  • use of one-time funds which would require a change in board of education policy,
  • or a combination of budget reductions and use of one-time funds.

We will also begin discussions about longer-term budget balancing needs, including the possibility of generating additional operating revenue through a local mill levy override.

Thank you for your continued engagement in our schools. I look forward to partnering with you as we move forward to address critical issues that impact our students’ learning environment.


Chris Gdowski