Less than an hour after they approved the creation of the district’s first pre-K-8 campus, its first International Baccalaureate program and more early education offerings, Kyrene governing board members learned they may face a $5 million hole in five years.
The sobering news came from Jeremy Calles, district chief financial officer, who explained that a combination of cuts and new revenue will be needed to fill that hole so Kyrene can maintain a $15 million reserve fund.
“If we get below that $15 million, it gets extremely difficult to hold on to our credit rating,” Calles said.
And that means bad news for homeowners in Tempe and Chandler covered by the district, he noted.
“If we were to get downgraded on our credit rating, that means our interest rate goes up on all outstanding debt,” Calles said. “If our interest rate goes up, that interest rate is covered by tax rates—which means our secondary tax rate goes up and all us homeowners have to pay more money.”
Kyrene currently has the highest credit rating that two agencies, Moody’s and Standard & Poors, will give to any school district in Arizona.
Calles grimly admitted he was bearing bad news at a meeting where the board approved a series of plans aimed at not only stabilizing the district’s enrollment but attracting new students as well.
Kyrene’s enrollment has dropped by 400 students—which means a loss of state per-pupil revenue totaling $2 million.
The plan includes:
Currently offered at more than 1,370 schools in the U.S., the IB program highly regarded for setting high standards and emphasizing creative and critical thinking. IB students are responsible for their own learning, choosing topics and devising their own projects, while teachers act more as supervisors or mentors.
“It’s what progressive schools need to do,” remarked outgoing board member Ross Robb.
Calles said a number of factors threaten to eat away at Kyrene’s reserves, though the enrollment decline appears to be exacting the biggest toll.
Another new cost comes out of the newly approved voter proposition increasing the minimum wage to $12 by 2020. That not only will affect Kyrene employees but also its vendors’ workers and could cost between $1 million and $1.5 million in additional wage expense next year, Calles said.
The district is also trying to come up with a sufficient set of raises for teachers to improve retention rates.
And the state Legislature’s funding actions also loom large in Kyrene’s long-term financial picture.
Other than an enrollment increase, any other long-term budget solution would have to “come from is the generosity of the Legislature, and we have no reason to believe that is going to materially change,” Robb said.
He cited the program changes that the board had just OK’d and said that those and other improvements could spark an enrollment increase over the next five years, “and then those reserve figures don’t start looking so bad.”
But Robb said the board had little choice but to act boldly on efforts to attract new students or face “death by a thousand cuts.”
“We’re either all-in on these big, bold programmatic changes or we’re not,” he added.
Board member John King was distressed by Calles’ report, and said the board faced some difficult decisions.
He insisted that curriculum cuts would not work and might even be counterproductive.
“If we start slicing and dicing curriculum, it’s going to have a direct impact on everything else we’re doing,” he said.
Board President Bernadette Coggins said some of Calles’ projections also are based on some tentative spending that could be lowered.
As far as the Legislature is concerned, Calles said Kyrene might get a slight bump if it approves some $50 million it reportedly is considering on giving to K-12 schools.
Kyrene’s share would be 1.5 percent of that for a total of $750,000.