Ann Arbor school district fund balance shrinking; this year's budget deficit estimated at $8M

The Ann Arbor school district keeps sliding toward the day it may need to borrow money to meet payroll during the eight weeks a year the state doesn’t provide aid payments, its chief financial officer said Thursday night.

That’s because the district has been spending its fund balance, also known as the rainy day account, to help make up for budget shortfalls.

The district expects to be $8 million short at the end of this school year. That’s up from $6 million projections earlier in the year.

When the board passed its budget for this school year at the end of last school year, it contained provisions to take $2.5 million from the rainy day fund to balance the books.

Ann Arbor Superintendent Todd Roberts and Robert Allen (right), deputy superintendent for operations, discuss a draft plan for possible cuts in the district in January.

But due in large part to nearly $400 in per-pupil funding cuts from the state, the district has added to that deficit.

Superintendent Todd Roberts has instituted a series of cost-savings measures for the second half of the year, including limits on overtime and an 8 percent cut to his own salary and a 4 percent cut for his cabinet staff.

If cost savings result from those changes, especially the overtime and some heating and cooling cost reductions, the district would shave about $2.5 million off the total shortfall.

Even with those cuts, the district will likely have to use nearly $8 million from the savings fund. That would leave about $20 million in the fund.

While that may sound like a lot of money, it isn’t, Robert Allen, the district’s chief financial officer, told the board’s planning committee Wednesday.

That’s because the district needs to have about $16 million in the fund to cover payroll and other bills during the weeks it doesn't get state aid checks.

If the district doesn't have the money in that account, it would have to borrow from the state.Â

Several other Washtenaw County school districts already do that. ButÂ while the money comes at a reduced interest rate, a district still has to pay interest, Allen said.

Allen said when he worked in the Flint school district, it was paying about $400,000 in interest costs each year when it borrowed state money.

“That’s four teachers,” he said.

The school board’s policy says the district shall maintain 15 percent of its budget in the fund balance. This year, that would be between $25 million and $26 million, Allen said.

“We’re really close to having nothing there,” he said.

The district’s financial situation doesn’t appear to be improving anytime soon. District officials are projecting a nearly $20 million deficit for the 2010-11 school year. Projections estimate a per-pupil cut of up to $400 that year.

School board Trustee Glenn Nelson said he was at a Michigan Association of School Boards event on Wednesday, and an official from the House Fiscal Agency told the group to expect an additional $165 per-pupil cut in 2011-12.

“It’s not going to get sunny until after fiscal 2012 at the soonest,” he said.

David Jesse covers K-12 education for AnnArbor.com. He can be reached at davidjesse@annarbor.com or at 734-623-2534.