In perhaps the first glimpse of how local public school budgets may be affected by the COVID-19 pandemic, Chief Financial Officer John Wilson gave a blunt report to the Baldwin County Board of Education Thursday.
Citing a new report from Baldwin County Budget Director Ron Cink, Wilson said sales tax revenue for the month of March was down nearly 20 percent and with the ongoing closures of restaurants, small businesses and beach tourism, he expects it would decline 40 to 50 percent in April.
To put those numbers in perspective, if the same 20 percent drop was experienced year-over-year, it could result in a $21 million loss in revenues for Baldwin County public schools and a $1.5 billion loss for the state Education Trust Fund (ETF).
But, Wilson also said there was some good news. Taking advantage of lower interest rates, the system was able to refinance existing bonds to save $2.4 million on debt without extending the terms. Meanwhile, he reported the county school system has “a very strong balance sheet” and “a strong reserve balance,” but warned prolonged economic declines could result in hiring freezes, capital project delays or in a worse scenario, statewide proration.
“I know we’re going to take a financial hit — there is no denying that — it’s just trying to quantify how bad it’s going to be,” Wilson told the board. “The main, critical question is how long this will last. I don’t want to scare everybody, but I did want to express and put into perspective the potentially very serious nature of this situation if this is prolonged, or if the economy doesn’t bounce back like we expect.”
This week, Wilson told Lagniappe the county school system has a $46 million reserve account, but anticipates a $10 million loss in revenue for the three-month period between March and May. In the meantime, funds from recently unnecessary expenses such as fuel for buses and canceled professional development conferences have been shifted to maximize the reserve account. And while open employment positions continue to be advertised, the board may not add anyone to the payroll until June.
“We have the ability to make it through these immediate, challenging times, but if it continues throughout the summer, of course I’d have to reevaluate that impact,” Wilson said. “But it’s my intent to do everything in my power to protect the classroom.”
Wilson said he anticipates all of Baldwin County’s major construction projects funded under its pay-as-you-go program, including new schools in Belforest, Orange Beach, Foley and Fairhope, which will be completed and open by the fall.
In the city of Gulf Shores, which coincidentally is still in its first year as an independent school system, Chief School Financial Officer Chad Green shared a similar perspective.
“It’s hard to tell right now because we just don’t know how long this pandemic is going to last, but we’re hoping for the best,” he said. “We’ve met with our coordinators and directors and we’re really trying to freeze funding with the exception of items of necessity. We’re trying to hold off on big maintenance projects or something that we were planning on doing that can wait. We’re trying to find ways that we can reduce services during this time, with no teachers or students in the building, because we just don’t know how it’s going to be affected long term.”
Public schools in Alabama are funded with federal, state and local revenue, primarily based on a state formula counting their Average Daily Membership (ADM) for a period 20 days after each Labor Day. The majority of all teacher and administrator salaried positions are funded by the state, with the exception of additional teachers hired to lower class sizes or provide enhanced instruction. Support staff including nurses, custodians and central office staff are funded locally and, according to Wilson, are often more vulnerable to budget cuts.
But again, Wilson said it was too soon to have that discussion, plus he’s received assurances from the State Department of Education and local legislators suggesting that when the Legislature returns to session May 4, it seeks to pass a flat ETF budget for 2021.
Speaking of the P-word, Baldwin County School Board Member JaNay Dawson was an administrator during the last period of frequent proration, the decade between 2001 and 2011. She emphasized that this economic downturn is nothing like the Great Recession, and both the county and state boards have done “an excellent job” responding to the COVID-19 pandemic, considering the circumstances.
But for a historical and hypothetical perspective, Dawson said proration effectively cuts the budget in the middle of a budget year, “so then everything that was coming from the state has to be shifted to local funds.” Meanwhile, the county has to follow its annual budget until the end of the year, at which time it would cut expenses and, in most cases, locally funded personnel.
“That’s a very hard thing to do,” she said. “We’re not in the circumstance now of facing that and the most important thing now is that the board is extremely conservative. Then we always hope we never have to go there.”
The ETF, which gets more than 60 percent of revenues from income tax and roughly 26 percent of revenues from sales tax, collected nearly $7 billion in 2019.
To prevent proration, the Legislature enacted the Rolling Reserve Act in 2011, which placed a cap on annual appropriations from the ETF and created an additional reserve fund — the Budget Stabilization Fund — to access only in the event of proration or natural disasters. It currently has a balance of nearly $240 million. Additionally, the ETF has a Rainy Day Fund with a $454 million balance, according to the Legislative Services Office.
Meanwhile, school officials in Baldwin County are carrying on, while also waiting to analyze how business and revenue will bounce back after restrictions are lifted.
“When the beaches are open we’ll see if people are willing to come and stay and our hope is that they will,” Green said. “We understand our revenues are going to be down some this year, but if we can get the beaches back open and get back to more normal levels that we were anticipating, we can get back on track next next school year as far as a full budget.”
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