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March 19, 2003

Financial Profile shows school districts face significant financial problems

The new state Financial Profile for Illinois school districts, released today by the State Board of Education, shows that about one-third are facing significant financial problems.

The Financial Watch List – those school districts facing the most severe financial problems – includes 100 of the state’s 893 school districts; another 183 districts are in the next most severe category, the Financial Early Warning List. The 2001 Financial Watch List contained only 11 school districts, and the greatly increased numbers for 2002 are in part the result of the State Board’s new methodology for identifying districts in difficulty. The 2001 and previous years’ lists were generated using a single financial indicator – fund balance to revenue ratio. The 2002 list provides a more accurate snapshot of the financial status of school districts by using five indicators of financial performance. If the 2002 indicators had been used in 2001, 79 districts would have been on the Watch List and 134 on the Early Warning List.

In addition to the Fund Balance to Revenue Ratio (FBRR) that was used previously, the new Financial Profile uses the Expenditures to Revenues Ratio (EXRV), Days Cash on Hand (DCOH), Percent of Short-term Borrowing Available (STB) and Percent of Long-term Debt Remaining (LTD). Each of the five indicators earns a numerical score based on where the district fits in that category. The first two indicators are weighted at 35% of the overall score and the remaining three indicators account for 10% of the overall score. Added together the five weighted scores yield a Total Financial Profile Score on a four-point scale that places districts in one of four categories: Financial Recognition, Financial Review, Financial Early Warning and Financial Watch.

“The 2002 analysis shows that almost 74% of our school districts were operating with deficits last year, and we expect that to be over 80% by the end of this school year,” Board Chairman Ronald J. Gidwitz said. “Students are being shortchanged by the inadequacies of our funding system for schools.”

“It is widely understood that many school districts are facing severe financial problems, with costs rising much faster than local or state revenues,” said State Superintendent of Education Robert E. Schiller. “This new profile system gives a more accurate picture of school district finances throughout the state, and it clearly shows that financial problems are increasing rapidly. This profile is based on June 30, 2002 data. Current year financial difficulties should also be considered,” he said.

The Financial Profile is based on the State Board’s analysis of school districts’ June 30, 2002 Annual Financial Reports. In addition to the 100 school districts on the Financial Watch List, 183 districts are on the Financial Early Warning List, 276 on the Financial Review List and 334 on the Financial Recognition List.

School districts on the Financial Recognition list will get a commendatory certificate from the State Board. The State Board recommends that districts on the Financial Review list develop a 3-year projection of operating costs, establish a Finance Committee of the school board, develop a staffing plan and personnel inventory, and develop a 3-year Equalized Assessed Valuation projection and tax levy analysis. In addition to those recommendations, districts on Financial Early Warning will be requested to provide the State Board with a cash-flow analysis of the current fiscal year, a balanced budget for the next fiscal year on an ISBE template, enrollment projections for the next three years, detailed analysis of short- and long-term debt, and, if appropriate, a school district reorganization and incentive study.

School Districts on the Financial Watch List would be required to do all the things itemized above that are recommended for or requested from those on the Review or Warning lists. The financial records of districts on the Financial Watch and Financial Early Warning Lists would also re reviewed by State Board staff to determine if the districts are eligible for Certification as “In Financial Difficulty” or if eligible for Emergency Grant Funds with a Financial Oversight Panel.

The State Board has created Financial Oversight Panels for two financially strapped school districts since December: Livingston in Madison County and Cairo in Alexander County. In addition, the legislature authorized a School Finance Authority for Hazel Crest school district in December to enable the district to continue to operate for the remainder of the school year. Hazel Crest was insolvent in December but under the previous criterion was not eligible for placement on the previous Financial Watch List based on the June 30, 2001 Annual Financial Report.

The 2002 Financial Watch and Financial Early Warning Lists—Please NOTE comments of district superintendents regarding the district’s status—are accessible at the following web site:

Illinois State Board of Education
100 North First Street
Springfield, IL 62777