NEW HANOVER COUNTY — A local school district will be facing some hard financial decisions this year, exacerbated by a state funding shortfall and decreasing student enrollment, after years of balancing its budget with millions from its fund balance.
READ MORE: 2024 school bond on the table, NHCS and county have different outlooks on issue
New Hanover County Schools Chief Financial Officer Ashley Sutton presented the status of the 2023-2024 budget at the school board’s agenda review on Jan. 3.
It was not a pretty picture.
The district is facing a shortfall around $10 million due to the state providing funds under the district’s projected amount.
The board has already approved a budget appropriation transferring $4 million, yet the district remains $6.4 million in the hole. Sutton explained she will present another budget appropriation at the board’s Jan. 9 regular meeting asking the board to approve pulling the money from the fund balance — $5 million will come from the “local current expense” fund and $1.4 million from “other restricted” funds.
Doing so will reduce the fund balances to $1.1 million and $1.9 million, unrestricted and restricted, respectively. This number leaves the district vulnerable in times of emergencies, such as hurricanes, when the fund balance should be used to cover unforeseen expenses.
According to Sutton, the district used $3.3 million, though reimbursed by the feds three years later, to cover damages and mold remediation resulting from 2018’s Hurricane Florence. Without that reserve, the district would have had to wait for federal funds to repair affected schools, affecting instructional days, or ask the county commissioners for assistance.
The depletion of the fund balance has another implication: For the last three budget cycles, the district has pulled money from the fund balance, $4.6 million on average, to cover budget deficits. According to Sutton, this was done at the behest of the county when they were strapped with paying for state-mandated salary increases in 2022; they asked the district to help support the increases with its fund balance.
NHCS will no longer be able to cover those additional costs, at least to the same degree, moving forward. Instead, it will have to balance the budget by making cuts, which has been done in the past, but staff have tried to avoid cutting into vital instructional resources.
Preceding Sutton’s presentation on Wednesday was an audit report from Anderson, Smith, & Wike PLLC. The firm’s CPA Adam Scepurek described the practice of using the fund balance as unsustainable and that the district had to turn “this battleship around.”
Superintendent Charles Foust said he had warned the district this day would come.
“I saw this coming,” Foust said. “And each year when we would have those discussions often, [we would say] we’ve got to tighten up. So now what’s happening is that there has been a hard stop, like both feet on the brakes, which is an uncomfortable stop.”
Each department in the district will conduct its next budget, from the 2024-2025 year, zero-based. This means, instead of working off the previous’ budget’s allotment, every department will start with zero funding and must justify each expense it logs.
One thing the district can’t justify: the Career Readiness Academy at Mosley. In December, the district notified parents it would be shuttering the program after this school year and would need to transfer to another school. This sudden decision, or so it seemed to parents and school board members, was framed on Wednesday as financially necessary in light of the budget discussion.
Chief Academic Officer Faison said the school, which has 15 employees, was costing the district $1.3 million. The Innovative Partnership Grant, which funds $350,000 of the program, is ending in September, putting the entire cost of the program, which only serves 62 students, on the district.
Faison added the school does not offer Career and Technical Education, or CTE, certifications, which many students use to obtain jobs post-graduation, putting them at a disadvantage to students at other high schools.
The board ultimately voted to conduct a public hearing on the issue but did not set a date.
The district department’s budget documents were due Thursday. Most likely, Foust and Sutton will still have to nix items, which could include employee positions, from what’s submitted. Next to come will be the board’s budget work sessions in the next few months.
In addition to the lack of a fund balance cushion, the Covid-19 relief ESSR grant runs out in September. Sutton said the district is on track to use up the funds well before, but after the money’s gone, some positions will be too. Specific numbers Sutton cited include 32 instructional coaches and nursing contracts worth over half-a-million dollars, but positions in dropout prevention, parent and family engagement services, special education, curriculum coaching, occupational speech and language therapy will also be affected.
Foust also advocated from the dais against funding salaries from the ESSR pot, though the previous board chose to do so in an effort to support student struggles during the pandemic.
District staff are already in the planning stages of next year’s budget, despite not yet having exact enrollment data. The projection for 2024/2025 is 24,858 students, 372 students less than this year’s projected enrollment. For the last few years, the district has been overestimating the number of students who would enroll in public school, resulting in budget discrepancies when the state adjusted its allotment.
However, school districts may be able to use February 2023 enrollment numbers to balance fiscal year 2025’s budget per the North Carolina Department of Public Instruction, Sutton said. She added the state will shore up if it provides less money than students enrolled, but the county — funding 25.8 % of NHCS — have not committed to it yet.
The district is also using the same logic for charter schools, which it is responsible for paying based on how many NHC students attend. Its projection is 74 students less than last year. Thus, Sutton explained, she didn’t think charter schools were responsible for NHCS’ declining enrollment.
However, the district will have to provide the same amount of per-pupil funding to both virtual and regular charter schools, which was not required previously.
The district is also anticipating an average of a 4% employee raise and a 7% increase in health insurance rates, which will need to be factored into the budget. Because school districts must turn in their budgets before the state passes its plan, the district may have to adjust if the number is higher. Additionally, the state budget does not cover all employees in the district, leaving the district to cover raises for non-state employees with its local budget from the county.
Reach journalist Brenna Flanagan at brenna@localdailymedia.com.
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