Ending Q2 Like A Lamb
by Alex Saitta
July 15, 2010
800 Pound Gorilla:
As I mentioned on our message board the school board and all local governments face two challenges and one major uncertainty as they look ahead to their 2011-12 budgets.
The 800 pound gorilla for the school board is it will lose $5.3 million in federal funding next year. This is one of the reasons I and a couple of others urged the school district administration to give us a budget forecast not only for 2010-11, but also 2011-12. To their credit the district office produced that, and it outlined how bad the long-term deficit is for our schools. Additionally, the finance director is keeping the board well informed of the changes in the financial situation on a month to month situation. She has a firm grasp on the situation.
Some See It - Some In Denial - Some Lack Skills:
These are two major challenges and for that reason I'm pressing the administration and the board leadership to sit down soon and begin to talk about how we are going to deal with yet again another large budget deficit. To some degree, this request has been met with denial. There is a hope the economy will just rebound and all will be well next year. It has done that before, some feel it will just do it again, won't it? No. This time is different. This video
explains why this economic recovery is likely to be weak.
Others just don't readily pick up on budget issues, numbers are not their strength and they really have trouble grasping money issues. For example, I see most things through a prism of finance and economics, so budget issues I pick up on faster. I'm slower to see issues that relate to the arts or let's say the value of recreation because that is not my skill set. Others are just focusing on other things, and haven't yet realized we face a multi-year deficit that requires major changes in district spending priorities.
The first challenge the board will face with the 2011-12 budget is expenditures are continuing to rise. While the national inflation rate overall is 2%, many of the district's expenditures are rising at a faster rate. E.g., medical costs were up 10.8% this year. This is concern.
The second challenge is the district is losing $5.3 million in federal money in 2011-12. Another big concern, which all local governments face.
The uncertainty is what will be the growth in state revenue this year and leading into 2011-12? State revenue is starting to grow again. In March and April it was up slightly, and in May it grew by 11.4% vs May 2009. Will it continue to grow enough in 2010-11 to wipe out the cut in federal funding and rising expenditures like medical costs that will hit in 2011-12?
I don't think so. That revenue growth in Q1 and the start of Q2 is all in the rear view mirror. Most of the economic figures released for May and June point to an economic slow down. We are still in an economic recovery, but it is weakending, frankly, when it should be getting stronger. This is what is going to happen for the next decade or two. Given there is so much debt out there, this and that crisis will blow and it'll take a piece out of economic growth. This current patch of weakness is due to the debt crisis in Europe. Yet to come is the commericial real estate crisis, the pension crisis, etc..
U.S. retail sales fell in May and June. Loan applications for purchasing homes fell off the cliff in May. Employment growth is slowing. (You can see all those stories in our news column.)
Weaking Economic Recovery:
I'm not a doom and gloomer here. Don't put me in an-economic-collapse-is-about-to- happen crowd. The recovery will continue, but economic activity is slowing at the end of Q2. This will weaken growth in revenue and further supports the point that the school board needs to sit down early and start looking at the large deficit it faces in 2011-12. It will be a far more difficult challenge this time around, because the less difficult cuts have been made and most of the remaining choices for cutting expenditures will be time consuming to uncover and more difficult to pull the trigger on.