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With State millions of dollars of promised State funding vanishing, an expiring federal stimulus program, a severe turnaround in the valuation of Lansing's largest taxpayer, and a generally tanked economy, school administrators across New York have dubbed the phenomenon a 'funding cliff.'  State Comptroller Thomas P. DiNapoli has estimated the impact to New York schools at $2 billion in 2010-'11, a funding gap that could raise property taxes an average of 7.7% on average across the state.  On Monday school board members saw a snapshot of what that gap could mean to Lansing.

"We need to direct you to start to look for ways to eliminate two million dollars from the budget, and give us choices," said school board member David Dittman.  "Some of it might be a combination of elimination and some modest tax increase, given the situation.  But I don't think the taxpayers deserve to have a 12% hike in their taxes because the Governor and the County Board decided to change our revenue stream."

The discussion came from a presentation by School Business Administrator Mary June King, in which she showed the impact of state aid reductions and dwindling The American Recovery and Reinvestment Act (ARRA) monies. 

In the '09-'10 budget year New York reduced aid Lansing had been given to expect by $1,013,768.  The initial expectation was that the district would receive $6,171,539 in state aid, reduced to $5,157,771.  But federal money more than made up for the drop.  That meant the district will receive $170,706 more than originally anticipated this year.  And about $400,000 in under-spending this year will help provide a small cushion for future years.

So far, so good.  But in '10-'11 the state reduction comes to $1,342,620.  Federal backfill is anticipated to be $455,847, leaving a $886,773 gap.

Then it gets worse.  In '11-'12 $6,713,418 is reduced by $1,678,354.  Federal backfill that year is zero.  When you add the loss resulting from the renegotiated AES Cayuga PILOT (Payment In Lieu Of Taxes) agreement (approximately half a million dollars in the '10-'11 budget year alone), and decreasing assessment values you are talking about some serious money.

For this year the state reduction amounts to about 6.5% of the tax levy (including the PILOT money).  Next year it goes up to 8.6%.  In '11-'12 it comes to a reduction equal to 10.8% of the tax levy.  Without significant budget cuts that places a considerable burden on Lansing taxpayers.

Dittman advocated taking an aggressive stand to match spending to revenue without putting a burden that could come to a more than 12% rise on the taxpayers.

"Right now we need to bite the bullet," he said.  "We talked about that last year and then we got this stimulus package from the federal government.  At that time we mentioned that the stimulus is going to go away, and now we see it going away.  What we didn't anticipate was the Governor cutting out a million dollars from our budget.  And we didn't anticipate the County Legislature voting to reduce the assessed value for AES Cayuga, thus putting us in a hole in addition to what the Governor did."

But Lansing School Superintendent Stephen Grimm urged a more cautious approach to cutting spending.

"We want to make sure we're very careful and strategic about where cuts are, what our revenue projections are, and then have two or three levels of contingency just in case nothing comes back in ERA, and nothing comes back from the PILOT agreement, and the state continues to tank economically, and there's still state revenue doom and gloom, and there's no hope," he said.  "That's when you really do it.  We can't use a lot of reserves every year.  It only takes about three years to flip yourself upside down, and that's with modest reserve usage.  We have to be careful."

"The State is projecting that foundation aid (the main source of school aid to most districts) will increase by nearly 17 percent over three years between 2009-10 and 2012-13," DiNapoli says in a report issued last December.  "However, to backfill the stimulus funds that disappear in 2011-12 and meet this commitment, the State’s share of foundation aid will need to increase by 31 percent ($4.1 billion) over three years – an unlikely scenario given the State’s own fiscal situation.  Clearly, school districts need to begin planning now for difficult budget pressures in 2010-11 and the stimulus “cliff” in 2011-12."

This year's Lansing School District budget was $23.95 million.  That includes revenue from the tax levy, state and federal aid, and other sources.  To put Lansing's $2 million gap into perspective, Grimm noted that each teacher costs the district between $50,000 and $60,000.  That comes to 15 to 20 teachers per million.  $2 million is just under 10% of the budget, and 12.9% of the tax levy.

"I understand the goofy legal implications the State Legislature (has created) in their lack of wisdom, but let's look at reality," said  Dittman.  "You've got a two million dollar budget gap.  If you end up with a contingency budget you've got to use it so you are going to raise taxes a tremendous amount.  So giving the taxpayers a choice between paying a tremendous amount and a tremendous amount is like holding a gun to their head and saying 'which one do you want?  Do you want the 45 caliber slug, or do you want the 30 caliber slug?  It doesn't make any difference.  Both cause sudden death."

If taxpayers in a school district fail to pass a budget after a second vote the State imposes a contingency budget.  If that happens the State strictly restricts the way money can be spent in the district, which can threaten existing programs within the district.  Normally the contingency amount, set by the State, is less than the budget taxpayers vote on.  School administrators always prefer a voter-passed budget because it allows them to retain control of academic programs.

"We do not want to go out to vote first with a lower than contingency budget just as a practical matter," King said.  "It is safer for program protection."

"This is the Armageddon budget, and next year it gets even worse," Dittman replied.  "You've got to get your spending in line with your revenues.  Everybody else is doing it.  The County's doing it, the State's doing it, the City's doing it.  The school has got to do it.  You have to be real about this and take a look at the effect and what we're trying to accomplish, which is trying to bring spending in line with revenues."

"Whether it is a good year or a bad year I can't imagine that we would do anything different from that," King replied.

That is going to be a serious challenge.  With severe state and federal cuts over the next couple of years, the AES Cayuga PILOT renegotiation couldn't have come at a worse time.  It will cost the district about a half million dollars next year not including over $300,000 that was additionally anticipated for next year in the original agreement.  With enormous increases in health insurance and retirement payments and you begin to see why school administrators across the state are calling it a 'funding cliff.'

King told the board that some of the statements floating around about the district are not true.  She said that rumors of a tax 'PILOT reserve' are false -- there is no such thing.  She said that the district does not have hidden millions, and that regulations and the history of the district would prevent hiding money in any case.  She said that the notion that state aid is locked in at the beginning of a budget year has proven -- especially this year -- to be false.  But she and Grimm pointed to some resources the district can draw upon in the next few years.  And Grimm said he is optimistic about at least some of the dire predictions turning around.

"I can't imagine that the federal government is going to throw that much money at the governors last year and then in two years say they're not getting another penny," he said.  "The governors are lobbying for that from the federal government, so that's a possibility.  The other thing is the PILOT.  They'll be opening that up again in a few months, and I'll be at all the meetings."

He also stressed the importance of long term planning.  The district is currently working on a long term strategic plan that covers every aspect of district activities, including financial planning.  That plan may not be ready in time to deal with the current crisis, but Grimm stressed that the district should plan the '10-'11 budget in the context of multiple years, not just looking at the current situation.

"One of the things we do have is reserves that are in certain places used strategically in multi-year plans to mitigate the effects of large swings in revenue," he said.  "There is a way to plan over multiple years so that we're not drastically cutting two million dollars."

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