On May 6, the Hopewell Valley Regional Board of Education approved a budget for the 2018–19 school year that included a 5.27% increase in the general fund tax levy, which is the main source of revenue for the district.
The increase is above the state’s 2% cap for a single-year tax increase. However, when districts approve budgets with tax increases below the 2% cap, the state allows them to “bank” that unused cap for a period of three years.
The Hopewell Valley Regional School District had banked a good amount of cap space in recent years by passing budgets whose tax increases were below the 2% threshold. Therefore the board could and did approve a budget with a tax levy $3,789,253 greater than the previous year.
The Hopewell Express spoke with district superintendent Thomas Smith on May 22 about this decision and a variety of issues related to the budget.
This Q&A has been lightly edited for length and clarity.
Hopewell Express: How does the district arrive at an operating budget for the school year? Do you start with the previous year’s budget, or do you start at $0 and build it all the way up from the bottom?
Dr. Thomas Smith: We do a little of both. There’s certain things that we roll over, and that’s just X—number of staff members, our transportation costs and things like that. Then we also work with our budget managers and we go line by line through their budgets, literally down to expenditures at $500 and below. We look at everything.
We sit in a room pull up their budget on the screen with the business administrator and we look at what they spent two years ago, what they spent last year, and what they’re budgeting for. If they have not spent all the money in their account, we ask them why, and we adjust the account going forward.
If it’s in the budget for $700 for laminating film, and they only spent $250 on laminating film but they have $700 budgeted again, we’re going to take that and say this year we’re only going to give you $300.
HE: Enrollment in the district has been dropping most years for more than a decade, from over 3,600 students 5 years ago to fewer than 3,400 projected for next year. Given this clear trend, how do you justify increasing the general fund tax levy by 5.27 percent?
TS: With enrollment there’s no easy connection—the high school, for example, has decreased by 150 students over the past few years, but that doesn’t translate into X number of fewer teachers. If you had 26 students per class and you go down to 23 students per class, you’re still running that class.
Where we do see a number trend is on the elementary level. The enrollment trend is for less kindergartners coming in than 12th graders graduating. Last year’s kindergarten had 225 students, the graduating class has something like 295. So we’ll be adjusting to that over the next several years.
We have made adjustments on the elementary level already, but we’ve also made some adjustments that didn’t allow us to realize savings. A couple years ago, overall staff stayed the same, but we added full-day kindergarten. So we could have taken five teachers out of the budget, but I made the recommendation to the board to keep those teachers on staff and redistribute them.
We can decrease staff in terms of numbers, but what has also happens is costs have gone up. If you look at it, all of our settlements with our teachers’ association have been over 2%. So there is the vast majority of our budget and then you throw in insurance and that’s even more. Insurance has gone up over 8% on average.
The other part is with enrollment is, the overall school population at the elementary levels have decreased, but yet we still have schools. That’s really something we’re going to have to grapple with over the next years. Can we realize savings by consolidating schools or redistricting?
We have four elementary schools, that’s four principals, four librarians, four nurses, and that’s a great thing. But just to compare us to West Windsor and Montgomery — they both have elementary schools that have like 800 kids, 900 kids. So that’s a cost savings that they get by having larger schools, but what you get at the Toll Gate School and Hopewell Elementary School is that the principal knows all the kids’ names, great things like that.
Going forward, we’ll have to look at what we value as a district. We’ve talked about that on the board because something’s going to have to give, and we’re going to have to make real choices. We have a fantastic arts and music programs on the elementary level, well above state minimums, that’s kind of what we’ve come to expect in Hopewell. But it’s also going to be a conversation about how can we continue this?
And what we saw was part of the increase was paying down the use of surplus closing that gap. Last year we used $4.5 million of surplus to keep the budget whole. This year if we still wanted to stay under the 2%, cap we would have had to use at least that much or more than that, and then the question is, can you generate that next year? As we continue to trim back the budget, we’re not going to have that amount of surprlus to push to the next year.
We froze the budget back in February so we are generating money to put toward next year’s budget. That’s not a good way to run a district so we’re trying to break our habit of that.
My priority is to build a budget that provides an excellent education to our students and follows our mision statement. But we’ve got to look to the future and decide what to do.
HE: OK, but I’m not sure that that explains the question of why the tax levy was increased by 5.27%.
TS: Our costs are going up. Staffing costs no matter how many students we have. We are still running buildings, and those costs are going up over cap. The other thing is, there’s not a formula that translates into X number of students not coming into the district. We don’t have students leaving the district. When I first got here, we had a large number leaving the district for private school. We don’t see that any more. I think last year, we added 25 students to our high school.
Decreased enrollment does not always equate to lower per pupil costs. Sometimes it increases our costs, because of the size of our schools. That’s where the money comes from. Part of this is the inflation that we are all feeling. I take no pleasure in delivering this budget, I’ve gotten my fair share of feedback from the community on where we are. Our point we’re doing it this year was to get us on a level playing field so we can make the hard choices on our terms going forward.
If the board said, “You’re not using any surplus and you need to bring the budget in under 2%,” that’s like a $4M cut. Then you’re talking 40 teachers. The board supported going in this direction but if you’re looking in the future we can never deliver a budget this high again because we won’t have that ability.
Going forward we’re still going to have make cuts because 75% of our budget is increasing more than 2%. Our teachers work hard and they certainly deserve what they’re paid. But we are capped as a district at 2% and if we do not have surplus we are going to have to make tough choices.
That said, it’s been loud and clear even to supporters of this budget on this board, they recognize that this can’t happen again.
HE: But you’ve said that you’ve frozen district spending as of Feb. 14 to generate more surplus. I would think that could be generating in the millions for the district.
TS: We’re still paying salaries, we still have costs associated with operating buildings. It’s really just discretionary costs that are frozen. It’s helping us generate money, but not in the millions.
HE: The Hopewell Express published a letter from former school board member Roy Dollard in April. In his letter, Dollard said he had personally lobbied people to vote for the $36-million referendum in 2016 because he believed it was a fiscally responsible choice, and he pointed to the district’s track record of conservative budget spending in recent years.
He wrote that it wouldn’t be right for the district to have promoted the referendum based on a trend of keeping spending below cap for a number of years, and then to add an increase this year that uses the banked cap from those years to raise the general fund tax levy. Do you think the board set unrealistic expectations when they were selling the referendum?
TS: As the person who gave 17 presentations, I can tell you that one of our slides showed a tax increase as a result of the referendum. People didn’t see that.
I understand his point, but there’s two things. When you just look at the simple logic, when the vast majority of our budget is going up over 2% and we’re bringing in budgets at 0.7 and 0.9%, someone’s got to ask how are we doing this? It’s like using a credit card in a certain sense.
I never said that there was not going to be an increase in taxes as a result of the referendum. Another thing is, the board made a decision, and I think it was fiscally responsible decision the board made, to decrease the amount of time for paying off the referendum. It went from a 30-year to 20-year note. That was determined by the board. But that had an impact on taxes also.
HE: The taxes were always going to up, but that is because of the increase to the debt service, not because of the general fund tax levy.
TS: Yes. Because of the debt.
HE: Do you feel that a school district spending below the max cap is generally a good policy?
TS: I think it makes it very difficult for long-term planning when you have expenses that are higher than the cap and you’re delivering a budget significantly under cap without making significant reductions. I know that many other districts just routinely go to cap, and we did not do that for a few years. But it’s tough to sustain that going forward without again making some significant decreases. So how can you run a budget year after year when all of your expenses are over cap?
HE: In your presentation at the budget hearing, you had a slide with a long list of accomplishments that the school district could boast, including rising in the state rankings. The district was able to make these strides without spending to cap. If the district was able to accomplish this over the past several years, why now has it become necessary to increase the budget just to maintain those levels? What has changed? Is there something the district did without by not spending to cap all those years?
TS: No not really. It just gives us firm footing It just gives us ability to make cost-controlling decisions going forward. I’m already working on next year’s budget. We’re already looking at changes we’ll have to make. We won’t have this much banked cap, we won’t have this much surplus. And we’re going to have to do this year after year.
You ask how we were able to do it in the past. I think it was a combination of enrollment was down and we were able to make decisions with staff, and I think there are no more levers to pull in terms of savings. Our big work was also in our HVAC and our electric bills and those things. We’ve taken them down to about as low as we can get them.
HE: At the final budget hearing, Adam Sawicki said Hopewell Valley’s use of surplus is not extraordinary in comparison to other Mercer school districts, that every school district in this county is using surplus to reduce the tax load on the district. Why is there suddenly an emphasis on reducing the use of surplus to cover the budget?
TS: We’re still using surplus to cover the budget. Adam is correct that other districts use a lot of surplus to help balance their budget. I think our major concern is if we didn’t do something this year to get us off the cycle of increasing the use of surplus, that we wouldn’t have that surplus every year.
Way back when, we had $1.8 million of surplus, then $1.7 million, $1.1, $1.8, and then it started to creep up. We were starting to close that gap, and then last year we used $4.8 million. This year it was still $2.7 million. My concern and I think the board’s concern is going forward, with all of our cost-cutting measures will we be able to generate $4.5M surplus every year?
And then if you’re doing that, the community’s got to say if you can generate that surplus every year, you’re overbudgeted. A couple of the board members say we have to stop using that level of surplus get down to $2.5 million and then start reductions to bring us in at cap or under cap. That’s where the sweet spot, to balance cuts with the use of surplus.
Now, folks will say, why haven’t you been cutting all along? And we have been reducing staff but we have been reallocating them, which I think has been benefiting our kids and our programs. Which could have been a reduction to the district of six teachers. But the board chose to provide better programs.
HE: There was a slide in your budget presentation called “Potential Future Expenditure Reductions.” Are you saying these are more than potential reductions, that these are cuts you’re preparing to make?
TS: The administration needs to be as transparent as possible with our community. We have pulled all the levers we can. Any significant costs savings for us comes down to personnel and programs. If we want to keep our core programs running, if we want to keep good class sizes at the elementary schools, we have to do this stuff. That is looking at all the other stuff which supports education but is not the primary focus of what we do.
And a lot of those are programs I’ve developed while I’ve been here and I’m proud of. To see those be dismantled is upsetting to me. But after this budget cycle, I’ve heard loud and clear that this can’t continue. I’m reflective and understanding of that.
So I’m looking at places where we can cut costs. But it also comes with a value discussion. We could easily operate this district with three elementary schools, but is that something this district will support? And with the potential of a new housing development, I don’t know all the details of this, but I do know that it’s not a good policy to close a school and then open it up again a few years later. That will drive people crazy.
We cut activity fees, but is that something we put back in place? With our world language programs, I know other districts use Rosetta Stone where we have a world language teacher in each school. Is that something we need? That’s why I put those on there, we need to discuss this as a district.
We’re not any different than any other districts, the other districts are all struggling with this.
HE: Because of enrollment decline in the elementary schools, five teacher jobs are being eliminated. No one likes to see that, but that’s just the reality of the enrollment decline, and that has been known since the preliminary budget presentation.
In the final budget, several more cuts were added: a teacher at the high school, an administrator leaving mid-year, and half a world language teacher. You have also said the district will be cutting undersubscribed classes. Why were these cuts added to the final budget?
TS: In between (the presentations), the administrator told us that he’s going to retire. On cutting undersubscribed classes and world language—that was because they start building the class schedule for next year at the high school at the end of February. They were able to report after the schedule was built in March what they could get away with.
HE: Why didn’t these additional cuts result in a reduction in either the operating budget or the tax levy? As just a member of the community not knowing how a budget is devised, I might expect that if you cut several positions from the budget, there would be a cost savings of several hundred thousand dollars, but the total budget is exactly the same, $89,695,565, in both the preliminary and the final budget.
TS: You still have the vast majority of [salaries] going up three percent. When 75% of an $80-million budget goes up 2.8, 2.9%—a hundred thousand dollars doesn’t make a whole lot of impact on a budget of that size. Because the overall expenditures keep going up greater than the cap, we just keep peeling away at it.
HE: The Hopewell Valley has shown a trend of losing ratables in recent years, a trend that is outside the control of the school district. Are you concerned about this trend and how it could impact the district going forward?
TS: Heck yeah. Absolutely. That is the biggest indicator about the tax impact on our community. In other communities in Mercer County, ratables have been consistently going up since 2008, where ours have only gone up one year in the last 10 years. That makes it very dificult for us.
HE: In recent years, Hopewell Valley has had nearly the highest per-pupil cost in the county, just shy of Princeton, and I think with this budget Hopewell’s per-pupil cost will now be the highest, leap-frogging Princeton. In your words, tell me what justifies this comparatively high cost.
TS: I think the number one indicator is the size of our schools, particularly the size of our elementary schools. If you look at Montgomery and West Windsor, which we’re often compared to in terms of per-pupil cost, they have schools with 800, 900 students.
And then there is the value that all our students receive. We have a lot of services our district provides: the counseling we provide, the music and arts programs, those have all been recognized. Whether it’s the Niche rankings (which have Hopewell Valley the 16th best district in the state) or something else, you’re getting a good value for your tax dollar compared to many of the private schools in the area.
Class sizes are on par with some of our private schools, and the fact that our teachers are experienced and providing an excellent education. I think there’s good value here, and the third party rankings have shown that. I’ve said it many times—I would love for my kids to come here and have the wealth of opportunity kids have here.
HE: What are your plans for next year and the year after? Do you plan on going over cap again? Will you use more banked cap?
TS: Right now, we are doing our best to build a budget that comes in at or below cap, and that’s going to mean some reductions to get there. And part of that is the we’ve had a very vocal community who made their feelings heard, and we are going to have to balance what we value with our enrollment decreases and the number and type of programs that we have for kids.
By decreasing [undersubscribed] classes at the high school, 111 students were turned away from their first choice of electives. And we haven’t had that in the past. But that’s our new reality, that we will not be able to give kids the level of opportunities that they’ve had in the past.
And I know the reader might say, hey that’s life, and I agree with them. However, we have not experienced that, certainly not for the last several years. We were always able to provide students and families with a variety of options and I don’t know how long that can continue.