Some schools in New Orleans have started making budget cuts after last year's drop in local revenue, with no rebound in sight.
The cuts include staff and programs that school leaders said have provided more targeted support in recent years, helping students improve their math and reading scores.
While last fall’s $50 million deficit was a surprise, district officials have told charter leaders to plan for lower-than-usual funding again next school year.
"The same gap exists, we just know about it now," said Sabrina Pence, the CEO of FirstLine Schools, which operates four PreK-8 schools.
The decline in funding from the city comes as schools navigate the end of pandemic aid, uncertainty over longstanding federal dollars and lower student enrollment, which means less money from the state.
Schools could receive about $9,200 per student, based on the district’s latest forecast, hundreds of dollars less than this year.
But that number could change, since the district doesn’t have complete tax collection figures from the city, and the numbers it does have aren’t locked in.
Jonathan Tebeleff, with the financial firm 4th Sector Solutions, said schools are in a hard place as they face a new financial reality.
“The schools want to be conservative, but they also don’t want to make cuts when they don’t have to,” said Tebeleff, whose clients include more than a dozen New Orleans charter schools.
They can hold back and hope things get better, he said, and use their savings — if they have enough — to stay afloat.
But some school leaders are leery. In school board documents, public meetings and interviews for this story, they have said they worry that the trend will continue, requiring them to make more extreme cuts later if they don’t start trimming their budgets now.
So far, several of the city’s largest charter operators have announced plans to eliminate dozens of positions, with final numbers expected this month. New Orleans schools must approve their budgets for the coming school year by June 1.
An educated guess
Every spring, district officials tell schools how much money they can expect to receive during the coming school year.
That number is an educated guess — meaning it will change, often by a little. But this year, it was a lot.
Officials haven’t given a full report yet on exactly what went wrong. But the bottom line is this: the district overestimated how much money it would get, in part, because the city collected less revenue than usual.
New Orleans’ public schools always receive money from two local pots: property and sales taxes. When the district was estimating how much money would be in the first pot, at least two things went wrong.
According to a fact sheet from the nonprofit New Schools for New Orleans, which has been working with the district to understand the shortfall, the city revised the assessed value the district used to calculate its potential property tax revenue from $5.8 billion down to $5.6 billion, contributing to the gap between the district’s projected and actual revenue.
Tebeleff said finance experts plan for a percentage of the maximum revenue to be collected, and last year, that number was also too high. In a typical year, the collection rate is over 97%. Last year, it was closer to 92% — way lower than expected.
A spokesperson for the City of New Orleans did not answer questions from New Orleans Public Radio on the low collection rate, including potential causes, and instead referred to a largely unrelated press release from late April as “the most current information available.”
Then there’s the other pot of money, from sales tax. The district estimated that it would grow by 6%. Instead, it shrank by about 1%.
“The only years it’s gone down, there is a clear reason for why it’s happened. Whether it’s Katrina or COVID or a nationwide recession,” Tebeleff said. But nothing like that happened last year.
It wasn’t until the school year was well underway that district officials told schools the numbers they had given them were way off.
“Between March and October, the district did not identify or flag the lower actual revenues being received,” according to a page on the district’s website explaining what went wrong, adding that “timely follow-up communication to schools was delayed, exacerbating the issue.”
The school board dipped into its savings to fill half of the resulting $50 million hole, and district officials said they could fill some or all of the rest, though a final plan hasn’t been announced.
Further complicating schools’ financial uncertainties, local revenues reported so far for this year are also down, which means schools could receive less funding for a second straight year.
The district declined a request to discuss next year’s finances until its audit for this year is complete, but the issue has come up recently at local government meetings.
Talking to the school board in April, Nyesha Veal, the district’s new chief financial officer, said the board is trying to give schools more real-time information on how much money is coming in.
“We’re communicating all of our data upfront,” Veal said. “We’re showing the schools as we receive local revenues on a monthly basis, we’re sharing that with them.”
Veal said it’s ultimately up to them to decide whether they want to be more or less conservative with their spending, based on the available information.
Make cuts now, or wait?
Last month, two school leaders told the New Orleans City Council that they’re making cuts now.
Pence, the CEO of FirstLine Schools, said they plan to lose about 31 positions across their four schools, which is about 7% of their staff.
“Those are some of the roles that are helping students recover and succeed,” she told council members in April.
Tanya Bryant, the head of ReNEW Schools, told council members that she is eliminating 25 positions in grades K-8 and another 15 in early education, which accounts for about 8.5% of her staff.
Both Bryant and Pence said the cuts are hard to make, especially since their students are performing better in reading and math thanks to the staff and programs they have now. To continue the trend, Bryant said schools like hers, which have an enrollment of 2,500 students, need more support, not less.
“We’ve gone from the bottom of the district to the top in terms of outcomes,” Bryant said. “This is devastating in a time when we’ve seen so much academic growth over the last four years.”
Pence called on the council to push the city to be more transparent about tax collection, so that the district and schools have greater clarity when it comes to financial planning.
“We still haven’t gotten enough certainty,” Pence said. “We need that data for schools to plan responsibly.”
Any loss in funding can be particularly challenging for small and single-site charter operators because they have fewer resources to draw on and don’t benefit from larger-scale efficiencies.
Before the district’s board approved its $25 million transfer to schools, Bricolage Academy, a PreK-8 program in the Treme, had expected to have just 15 days of cash on hand at the end of this school year, well below the recommended 60 days.
“The decrease in cash is the greatest risk to Bricolage and will potentially impact operations,” the school’s financial consultant wrote in a presentation in March.
Bricolage CEO Antigua Wilbern said in an email that the school’s cash position has improved since then — thanks to money from the district and private donations — and expects to end the year with closer to 37 days of cash on hand.
Some big operators are also feeling the pressure of the district’s financial crunch now that pandemic-era funding has run out.
"We're in a place where the bottom has fallen out," said Katie Walmsley, the chief financial officer of KIPP New Orleans, one of the city’s largest charter operators, at its April board meeting.
KIPP operates 13 schools and has an annual budget of over $110 million in a typical year. KIPP CEO Rhonda Kalifey-Aluise told staff in early April that the operator was facing a $5 million shortfall this year due to the district’s deficit and needed to cut its expenses by approximately $15 million next year.
Kalifey-Aluise said KIPP will only provide state-required services this summer and is cutting spots for roughly 1,500 children who need tutoring, as well as art and music camps.
“It is clear that the multi-million dollar scale of the problem will require significant adjustments,” Kalifey-Aluise said in an email to staff in early April.
KIPP’s board has approved a fund transfer to cover this year’s gap, Kalifey-Aluise said, and the operator is taking steps to reduce costs, including a hiring freeze for some positions and looking for “efficiencies in staffing.”
Kalifey-Aluise’s note did not include the number of positions KIPP could eliminate, only that “all staffing decisions will be finalized and communicated” by May 1, so that impacted staff have time to look for jobs for the coming school year.
The city’s other largest charter operator is planning similar cuts after its CFO said at a board meeting last month that it would try to hold off.
InspireNOLA plans to extend its hiring and spending freezes into the next school year and could lose around 8% of its staff, similar to the cuts announced by FirstLine and ReNEW.
“We never thought this would happen to us. It’s just a very unfortunate situation that we find ourselves in,” said Jamar McKneely, the CEO of InspireNOLA.
McKneely said that even though his team budgets conservatively, has healthy reserves, and support from private donors, it can’t afford to run a multi-million-dollar deficit, like it has this year, every year.
Future still unclear
When it comes to funding for next school year, officials have stressed that there are still many unknowns. Revenue for this year could come in higher — or lower — than expected, and money from past years could trickle in.
Then, there are the steps the city council has taken to steer more funding to schools, including an ordinance that would require the city to negotiate the fee it takes on the taxes it collects for schools. That move alone could send millions of dollars more to classrooms each year.
The fee is the subject of an ongoing lawsuit between the city and the school district, which officials tried to settle shortly after this year’s deficit was discovered.
That deal would have sent $20 million to schools by the end of April and another $70 million over the next decade. But it fell apart when Mayor LaToya Cantrell refused to sign it in early February, claiming the city couldn’t afford it. That led to confusion over the city’s finances and ignited conflict between the mayor’s office and the city council.
Since then, council members have tried to circumvent Cantrell by passing parts of the failed deal, including approving two $10 million payments to schools. Cantrell’s office is challenging the actions and, in a statement last month, said it believes the council acted beyond its legal authority.
These efforts, and others, to secure funding for schools mean they could receive tens of millions of additional dollars in time for next year — or not.
McKneely, with InspireNOLA, said this year’s drop in local revenue has thrown everything into question, and without clear answers, his team has no choice but to play it safe.
“This just changed our financial model,” he said. “It puts staffing, salaries, and programming in jeopardy.”
