Despite an increase in enrollment and a reduction in staffing, the Troy City Schools will end fiscal year 2014 with less than two months operating reserve, according to the budget passed this week.

“It’s not a pretty budget,” board of education member Roxie Kitchens said at the meeting on Monday. “And I’m not sure I even wanted to vote on this because we’re projected to go below two months’ operating reserves.

“But, when you bring in $1 million less per year than you did five years ago, it adds up.”

Kitchens, along with the board members Wally Lowery, Eva Green and Jason Thomas voted unanimously to approve the budget, which includes $26.2 million in total expenditures and some $17.9 million in total revenues. Board President Dr. Judson Edwards was absent.

While the district has sought to maintain at least three months’ operating expenses in its cash reserves, the declining revenues have forced the district to drop below that benchmark. “We’re operating at less than 3 percent now and, if nothing changes in the next budget year, we’ll end at less than 2 percent,” Kitchens said.

In the two public budget hearings held prior to Monday’s board meeting, CFO Mickey Daughtry explained the key factors impacting the FYE14 budget. Among those is a 12 percent increase in expenditures, driven by a 2 percent state-mandated raise for teachers and the conclusion of capital projects and beginning of long-term bond debt repayment.

“When you give a 2 percent raise, you have to make it across the board,” he said. “And when you raise the base pay, we also see an increase in payroll taxes, benefits and fringe expenses.”

Some $14.4 million, or 76 percent, of the district’s expenses come from personnel. “And we have been working to reduce the number of personnel,” said Superintendent Lee Hicks. The district has 250 full-time personnel and 10 retired or part-time personnel. Of those, 150 are teachers, and 66 percent have a master’s degree or higher, which increases their pay rate.

By working through attrition and retirement, the district has been able to reduce the number of locally funded teacher units from 27.17 to 17.99 for the upcoming school year. That reduces the amount of local dollars used to pay for teachers in the classrooms.

“But when you have a 2 percent pay raise, that adds up quickly,” Hicks said.

The remaining expenditures include $1.2 million in debt service and $1.1 million in other operating expenses.

According to Daughtry, the district will spend $8,308.46 per pupil, which is less than the 2011-2012 state average of $8,405 per pupil.

The district is working to refinance its public education building authority bond debt of approximately $1.4 million and, if successful, could save $400,000 in anticipated expense, Daughtry said. “That’s money that won’t be taken from the general fund,” he said.

The district’s revenues come primarily from state funding, through the Education Foundation. More than 58 percent of the district’s funding – or some $10.3 million – is state funding, which is earmarked primarily for personnel and classroom expenses. The district receives $2.047 million in federal revenues and $5.521 in local revenues, primarily from taxes.

A nearly 3 percent reduction in federal funding, due to sequestration and the loss of federal stimulus funding, combined with declining local sales tax revenues result in the nearly $1 million loss in revenues during the past five years.

“Believe me, we’re asking the tough questions,” Kitchens said. “And it weighs heavy on all of us as board members to know we’re approving this and are responsible for this.

“Mr. Hicks and Mr. Daughtry have put a tremendous amount of work into the budget and we have to trust them … and we have to hope and pray for a better year ahead.”