East Lyme – Superintendent of Schools Jeffrey Newton is citing increased health insurance costs as the major reason the school district is on track to overspend its 2022-23 budget by $677,000.

The projected deficit was even higher before the district identified about $100,000 in savings from a supply freeze and about $50,000 from leaving some staffing vacancies unfilled or moving staff around internally, according to Newton.

“We’re working to get the number down, but it’s not going to get to zero by the end of this year,” he said at his Nov. 28 presentation to the Board of Education.

District deficit projections from the end of October show the health insurance line item alone is shaping up to be $615,367 in the red. Increases in special education and electricity costs are factors as well.

The current $6.85 million allocated for health insurance was based on an estimated 5% increase in costs. Newton said the actual increase came in at 10.5%.

Both the school and town participate in the state health insurance pool.

“I think in general we’ve never been in a position of this nature before,” Newton said in a phone interview Tuesday. “I mean, it happens across towns. It’s not happened here. It’s unfortunate.”

During budget deliberations this spring, the Board of Finance cut the school board’s requested $2.4 million budget increase by $500,000, resulting in the $54.1 million allocation approved by voters in May.

Board of Finance Chairman Denise Hall on Monday described herself as “extremely concerned” about the potential impact the deficit could have on the town’s financial stability and its credit rating if school officials come to the finance board asking for more money to get through the year.

Hall, who has more than 35 years' experience working in securities, banking and municipal finance, served as the minority leader on the West Hartford Town Council from 2009-17. She was elected to the finance board last year.

“Honestly, in my eight years on the West Hartford Town Council, I never experienced anything like this and certainly in my 30-odd years attending Government Finance Officers Association meetings, I’d never experienced this,” she said in a phone interview.

She said the finance board made its budget based on an assumed 8% increase in health insurance costs because it was known at the time that the cost would be going up.

Newton said the district was advised to estimate an increase from 5 to 8%, but officials decided to focus on the low end because there had been only a 1.25% increase the previous year.

Other contributors to the overall deficit is an extra $153,000 in utility costs, according to the presentation. Newton said the district planned for a 14% increase but are now looking at costs 54% percent higher than they were last year. Special education costs are coming in $200,000 higher than anticipated.

Newton said he could not yet guess how much more in savings the district might find or how much it will ultimately have to request from the town to make up the difference.

He identified special education as one of the most volatile areas in the budget. That’s because one child moving into the district with significant needs could add substantial costs.

A request for a special appropriation in excess of $10,000 must be approved by the finance board, the Board of Selectmen and voters at a town meeting. Taxpayers can force a referendum vote if at least 500 people sign a petition submitted to the town clerk no later than 24 hours before the town meeting.

Rainy Day Fund

Hall’s biggest fear is having to dip into the town’s rainy day fund to cover the school board’s deficit, she said. The finance board has been working over the past several years to increase the town’s savings as a cushion for emergencies and to make the town more attractive to credit rating agencies – which would result in lower interest rates on debt from big projects.

“A special appropriation of the magnitude of their deficit, that would be a huge black eye,” she said.

First Selectman Kevin Seery said the town has a AA rating from Standard & Poor’s for the way it manages its debt. The next highest rating is AA+, followed by AAA.

Budget documents as of the end of October show the town has $13.4 million in its rainy day fund. That’s roughly 16.5% of the total operating budget.

Seery said the rainy day fund was around 7% of the total operating budget a decade ago. This is the first year the account has exceeded 15%, which is the threshold that rating agencies like to see when considering an increased bond rating.

The savings were bolstered by $588,000 in unexpected money from the state as part of a revenue sharing program that diverts half-a-percent of sales tax revenue to cities and towns. Town leaders had been advised by state officials in the Office of Policy and Management early in the year not to count on the funding, but that changed with a budget adjustment act signed by Gov. Ned Lamont in May.

Newton said the district has not yet been billed for services related to a cybersecurity incident that hit the school during the first weekend in October. He said a “computer virus” entered the system through a corrupted email but was contained before any data was compromised.

Officials shut down the district’s network and cleared out the operating systems on 3,000 computer devices in a phased process that left some students and teachers without access to the internet for most of the month, according to Newton. Computers at the high school were the first to come back online after about a week.

Asked if he is worried the price tag – once it’s revealed – will exacerbate the deficit, he said he doesn’t know what the extent of the budget impact will be.

“I mean, I don’t know,” he said. “I honestly don’t know.”

e.regan@theday.com