Though the San Marino Unified School District currently has about $8 million worth of committed funds set aside to keep it financially stable, the district recognizes the potential challenges ahead for future K-12 funding for schools across California with Gov. Gavin Newsom’s recent revised budget proposal.
Thankfully, K-14 education (including community college, now partially funded by tax dollars) continues to be shielded from immediate programmatic reductions, city officials said.
Although Newsom’s budget proposal safeguards educational programs from reductions, there is a “conundrum” that stems from the passing of the 2023-24 enacted budget, which had already apportioned funds to schools months prior to the state having a “clear picture” of the amount of revenues it could expect to receive from personal income and corporate taxes from the 2022 tax year. That delay was due to the Internal Revenue Service moving the tax filing deadline from the spring to the fall, Chief Business Official Michael Lin and Chief Technology Officer Stephen Choi told the SMUSD Board of Education on May 28 during a presentation on local district finances.
California will lose an estimated $26 billion in state general fund revenues from lower than expected personal and corporate taxes, which means schools were overallocated and many have already spent their share on educating students, said Lin, who noted that it’s unlikely the state will ask schools to return that money.
To remedy the problem, Newsom proposes increasing the Prop. 98 reserve by $272 million in 2022-23, down from $339 million in January, along with a combination of mandatory and discretionary education cuts of $5.8 billion in 2023-24 and $2.6 billion in 2024-25, depleting the fund balance to $0 by the end of 2024-25.
“Gov. Newsom’s ‘maneuver’ proposes to accrue the budget impact of the cash provided to education in the fiscal year 2022-23 over a period of five years in annual payments of just under $1.8 billion from non-Prop. 98 general fund resources in each fiscal year beginning in 2025-26 through 2029-30,” Lin told the Tribune.
“What this means for SMUSD is that Gov. Newsom’s Prop. 98 ‘maneuver’ has significant implications for future K-12 funding,” he continued. “The governor’s proposals may or may not be realized, as it is up to the legislature to enact the 2024-25 budget.”
What Prop. 98 has guaranteed and what the state can afford are not reconciled, and while Newsom tries to remedy this, it leaves the public wondering if the governor can unilaterally nullify part of the enacted budget in this way. The “maneuver” has yet to be tested in litigation, Lin said.
If Newsom’s plan is rejected by lawmakers, other options that can be implemented include suspending Prop. 98 with a two-thirds vote of the legislature and approval by the governor, incorporating future supplemental payments in Test 2 and Test 3 or issuing budget deferrals. Alternatively, California’s Department of Finance can unilaterally reduce the funding of categorical programs to help address the Prop. 98 deficit.
The revised budget proposal also set the 2024-25 statutory cost of living adjustment, or COLA, to 1.07%. SMUSD will use this COLA rate for its budget planning, with the budget deadline coming at the end of the fiscal year, June 30.
“This [COLA] is much lower than what we used to plan for our budget last year on our multiyear projections,” Lin said during the meeting. “… We use four main funding factors to build a budget starting with the COLA, and just like layers of a cake, we add on grade-span adjustments and apply unduplicated counts, which qualifies us for supplemental grants. But we don’t qualify for concentration grants because we are low on unduplicated triple percentage numbers.”
Each grade span brings in different revenues depending on the enrollment numbers for each, and that is a factor the district will use for next year’s budget.
Current Expense of Education Actuals, or CEA, is a legal requirement, and it is used to determine the percentage of expenditures for the direct classroom cost of teaching students. Among the calculations of the CEA are salaries and benefits of teachers and classroom classified staff measured against the total general fund expenditures of the district.
Unified school districts are required to meet a 55% minimum of expenditures for the direct cost of teaching students, with elementary schools required to meet a 60% minimum and high schools required to meet a 50% minimum. SMUSD does not currently meet this 55% minimum requirement, Lin said.
“Fifty-seven percent of elementary school districts were not able to meet CEA requirements and a quarter of unified school districts are in the same situation,” Lin said. “We had an audit finding in the last fall presentation that we are not able to meet this requirement, mainly because we receive one-time funds.”
These one-time funds didn’t pay teachers’ salaries, said Lin, who explained that the funds were used for materials such as equipment.
The School Services of California Inc. provided a financial projection dashboard, offering planning factors for future year projections, which highlighted factors including COLA, the consumer price index, and CalSTRS and CalPERS employer contribution rates through 2028.
Choi said that although there’s an anticipated rise in the employer rate, there is also an anticipated gradual increase in CalPERS costs for school districts that are projected to rise more than 29% by 2028.
In 2024, the Local Control Funding Formula growth revenue exceeded expenditures, Choi said.
“As we look more towards next year and beyond, we see that the anticipated expenditures will continue to outpace revenues despite an increase in COLA,” he noted. “This represents the effects of the 2022-23 ‘conundrum.’”
School Services of California focused on three factors that are currently not included in the revised budget proposal.
Choi cited the organization, saying that it’s possible that deferrals may still come, especially if the legislature rejects Newsom’s “maneuver” or possible one-time cuts or other solutions may be needed to balance the Prop. 98 side of the budget.
Secondly, Choi said, with the push toward universal transitional kindergarten implementation, there might not be a proposed student-teacher ratio relief to help fund the ratio drop from 12:1 to 10:1 by 2025-26.
Lastly, although the revised budget proposal did not include programmatic reductions within core K-12 programs, the final enacted budget may look different, Choi said.
“It’s important to note that between now and then, the final state budget gets enacted, there is tension between the governor’s proposal as part of the May revise to what the legislature might be willing to do,” Choi said.
With the approaching November general election, Choi also closed the presentation with a reminder to community members that their vote is “significant for California.”
Among California voters’ decisions on various seats in the U.S. Senate and House, and statewide ballot measures, he encouraged residents to vote on school board members, San Marino government positions and ballot measures, as well as the potential school bond.
Choi said the state is looking to qualify for a state bond that may provide matching bonds for schools.
“This means that if school districts pass a bond, the state funds may be available to proportionally match those local funds,” Choi said. “Conversely, if a state bond does pass for schools and there is no local bond, some communities would in essence be contributing to the state bond and miss out on benefiting its local share. … We will be seeing a lot of action between now and when the final budget gets enacted, which we anticipate will be June 15, so stay tuned and don’t forget to go out and vote this November.”
Thanks to SMUSD’s $8 million in committed funds, Superintendent Linda de la Torre said the district will be prepared for any potential state cuts.
“We’re able to sustain what we have for now in a tough year, because we have those committed funds that the board set aside, and if deferrals come to fruition, for example, we can borrow from ourselves instead of going out for a TRAN [loan],” de la Torre said. “… So, we are in a solid financial, stable situation right now.”
Lin said the foresight of the district leadership to save funds is helping to alleviate some of the burden from the Prop. 98 deficit.
“In the last two years, the district increased its reserves by over 19 percentage points and now has a sizable buffer to weather the current shortfalls in state revenues,” Lin told the Tribune. “This one-time reserve buys the district time so we may be able to bridge the gap to the future, when state revenues hopefully return back to normal.”
First published in the June 6 issue of the San Marino Tribune
