Cabrillo Unified School District

25 Important Questions & Answers about the Current State of the School Budget Crisis

October, 2011

1. What is the current budget situation in our state?   Dismal! California continues to be pummeled by a persistent and tough recession.  In a little less than three years, the State Budget has shrunk from over $100 billion to $85 billion.  The state economy remains the key to everything.  Business generates jobs, personal and corporate income, and capital gains.  The resulting taxes fund education and other government services.  Businesses that are now beginning to generate cash and profits are generally not yet engaging in expansion and new hiring.  More than half of the State’s revenues reflect the collection of personal income taxes and California’s unemployment rate remains generally static at 12.1%, second highest in the nation.  When people aren’t working, they aren’t paying taxes.  Most experts are predicting that a return to pre-recession employment rates will occur in 2016.  When Governor Brown assumed office last January, he inherited a state structural budget deficit that had grown to over $25 billion.  His original plan to erase that deficit involved a combination of cuts and a proposal to extend three taxes that were about to sunset.  The State Legislature failed to reach agreement on the revenue portion of that proposal and opted not to place the issue in the hands of the voters via a statewide ballot measure.  The Governor proceeded with making a significant number of cuts but promised to hold schools harmless as long as new, incoming state revenues continued to exceed earlier projections. Otherwise, so called “trigger language” would be pulled in January and schools could expect to absorb new mid-year cuts. 

2. How is that situation affecting schools like ours?  Given that about 30% of the State’s General Fund supports K-12 education and the State Budget has been in freefall as noted above, it should surprise no one that state funding for schools has dropped 14.5% over the past three years.  While revenues have dropped like a rock, some school operational expenses like energy costs, insurance premiums, and step-and-column increases have continued to climb.  As a result, a high percentage of California’s school systems, including Cabrillo Unified, have already implemented significant program cuts and personnel reductions. 

Here is another way to look at it:  If the Proposition 98 formula and related statutory cost of living increases had been fully funded, districts like Cabrillo would be receiving $6,535 per student based on an average daily attendance (ADA) formula in 2011-2012.  Instead, those same schools will be receiving $5,244 per ADA next year, reflecting a record-high state revenue limit deficit factor of nearly 20%.  It’s a little like being told by your boss, “Look, times are tough.  I know what I owe you but I can only afford to pay you 80 cents on the dollar until times get better.  I will make it up to you then.”  Your challenge would be to maintain the same work standards, achieve all of your professional objectives, and continue to pay your escalating bills at home with fewer dollars.  Most likely, you would need to make some significant changes in your standard of living… find another source of income… or both.  This is essentially what schools in California are being asked to do on a much larger scale.

As something of a side note, the large deficit factor has dropped the state funding level of a growing number of schools like Cabrillo Unified below existing local property tax levels… creating a new cadre of “low revenue” basic aid districts. (See Question #9 below.)   

3. What is the new Governor’s plan to address the state deficit?  Governor Brown has released a budget proposal that includes over $12 billion in cuts to state programs and services… a planned realignment designed to restore local control in the delivery of certain kinds of services… and a “hoped for” increase of $4.5 billion in revenues.

Essentially there are two plans on the table:

4.  Isn’t the Governor’s plan to maintain flat funding for schools good news for schools?  Compared to “more cuts,” “flat funding” has a nice sound to it but consider the following analogy:  Your child is seriously ill… growing weaker by the day.  Treatments to date have provided only temporary relief.  You meet with a doctor who informs you that she has a new treatment that she would like to try.  If the treatment works, your child’s condition will stabilize.  He won’t improve… but he won’t get much worse… and he will remain in this precarious condition for the foreseeable future.  Given the bleak alternative, you would most likely deem the doctor’s proposed treatment and prognosis “good news.”  The same holds true for California’s schools… appreciative of the promise of flat funding in a time of seemingly unending budget cuts and mindful that flat funding isn’t really “flat” in light of escalating costs in a wide range of areas including energy and insurance. 

5.  What is the plan to restore California schools to full funding levels?  There is no such plan.  School Services of California has estimated that the State will continue to apply a 19.754% deficit factor on school funding through 2016.

6.  How does all of this relate to the current budget situation for the Cabrillo Unified School District? In many respects, the District’s current budget situation mirrors the State’s.  Since 2006-2007, the District’s support from Revenue Limit sources and other State revenues have dropped from $28.8 million to $21.9 million. Cabrillo Unified has managed to stay afloat by making cuts to program and personnel, operating under a freeze on non-essential purchases and travel, reaching agreement with all employee groups to accept three unpaid furlough days for a two-year period of time, securing approval of a $150 per-parcel tax from Coastside residents a little over a year ago, and burning down a significant amount of one-time monies (primarily Fund 17 reserves and federal ARRA and Jobs Act dollars) along the way. 

  2011-12 2012-13 2013-14
Beginning Balance 1,922,931 2,672,495 822,247
Income
Revenue Limit 19,531,236 19,602,672 19,682,622
Federal Revenues 1,483,711 1,483,711 1,483,711
State Revenues 2,667,049 2,410,877 2,475,971
Local Revenues 2,031,437 2,031,437 2,031,437
Total Income 25,713,433 25,528,697 25,673,741
Expenditures
Salaries/Benefits 22,308,969 22,999,989 23,710,003
Books and Supplies 600,303 600,303 600,303
Services 2,540,787 2,564,629 2,564,629
Capital Outlay - - -
Other Outgo 528,216 528,216 528,216
Direct Support/Indir Costs (50,979) (50,979) (50,979)
Proposed Budget Cuts   (208,000) (2,365,000)
Other Adjustments   908,214 700,214
Total Expenditures 25,927,296 27,342,372 25,687,386
Interfund Transfers
Transfers In 1,000,000 - -
Transfers Out (36,573) (36,573) (36,573)
Total Transfers 963,427 (36,573) (36,573)
Net Incr(Decr) in Fund Balance 749,564 (1,850,248) (50,218)
Components of Ending Balance
Revolving Cash 25,000   -
Designated for Uncertainty 896,497 822,246 772,029
Other Designations 1,750,998 -  
Ending Balance 2,672,495 822,247 772,029
Reserve Percentage 10.29% 3.00% 3.00%


7. How is the Cabrillo Unified School District funded, anyway?  Total revenue received by school districts comes from a number of sources including local property taxes, state categorical funding (e.g. money which is earmarked for specific purposes such as class size reduction, English language instruction, and visual/performing arts), federal categorical funding, and local funding sources. Below is a pie chart illustrating the various sources of funding received by the Cabrillo Unified School District in the current year:

image

Local property taxes continue to provide a significant amount of funding for the Cabrillo Unified School District.  In the 2008-09 school year, Cabrillo— like a number of other districts in the state— “fell” into basic aid status when the State reduced revenue limit funding for schools to a level below current local property tax revenues.  Special education funding covers a comparatively small part of the cost incurred in providing the services, and the resulting balance encroaches significantly on the District’s unrestricted general fund (currently by $2.1 million). Categorical funding consists of money received from the state and federal government that is earmarked for specific uses. This money is subject to careful regulation and monitoring by governmental agencies. Local grant donations include all money received from private sources such as corporate grants, contributions from the Cabrillo Education Foundation (CEF) or Parent Teacher Associations (PTA)/Parent Teacher Organizations (PTO) including individual parent donations. The District receives a comparatively small amount of money from the State Lottery as well as state funds to partially offset the additional costs associated with K-3 class size reduction.

8. What is the amount of money per student received by the Cabrillo Unified School District?  The total amount of funding from all sources received in the 2010-11 school year averaged about $8,242 per student. (Source: 2011-12 Adopted Budget.) This does not mean the district spends $8,242 on every student. Nearly $2,568 of this money is received for programs targeted for specific uses, such as programs that serve students with disabilities, students learning English, or students who qualify for free and reduced lunch. The amount of general purpose money from all sources is about $5,673 per student.

9. If we are now a “basic aid” district, does that mean that our budget problems are over?  Unfortunately… no.  It’s a bit of an over-simplification but basic aid status occurs when a school district’s local property tax base (per ADA) is greater than the state’s funded revenue limit formula.  In the past, the relatively few school districts in California who were in basic aid status were generally located in very affluent areas.  By being able to retain local school property tax revenues, many of these districts receive per student funding significantly higher than their revenue limit counterparts.  Had the state continued to fund schools at the statutory revenue limit, it is highly unlikely that Cabrillo would have ever qualified as a basic aid district. 

That hasn’t happened. The state has applied such dramatic “IOU” deficits to the statutory revenue limit in the past thirty months that a number of districts—including Cabrillo—have fallen down into basic aid status.  This means that the actual state-funded revenue limit has dropped below the local property tax revenues per ADA.  It also means that local tax revenues become the new “floor” for school funding (refer to graph below).  Assuming our local property tax revenues remain stable, Cabrillo should be losing $862 in school funding per student in 2011-2012 rather than the $1,291 loss per student it would have incurred as a revenue limit district.  But, to add insult to injury, a so-called “share the pain” cut is applied to all basic aid districts—regardless of level of affluence.  The net result is that Cabrillo Unified is a “basic aid district” in name only.

image 


10. As a basic aid district, would we be exempt from the Governor’s proposed cut of $330 per ADA if his budget proposal fails?  In theory, the answer is “yes.”  In practice… “probably not.”  The last time the State determined to cut school funding, basic aid districts were required to absorb a comparable “share the pain” hit.  There will be intense political pressure to share the pain again if the Governor’s plan fails.  It is probably safe to assume that the Cabrillo Unified School District will need to deal with an additional $1,056,000 ($330 per ADA) in reduced revenues in the event of such an outcome.   

11.  How much of CUSD’s current revenue stream comes from the lottery?  Funds from the lottery provide less than 1.4% of the school district’s budget.

12.  How much of CUSD’s current revenue stream comes from local property taxes? Currently, property taxes fund approximately 63% of CUSD’s total budget, about $18.3 million.

13.  Coastside voters just approved a parcel tax measure a little over a year ago.  Why is the District still concerned about a structural deficit and potential future program cuts?  Make no mistake about it, the $150 per parcel tax approved by Coastside voters in June, 2010 saved the day for our local schools and students.  Had Measure E been nixed by local voters, the Cabrillo Board was poised to move ahead with over $1.5 million in additional program reductions and related personnel cuts last year.  We would have been operating without office clerks and counselors, without a high school librarian, with reduced maintenance and grounds support, and with much larger class sizes in the primary grades (K-3).  Still, Measure E did not mitigate the entire structural deficit.  You may recall that it would have taken a parcel tax measure of something in the range of $225 to have addressed the entire deficit.  A pre-election survey indicated “iffy” support for a $175 per parcel measure and much stronger support at the $125 level.  The Board ultimately determined to set the requested amount at $150… and thankfully voters chose to throw schools this crucial lifeline.  We still have some important (and difficult) work to do.     

14.  It seems like we are “running on a treadmill.”  Why do we seem to have a growing structural deficit even though we are holding the line on expenditures and pay increases?  A very important question!  Think of it this way: If you were a home owner with a flat income, you would still incur some increasing costs no matter how hard you worked to maintain your current standard of living.  Utility and food costs would still increase.  So would insurance costs.  Your roof might need to be replaced… and your car might give out.  You have no new income to offset these expenditures—some of which are one-time in nature and others that are permanent and ongoing.  You could rely on your savings account for a while… but not forever.  Each year our flat-funded District absorbs approximately $700,000 in increased costs associated primarily with increased insurance costs and contractually-obligated step-and-column salary increases for our employees.  These are permanent, on-going added costs. Without new, on-going revenue streams to offset these costs, we are adding that $700,000 figure to our structural deficit every year.  Until we collectively determine a strategy for containing these costs or begin receiving new revenues… we are on a treadmill.  

15.  Are there some “good things” that could happen to reduce or eliminate the structural deficit?  Yes… with an emphasis on the word “could.”  Examples of one-time dollars that could serve to push back the need to make on-going cuts include new federal ARRA or Jobs Bill dollars… state mandated cost reimbursements… settlement dollars… the successful sale of surplus District property… and/or an unexpected significant gift or donation to the District.  
Examples of new on-going dollars that would directly reduce the structural deficit include a significant increase in local property tax revenues, a reduction or elimination of the current 19.6% deficit applied to the State revenue limit, and/or reductions in program and personnel.  The extreme optimist might suggest that we’re sure to catch a break or two from the “good things” list above.  The realist would probably counter that the only factor that we really can count on and can control from that very same list is a reduction in District expenditures… programs and people. 

16.  Why don’t we attempt to “wait it out” to see if the fiscal climate improves? We can’t.  For one thing, we are required by law to operate with a balanced budget “two years out” (for the current year and following two twelve month periods).  For another, the massive deficit factor being applied to K-12 funding means that schools throughout the state, like Cabrillo, have been placed in a situation where on-going expenditures now exceed on-going revenues.  The District has attempted to buy time by burning down reserves.  Reserves are dwindling.  The sooner a structural deficit is addressed, the better chance an organization has of heading off the need to make significantly larger cuts down the road.  “Waiting it out” is not a viable option. 
17. Why didn't we save money for times like this?  We did.  First of all, it should be reassuring to know that the Cabrillo Unified School District has always operated with a balanced budget.  In addition to a “Designated for Economic Uncertainty” reserve fund that all districts are required to maintain (but can’t actually use without legislative action), the Cabrillo Unified School District had the vision and good sense to build up a “just in case…” fund in 2006 when the District received a significant reimbursement from the State for providing mandated services over a period of several years.  A significant portion of that 2006 payment (nearly $2 million) was placed in a special fund called Fund 17.  It is this source of dollars that is helping the District “soften the landing” over the next two-plus years.  Without Fund 17, the Cabrillo Unified School District would have already implemented substantial cuts to program and personnel negatively impacting the quality of education in our Coastside community.

18.  How will this budget crisis affect my children this year?   It won’t, assuming your child is enrolled in grades 4-12. Class sizes in the primary grades (K-3) were increased to 24-1 this year as a cost-cutting measure… still below the state average at this level.  If your child attends Farallone View, you are working with Assistant Superintendent Dr. Elizabeth Schuck who is doubling as your school site principal, in another cost-cutting measure.  Otherwise, programs remain essentially intact in this very challenging period of time.  Obviously, the wild card in all of this is the potential for mid-year cuts that could result from the state budget “trigger language” discussed above. 

19.  What is the District’s plan at this point in time?  The District is faced with the same dilemma as the State… the need to weigh two plans simultaneously: one if the Governor’s optimistic project on revenues holds up and one if the so-called trigger language is actually pulled.  The Cabrillo Board has an ongoing budget problem and some remaining one-time reserves that could be used to “push the problem down the road one last time” but that will make for some very tough decisions a year from now without any kind of a reserve safety net.  The Board has scheduled a series of special budget sessions in different locations in the interim:  on November 17 at El Granada Elementary, on December 8 at Farallone View, and in January (date to be determined) at Half Moon Bay High School.  Depending on a number of factors (including whether the trigger language is implemented at mid-year), the Board may need to review and approve program reduction and resulting staff lay-off notices in March… either as a precautionary strategy or with the intent of beginning the process of permanently reducing the balance of the structural deficit during the upcoming 2012-2013 school year.  Even if the decision is made to “ride it out” for one more year, the Board will be pressed into making cuts of over $200,000 this coming spring and over $2.3 million in the spring of 2013… a staggering figure.

20. What kind of program reductions might need to be considered?  Over the course of the 2009-2010 school year, the Board engaged in a budget review process in response to sharply declining state revenues.  Specific strategies included state-of-the-district budget presentations to staff at all school sites… partnering with the Cabrillo Education Foundation to sponsor community town meetings on adequate school funding… placing regular budget updates on district websites with opportunities for community members to surface additional questions or offer suggestions… having some aspect of the district budget discussed at every regularly scheduled board meeting during the school year… and holding a series of special board meeting/public hearings on the budget. 

On February 25, 2010 the Board formally approved a Program Adoption List comprised of program reductions in “first cut, last reinstated order” totaling over $2.5 million.  Thanks to Measure E, the Board was able to count on new tax revenues and use one-time Fund 17 and federal ARRA dollars to avoid implementing many of the planned cuts that would have been implemented last year.     

Those potential cuts remain on the table… although some of the options are “protected” by the specific Measure E ballot language and the intent of Coastside voters. Programs that could be considered include, but are not limited to:

21. If the school board determines that it needs to reduce expenditures for the 2012-2013 school year, how will the board decide what to cut? That hasn’t been determined at this point in time. 

22. If positions are cut, what are the chances that the assignments will be reinstated once the economy recovers?  Tough question!  Does a “recovered economy” mean that the Proposition 98 state funding level has returned to pre-2009 levels?  Are new laws or mandates in place that require additional funding?  Have District priorities shifted?  Does an economic recovery mean that the District returns to “revenue limit” status?  Probably the safest and most conservative position would be to assume that these cuts will remain in place for an unknown period of time… and then consider restoration of positions and/or services on a case-by-case basis as the fiscal picture brightens.

23.  Why doesn’t the District sell some of its surplus property?

It may.  But it’s important to remember that the sale of larger tracts of property on the Coastside often triggers contentious, prolonged debate and/or legal action… that this is not a particularly good time to sell real estate… and that any proceeds are “one-time” in nature and cannot address the structural deficit that currently exists in the District Budget.

24.  Is there a light at the end of the tunnel?  Perhaps, but your guess is as good as ours.  Stocks have stabilized for now and home values seem to be leveling—and even climbing a bit in some areas.  On the other hand, the percentage of home foreclosures and the number of lay-offs in many sectors remain unacceptably high.  Thankfully, our new status as a basic aid district provides us with a bit of a floor assuming that property taxes on the Coastside remain stable and the state doesn’t impose additional basic aid penalties along the way.  People “in the know” when it comes to public school finance seem to be pointing toward 2015-2016 as the first, potential return-to-near-normal year for California’s schools.  

25. Can I help?  Absolutely!  Stay connected with your local schools.  Attend school functions.  Check the CUSD and school web sites for budget updates.  Volunteer your time or contribute to a neighborhood school fund-raiser or two if you so choose.  Support the ongoing work of the Cabrillo Education Foundation.  Above all, consider exercising your right as a voter and state resident by contacting the Governor’s Office, your state representative and/or your state senator and expressing your opinion or concern about any or all of the issues detailed above.  One of the best investments you can possibly make in our Coastside community is to protect and strengthen your local public school system.