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Tuesday, October 07, 2008

Budget Picture Bleak for School District: Full Examination of DJUSD Budget 2009-10

All you have to do is turn on the news these days to see the bad economic news. Experts are predicting now a deep recession. And due to a number of structural problems at the federal level and most notably at the state level, the economic picture and thus the budget picture looks bleak for the foreseeable future.

As many know, DJUSD faces a $2.4 million deficit for the fiscal year of 2009-10. The district was able to plug their deficit from 2008-09 due in part to the generosity of this community through donations to the Davis Schools Foundation that totaled roughly $1.8 million.

When the revised state budget came through, the district was able to use $1 million in one-time carryover money in addition to that $1.8 million plus some other budget cuts to hold off deep cuts to teaching staff. However, that is not likely going to work in the future.

Why we need Measure W to pass

Each year expenses go up. If you think about your household expenses as an analogy--let us say you have the same job and you do not get a cost of living increase to your salary from one year to another. You live in the same home and you pay the same bills each year. If you look at your expenses from this year and compare them to last year, you will notice that expenses go up. Gas prices rose, food prices rose, energy costs rose, water bills rose dramatically, etc.

If you do not get a payraise for cost of living, you in effect make less money this year than last year.

People generally cover that in one of two ways. One way is to cut discretionary costs. So in tough times, you make fewer big and luxury purchases. You go on fewer trips. But generally those are one time expenses and they are dwarfed for most people by the everyday costs of doing business.

Let us look at gas prices alone. Let us say that on average gas went up $1 per gallon over last year. Let us further say that you have to consume 10 gallons per week. That's $10 per week more money than last year or $520 per year. And for most of us, 10 gallons per week is probably on the low side. So for many we are spending between $500 and $1000 more just on gas. That's just one expense that will take a chunk out discretionary spending. Again, some of that we can save by driving less, but you can only cut so much.

The other way that people finance themselves through tough times is with credit. They go into debt. The school district cannot go into debt however. So they have two options, they can cut spending and at a certain point they have to cut programs and teachers since that is where most of the discretionary money goes or they can ask the taxpayers for a parcel tax.

But let's get back to cost of living increases because they explain why the school district is facing future deficits.

In a normal year, the school district funds COLA (cost of living allowance). When the state funds COLA, that enables the teachers to get a cost of living increase at a similar rate and it also enables the district to be able to pay for the increased cost of doing business.

However, due to the budget crunch at the state level, the state is not funding COLA this year. So the cost of living for the district is going up by $329 per pupil but the state is only funding about $40 of it. That is going to leave the district this year with a $2.4 million revenue deficit.

Does that number look familiar? It should, that is the same amount that Measure W funds. The reason the district asked for the $120/ per parcel tax is that is what it needs in order to make up for the loss of COLA. The school district is putting Measure W on the ballot in order to cover the funding for our programs and teachers that directly impact our students. Its passage would avoid deep cuts to programs and teachers.

If the state fully funded COLA for 2009-10, we would not need Measure W. Instead the state is funding the COLA at .7% which is far below the 5.5% that was due to schools. This results in far less money for the district. The bottom line is that state money does not cover our current programming, so local dollars have to fund what state dollars do not or we will have to cut programs and teachers.

The bad news

It turns out that each year the state does not fund COLA, actual costs of living go up roughly $1.2 million. So what happened is that we were able to cover the $1.2 million for COLA in the current budget. But next year we have to cover that $1.2 million plus another $1.2 million.

Where does that money come from?

The big expense is the Step and Column increases. Teachers will not get a payraise this year, and at some time I can explain the basic fair-share formula that would explain when they do and when they do not get a payraise. For now, it is most important to realize that it is heavily tied in with state funded COLA. However, just because teachers do not get a payraise does not mean that teaching expenses do not go up.

Built into their contract are step and column increases. Step increases are based on seniority, so each time they go up in seniority, they get a payraise. In addition, also built into their contract is a column increase. Let's say they take classes in the summer to increase their level of education. They can bump themselves into the next column and get a payraise that way. The district has no control over these increases, they are built into the collective bargaining agreement.

The rest of the inflation costs are utilities (which obviously we understand), insurance increases, and then special education costs (which are restricted dollars).

It is important to understand that as much as a quarter of the spending in the district is tied to restricted money or categorical funds, which means the money has to go to those programs and those monies cannot be transferred to other spending. If you look through the budget for the district, you will see a number of spending lines that have references to legislation that dictates exactly how that money can be spent. Some of these restricted programs were not fully funded, including special education. The district is required to provide them, but does not get reimbursed.

The really bad news

If you are following along, you see where this is going. Let us say we pass Measure W, the district would get an additional $2.4 million which would cover the last two unprovided COLAs for the state.

However, now let us suppose that for 2010-11, the state still does not provide COLA. If that is the case, then the district again runs a deficit of $1.2 million. And that deficit increases by $1.2 million or so each year that the state does not provide COLA.

The other bad news is that this happened in the 1990s the last time the economy was really bad. What happened then is that it took several years before they could catch up with the missing COLAs.

If the budget picture improves, the state could partially fund COLA by 2010-11 and with Measure W, the district would be able to survive without further cuts to teachers and programs. If the state fully funds COLA, in three years years from now, the district would not need to renew the Measure W portion of the parcel tax.

If you are like me, you probably have the same question I did at this point. The budget forecast looks bleak as does the economic forecast. That means if the state does not fund COLA in 2010-11, we end up back in deficits. At that point, does Measure W really matter?

The answer is yes. First of all, Measure W locks into place those programs that it funds. That money is not discretionary money anymore, it is de facto restrictive, just as Measure Q money must go to the programs that it was written to fund.

Second, a $1.2 million deficit is better than a $3.6 million deficit. Neither are good, but the cuts for the former are obviously much less than the cuts for the latter.

Finally, perhaps the worst news for last is the possibility that the state might in the next few months suspend Prop. 98 which guarantees a certain proportion of the budget to schools. If that happens, money could be even more scarce for local school districts. That would make it all the more important that the districts be able to raise money locally to keep programs and teachers afloat.

The bottom line in this analysis is that the problems that the district faces beginning the year 2009-10 are limited to state budget problems. The $2.4 million projected deficit is a direct result of the anticipated zero COLA. It has nothing to do with fiscal mismanagement and nothing to do with declining enrollment. To reiterate, if the state suddenly came through with COLA for 2009-10, Measure W would not be needed and the district would be able to balance its budget.

---Doug Paul Davis reporting