For the first time since the Great Recession, school districts are getting more money this year from the state; some – big beneficiaries of the new Local Control Funding Formula – are getting a lot. And that increase is expected to be larger next year, in one-time and ongoing money, if the Legislative Analyst’s predictions for a rebounding economy are on target.
School finance experts John Gray and Joel Montero, however, injected a cautionary note during a presentation Friday at the California School Boards Association’s annual convention in San Diego.
“We are still in a volatile situation. Be conservative. Be careful,” Montero advised several dozen school board members at his talk.
Montero is the unofficial fiscal worrywart of K-12 education. As the executive director of the state Fiscal Crisis and Management Assistance Team, or FCMAT, his job is to see that districts don’t run out of money and end up in bankruptcy. FCMAT’s oversight and dire warnings have worked; only a handful of the state’s 1,000 districts are in receivership despite devastating cuts over the past five years.
Gray is president of School Services of California, a Sacramento consulting firm that provides services to and represents school districts, including in negotiations with employees unions. It’s his role to advise districts to be chary with a dollar.
The Legislative Analyst’s Office is projecting that there may be as much as $12 billion in new Proposition 98 money for the fiscal year starting July 1. In the state budget he will release next month, Gov. Jerry Brown will likely dedicate a big portion as one-time money – for paying off late payments or deferrals to schools and implementing Common Core, perhaps – but the increase for districts’ operating budgets will likely be sizable nonetheless.
So why were Montero and Gray acting like Saturday Night Live’s Debbie Downer? A combination, they said, of the hangover from the recession and the new complexities of the Local Control Funding Formula prompt them to urge caution to districts when creating a spending plan for next year and negotiating staff raises this year.
Rebounding from deficit spending
About 60 percent of the state’s school districts deficit-spent last year, and many have done so for two or three years, Montero said. They got by through eating into their reserves. So a district’s first priority should be to eliminate its operating deficit. For those districts with structural deficits, “You can (receive) more money this year but have no money to spend,” he said, particularly if a district has a declining enrollment, with fewer students generating state dollars.
A paradox is that many districts have built up record reserves – far beyond the 1 to 3 percent of a district’s operating budget that state law requires. They did so because of uncertainty: not knowing whether Proposition 30, creating temporary taxes, would pass a year ago and not knowing what the Local Control Funding Formula would look like.
Healthy reserves, of course, are good. What’s dicey, Montero and Gray said, is spending them down too quickly, based on the assumption that projected state revenue three years from now will cover spending commitments they can make today.
“The pressure (from calls to increase spending) is going to intensify on you,” Gray said. “You will likely live with what you do in year one (of LCFF) for a long time.”
Furthermore, Brown’s projection that the LCFF will be fully funded in eight years assumes uninterrupted economic growth. The last recession technically ended four years ago, even if growth in California has been puny. Twelve straight years of economic growth hasn’t happened, Gray said, so it’s prudent to expect a setback. The biggest beneficiaries of LCFF should have the largest reserves, Montero said, because they’d be most vulnerable if the revenues fall short of state predictions.
Each district’s unique situation
Another point to keep in mind, they said, is that each district will get a different increase per student annually over the next eight years or so, making comparisons between districts problematic.
“Once fully implemented, LCFF will be the simplest formula around,” Gray said. “But in the transition period, the next eight years – or longer – the system will be more complicated than the one we left.” So educating stakeholders on how the formula works is critical, he added.
The range in per-student funding at full implementation will be between about $8,500 and $13,000. This year, each district will get about one-eighth of the difference between what they got in per-student funding in 2012-13, the last year of the old formula, and their target at full funding. The average increase this year is $308, but some districts will get less than $200 per student, while others will see more than $600 per student.
Whether a district gets a lot or a little will depend in part on how many low-income students, students learning English and foster youth it serves and in part on its starting point, the funding level it received in 2012-13. So, Gray noted, even two districts with the same percentage of students with high needs won’t get the same per-student funding increases in the transition.
Unlike the old system, where districts got the same increases to their “revenue limits,” or base grants, every district’s funding situation in the LCFF transition period will be distinct. So it will be difficult explaining to teachers in one district why there’s no money for the raise that teachers in an adjoining district have negotiated, Gray said.
“Stakeholders may not understand how you receive the money,” Gray told school board members. He cited one unnamed district with declining enrollment and a huge deficit problem that is seeking to roll back salaries, while another unnamed district has reached an impasse with its teachers union despite an offer of a 7.5 percent raise.
“How your neighbors behave will have a significant impact on you,” Gray said. “The pressure is going to intensify.” (To what extent it is permissible for districts to grant pay and benefit increases using some of the additional dollars intended to provide extra services for high-needs students – a major fear of low-income advocacy groups – is a separate and important issue that the State Board of Education is expected to weigh in on when it adopts LCFF regulations in January.)
Pent-up demand for spending
Finally, Montero and Gray cautioned, there will be huge pressure – more than districts can accommodate – to restore programs, start new ones and grant pay increases.
“You’re facing a pent-up demand,” Gray said. “Most districts haven’t given raises for five years. Expectations are high. You survived with fewer people, paying them less.” Along with bargaining units’ demands, parents and community members will be letting school boards know what they want. The LCFF requires incorporating parents’ views in a three-year Local Control and Accountability Plan, which school boards must adopt by July 1.
Under the old system, with Sacramento-dictated spending rules for dozens of categorical programs, school boards had little control. Now the dynamic has changed, and the responsibility, Gray told school board members, is theirs.
“It a lot easier to say I can’t do something. It’s harder to say I won’t do something,” he said. “Stakeholders will have different ideas on how to spend money. You have to stay strong to say (maintaining) facilities or adult ed is important to our success. It’s important to hang tough and determine your priorities.”
“Your job has been terrible since 2008-09,” Montero said. “Now the economy is improving and likely to continue to improve. Board members are hungry and anxious to do something. Be smart about that.”
John Fensterwald covers state education policy. Contact him and follow him on Twitter @jfenster. Sign up here for a no-cost online subscription to EdSource Today for reports from the largest education reporting team in California.
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