Photo: Julie Leopo/EdSource

A fraction of 1 percent is creating stress for school superintendents.

California districts have been building their budgets for next year under the assumption they’ll get a 3 percent cost of living adjustment. Instead, Gov. Gavin Newsom has included an adjustment of only 2.29 percent for K-12 schools in 2020-21.

Districts are complaining that the difference — while less than three-quarters of 1 percent — is compounding an already financially fraught year, in which there’s not enough money to cover basic operating expenses. They argue they’re already facing steadily rising employee pension expenses, higher special education costs and the impact of an increase in the minimum wage. And half of the state’s districts have experienced a decline in enrollment over the past decade, compounding their dilemma, since revenue is tied to student attendance.

For a district like Elk Grove Unified, the state’s fifth-largest with about 60,000 students, the gap between the COLA that districts expected and what they’ll likely receive is $4.5 million. Statewide, it’s an average of $72 per student. To make up that $72 difference and a larger revenue shortfall, districts like Elk Grove that have squirreled away enough funding will likely deficit spend and draw down reserves. (For now, Elk Grove has a more immediate challenge. On Saturday, it became the first district to cancel school, for a week, after  family members but no students had tested positive to the virus and were placed in quarantine.)

Some of those without adequate reserves are giving preliminary layoff notices to teachers by the March 15 statutory deadline. They include Sacramento City Unified, which will serve notices to 50 teachers, Oakland Unified, which will lay off up to 100 central office and other positions, and West Contra Costa Unified, which plans to notify 230 teachers their jobs may be eliminated. The state doesn’t formally collect data on initial pink slips, so it’s not clear how many districts plan to lay off staff.

To ease their burden, school districts and the organizations representing them are clamoring for Newsom to include more money for basic expenses in the revised budget he’ll release in May. A 2.29 percent COLA would provide $1.2 billion to the Local Control Funding Formula for K-12 schools. A 3 percent COLA would require $450 million more.

To accommodate a larger increase, Newsom would have to divert some of the one-time funding he wants to spend on recruitment programs to address teacher shortages, such as teacher residency programs. He was also planning one-time funding to fix the state’s lowest-performing schools and on expanding community schools. That’s what Elk Grove Superintendent Christopher Hoffman said Newsom should do. He favors converting some one-time funding into ongoing operating revenue; a second choice would be to use one-time funding to pay down districts’ unfunded pension liabilities for a year or two, which would free up money for districts to use as they want.

Steve Ward, legislative analyst for Clovis Unified, agrees with Hoffman. “If you polled districts, what would they prefer?” he asked. “There is a need for more trained teachers but there’s an immediate need for more operating dollars.”

The California Department of Finance uses a federal index measuring the cost of purchasing goods and services to set the annual COLA for K-12 schools. The state budget the Legislature passed last June for the current fiscal year included the COLA for 2019-20 and the forecast for two following years. The department revised the forecast in Newsom’s January budget, and will update it again in May. The Legislative Analyst’s Office is predicting the COLA will end up lower still, about 2.1 percent.

Michael Fine, CEO of the Fiscal Crisis Management and Assistance Team, or FCMAT, a state agency that assists districts with financial matters, said that a 2.29 percent COLA is consistent with previous COLAs.

The problem is that COLAs no longer are big enough for districts to cover their expenses. They don’t match increases in mandated spending for employee pensions the Legislature imposed, or for the growing numbers of students with high-cost disabilities, mainly autism.

For most districts, the break-even point would require a 4 percent increase in base revenue, Fine said. Investments in new programs for all students and salary increases would be in addition to that. Critics of the Local Control Funding Formula have charged that districts have been siphoning extra money dedicated for English learners, low-income, homeless and foster youth to cover base expenses and raises.

Ward said he had predicted this dilemma. In the first half-dozen years after the Legislature passed the funding formula in 2013, former Gov. Jerry Brown put much more than a COLA into the funding formula. Brown set yearly targets for spending for all districts to reach pre-recession levels in seven years, what the law defined as “full funding.” So it didn’t matter what the COLA was. In 2015-16, Brown boosted the funding formula by a record 13 percent. The post-recession economic boom and a surge in revenue from higher taxes on the wealthiest Californians made that possible.

But since the funding formula reached “full funding” in 2018-19 — two years ahead of schedule — funding has switched to cost-of-living increases. “We could see on the horizon that districts would be in trouble under COLA-only, when fixed costs kept growing,” Ward said.

Last year, the Legislature was on the verge of establishing a new set of yearly revenue targets for the funding formula, with the goal of substantially raising the state’s per-student funding to at least the national average. But there was no accompanying tax or revenue proposal, and the author of Assembly Bill 39, Assemblyman Al Muratsuchi, D-Torrance, withdrew the bill to have discussions with the Newsom administration. Muratsuchi hasn’t revealed the result of the meetings, but he told EdSource he plans to proceed with the bill this year.

Under the current budget, the COLA is 3.26 percent. But Newsom also dipped into the state’s general fund to provide $700 million in relief from payments to CalSTRS, the teachers pension fund. Half of that amount would go toward 2020-21. Sara Bachez, the assistant executive director of governmental relations for the California Association of School Business Officers, said her organization is encouraging Newsom to increase pension relief to free up more operating revenue for districts.

Despite the gloomy predictions, by one closely watched measure the state’s districts appear to be doing fine. Twice a year, FCMAT releases a list of school districts that acknowledge problems balancing current and future budgets. The latest report, issued last month, lists 38 districts with a “qualified” rating, meaning they could go insolvent over the next two years. It gave a “negative” rating to five districts, including Sacramento City Unified and Sweetwater Union High School District, which could face a state takeover this year or next year. That’s the same number of negative ratings and four fewer qualified ratings than a year ago.

But the latest report was filed before Newsom released his budget in early January with the revised COLA. John Gray, president of School Services of California, a Sacramento-based consulting firm for districts, said that many districts settled labor contracts based on projections of a higher COLA. The lower COLA, he said, “will strain a lot of budgets, and we can expect more districts will show up in financial distress.”

Initial numbers for the second financial report should be out later this month.

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  1. Kyle 4 months ago4 months ago

    I think there are so many factors to consider on this topic. And the dynamics of the industry make things quite complicated. I’m hoping and praying that solutions are found and created for everybody.

  2. Carole clien 4 months ago4 months ago

    That is why we home school. Many people think public school systems have become inadequate and decide to take on their child's education at home. Homeschooling does take a very involved endeavor and effort. This piece includes key material if you want to homeschool your kids. Homeschooling can be really difficult if you also have a baby or daughter is young. You must set aside to address each kid's needs. Also find lessons that will be … Read More

    That is why we home school. Many people think public school systems have become inadequate and decide to take on their child’s education at home. Homeschooling does take a very involved endeavor and effort. This piece includes key material if you want to homeschool your kids.

    Homeschooling can be really difficult if you also have a baby or daughter is young. You must set aside to address each kid’s needs. Also find lessons that will be appropriate for both children together. Take advantage of every opportunity to engage both children without interfering with your child.

  3. John J 5 months ago5 months ago

    We need a constant flow of resources in order for this to work. All the fluctuation needs to come to a halt in order for real progress to be made.The reason we will soon be struggling even more to maintain a healthy educational system is because the teachers aren’t receiving what they deserve.

  4. Todd Maddison 5 months ago5 months ago

    Since 2012, when we voted in favor of Prop 30 to raise taxes on ourselves to fund better education, funding for schools has gone up $23 billion dollars. Spending per ADA has gone up $4,719, a rise of 56%, which works out to a compound annual growth rate of 6.59%. During a time when inflation in the state has averaged 2.27% per year. In other words, revenue has increased at a rate almost three … Read More

    Since 2012, when we voted in favor of Prop 30 to raise taxes on ourselves to fund better education, funding for schools has gone up $23 billion dollars. Spending per ADA has gone up $4,719, a rise of 56%, which works out to a compound annual growth rate of 6.59%. During a time when inflation in the state has averaged 2.27% per year.

    In other words, revenue has increased at a rate almost three times that of inflation. Any sane and rational organization would be popping corks – not moaning and laying people off because that rate slows by 3/4 of a percent.

    But yet our districts are in financial distress, and a decrease in revenue of $72/student is a disaster? It’s “an already financially fraught year, in which there’s not enough money to cover basic operating expenses.”

    “Basic operating expenses”? Really?

    What if we looked at actual data when judging that claim?

    Actual data, using public data available through Transparent California, shows total pay (not including benefits) has been skyrocketing at rates matching that of revenue.

    In my analysis of that data every district I’ve looked at shows rates of wage increase that have ranged from 4 to 7% per year. Easily two or three times the rate of wage growth in the general population.

    Some of that may have been necessary to make up low increase rates immediately following the Great Recession, but having the outsized rates of increase have continued well beyond that.

    The state J90 reporting shows that the average teacher wage in 2019 has reached $82,746. Hardly riches in a state like California, but also certainly not the subsistence wages the industry would have us think are being paid.

    In my analysis of districts, if we exclude teachers who have been with the district more than 5 years – to exclude those that are at artificially low starting rates – the median lands in the mid 90’s.

    Administrator pay rates are harder to quantify but in the analysis I’ve done on various districts in SoCal we see median pay rates in the $120-130,000/year range.

    So. Now, with provable, verifiable data, we know where the money is going. Most certainly not into “basic services”.

    Districts are “clamoring for Newsom to include more money for basic expenses in the revised budget he’ll release in May.”

    And “Newsom would have to divert some of the one-time funding he wants to spend on recruitment programs to address teacher shortages, such as teacher residency programs.”

    I guess the hot button issue we hear about all the time – the “teacher shortage” – is not so important to solve if it interferes with the ability of our K-12 education business to raise its own pay?

    No, they’re not clamoring for money for basic expenses. They’re clamoring for money to support their own pay, and if they don’t get that, they’ll lay off their co-workers and cut programs and services for our kids.

    The problem is INDEED that COLAs no longer are big enough for districts to cover their expenses. Because those expenses include not only the expenses for pensions (another form of compensation for themselves) as well as out-of-control increases in their own pay.

    And, in a separate issue I’ve documented in many districts, they’re presenting those pay increases to their local boards for approval without disclosing they will lead to cuts for our kids. Despite legal requirements they do so.

    Is ANYONE willing to actually say that – even though it’s clear from the actual data?

  5. el 5 months ago5 months ago

    Spending one-time money to recruit and train new teachers in a time when districts are having to lay off teachers due to lack of funding would basically be pouring it down a rathole. The number one thing we can do to improve recruitment and increase the number of people who train as teachers is to ensure that the career they trained for at great expense and personal effort will have a job for them if they … Read More

    Spending one-time money to recruit and train new teachers in a time when districts are having to lay off teachers due to lack of funding would basically be pouring it down a rathole.

    The number one thing we can do to improve recruitment and increase the number of people who train as teachers is to ensure that the career they trained for at great expense and personal effort will have a job for them if they do it well. A close second is increasing the pay, but even that doesn’t help if they can only expect to work in teaching a year or two before getting laid off.

  6. Larry Littlefield 5 months ago5 months ago

    "They don’t match increases in mandated spending for employee pensions the Legislature imposed." Or, rather, doesn't match the cost of paying for the retroactive pension increases the legislature passed, but people weren't forced to pay for, long ago. Causing their cost to explode. At some point politicians and unions will have to tell their members and the general public just how much of what they are paying now is being sucked into the past. Otherwise, … Read More

    “They don’t match increases in mandated spending for employee pensions the Legislature imposed.”

    Or, rather, doesn’t match the cost of paying for the retroactive pension increases the legislature passed, but people weren’t forced to pay for, long ago. Causing their cost to explode.

    At some point politicians and unions will have to tell their members and the general public just how much of what they are paying now is being sucked into the past. Otherwise, the anger will continue to build on elected officials who didn’t make those decisions, and later-hired union members who won’t benefit from the same deals.

    Here is my proposal to get this whole thing, and not just with regard to pensions, out from under Omertà.

    https://larrylittlefield.wordpress.com/2018/11/17/will-connecticuts-ned-lamont-be-the-first-to-tell-the-truth-about-generation-greed/

    Works for California, New York, Illinois etc. too.