February 25, 2005

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Palo Alto Online

Schools ready to pinch pennies

by Alexandria Rocha

With the state and county sending mixed messages on future revenues, the Palo Alto school district is setting a conservative budget to avoid further cutbacks.

The district's business manager Jerry Matranga presented a budget update at the Board of Education meeting Tuesday that revealed a better outlook from the county on property tax revenues, but discouraging information from the state. The result is an unstable financial situation, leaving district officials with little to do but wait.

In the last few years, the local district cut $6.5 million in staff and programs because of a shaky state budget, sliding property taxes and increased enrollment. This year, to avoid additional layoffs, the district used $3.4 million from its reserves.

"We need to budget conservatively because it's much easier if the projections come in over to add money to programs than it is to cut," school board member Cathy Kroymann said.

The school district adopted this year's $108 million budget in June 2004. The basic-aid district adopts the budget months before information from the county and state is disclosed. This year is looking up in terms of local property taxes, but down regarding a state budget proposal that hits schools hard.

Gov. Arnold Schwarzenegger's proposed budget for 2005-06 requires that school districts pay the state's contribution of nearly $1 billion to the State Teachers Retirement System next year.

School districts normally pay a portion, with the state and each employee also contributing. However, Schwarzenegger wants to offset the state's debt by pushing its own contribution onto schools. Palo Alto Unified will also see an increase in its payment to the Public Employees Retirement System.

These costs will be about $1.4 million. "The state sets the system, we have no control whatsoever. They tell us what to pay," said Kroymann.

Although nothing has been set in stone, the latest information from the county regarding property taxes is more positive. Basic-aid districts receive nearly all revenue from local property taxes. Unlike revenue-limit districts, they receive no per pupil funds from the state. Last week, the Santa Clara County Controller estimated a 6.46 percent increase in property tax growth for this year. Although, the projections have fluctuated dramatically over the last six months, this is the highest estimate the local school district has yet seen.

In fact, the projection is similar to the growth in the late '90s at the beginning of the dot-com boom. In 1998-99, property taxes checked in at 6.3 percent, growing to 6.8 percent in 1999-00. The year after that, when the boom started to peak, property taxes grew by more than 10 percent.

Is this a sign that good times are returning?

"I think everybody is hopeful that things have bottomed out and stabilized," Kroymann said. "I think it's still too early to take that to the bank."

Irene Lui, property tax manager at the Santa Clara County Controller-Treasurer Department, said people shouldn't get their hopes too high. While property tax growth for real estate is holding steady, the growth for business properties is unstable.

"Whatever we get out (to school districts) is the best information we have at that time, and it will keep on changing," Lui said.

For that reason, the district is still budgeting far below the county's projections -- its budget for the current year will remain at 5.1 percent, nearly 1.5 percent or $1 million below the county's assessment.

"This is the most prudent course so the district does not over-commit its funds," Matranga said.

For 2005-06, the county controller is projecting a 5.4 percent increase in property tax growth over the current year. Yet, the district is projecting 3 percent.

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