A historic new compensation agreement with teachers and classified employees that the Palo Alto school board is likely to approve Tuesday night could potentially be budget-busting in future years if property-tax revenues, which largely fund the district, fail to increase at near double-digit rates.
The proposed contract, already ratified by the teachers union, provides a 12 percent pay hike over three years, plus up to 4 percent in "off-schedule" bonuses, which don't factor into the salary base.
Over three years, the contract would cost the district $21 million.
The cost for the first round of salary increases, $7.3 million, will eat up almost all of an $8.5 million budget surplus that had been set aside in the 2015-16 budget for both salary increases and program additions. The remaining surplus dollars will be used to fund the first 1 percent off-schedule bonus in the 2016-17 school year, according to Chief Budget Officer Cathy Mak, and program additions will instead be funded through the usual property-tax revenue.
The size of the salary increases and ability to fund program additions rely on unprecedentedly high assumptions for the next three years about the rate of increase of secured property taxes, which provide about 70 percent of the district's revenue, in order to achieve balanced budgets.
For the current school year, the district is projecting an increase of 11.5 percent, followed by 9.4 percent in 2016-17 and 8.4 percent in 2017-18.
This is far above the approximately 5.5 percent property-tax growth projection the school district has been using this school year. Past projections have been even more conservative, generally 2 or 3 percent. The district shifted its practice last year to align itself with the City of Palo Alto, whose estimates have historically been more accurate than the school district's, officials have said.
Mak said the higher property-tax projections are the minimum amounts the district needs to balance its budget with the proposed salary increases. Given data that the district receives monthly from the County Assessor and property-tax growth this year, she told the Weekly that the projections are "reasonable."
"We feel comfortable we can offer this raise based on the monthly data we see from the county," she said in an interview.
With the majority of this year's surplus going to teacher salaries, the district is also relying on high property-tax revenue to generate the funds necessary to pay for $3 million in proposed program additions over the next two years.
Some of these additions have been increased and others pared down or cut entirely since they were first proposed. The school board unanimously approved at its May 10 meeting $1.8 million to hire 12 middle and high school teachers over the next two years. The board will also vote Tuesday night on the remaining six budget proposals.
Budget requests that have been "deferred for future discussion" include: expansion of Gunn High School's Small Learning Community and Palo Alto High School's Together Everyone Achieves More (TEAM) program, enhancement of summer school, the addition after-school and enrichment programs at the middle schools, the hiring of district-level world-language coordinator and a part-time Teacher on Special Assignment focused on libraries and emergency-preparedness training.
Ken Dauber, the sole board member to oppose the new contract, has argued that the level of pay increases is "fiscally irresponsible" and is forcing the district, unnecessarily, to make hard budget decisions during an unusually financially healthy year. A critical budget trade-off, he said, is having less money available to reduce class sizes across the district.
The district has long relied on taxpayers to help fund class-size reduction through parcel taxes. The first parcel tax was passed in 2001 with a primary purpose of keeping class sizes small, and voters approved measures again in 2005 (following a failed attempt to renew in 2004), 2010 and 2014.
Since 2010, the parcel tax has provided approximately $25 million to fund class-size reductions, according to the district's parcel-tax expenditure plans.
In 2015, Measure A funds provided $5.9 million to reduce class sizes and $2.9 million for new teachers to accommodate enrollment growth, according to the plan.
Yet classes are still large at many of Palo Alto's schools -- particularly at the secondary level, where two parents' recent data analysis showed middle and high school classes are larger than board-established class-size targets.
Dauber, for his part, argued at the May 10 board meeting that it should not be an either/or budget decision: The district could still offer a healthy raise to teachers while having the funds necessary to bring class sizes down.
He suggested the district offer 3 percent pay increases each year over the next three years, plus one-time bonuses. This would free up an estimated $2.9 million this year and $4.4 million in the next two years -- the equivalent of 35 new teachers -- to support smaller classes, according to Dauber. Thirty-five teachers could reduce class sizes at the high schools by an average of six students, the same number at the middle schools or by three at the elementary schools, he said.
The board will meet on Tuesday, May 24, in the district office at 25 Churchill Ave. starting at 6:30 p.m.