Palo Alto school district staff will present a two-year plan for how to mitigate a budget shortfall now estimated at $3.3 million, the result of misbudgeted property-tax projections, at an all-day school board retreat on Thursday.
Staff are proposing that the district manage the shortfall in part this year by using $375,000 left in the budget from three elementary-school positions that didn't need to be filled due to lower-than-anticipated enrollment growth; $1.2 million in technology-refresh funds; and by transferring $175,000 from the district's Basic Aid Reserve Fund, about $85,000 less than was originally proposed.
The district anticipates receiving approximately $90,000 in "interest money" in the Reserve Fund that will allow the district to meet a requirement to maintain a reserve equal to at least 10 percent of its general fund, according to a staff report. Some board members expressed concern at a special budget study session two weeks ago about using reserves to backfill what looks to be a structural rather than temporary budget deficit.
The "short answer" to whether or not the district faces a structural deficit is "it depends," the staff report states.
"It depends primarily both on tax revenues and compensation increases. We generally need about a 4% tax increase for a rollover budget so tax increases below that amount — without reductions in compensation or staffing — result in a structural deficit," the report reads.
Staff are not recommending to roll back a 4 percent pay increase for senior administrators and managers this year, which would provide a savings of $648,000. The salary hikes — which the board approved in May as "me too" raises for non-represented employees, along with those negotiated with the teacher's union — are already being paid and to rescind them would mean a salary decrease, a staff report notes. The board packet does include, however, an alternative version of the two-year plan that shows the impact of cutting back administrators' raises this year.
In January, the district plans to reopen negotiations with its teacher and classified unions for the 2017-18 year to discuss a 3 percent raise promised in the third year of new multi-year contracts. The change in property-tax revenue also automatically triggered a safety-net condition in the contract that eliminates a 1 percent bonus for teachers when property-tax revenue is less than the district budgeted by 1.5 percent or more. (This saved the district $1.5 million, reducing the initial $5.2 million budget gap to $3.7 million. A budget surplus of $418,000 results in the latest estimate of a $3.3 million shortfall.)
Next year, staff are suggesting the district transfer $500,000 from its reserve and find an additional, unidentified $1.4 million in budget reductions to make up for the remaining deficit. Some of these reductions will "likely" include cutting staff additions that the district has made over the last four years, a staff report notes. Any changes to teacher, classified or administrative compensation plans or even furlough days could also be used to reduce the shortfall, the report reads.
The district is also eyeing potential instructional changes for its special-education model, based on recommendations from a Harvard University researcher that visited the district last year, which could also result in cost savings.
The process for determining these reductions "will be transparent and inclusive as well as deliberate and thoughtful," the staff report states.
The board and staff will discuss options for these reductions at a special workshop on Oct. 18.
At Thursday's retreat, staff will answer board and community members' calls for multi-year projections that show the longer-term impact of the tax shortfall. Staff will present two sets of five-year projections for future property-tax revenue, both much more conservative than initially planned for in the 2016-17 budget, and will ask the board to agree on one set or range of forecasts.
One set relies on the City of Palo Alto's forecasts, which project 5.23 percent growth in 2016-17 (the amount provided on July 1 by the Santa Clara County Assessor's Office), 5.26 percent in 2017-18, and between 5.10 and 5.34 percent from 2018-19 to 2021-22.
A more conservative projection, approximately 75 percent of the city's, is included in a presentation to be given by Chief Budget Officer Cathy Mak. It estimates the same revenue growth for this year, slightly under for 2017-18 and then dropping from 4 percent to 3.81 percent from 2018-19 to 2021-22.
The board will continue to discuss the budget at its first regular meeting of the school year on Aug. 23, and again at two meetings in September.
In other business at Thursday's retreat, the board will discuss goals for the 2016-17 year and operational items. The meeting will run from 8:30 a.m. to 2 p.m. at the district office, 25 Churchill Ave. The board will convene in closed session from 2-4 p.m. to conduct an evaluation of Superintendent Max McGee, among other items. Read the full agenda here.