The Palo Alto school board will discuss on Tuesday budget revisions to address up to $6 million in unbudgeted pay increases this year — the result of what the superintendent is now calling a "mistake" of not formally reopening negotiations with the district's employee unions.
District leadership realized in August that they had failed to meet a contractual deadline to reopen negotiations this spring, and have since agreed to pay 3 percent raises to unionized teachers and classified staff that the school board had intended to cancel — the equivalent of $4.4 million. This comes on the heels of an ongoing budget shortfall the district has been grappling with since last summer, when staff members realized they had misestimated property tax revenue to the tune of $3.7 million.
Under the three-year union contracts, if property tax revenue comes in at more or less than 1.5 percent than the amount the district budgeted for in 2016-17 — as it did, at 5.34 percent compared to the district's projection of 8.67 percent — "each party has the option to reopen negotiations on the three percent (3%) increase to the teachers' salary schedule for 2017-18 by March 15, 2017."
The district will use additional property tax revenue to pay the raise.
It's also "very likely," Chief Budget Officer Cathy Mak wrote in a staff report, that a 1 percent bonus promised in the contract (the equivalent of $1.5 million) will double based on property tax projections. Under the contract, if the actual property tax received for the 2017-18 school year is greater than budgeted for by 1.5 percent or more, a 1 percent automatic bonus will be increased to 2 percent.
Early estimates from the county provided to the district indicate property tax growth will be coming in well above that 1.5 percent threshold — 6.52 percent compared to 3.73 percent in the district budget.
Staff is proposing the district use a $6.1 million fund set aside for opening new schools to pay the bonus.
Staff will present four new budget scenarios on Tuesday night, two of which include a 1 percent raise for all employee groups for the next five years. (Salary increases are subject to negotiation and these amounts are for "projection purposes only," the staff report notes.) Those two scenarios result in budget shortfalls for the next three years.
The first scenario, for example, projects property tax growth at 4 percent in the 2018-19 school year and 3 percent in the next four years, with 1 percent raises from 2018-19 through 2022-23. This would result in estimated shortfalls of $2.9 million in 2018-19, $3.1 million in 2019-20 and $900,000 in 2010-21, according to the district.
Only one scenario includes no shortfalls in the out years — with higher property tax rates of 5 percent, then 4 percent and 3 percent for the next three years and no raises.
The scenarios also include different property tax projections, from the more conservative (3 percent) to 5 percent.
This year's proposed budget has a deficit of $2.4 million, which comes from $750,000 for new teachers, $175,00 for a Title IX coordinator and the employee bonus. The deficit persists for the next two years, according to the district.
In a weekly message on Friday, Superintendent Max McGee acknowledged the district made a "mistake" with the contract, but attributed it to "widespread misunderstanding among all parties that the 3% increase was off the table due to the 2016-17 budget shortfall."
The district does not intend to cut programs or services that "directly impact teaching and learning," and he will instead recommend the district not fill several open personnel positions for savings.
In closed session on Tuesday, the board will discuss an evaluation of McGee at the request of Trustee Todd Collins, made in response to the contract issue.
In other business, the board will take action on a set of policies related to compliance with federal anti-discrimination law Title IX; vote on the 2017-18 district-wide goals; discuss a report on enrollment and class size; and discuss authorizing a request for proposals (RFP) for a master planning process for Cubberley Community Center
The board is also set to rectify violations of public-meeting law the Brown Act by approving in open session the contracts for two new district hires and McGee's compensation from the last two years.
The meeting will begin at 6:30 p.m. at the district office, 25 Churchill Ave. View the agenda here.
The board will also meet on Wednesday, Sept. 13, from 6-8 p.m. for a workshop on governance and protocols.