Pleasanton Unified School District will be able to avert cuts to programs like special education and career and technical education through state deferrals but must contend with both repayment and an uncertain financial future for the state, according to the latest budget update to the board.
Following an updated state budget proposal from Gov. Gavin Newsom last week, administrators said during a board meeting last Thursday that the district now has some reprieve but will need to keep a close eye on both the state's overall fiscal performance and PUSD's reserve funding levels to stay afloat in coming years.
The recently negotiated state budget will hold Local Control Funding Formula levels to the 2019-20 levels with a 0% cost-of-living adjustment (COLA), which originally was set at 2.3%.
According to Ahmad Sheikholeslami, assistant superintendent of business services, "this restores to us about $11 million in revenue for PUSD" and avoids reductions to categorical programs in adult education and CTE; the money will come through deferrals from the state.
With a $54 billion state revenue shortfall expected next year due to the COVID-19 pandemic-induced recession, the State Legislature and Newsom were at odds until recently over how to preserve spending for public schools. As of last week, Newsom had agreed to issue $12 billion in deferrals and add $1 billion in one-time federal funding through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
PUSD is "looking at somewhere between $20 million to $24 million combined deferrals in this fiscal year to the next, and then there's a large amount of deferrals starting February all the way through May," Sheikholeslami said. If federal funds come through, there will still be deferrals but he said "they will not be as large" and most districts will try bridging those gaps with other accounts or reserves.
"However, because the magnitude of this deferral is so large, it will require the district not only to utilize those options by probably, and most likely, look at borrowing money through short-term loans, and so there is interest costs and repayment," Sheikholeslami said.
There are also "two big questions" lingering about paying back the money.
"Next year, is the state going to recover its revenue to the point where it can stop showing reserves?" Sheikholeslami added. "How long would it take to recover beyond maintaining it at 19-20 levels to pay back those deferrals? Those are two big questions that will probably push this problem out for many years. It took almost a decade for the state to recover from the last recession and pay off deferrals from that."
By making the necessary reductions, Sheikholeslami said the district won't have $6 million of deficit spending, benefiting them more in the future.
"We believe we can achieve that by reducing the identified $11 million of reductions to about $5.5 million and that will play a huge role when it comes to the out-year planning as we will have to maneuver, how the state recovers from this, how long the recovery is going to be, how long these deferrals are," he said. "Any type of good budget planning and reduction planning that we do today will allow the district to really weather the storm better."
Staff recommended to the board maintaining appropriate reserve levels to allow the district to handle cash flow issues that they anticipate during the deferral periods and also prepare for an uncertain future.
"What the state has done essentially is to give districts and everyone a little bit of time to really prepare themselves for needed reductions," Sheikholeslami said. "Had the state implemented the governor's (original) recommendations, it would've been a shock to the system."
Anticipating "there will be a day we have to deal with the loss of revenue that the state is facing," it was suggested that PUSD make reductions "based on organizational efficiencies and effectiveness."
Knowing that there is likely many unknown costs surrounding COVID-19, the district said they will "have to be careful as we go forward and consider the future in terms of the deferrals, the state revenue stability and ongoing COVID-19 impacts to education."
Staff will dig deeper into more details of the pending state budget and update their plan next month. Any specific immediate reductions that need board approval before then will be voted on at a special July 6 online meeting, starting 9 a.m.
Another special board meeting on July 14 will focus on school reopening but also include an update on where the district is with budget planning at that point. The district's 45-day budget revision, which will incorporate the updated state budget and any changes made to expenditure planning, will be brought to the board on Aug. 13.
Five full-time positions are up for termination at the July 6 board meeting including an unnamed administrator and four graphic specialists "due to lack of work and/or lack of funds," according to district documents.