Time to plan for a district budget with reduced state funding over the next few years is "the most critical thing" that Pleasanton Unified School District has on its side at the moment, staff said during a presentation of the district's 45-day budget revisions at the Board of Trustees' virtual meeting on Thursday night.
"The most critical thing that we now have is time to plan for the out years, which is really critical, and that is what the current (state) budget has allowed us to do," PUSD assistant superintendent of business services Ahmad Sheikholeslami said during the overview of the state budget and its expected impact on district finances.
PUSD is looking at a net operating loss of about $1.44 million and net projected funding decrease of $2.8 million. The district has nearly $10.4 million in undesignated reserve funds and around $5.6 million in restricted funds, however, and should maintain its 6% reserve rate, according to Sheikholeslami.
With the state maintaining 2019-20 Local Control Funding Formula (LCFF) levels, no cost of living adjustment was made in the state budget, which Sheikholeslami said "restored about $11 million of revenues for PUSD" and made no categorical reductions either.
Roughly $6 million of planned expenditures are to be reinstated under the budget revision for a net reduction of $5 million. The reductions include $2.4 million from non-personnel areas, $250,000 in savings through salary reductions, and another $2.4 million comes from program and staffing reductions and aligning staffing to enrollment and district needs.
District revenues will be flat for the next few years based on LCFF funding and expenditures will increase, but Sheikholeslami said the district "will be able to still meet the requirements of the minimum 3% requirement without reductions" next year.
"However, in the outer year...we will require about $6 million in reductions," he added. "How we go about planning that is still to be determined. We may actually start to make reductions in (2021-22), to make the reductions here less. There's a lot of variables still floating out there but what we do know is if flat funding remains, we will have to make reductions in the out year."
Approximately $11 billion in state deferrals will start in February, which is expected to affect the district's cash flow.
Sheikholeslami said, "We do plan to bring cash flow analysis and planning to the board in September. One of the reasons we're waiting to present that to the board in September is we're waiting to see if there is, basically, additional funding coming to the schools from the state to support school districts and, if that happens, the state will be able to reduce the amount of deferrals it is currently planning."
Sheikholeslami continued, "In addition, the funding includes a large amount of funding around the learning loss mitigation funding," which is targeted and restricted to use for the remote distance learning format currently underway."
The budget also continues to include relief for PERS/STRS but Sheikholeslami added, "However the rates are expected to go back up to the pre-relief rates in 2022-23 and may for PERS go higher because they're not getting the same rate of return on their investments."
PUSD was able to secure more state funding for special education as well, but it was less than the district had hoped and will require an approximately $300,000 loss adjustment.
With some maneuvering, the district has been able to capture additional funding from various sources including $250,000 from the state to support personal protective equipment (PPE) materials and school custodial and cleaning efforts related to COVID-19. Some federal Title I dollars were also received but because PUSD is "not a very large Title I school district," Sheikholeslami those amounts are much more modest, though the flexibility for those funds is greater.
The district has been making use of its combined state and federal relief -- the majority of that being a one-time infusion of $6.4 million through the CARES Act -- and bought Chromebooks for students as well as investing in hardware, software and positions for distance learning integration and support.
The district's total expenditures are at $173 million, but Sheikholeslami told the board, "What's not included in the expenditures but must be considered in our planning" is the district's need to contribute $1.5 million from the general fund to the child nutrition fund.
PUSD still has to run its student nutrition program and maintain all of its employees, as required by the state-approved budget, but Sheikholeslami said, "Unfortunately, in a remote setting, they're not going to be able to have as much sales, and we may have a reduction in the number of lunches and breakfasts that we get out through the federal program as well, so we're going to make all the effort possible to maximize our sales and maximize our free and reduced disbursements of food on a daily basis."
However, without in person classes on a regular basis, he said the district is expected to see a shortfall in that area.
The district's overall fiscal health and stability will largely hinge on how the state economy recovers from the pandemic, Sheikholeslami said. "As general revenue decreases, so does PUSD's portion of funding as well. The largest area of revenue is personal income; as the economy shrinks, so does personal income revenue."
Following the presentation, Trustee Valerie Arkin asked for clarification on when some of the identified budget adjustments would be made, to which Sheikholeslami answered some had already taken effect.
Trustee Joan Laursen called it "great news that we don't have to make as significant of cuts this year" and then asked if Sheikholeslami could "explain to the public what it means, if the federal dollars don't come, we are expecting these deferrals, but at the same time those deferrals are getting the money that we're supposed to get this year, it's pushed off into the next year."
"That collection of those deferrals of course is dependent on the state's economy in that following year as well," Laursen said. "We talk about it with people to say that deferrals are budget cuts, but it's really hard to explain that. I'm concerned that the deferrals are going to end up like it did in the Great Recession, which is that it goes on for years and it takes 10 years for us to get paid back those dollars. Could you talk a little bit about that process and how that affects the district?"
Sheikholeslami replied, "The best analogy is maybe a snowball effect because, as you said, the state economy has to recover to the point where it was previously, and then it has to recover greater to pay its debt that it's passed on. It would require a miracle for that to happen."
The state will most likely have another shortfall next year and need to extend deferrals, he said, adding, "And so they then will have another deferral, and then slowly over time, every year, if the economy starts to recover, then they will pay some of that debt off, and so we're chasing it."
Sheikholeslami compared the situation to using one credit card to pay off another: "Those cards have a six-month repayment -- when those six months come back, you may have to get another credit card to pay that one. That's what ends up happening until the state can recover -- they're passing their funding on to basically districts who then have to borrow from one source or the other."
Laursen said, "We feel like we didn't get hit by all these cuts this year and, yes, that is true, but they didn't go away, they just got pushed out."
Board President Steve Maher then asked if the district will see any notable savings from its 15 sites being largely empty during remote learning.
Without larger facilities like gyms being used, Sheikholeslami said some cash could be saved in the form of utility costs but pointed out that there are still staff on campus.
"We'll see some but I dont think they're going to be significant enough to move the needle," Sheikholeslami said. "There might be on the fringes, we're looking for them, we're trying to be really diligent on all purchases."
Audited financial statements for fiscal year 2020-21 will be available for review in January, according to the district.