Budget Deficit Remains Despite Governor’s Proposal To Increase K-12 Funding
On January 10th, Governor Gavin Newsom introduced his budget proposal for the 2019-20 fiscal year. As is our practice, the District has updated its budget projections in response to the Governor’s proposed budget. This email is to update the community on where our budget projections currently stand.
It is important to note that budget projections are fluid. At the time of our 1st Interim Report last December, the District reported needing to make a minimum of $16 million in cuts for 2019-20 and another $36 million for 20-21. However, under the Governor’s proposed budget, and an updated forecast projecting continued declining enrollment in our schools, the District needs to cut $35 million for both years to completely eliminate the structural budget deficit, meet its financial obligations, and meet the 2 percent minimum reserve for each year as required by law.
We appreciate the Governor’s increased investment in education. However, the biggest takeaway for our families is that our District’s fiscal challenges remain and we have to significantly reduce spending immediately to avoid running out of cash this year and being taken over by the state. The chart below shows that despite our updated projections, the District’s fund balance will still be almost completely gone in 2019-20.
The District will continue working with our labor partners to achieve the costs savings necessary to prioritize student needs and avoid a state takeover. As was reported two weeks ago, contract negotiations with a focus on making shared sacrifices to eliminate our structural budget deficit, have started with SEIU 1021, United Professional Educators (UPE), Teamsters Local 150 and Teamsters Classified Supervisors. The District will continue inviting and making efforts to have all of our labor partners agree to contract negotiations and work with us on addressing our budget challenges. The bottom line is that despite a 3.5 percent increase to education in the Governor’s proposed budget, our District still must significantly reduce overall spending to achieve the cost savings targets needed to avoid state takeover.
District leaders understand this somber news, and County Superintendent Dave Gordon’s letter last week agreeing with the District’s self-certification of “negative” status, will continue to raise serious concerns about our ability to protect funding for core academic and student programs. To date we have been able to keep cuts away from students. However, continuing to keep cuts away from students will require shared sacrifice and all labor partners working collaboratively with the District to achieve additional cost savings.
To help the community better understand our current situation, below is a basic breakdown of the key factors that led to these latest budget projections.
Student enrollment plays a significant role in how much funding the District receives from the state. The District has had a continuous trend of declining enrollment over the past 17 years, and has continued to lose students this year. The District is projecting an enrollment loss of 384 students in the 2019-20 school year, translating to a projected $3.5 million loss in revenue in 2020-21. Click here to view year by year enrollment projections.
Health Benefit Costs
One of the biggest cost drivers in the District is employee health insurance. In fact, Sac City Unified continues to spend far more per pupil than all other school districts in California to provide health benefits to current employees and retirees. Until the Sacramento City Teachers Association agrees to switch health plans to less expensive health plans with comparable benefits, the District projects its health costs will continue to increase in 2019-20. In addition, the District is being mandated by the state to continue contributing more toward the CalSTRS and CalPERS pension systems to ensure those retiree systems remain solvent (see next section for more details).
Governor’s Proposed Budget
The Governor’s K-12 Budget proposal does not include any one-time funds, but does seek to increase state funding to school districts by approximately 3.5 percent. The District appreciates Governor Newsom’s increased investment in education and other proposals focused on reducing costs. However, in Sac City Unified, our costs continue to significantly outpace the 3.5 percent proposed increase in our revenues. Our structural budget deficit will remain unless District spending is reduced.
The Governor’s proposed budget also seeks to reduce the CalSTRS employer contribution rate by approximately 1.0 percent in 2019-20 and 2020-21, as well as to reduce our out-year contribution rate by 0.5 percent. Assistance from the Governor in bringing down this cost is certainly welcome. However, it will not generate enough savings to prevent our District from running out of cash this year, or to balance our budget in future years. The chart below shows that over a 10-year period, our projected STRS costs, even with the Governor’s proposed STRS contribution decrease, will still be almost three times more than in 2013-14.
Again, we appreciate the Governor’s increased investment in education but understand that despite a 3.5 percent increase to education in the Governor’s proposed budget, our District still must significantly reduce overall spending to achieve the cost savings targets needed to avoid state takeover. Our Board of Education is committed to preventing this from happening.