Basic Aid Districts and Fiscal Reserves

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Clarissa Robbins
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1 Basic Aid Districts and Fiscal Reserves Basic aid school districts enjoy a revenue stream that is, by definition, above the state guaranteed revenue limit stipend. But this additional revenue based on local property tax revenue is less certain than the state safety net. For that reason, basic aid districts generally maintain a fiscal reserve in excess of AB 1200 guidelines in order to soften their reentry into revenue limit funding should local property taxes plummet. The importance of this safety net has been magnified in the past few months as Basic Aid districts faced and narrowly averted a catastrophic reduction in funding consequent to a proposed seizure of property taxes. There is a common misunderstanding about reserve levels for all districts, including basic aid districts. That misunderstanding is that 3 percent districts, for example, have only 3 percent total reserves; when, in fact, the 3 percent represents only the amount set aside to meet the state-recommended reserve for economic uncertainties. Districts do and should maintain reserves for quite a number of other purposes; opening or closing schools, declining enrollment, unusually high volatility of the revenue base (think basic aid property taxes), legal difficulties, and many other conditions dictate a higher level or reserves. For , the average district maintained a total reserve of 11.3 percent; basic aids were slightly higher, as we believe they should be, at 14.4 percent. Comparing only unrestricted reserves to total expenditures, the average district maintained a balance of about 8.1 percent, and the basic aids were again a bit higher at 11.6 percent. The most common required reserve for economic uncertainties is 3 percent. The remainder of the balances shown above is devoted to set asides for higher risk, board designations, and undesignated balances. Basic aid districts have expenditure budgets that are built on local tax revenues. There is no safety net at all on basic aid revenues until they decline to the level of the revenue limit and the district ceases to be basic aid. Declines in revenue per student are quite common in basic aid districts; they happen every year in either small increments or large drops. Basic aid districts therefore must create their own safety net and must do it by maintaining higher-than-average reserves. Some basic aid districts that rely upon extremely volatile tax revenues (such as school districts on oil fields affected by the vacillations of crude oil prices) keep a fiscal reserve equal to an entire year s operating budget in order to smooth out the funding bumps that come courtesy of Middle Eastern politics. Many others, however, keep an amount sufficient to fund a three- to five-year reentry cushion into state funding. In these scenarios, the fiscal reserve is used to soften the budgetary scale-down, softening the fiscal impact. One recommended example of a prudent contingency reserve would be at least equal to the current-year differential between a district s basic aid revenue and the state s revenue limit guarantee. In this example, if the budget year sees a precipitous decline in property tax revenue or a seizure of property taxes, two-thirds of that reserve could be expended in year one to soften the impact with the remaining third being drawn upon in year two. Obviously, the great the differential between basic aid funding and the state guarantee, the higher the necessary amount of the contingency reserve. This is appropriate, since the pain of reentry into revenue limit funding increases with the differential between state and basic aid funding. Obviously, this reserve would have to be accumulated over time for districts that do not currently have one in place. Ron Bennett and Bob Blattner School Services of California

2 Property Tax Projecting property tax revenue each year is a challenge for basic aid districts like PAUSD. The District must make projections well in advance of the receipt of the actual numbers and then wait until much later in the year before getting more accurate figures. The information below provides the background for PAUSD s current situation and shows how property tax growth figures increased from projected numbers. The figures below show a backfill of the current deficit, but it s important to keep in mind that the District has had to make roughly $6.5 million in cuts during the past two years. Background on Property Tax Growth County Controller-Treasurer Projected Property Tax Revenue $ 74,298, Actual Property Tax Revenue -70,026, Property Tax Growth (6.1%) 4,271,791 Less 1% Risk Offset -700, % Property Tax Growth 3,571,498 Less.92% Growth Already Budgeted in June ,327 New Money Available 2,930,171 Less Backfill of Deficit Financing in Budget -1,434,429 Less Negotiated Agreement Costs -1,415,793 Remaining Available for Compensation/Program $ 79,949

9 Administrative Positions Reduced and Assistant Superintendent - 1 Director of Student Support Services - 1 Coordinator VTP - 1 Coordinator Special Ed - 1 Middle School Deans - 2 High School Assistant Principals - 2 Administrative Assistant Business Services - 1 Assessment Director +.8 Classified Positions Reduced - 25 Classified positions include secretaries, maintenance, and other non-certificated support personnel. Credentialed Staff Steady Because our enrollment has climbed by 594 students in the three years between and , we have continued to add classrooms. Although we have added 25 teachers, we have cut many certificated support positions such as instructional coaches, curriculum developers, and trainers, so the overall number has remained steady. Total teachers in , 743; in , 742; and in , 745.

Ferndale School District #502 Business and Support Services Budget Summary Citizens' Budget General Fund

Ferndale School District #502 Business and Support Services 2018-19 Budget Summary Citizens' Budget General Fund 7/31/2018 Prepared by: Mark Deebach, Assistant Superintendent for Business & Support Services