School board tasked with tough choices to avoid fiscal catastrophe

Recently, Mammoth Unified School District said that three teacher positions would not be returning next school year. Those, however, could be the first of many serious changes facing the district’s Board of Education. During a budget workshop session Monday evening, Interim Finance Director Michele McClowry outlined the urgent need for addressing shortfalls in next fiscal year’s budget and beyond. In no uncertain terms, McClowry told the district to get ready to make some very hard choices by no later than January 2013, and that hesitation will only make things worse.

And by worse, we could be talking insolvency within three years’ time.

Several factors have contributed to the dire circumstances: the first and most obvious being cuts and deferrals being made to the schools from the state legislature.

Those cuts are causing increased deficit spending, much of which has been backfilled to date by tapping the district’s General Fund. Consider that the state’s Class Size Reduction program, for example, is only being funded by Sacramento at a little more than $200,000 of program’s $1.7 million line item.

“We’re paying to make underfunded programs whole,” Board member Jack Farrell noted. He also took issue with the state’s use of the word “contribution” by the district, arguing that it is simply a politically correct way to describe an “encroachment” on the General Fund.

The state has been shorting many school programs at about twenty-two cents on the dollar, and Basic Aid districts, which are largely funded by property tax revenue, are also having “fair share” reductions imposed on them to equalize them with Revenue Limit districts. McClowry said that, given the state’s financial mess, she doesn’t expect those deferrals to be made up anytime soon, if at all. “Realistically, you’ll probably never recoup any of those dollars,” she told the Board.

Exacerbating the situation is an estimated 4- to 4.5% decline in property tax revenue, so far projected by Mono County, lowering revenue from $9.4 million to $8.9 million, where it is projected to stay for at least the next two fiscal years. While that figure is still not final, McClowry said she had to take the County’s best estimate so far to start making projections.

All told, the current 2011-2012 budget will end up with a $470,000 deficit, but the upside so far is that the reserve percentage will likely end up at about 29%, well above the district’s mandate of 17% and the legal state requirement of 3%.

Much is being predicated on Governor Jerry Brown’s tax initiative package that is set to go before voters this November, but even passage of that won’t solve MUSD’s entire problem.

Next year, however, assuming no changes in tax revenue or the state’s budget quagmire, McClowry’s deficit forecast grows to between $800,000 and $900,000. This factors in property tax reductions and salary/benefit increases, and lowers the reserve percentage to 22%, and that’s assuming the tax initiatives pass.

If the initiatives don’t pass, the district would have to take another $463,000 out of reserves.

The following years’ projections, however, are the real tell of how bad things could get. By 2013-2014, the deficit balloons to as much as $1.3 million, dropping the reserve to roughly 13% (10% if the initiatives don’t pass).

And when we get to 2014-2015, the deficit spikes to $1.75 million and reserves plummet to 0%, or -3% if the initiatives don’t pass, essentially meaning the district would face insolvency.

It didn’t take long for most in the room to conclude that even the state minimum for the district of 3% reserves isn’t enough to cover payroll, at least not for very long. And technically the County can disqualify any budget that falls short of the state reserve minimum.

McClowry’s advice: make addressing the 2012-2013 deficit of $800,000 a priority. “Waiting longer only destroys everything you value here. The loss keeps multiplying as you go further out in time,” she warned. Pink slips and program cuts taken into account, she suggested that saving $1 now amounts to saving $3 later, which could likely avert the “parade of horribles” looming just a few years down the timeline.

All school districts in California have some very serious issues,” Superintendent Rich Boccia commented. “We are once again being asked to do more with less! How does the state expect us to support the development of competitive global citizens when we keep reducing funding for public education?”

MUSD, however, isn’t alone in its predicament. According a state report on school fiscal solvency as reported in the Los Angeles Times, 110 districts either qualify for or are already in bankruptcy. In the northern rural area of Shasta, for instance, two school districts are facing potential bankruptcy for the first time in the county’s history, according to Adam Hillman, Shasta County Office of Education Associate Superintendent. Both Pacheco and Cottonwood Union School Districts, tiny districts struggling with the added problem of declining enrollments, have opted to increase class sizes. Former MUSD Board of Education member Shana Stapp mused to The Sheet that very idea might be a good place for this district to start looking for ways to trim deficits.

In her presentation, McClowry said there are provisions that allow MUSD to take out short-term 1-year cash flow loans, or Tax Revenue Anticipation Notes, but said those can be “expensive” and are typically evaluated based on a district’s cuts and deficit spending, which can make them tricky to get.

The state report did, however, note that 57 districts are in sound financial condition, one of those being MUSD. In regards to the teachers, Boccia said two of the teachers, Jim Barnes and Dierdre Buchholz, are making life transitions. “It will be difficult to fill their shoes but we have advertised and can hope that we have some strong candidates,” he said. Regarding the other positions, Boccia said that, based on the budget conversation last evening and the level of deficit spending, “any open position at this time will remain unfilled and we will have to make do with what we have.”

Translation: Kevin Worden will not return.

According to an e-mail Boccia received just prior to the workshop, off the table during state budget talks is the so-called “weighted student” reduction formula, which would reroute more money to districts with a heavier concentration of English learners and low-income children.

MUSD is expected to sign off on a final 2011-2012 budget on June 28.