With the governor’s $108 billion budget almost finalized, school districts are starting to finalize their own budgets, with many concerned about rising pension expenses and a trailer bill that asks school districts to keep reserves low.

Gov. Jerry Brown has until June 30 to sign the proposed budget that would begin to pay down an estimated shortfall of more than $74 billion in the teachers’ pension fund, puts about $1.6 billion into a special rainy-day fund and holds about $460 million more in reserve. In the Millbrae Elementary School District, with the new pension funding formula, the teachers’ retirement system pensions make up almost $125,000 more of expenditures just in the first year, according to its chief business officer Wendy Goldberg.

“One of the biggest things that is affecting school districts is that state employees and schools need to increase their contributions so it would address that unfunded liability of the pensions,” said Superintendent Linda Luna. “The school district currently contributes 8.25 percent per teacher and administrator toward their pension, but next year it’s going up 9.5 percent per teacher and administrator. By 2020-21, it will be 19.1 percent per teacher and per administrator.”

This is how the governor is tackling pension reform.

“It was a surprise,” Luna said. “Nobody knew about it. People are extremely concerned about this.”

The San Mateo Union High School District is still finalizing its budget but, as a basic aid district that gets most of its funding from property taxes, the district will see some negative impacts from the budget. Specifically, the item that says school districts need to document and justify having a local reserve above the recommended level is of concern. If a school district proposes to adopt a budget with a reserve that exceeds the state required minimum, it must identify the reasons following a deposit in the state’s school funding formula known as Proposition 98. This means a 6 percent reserve fund.

“The only thing that’s a concern to the school district is the proposal to reserves,” said Liz McManus, deputy superintendent of business services for the San Mateo Union High School District. “We have a 12 percent reserve and basic aid school districts have higher than normal reserves because of the volatility of property taxes. It’s pretty irresponsible on the state’s behalf.”

The San Mateo County Office of Education also expressed some concern about the reserves clause.

“The concern that we have is the lack of transparency about the reserve level language,” said Denise Porterfield, deputy superintendent of business services. “That came very last minute out of nowhere, so we have concerns. We don’t think it will affect schools for a long time since a number of provisions have to take place first. Overall, we do like that there’s increased funding of districts that are in transition; it is an exceptionally good for districts that need more funding.”

In the Sequoia Union High School District, Trustee Alan Sarver said the concern he has heard all over is that it doesn’t make sense to restrict school districts planning in a long-term, fiscally prudent manner.

“(State Sen.) Jerry Hill (D-San Mateo) reassured me there’s limited scenarios in which such a limit would be evoked,” Sarver said. “It appears that planning ability has been preserved for us, so that’s a relief.”

Hill confirmed the conversation and said there is a very slight chance it will affect school districts because of the reserve clause. The limitation may be waived by the county superintendent of schools if the district identifies the extraordinary circumstances necessitating a larger reserve, including but not limited to multi-year infrastructure or technology projects. The only circumstances under which the state would make a deposit into the Proposition 98 reserve would be when: revenue from capital gains exceed 8 percent of the total general fund revenue and the Proposition 98 minimum is determined, according to Hill’s office.

Other changes

There are already other changes to school funding. The new Local Control Funding Formula became a law July 1, 2013, and changed the state funding formula for K-12 schools to help boost the academic achievement of disadvantaged students. The state budget for the 2013-14 fiscal year provides about $55.3 billion in local and state revenue for K-12 education and two-year community colleges. That’s an increase of more than $8 billion over the 2011-12 level under Proposition 98. During the first year, the formula gives school districts more control over state aid by eliminating earmarks for state-mandated programs, except for special education funding. In the 2014-15 budget, the state gives $26 million for County Offices of Education to reach full implementation of LCFF.

The San Mateo-Foster City Elementary School District fared worse in the 2013-14 school year compared to 2012-13, according to Laura Tran Phan, chief business official for the district.

“However, we expect increased funding under LCFF calculation in 2014-15,” she wrote in an email. “Our district will flip from current basic aid status to state aid/LCFF status in 2014-15. The biggest concern for us is that under LCFF, our fair share reduction of $1.74 million for 2013-14 will be deducted and included in the formula each year until full implementation of LCFF in 2020-21.”

Early education investment

Others are more hopeful about the budget, including Ted Lempert, San Mateo County Board of Education trustee, who points to the $264 million for preschool and day care for low-income families that eventually will cover half of all 4-year-olds in the state.

“It’s exciting to see the investment in early education; we view that as a down payment,” he said. “It was good to see education funding start to go upwards.”

He noted the reserves piece is going to be a challenge for schools. He also wishes the state would pick up more pension costs.

“It’s kind of a black mark on an otherwise positive budget,” he said. “It doesn’t really make sense for how districts do their budgeting.”

For the South San Francisco Unified High School District, Superintendent Alejandro Hogan said as a poor basic aid district, its funding is barely over what it’d be getting from the state.

“We’ll be basic aid for one to two more years, then we will flip to a revenue limit district,” he said. “The budget this year looks better than last year. There’s a 2 percent growth in the tax base.”

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