School District Offers Strategy to Meet Huge Shortfall

By Steve Simmons

With the South Pasadena Unified School District facing a possible $4.4 million deficit amid the COVID-19 pandemic, its assistant superintendent of business services this week outlined state and national factors that have led to the financial straits and presented proposals to meet the shortfall, including personnel cuts.
Speaking Tuesday at the SPUSD Board of Education’s virtual meeting, Dave Lubs described a “grim” 2020-21 budget-making process marked by an ever-changing financial footing and numerous unknowns, and still very much in the state’s hands.
Of the $4.4 million in proposed reductions, 12% would come from reserve fund contributions, 36% from certificated position cuts (including teachers), 30% in classified employee cuts and 10% from management positions. Because upward of 85% of the district’s budget comprises staff salaries and benefits, reductions to services and supplies are not enough. The budget as presented authorizes the layoff of more than 100 classified employees, with the majority from extended day and food services.
“Their services provide direct services at our school sites and that future is uncertain,” Karen Reed, the assistant superintendent of human resources, said.
The district also approved cutting substitute teacher pay from $145 to $135 a day, in line with other districts in the area.
The proposed budget, which will be considered at the board’s June 25 meeting as an action item, incorporates elements of Gov. Gavin Newsom’s May revised budget and is “gut-wrenching,” Lubs said. A bleak national and state economic outlook is impacting SPUSD’s budget decisions moving forward.
The governor’s budget plan includes a $3.5 billion annual decrease in Proposition 98 funding for K-12 education and $11 billion less for schools and community colleges.
“State policymakers say schools will see significantly lower resource allocations for many years,” Lubs said.
In California, state personal income tax revenue is a major component of the budget, making up two-thirds of the state’s funding, including for schools. It is estimated the figure will be one-third of what it was in 2008-09, a sum comparable to the Great Recession.
The state budget adoption process statutorily requires school districts to plan for the next three years, “so we must move forward with what information we have,” Lubs said. However, more information is expected in the next few months, he added. An August revision of the state budget is expected to be quite different from the version to be passed later this week or next week. Yet another impact of the pandemic is that the tax return deadline was extended from April 15 to July 15, hence the August revise.
“We are presenting a budget based on information we have,” Lubs emphasized, “but we expect things to be different when the budget comes out this week, and again different in the August revise.”
While the May revise keeps the January proposal related to state funding for special education and provides relief for retirement fund contributions, the net result is a loss of $4.4 million to the district.
The possibility of federal aid to California in the fall also contributes to the mystery.
“We don’t know which parts will be in the budget, it’s like being in a ping-pong game and we’re the ball,” Lubs said.
The district is addressing the crisis short term by ending contributions to three funds: The Textbook Fund, Deferred Maintenance Fund, and contributions to the Retiree Benefit fund.
“If we get some relief from the state, we will update contributions accordingly,” Lubs added.
Under the scenario presented Tuesday, the district would end 2020-21 with a 5% reserve; in 2021-22 the reserve would fall to 3%, and barring additional reductions the district would be insolvent in year three, meaning it wouldn’t be able to pay bills and salary. An additional round of staff layoffs may yet follow the August revise.
“But we’re not alone,” Lubs said. “This is not just South Pasadena. The county Office of Education is aware that most districts are in a similar situation as a result of the pandemic. They expect districts to figure out the third year by the time the first interim is presented in December.
“We had to develop a budget based on the revise and the finance department’s worst-case scenario,” added Lubs. “We also have to assume that our two fee-based funds, extended day care and food services, will not operate in the fall because we don’t know what our schools will look like, so those two programs are outside this budgetary decision.
Because of the pandemic’s impact, the district also suffered losses in all revenue streams, including developer and use-of-facilities fees, along with the two self-sustaining programs.
Lubs added while the district is operating well under lower reserves, “this is the time to reiterate that we need decent reserves to weather these storms.”
Board members expressed dismay at the budget choices they must make.
“Even before COVID-19, 70% of school districts were in a silent recession with deficit spending and contemplating layoffs,” said board clerk Ruby Kalra. “We’ve never seen cuts so drastic.”
“We are really going to struggle,” said board member Zahir Robb. “How do we minimize the pain to teachers, students and the community? There’s only so much you can do. This has to be a call to action for more funding and asking everyone for support.”
“We should not be in this position,” Michele Kipke, the board president, said several times. “The investment in future generations should be a priority. Shame, shame on the state legislature. California is ranked fifth in state economies and 40th in educational rankings. This is unacceptable and ridiculous. This is a time for folks to say ‘no.’ Public education needs to be funded.”
“We try to spread the pain,” added board member Jon Primuth. “We’re using reserves and deficit spending, and we can‘t spend all our reserves, but we’re taking a sizable chunk. We’re spreading cuts across different kinds of employees and programs and protecting the classroom. The cuts were at board direction. They were our decisions and we’ve tried to balance the pain that minimizes the impact on students. There’s no smoke and mirrors in this budget. We do this with a heavy heart. We don’t want to lose any of our team members, but it’s unavoidable at this point.”