The Temecula Valley Unified School District heard a presentation May 19 from staff on the district’s budget outlook following the announcement of Gov. Gavin Newsom’s May budget revision earlier this month — and while TVUSD is in a better financial position than some school districts, the future appears for the moment to be anything but rosy.
Nicole Lash, TVUSD’s director of fiscal services, appeared before the board to offer what she described as her “quick and dirty calculations” on what the governor’s May revision budget means for the district. However, Lash cautioned board members that not only was she making estimates based on very recent information, but the state is also in little position to make accurate assumptions about the coming fiscal year’s budget.
The problem, Bash said, is more than two-thirds of the state’s budget comes from personal income taxes. And with the filing deadline pushed back from April 15 to July 15 to give taxpayers some relief during the coronavirus pandemic, suddenly the state finds itself with a large chunk of its revenue being pushed back beyond the start of the new fiscal year on July 1.
“What that did is it postponed revenue, a significant amount of the state’s general fund revenue, into the next fiscal year,” Lash told the TVUSD board. “It’s going to cause a couple of things. One, it’s going to cause delay in cash flow, but it’s also going to cause a delay in knowing how much revenue we’re going to receive.”
In the short term, that delay in cash flow shouldn’t hurt the district, Lash said.
“We book that revenue and we just hang on and wait for the cash to come in,” she said.
Long term, things get a little hairier.
With what limited information is available, Newsom estimated the state will see a decline in revenue of around 22%.
He also offered some statements on what kind of cuts will be made to public education, though nothing is set in stone yet. Local Control Funding Formula spending will be cut by 10%, the governor said. Categoricals — funds earmarked for specific purposes like special education or schools with certain programs — will be cut by as much as 50%, and the state will defer as much as $5.3 billion in education spending.
“Those are very broad statements,” Lash said in describing them to the TVUSD board. “I know they caused immediate panic in my heart, but what that means specific to TVUSD is kind of what we’ll get into moving forward.”
TVUSD, she said, doesn’t receive much categorical funding, so that 50% cut won’t pose as much of a problem in Temecula as it may in other districts.
The LCFF funding, though, will result in a much more drastic drop in funds. Based on the 10% number given by Gavin Newsom, Lash said TVUSD stands to lose about $24 million out of the $250 million in LCFF funding it received last year.
The drop in LCFF funding won’t put TVUSD back into Great Recession-era funding levels, Lash said. It will be felt, though. Or it would be, if not for help from the federal government.
“But, good news, the federal Cares Act has stepped in to supplement some of these shortfalls and there’s multiple things in this Cares Act that will impact us,” Lash said.
The district is also helped by Gov. Newsom’s decision to cover retirement funding obligations for school districts, which was also announced at the May revision.
According to information on the Office of the Governor’s website, “the May Revision proposes to reallocate $2.3 billion in funds previously dedicated to paying down schools’ unfunded liability to CalSTRS and CalPERS to instead pay the school employers’ retirement contributions.”
Lash also said some state funds that currently will go only to concentration grant-eligible school districts, which are districts with more than 55% of students considered “high need,” TVUSD could be successful in receiving additional funds if that restriction is changed.
“There is already debate as to whether revisions shoul be made, because it’s kind of this all or nothing proposal,” Lash said.
Regardless of that matter, while TVUSD is facing many millions of dollars in lost LCFF funding for next year, the extra help from the federal and state governments will mean it is facing a net drop of only $8 million — a large number for sure, but perhaps not as scary of one as $24 million.
There is a bit of a catch, though — the Cares Act funds are one-time.
Another issue is the budget deferrals the state could pass onto schools next year.
Budget deferrals are an accounting tactic used by the state during the Great Recession and for years after; essentially, the state will take funds intended for a given fiscal year and simply move them over to the next one. That makes it look like spending is lower in the first fiscal year, even though the state is still spending the money later. That’s good for the state, which is statutorily required to pass a balanced budget, but not so much for schools, which are forced to borrow money. And the governor’s May revision calls for deferring school spending for April, May and June of 2021 until after the 2021-22 fiscal year.
“While the state does say they’re going to pay us, when we get paid is still an unknown, and if you were around during the Great Recession,” Lash told the board, “there were years when the deferrals from June weren’t paid out until December of the following year.”
Borrowing money of course costs money, and the district will be on the hook for any interest charges it may incur while borrowing to keep its bills paid.
It’s far too soon to say what the effects of declining revenue and future borrowing costs will be. For one, Lash said it’s unlikely the state will have an accurate idea of its budget until August or September. Additionally, TVUSD and other districts also still will have to grapple with how classes will look in the fall — if some form of distance learning is still necessary by then, the district could save money on things like utilities, but could have to spend more money on necessary technology. So there are many questions still to be answered on what budgets will look like TVUSD and other schools districts across California.
Will Fritz can be reached by email at firstname.lastname@example.org.