How School Finance & Budgets Work
We know you keep hearing about PUSD’s budget and the financial challenges facing our school district as well as other school districts in California. We hope this will help you better understand school finance and budgets, and why PUSD is in the position it is.
How are schools financed in California?
From The Public Policy Institute of California: Most of the funding for K–12 education comes from the state. In 2018–19, California public schools received a total of $97.2 billion in funding from three sources: the state (58%), property taxes and other local sources (32%), and the federal government (9%). These shares vary across school districts. After Proposition 13 (passed in 1978) reduced the local property tax revenues available to schools, the state became the primary funder of K–12 education. In 1988, voters approved Proposition 98, which requires the state to dedicate a minimum of roughly 40% of its General Fund to K–14 education each year.
What is PUSD’s budget?
The main category of funding in the District budget is the General Fund, which includes both Unrestricted and Restricted revenues and expenditures. PUSD’s current operating budget is about $225 million, of which $172 million is unrestricted and $53 million is restricted – that is, designated for specific programs such as Special Education, magnet programs, and the school-specific annual funds administered by Pasadena Educational Foundation (PEF). On average, 84% of school districts’ General Fund expenditures are for staffing, including salaries and benefits for teachers, administrators and classified staff.
What is PUSD’s main source of revenue?
The main source of District revenue comes from the State of California through the Local Control Funding Formula (LCFF). Each district must develop a Local Control Accountability Plan (LCAP) that says how it will spend its LCFF revenue to achieve educational goals for all students, and close the achievement gap for specific categories of students. LCFF funding is based on the district’s Average Daily Attendance (ADA), or the total number of students attending school, on average, for a given period of time. For example, in a regular week, there are 5 instructional days. If there are 5 students enrolled and they have perfect attendance, ADA=5 for that week. If 1 student misses 1 day, and another student misses the whole week, total student attendance days drops from 25 to 19, and ADA=3.8. That means when students miss school, they not only risk falling behind, but the district loses money, too.
So what revenue does PUSD get?
LCFF funding includes both “Base” funding which comes to a little over $8,000 per student (the amount varies by grade level), and “Supplemental and Concentration” (S&C) Funding. Supplemental funding is additional funding based on the percentage of unduplicated low income, English learner, and foster youth students in the District (unduplicated means the same student is counted only once, even if they fit into more than one category). Since an average of 63.6% of PUSD students are low income, EL, and/or foster youth, PUSD gets additional “Concentration” monies that are used for programs to support those students.
The main sources of restricted funding are: 1) Title 1, a Federal program that targets support to low-income students; and 2) Special Education, which comes from Federal and state revenue.
What about Measure J?
Last fall, City of Pasadena voters overwhelmingly voted for a pair of measures to increase the local sales tax and to support our local public schools. The tax is anticipated to bring in about $21 million per year, with 1/3 of that going to PUSD. For budget planning purposes, the City and District approved a Memorandum of Understanding that the amount of Measure J revenue to be credited to the District for 2019-2020 will be “not less than $5,000,000.”
What is the Budget Planning Process?
Per California’s Education Code, school districts must adopt their budgets for the next school year by July 1. At that same time, districts provide estimated revenue and expenditure numbers for the year that just ended. The state requires that districts show that they will maintain a 3% “reserve for economic uncertainties” not just for the current year, but for two subsequent school years. The PUSD School Board approved a policy (BP 3100) that requires PUSD to maintain a 6% reserve.
By mid-December and then again by mid-March, the District must provide the School Board with interim reports updating key assumptions related to revenues and costs, so that the Board can certify that the District is able to meet its reserve requirements.
If revenue is mainly based on attendance, what does that mean for PUSD?
PUSD’s enrollment has declined over the past two decades. The same is true for our neighboring districts as well as local private and charter schools. The decline mirrors what the census tells us: the number of families with school-aged children has been steadily dropping in this and surrounding communities. Rising housing costs and declining birth rates are major contributors to this, as families are moving where housing is more affordable.
Although increasing PUSD’s enrollment would lessen the fiscal impact of declining enrollment, according to PUSD Board Member Pat Cahalan, “We have a school district with a capacity for 32,000 students and we wouldn't have 32,000 K-12 aged students even if every private school family went public tomorrow.”
If enrollment is declining, why are costs increasing?
Factors driving costs up include the cost of Special Education (SpEd), worker’s compensation liability, and rising pension costs. Federal and state funding for SpEd has never covered the cost of mandated services, and the funding gap that districts have to make up has grown as per-student SpEd costs have increased. Moreover, California’s funding for SpEd is based on total enrollment, not on the number or percentage of students who qualify for SpEd services. As PUSD’s enrollment has declined, the number of SpEd students has actually increased. (About 14% of our enrollment are students with special needs, vs. about 11.7% on average for the state.) Thus the funding PUSD receives for SpEd is decreasing, even as the number and per-student costs of services are increasing.
Board Member Cahalan further explained that PUSD is operating school sites at well below their capacity. While there is debate about how much money the district saves by closing schools, particularly if displaced students leave the district, there is a cost to spreading academic resources across under-utilized sites. For example, consider the difference between having a full-time nurse at one school, as opposed to splitting the nurse’s time between two or three schools with the same total number of students. The same goes for other supports, such as instructional coaches, music teachers, and librarians.
So what’s the budget outlook at this point?
Governor Newsom’s January budget provided higher cost-of-living-adjustments to the Local Control Funding Formula (LCFF) and some teacher pension relief that would increase District revenue during the next two years. At the same time, District staff project that higher SpEd and workers’ compensation costs along with declining ADA will cost PUSD approximately $3.2 million for each of the next two years, or roughly $1 million more per year than the new revenue from the Governor’s budget. A revised Governor’s budget will come out in May. School districts base their budget adoptions on the amounts in this “May Revise,” but spending allocations and programs may shift again as the Legislature passes its own budget.
When Chief Business Officer Leslie Barnes presented the Board with the 2nd Interim Budget Report on March 14, she said that projections show that PUSD will meet its state-required Unrestricted General Fund ending balance through the 2020-2021 school year. However, she acknowledged that the District is operating at a deficit under current revenue and cost assumptions, and therefore drawing down its reserves. If the current assumptions hold true, by 2021-2022 PUSD would not meet the 3% minimum reserve requirement. This 2nd Interim Budget does not include any salary increases, which are currently in negotiations with teachers and other staff bargaining units.
So, what is PUSD doing about this?
The Superintendent convened a Budget Advisory Committee in 2017 that identified nearly $7 million in cuts to the 2017-18 budget and $11.7 million in cuts to the 2018-19 school year budget.
·The School Board approved a second Fiscal Sustainability Plan in 2018 which included reductions of about $5 million per year for the school years 2019-20 and 2020-21.
·The School Board has convened a Master Planning & Boundaries Committee to “review existing site programs and capacities and future expected enrollment and bring to the board recommendations on the number and location of school sites to maintain for the next 5 to 10 years.”
PUSD is hiring a Risk Manager to identify and help PUSD implement changes that would reduce litigation related to SpEd and Workers’ Compensation.
PUSD is trying to rectify deficit spending for Food & Nutrition Services.
PUSD is seeking proposals for a property swap that could generate additional income.
Is there anything we, as parents, can do?
Stay informed and involved. Join or attend a meeting of your school site council or one of the other parent organizations. Volunteer. Donate. Speak up when you hear people spreading false information about our schools. Encourage, your neighbors and friends to go on a school tour. Better yet, take them on a tour of your school. Use your social media to share the positive stories that you see every day at your school, and tag them with #WEarePUSD.
To find out more about school funding visit:
PUSD’s Budget Development: https://www.pusd.us/Page/5704
Ed100 explains School finance: https://ed100.org/lessons/support
Public Policy Institute of California: https://www.ppic.org/publication/financing-californias-public-schools/