Schools prep for worst-case budget crunch

If there’s one thing the coronavirus pandemic has forced people to confront, it’s how to cope with widespread uncertainty. It’s no different for school districts trying to make financial plans – things are certain to change; the question is how quickly and by how much.

“There’s just a lot of unknowns and there’s a lack of clarity right now,” said Randy Kenyon, the Los Altos School District’s business director. “There’s a worry about the enormous ripple effect of what this pandemic is doing to our economy.”

School districts typically feel the impact of a recession about a year later than commercial businesses, Kenyon said, because of the time it takes to impact tax revenue.

Part of the challenge in making long-term financial plans is that it’s still very early and there are many different assumptions that can be made about the future, said Mike Mathiesen, Kenyon’s counterpart in the Mountain View Los Altos Union High School District.

“We see the dark clouds, so we need to start planning and adjusting decision-making logic accordingly,” Mathiesen said. “But we don’t know all the specifics yet, so it’s planning without the details.”

Because of the way school funding is calculated in California, both districts are heavily dependent on local property tax revenue. The Los Altos School District receives roughly $50 million annually from property tax collections, out of a $65 million general fund budget. Roughly 88% of the high school district’s revenue is from local property taxes.

According to Kenyon, property tax collection looks on track so far this year, and assessed values are expected to grow by approximately 5% countywide next fiscal year. However, widespread unemployment could mean that more people aren’t able to pay their property taxes.

“I’m very concerned about the unemployment rate and the loss of jobs and what that means here locally for people who have to pay property taxes,” Kenyon said.

In case people aren’t able to pay their taxes, Kenyon is preparing for a worst-case scenario where collections actually drop 5% compared to the current fiscal year. In that case, the district is still projected to have a positive balance, but would need to cut as much as $1 million to hit the state-mandated 3% reserve level.

For now, though, much is still uncertain about what next school year holds. Both Kenyon and Mathiesen said more will likely be known in August, when the state is expected to revise its budget.

Belt tightening

Districts are beginning to think about where cost cutting is possible. That could mean not rehiring for certain open positions, but Kenyon said there is currently no need for layoffs.

Mathiesen similarly said that when a position becomes vacant, the district can analyze whether it’s necessary to fill the spot. Staffing typically makes up the lion’s share of a school district’s costs. For MVLA, salaries and benefits account for 84% of expenditures.

However, Mathiesen said other parts of the budget may also be reviewed, such as contracted services and money principals receive to dispense to departments. Those costs could be held steady in next year’s budget, rather that increasing with inflation.

“Really what it means, because we saw this 10 years ago, is you’re more conscientious and explicit about every financial decision you make,” Mathiesen said, referencing the Great Recession.

With much still unknown, one place districts are looking for clues is the 2008 recession. Mathiesen said he plans to look back at the Great Recession and in particular how it affected property tax revenue, as well as state funding.

The Great Recession is one potential model of what could happen, Kenyon said, but it could also end up being worse this time around. Either way, he said the lesson learned from that recession was that reacting quickly pays off.

“The earlier we can prepare, get our plans in place, the better off we’re going to be,” Kenyon said. “We’ll get through it, but we just need to be proactive.”

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