The proposed 2016-17 budget of the Menlo Park City School District shows slightly more spending than revenues, but with the addition of reserves from prior parcel tax balances the district is projected to end the year with slightly more in its reserves than it currently has.
The board will hold a public hearing on the proposed budget and discuss it at its Tuesday, June 7 meeting, which starts at 6 p.m. in the Encinal School multi-use room at 195 Encinal Ave. in Atherton. The board is scheduled to adopt the budget at a June 13 meeting, which will start at 6 p.m. in the district offices TERC room at 181 Encinal Ave. in Atherton.
The Tuesday meeting has a long agenda and the budget hearing is scheduled to start an hour and 45 minutes after the meeting begins.
Parcel tax measures
Two parcel tax measures, one a continuation of a current tax and one a new tax, failed to gain the necessary two-thirds voter approval in a special May election.
Following the election, the district cut $900,000 from its proposed 2016-17 budget, according to a report from the district's chief business and operations officer Ahmad Sheikholeslami and director of fiscal services Jill Frederiksen.
In the short term, a report on the proposed budget says, the district can "manage the financial challenges by drawing on current reserve levels." By 2017-18, the district would be running an annual deficit of $2.3 million, the report shows.
The proposed 2016-17 budget projects revenues of $45.34 million and spending of $45.39 million. However, when the district adds $1.67 million that is in a reserve fund from prior parcel tax revenues, it leaves the district with a $12.7 million ending fund balance.
The report says the proposed budget has reductions of: $320,000 in salaries; $90,000 for technology, $85,000 in instructional materials, $100,000 set aside for book adoption, $100,000 from the student services budget, $70,000 from the maintenance budget, $75,000 from a state-required fund for ongoing maintenance in new facilities, $65,000 in contracted services, non-essential overtime and stipends, and $22,000 in utility costs through energy savings. It also includes additional revenue of $123,750 from summer facility rentals.
The district is adding the full-time equivalent of 11.24 employees next year (5.5 teachers, three aides or para-educators, a family engagement liaison, a custodian and a bus driver and 0.6 curriculum specialist). An open mental health therapist coordinator position is not being filled.
Ongoing personnel costs account for 89 percent of the budget, the report says.
While the district's budget remains balanced for the coming year, the budget report warns that the district will have "large operating budget deficits" starting 2017-18. The district predicts that without the income from the two failed parcel taxes, it will have a $5.8 million revenue shortfall by 2020-21.
Pension costs increasing
One of the major factors that increases the annual budget is the cost of pensions to the district. The district's contributions into the state's pension programs for teachers and other district personnel will be $560,000 more in 2016-17 than the previous year. Since the state legislated increased contributions to fund the retirement system in 2014-15, the district's rates have gone up by close to $500,000 each year, for an expected increase of $3 million a year by 2020-21.
The budget and the five-year projections do not include any compensation increases beyond those for longevity or additional qualifications, the report says.
The budget report says enrollment is projected to increase by 85 students in 2016-17 to 3,025 and to reach 3,150 by 2020-21.
The district currently has far more than the 3 percent in reserves required by the state of California for a district of its size. However, the report says, that amount of reserves is only about two weeks of payroll. The board's policy is to have a much larger reserve, of at least two months of payroll, or about a 20 percent reserve.
That goal will be met in the 2016-17 year, when the district is projected to have a 21 percent reserve, but the amount would fall to 18.4 percent in the 2017-18 fiscal year and to 12.7 percent in the 2018-19 fiscal year.
Secured property tax is projected to increase by 6.25 percent next year with the projected total for secured and unsecured property tax at $27.24 million. The projected increase is based on a report from the assessor's office that assessed property values have increased by 6.24 percent. The projections are for a 5 percent increase the next year and 3 percent in following years. The report says that model may be changed for a model "more reflective of a 10-year growth period that captures economic fluctuations."
In the past 10 years the property tax growth has varied from 1.4 percent in 2011-12 to 11.1 percent in 2006-7.
State and federal funding
The report shows the district will lose a substantial amount of one-time state funding that it received in the past year, down from $1.9 million to $769,000. The district receives $2.48 million in other ongoing state revenues and $620,779 in ongoing federal funding.
The district's three permanent parcel taxes provide 15 percent of the budget and the Menlo Park Atherton Education Foundation's annual donation another 8 percent. In the long-term projections, the foundation founding is not shown as increasing.
The projections assume three teacher retirements and two teacher resignations each year.
Other increased costs will come from utilities for the new school, projected to add $47,600 in costs for the 2016-17 year and $100,000 in additional special education costs each year beginning in 2017-18.
Revised budget due in December
The report says that some of the assumptions made in the budget may be changed for a revised budget that will be presented to the board in December. The revised budget will look at how the district projects future property taxes, and will contain projections through 2021-22 and contain options for medium and long-term cost reductions.
"These measures may involve potential staff reductions from increased class sizes, changes to educational programs, department reorganizations, or/or compensation adjustments," the report says. It also says the district may seek "additional revenue sources from parcel tax, grants, and donations."
The budget report points out that new accounting rules have added $1.9 million in both revenues and spending to the budget, for the state's contribution to the state teachers' retirement system, which previously did not appear in the district's budgets. The district does not actually receive or spend the money, the report says.
The change makes it harder to compare the upcoming year's budget to previous budgets.