Although the economy is said to no longer be in recession, the stock market is strong, and there are various positive signs in the housing, employment and business sectors, the city of Arcadia and the school district appear to be headed into their most challenging budgets of this economic downturn.
by Scott Hettrick
A recent five-year forecast by the city projects a budget deficit of $2.3 million for 2011/12 and another three years thereafter with deficits of $1.8 mil., $2 mil., and $1.5 mil. The picture is even worse for the school district. Preliminary projections by the school district that are not yet officially released indicate significantly bigger funding gaps than the city for the next two years, which could lead to teacher layoffs, increases in class sizes, and/or a reduction in the number of school days. All of these budget deficit projections are preliminary and do not include multiple bits of data that could make the figures look worse or a little better.
Why would cities and schools be doing worse just as the overall economy is improving? Cities and schools have been minimizing the impact of the economic downturn by putting band-aids on major shortfalls the last couple of years, and using emergency funds that are drying up just as more cutbacks are about to hit.
There are also many major unknowns at this point, such as how much of Governor Brown’s proposed state budget will be approved or revised. Will the city lose its redevelopment funding? Will California taxpayers vote to extend expiring sales and vehicle license taxes?
The school district is in the most precarious position at the moment, as was the case two years ago. That’s because the teacher’s union requires that any teacher to be laid off for the following school year must be notified by the previous March, well before the district will have enough information to forecast next year’s budget with any degree of accuracy. Exacerbating the challenge is that the district has to prove that its financial plan will be viable for the next three years. One key missing component will be the critical ballot issue about tax extensions that, if extended, could spare some teacher jobs. But that issue isn’t expected to go before voters until June. If those extensions are not approved, the school district may have to reduce its budget by another 20%, according to school board member Joann Steinmeier. And that would be on top of a similar reduction the school has already had to absorb over the last three years. Meanwhile, federal stimulus money from President Obama’s administration that kept some teachers from being laid off comes to an end next year. Further, for the last couple of years school employees voluntarily contributed 1.5% of their salaries to cover shortfalls. As agreed, the district has begun restoring those salary contributions, meaning those savings will no longer be available just as more cuts are coming. And the emergency reserves have already been tapped so much that the available rainy day fund has dropped from 12% to only 4%, a level at which it can no longer be tapped, Steinmeier said.
So, as happened two years ago, the district may be forced to prepare for the worst and send out pink slips in March, only to potentially rescind some of the them later this summer. In the meantime, the district must prepare spending budgets for multiple scenarios, even the best of which will likely result in some cuts. Additional major adjustments must also be considered, such as reducing the number of school days, slightly increasing class sizes (which will mean teacher layoffs), and even potentially proposing a parcel tax, a special real estate tax on local property owners to cover shortfalls in the school budget. About 25% of schools in California have instituted a parcel tax, but getting such an additional tax passed by two-thirds of voters in this economy, especially if it were to be placed on the same June ballot as a couple of other tax extensions, could prove difficult.
Throughout the rest of the city, various departments are being asked to consider all possible scenarios for reducing city costs, which could include providing fewer community services and cutting back hours of operation of the library, for example. Our city and school district leaders will continue to work their magic in finding ways to make all of this as painless and invisible as possible to most of us. But it’s important for all of us to be aware of the challenges facing them and to be aware that our belts may still have to be tightened one more notch before we can breathe easily again.
— By Scott Hettrick