The dark cloud that loomed over San Diego Unified’s operating budget in the last few years had largely cleared.
District leaders this summer touted the passage of a “balanced” $1.4 billion budget and doled out more employee raises they said they could afford thanks to hard choices and layoffs in recent years that helped eliminate a structural deficit that topped $120 million in 2017. Extra state funding from Gov. Gavin Newsom for pensions, special education and cost-of-living increases also boosted revenues by millions this year.
But district records show not all is rosy on the financial front.
After a couple good years, the budget imbalance that left district in dire straits before has resurfaced, and the shortfall between revenues and expenses is again growing with no relief in sight.
Operating revenues are expected to come up nearly $38 million short by the end of the current fiscal year. One-time reserves will help close the gap. Soon district leaders will need to cobble together a plan to trim at least $58 million in expenses from next year’s budget, according to budget projections.
It turns out those across-the-board 3.7 percent raises for San Diego Unified’s 10,500 employees blew up the district’s balanced budget and created a big new structural deficit – adding $45 million in annual operating costs for next year.
Without the raises, district leaders could be eyeing cuts closer to $13 million for 2020-21, though district spokeswoman Maureen Magee said it would be wrong to attribute the projected deficit to the raises alone.
“You might just as easily say the rise in pension costs, special education spending, or health care costs – all of which increased about the same amount as employee compensation – are responsible for the possible budget shortfall,” Magee wrote in an email. She said the new ongoing state dollars for cost-of-living increases this year totaling 3 percent and one-time pension relief money made the district’s latest raises possible.
“In other words, the raises were paid for by the state budget adjustments,” Magee wrote.
But county education officials told district Superintendent Cindy Marten in a July 30 letter the district’s deficit would rise because of the new employee pacts, and put new strain on the already strapped budget.
“The proposed agreements will increase deficit spending in the current and two subsequent fiscal years,” wrote Brent Watson, executive director of district financial services for the County Office of Education. Deficit spending “can create future financial difficulties. The (state’s) Local Control Funding Formula is at full implementation and increases in the CalSTRS and CalPERS employer contribution rates, step and column salary increases, and higher contributions to special education quickly outpace projected growth in revenue in future years. We encourage the district to identify and implement ongoing expenditure reductions to maintain minimum reserves and fiscal stability in future years.”
Magee said the district hasn’t decided how to pay for the raises and close its budget hole projected for next year.
“It would be premature to speculate on actions the district might take until the state budget is proposed in January,” she wrote.
The district told the County Office of Education on a bargaining disclosure earlier this year, “The District is committed to maintaining a balanced budget and is currently working on solutions to solve for shortfalls in the out-years. Possible solutions include advocacy efforts and program adjustments/efficiencies.”
Here’s how the district’s finances have fared historically after officials closed the books, and the $38 million gap projected for the end of 2019-20, according to the district’s unaudited actual budget reports from 2008 to present.