The Santa Monica-Malibu Unified School District (SMMUSD) lost about $8.8 million in state funding last year due to a switch in its funding model.
The state had allocated about $8.6 million in Education Revenue Augmentation Fund (ERAF) to SMMUSD to meet its minimum funding requirement and the district included the funding in its budget. Last November, however, the Los Angeles County Office of Education (LACOE) told the district that the district was not entitled to the funds because it had become a basic aid school district during the 2017-2018 school year and withdrew $8,861,301.26 from SMMUSD’s financial accounts without prior written notice.
Most California school districts cannot collect enough property tax revenue to meet their minimum funding requirement. Basic aid school districts, however, receive enough tax revenue to exceed that requirement and therefore receive little aid from the state. Such districts are typically more affluent, with higher property values.
SMMUSD has been on the brink of becoming a basic aid district for a number of years, said Melody Canady, Assistant Superintendent, Business and Fiscal Services. The district became a basic aid district in the middle of the 2017-2018 school year. LACOE told the district last November that its new status made it ineligible for ERAF allocations and withdrew the funding in January.
The district was not aware that would happen and had already budgeted the $8.6 million, Canady said.
“At no time did the inclusion of ERAF funds in the district’s budgets and reports trigger any warning that basic aid districts are not entitled to ERAF,” she said. “Therefore, the funds were budgeted and then approved by LACOE.”
The district has financial reserves to absorb the impact of the $8.86 million loss, but LACOE’s decision disrupted its medium- and long-term budget planning and efforts to address its structural deficit, Canady added. Last year, SMMUSD was projected to run a $4.2 million deficit in the 2018-2019 fiscal year and $6.2 million the following fiscal year.
In a teleconference with district officials last November, LACOE representatives acknowledged that the agency was unaware that SMMUSD was becoming a basic aid district, even though state tax code states that LACOE is responsible for determining the funding status of the district and reporting it to the Los Angeles County Auditor-Controller before funds such as ERAF might be allocated. LACOE failed to do that, Canady said.
LACOE then agreed to discuss the matter in a future teleconference but never contacted the district again, Canady said. The district then learned in January that LACOE and the Auditor-Controller withdrew $8,861.301.26 from SMMUSD’s general fund without notifying the district. The amount was higher than the $8.6 million discussed in November.
“While the district appreciates LACOE and the Auditor-Controller’s efforts to comply with California law concerning ERAF allocations, the manner in which the foregoing actions taken are deeply concerning, unwarranted, and harmful to the district,” Canady said.
The district sent a letter to both agencies that month requesting an explanation for the discrepancy between the $8.6 million and the $8.86 million and why the district continued to receive ERAF allocations despite becoming a basic aid district during the 2017-2018 school year. The letter also asked for an explanation as to why the district must return the ERAF allocations in full given that it did not become a basic aid district until the middle of the 2017-2018 fiscal year.
LACOE and the Auditor-Controller have yet to reply to the letter, Canady said.
The SMMUSD Board of Education will discuss the matter at its Thursday meeting.